Financial Strength of Lookers Plc: Analysis and Comparison

Financial Strength
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EXECUTIVE SUMMARY
Lookers Plc. announced their new strategy for 2019 to embark the competitive advantages
against the automotive market.
In 2018, Lookers Plc.’s profit before tax is £67.3m, slightly decreased 1.6% YoY (2017:
£68.4m), revenue increased to £4.9bn (2017: £4.7bn). Their used car volume growth offsets
margin pressure
and continued strong growth in aftersales division. Furthermore, Lookers had adjusted earnings
per share to 14.68p from 14.57p in 2017, final dividend increased by 5% per share
(Lookersplc.com., 2019). Taken together with its strong financial performance and position,
shows Lookers is a competitive company in the market. In 2018, Looker’s ROCE is 11.2%,
recorded 1.72% points down compare with 2017, the fall was caused by cost inflation in
property, salaries and investment to improve dealerships, but it is still an impressive return
compared with Pendragon’s ROCE at
-2.1% in 2018.
Looker’s business has significant transformation and developments in recent years. To align with
their business strategy, they closed two underperforming businesses, the Vauxhall dealerships at
Warrington and Yardley in March 2018. In October 2018, they also closed Hyundai and Nissan
business in Motherwell to reduce cost. Besides, they acquired a Ford dealership in July 2018
which complements the larger representation of Ford in Essex and acquired the Jennings Group
for a gross payment of £10.1m. Because of the acquisitions, it incurs reorganization costs of
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these changes. It has been earnings neutral this year and the group expected a modest
contribution to earnings in 2019 (About Lookersplc, 2019)
Introduction
Lookers Plc. are looking for a new Operations Director, as a recruitment specialist, this report
aims to provide information and analysis to the client who interested with this position.
This report provides recent market position and financial strengths of Lookers Plc, in order to
compare Looker’s performance with that of Pendragon whether to be a good career and financial
move to this senior management position of Lookers Plc. The package would include stock
option, and this would also be a key factor to consider the total package. The CORE Strategic
Financial Analysis Model would apply for elaborate key ratios to compare Lookers Plc and
Pendragon Plc.
External Context
PEST analysis is political factors, economic factors, social factors, technological factors.
Following is a detailed PEST analysis of Lookers plc:
 Political factors: Lookers plc is a wide retail company operating in more than dozen
countries, therefore, it is important to study effect of various political factors on company
and its operations. Example of political facrtors affecting company are political stability,
risk of military invasion, level of corruption, bureaucracy, legal framework for contract
enforcement, pricing resulations, etc.
 Economic factors: These relates to economic factors like infaltion rate, savings rate,
foreign excgange rates, etc. Lookers plc is affected by various economic factors such as
type of economic system, market structure, operational level of financial markets,
competetive advantage, etc.
 Social factors: A company is operating within a society, therefore, there are various
social and cultural factors that effect the culture as well as operations of an organisation.
In case of Lookers plc, example of social factors are demographic and skill level of
people, hierarchy of power structure of society, and various other demographic features.
 Technological factors: In dynamically changing business environment, one thing is
constant and that is continuously updating technology level. Therefore, it becomes
necessary to study effect of this change on an organisation. Technological factors that are
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affecting Lookers plc are recent technological upgradation adopted by competetiors,
impacrt of technology on product offered, rate of technology diffusion, etc.
Internal Context
SWOT analysis refers to study about strength, weakness, thretas and opprtunities posed to
organisation. In case of Lookers plc, following results are drawn from SWOT analysis:
 Strengths: It has a very strong point of strong distribution network, solid and reliable
base of supplier, possess stromg product portfolio, early adoption of upgraded
technologies.
 Weakness: One of the biggest weakness og company is that they invest more in the
channel, i.e. unnnecessary holding of inventory. As compared to their competitors, they
are inevsting very less in research and development department.
 Opportunities: There is a chance of cutting their cost of production as there is a
forecasting of decline in transportation cost. This is a great opportunity of boosting
company’s profitability. There is a hidden opportunity in face of permission of fre trade
market. This opportunity can be exploited to enter in a new market and hence, increase
their profitability.
 Threats: There is threat to organisation of decline in productivity due to shortage of
labour. It can also be subject to risk of currency fluctuations as the company is operating
in numerous separate countries. Emerging trend of online business is a serious threat
posed to business as it is putting a serious impact on consumer behaviour.
Ratio analysis is done to measure and interpret results drawn in financial statements. This
analysis tool provide an assistance to managers to draw appropriate strategies for
organisation.
Profitability ratios: Under this category of ratios, analysis is done over the profits earned by
company at different points, for instance, gross profit ratio, net profit ratio (Chandra, 2020).
Under it, different kinds of ratios are computed and some of them are explained below :
 Return on Capital employed: EBIT/Capital employed
(amount in $, in million except ratio)
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