Lookers PLC Contract Bid Analysis: Business Strategy and Financials

This report provides a comprehensive analysis of Lookers PLC, a UK-based car dealership chain, to assess the viability of a contract bid for a company specializing in providing services to automotive firms. The report begins with an executive summary and introduction to Lookers PLC, including its business strategy, which focuses on strategic brand selection, location, and execution, alongside a detailed SWOT analysis highlighting strengths like a strong distribution network and weaknesses such as lower investment in new technology. The financial analysis examines Lookers' revenue, earnings per share, and cash flow from 2014-2018, revealing increasing revenue and net assets but also highlighting areas for concern. A comparison with Caffyns PLC, a current customer, is also included. The report concludes with a recommendation on whether a competitive bid for the Lookers contract would be a good move, based on the analysis of its market position, financial strength, and strategic alignment.

Case A: Lookers plc
EXECUTIVE SUMMARY

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The contract for supplies to Lookers Plc is of utmost importance to the company for our future
prospects. If we are able to get our hands on this deal/ contract, then it will be great for the
company. Lookers Plc based in the United Kingdom and Ireland is a car dealership chain. It’s
based in Altrincham and represents many motor brands, listed in London Stock Exchange. Over
the years, Lookers Plc has modified the ways of carrying on business in the consumer services.
Lookers also engages in agricultural and leasing businesses through the retail clientele. The
company is a small sized cap stock with a market capitalization of £ 382m. To begin with, we
shall analyze the market position of the company and it’s financial and accounting data, to get a
better understanding of its prospects.
CASE A: LOOKERS PLC- TABLE OF CONTENTS

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1. Introduction…………………………………………………………………....3
1. Looker’s Business Strategy…………………………………………………...4
2. Looker’s SWOT Analysis……………………………………………………...6
2. Looker’s Accounting and Financial Process…………………………………8
3. Lookers vs. Caffyns Plc……………………………………………………….15
3. Conclusion……………………………………………………………………...17
1. INTRODUCTION
Lookers Plc. Founded in the year 1908, is a chain leadership dealing in cars and automobiles.
The company has its base in the United Kingdom and Ireland. The company, being listed on
the London Stock Exchange, represents on the multiple car brands. Having its core base in

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Manchester, it also deals with the sale of bicycles, car spare parts and the other accessories.
In order to develop more, the company had acquired numerous garages. The company being
listed on the London Stock Exchange started issuing shares on the stock exchange which was
the ultimate source for the additional funds in the company, thereby enabling it to expand
further. After meeting its expansion policy, the company had successfully acquired lot of
dealerships of the renowned brands to generate more funds in the business.
(Referenceforbusiness.com, 2019) The company, Lookers is one of the outstanding motor
retail groups in the United Kingdom, who also provides after sales services. The company’s
wide range of product offerings include British Leyland makes, adding Talbot, International
Harvester, Vauxhall, Peugeot, Fiat, and Mercedes Trucks. Etc. The brands that the
organization includes are Ferrari, Jaguar, Aston Martin, Audi, Bentley, Land Rover, Lexus,
Toyota and many more. Lookers boasts of growing its existing businesses through a
combination of organic growth, seeking profitable opportunities to increase their revenue and
presence. (Hargreaves Lansdown, 2019)
2. Lookers Business Strategy
Lookers Plc has the business pattern of considering the correct set of brands at the correct
locations with the perfect solution to progress against the strategic business goals. The company,
Lookers Plc.is one of the outstanding automobile retail group of companies in the United
Kingdom, who also provides after sales services. The company deals in new as well as second
hand cars and also the less heavy commercial vehicles , operating in around Ireland. This dealing

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in the sale of new and used cars, vans and its services beyond sales, forms the major source of
generating revenue in the company. The group is dedicated to providing the services, support,
and other expert advice from the purchase till the relevant after sales care. Their strategy is
focused on and even more committed to provide the retail experience to their customers.
Broadly their strategies can be categorized into 3 factors:-
● People-They hire and nurture the best of talents and continuously empower them to
deliver the best experience for their customers
● Marketing-Brand proposition development is their strategy to enhance customer
experience and build reputation with prospective employees, suppliers and shareholders
● Technology-to ensure a seamless experience for its customers, Lookers is striving in an
Omni-channel retail environment. It focuses on best after sales service
The marketing business strategy is generally underpinned by choosing the best brands, the best
locations to establish the business and the utmost important is the smart execution of the
strategies. Lookers Plc aims to benefit from the positivity in the car market cycle. The company
focuses on the best strategic quantum to generate revenues in the company. Lookers’ key
highlights are jotted down as below:
● The company strives to continuously encourage sales for the new cars to speed up its
profit earning system.
● It aims to strengthen its portfolio of franchise relations and the dealerships for growing
further.

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● The company focuses on the digital strategy for the promotion of the business as it
allows the customers to deliberately view the company details at the ease of just a single
click.
Lookers also engages in agricultural and leasing businesses through the retail clientele. The
company’s wide range of product offerings include makes of the British Leyland ,
International Harvester, Vauxhall, Fiat, Peugeot, Fiat, and Mercedes Trucks. Etc. The brands
that the organization includes are Ferrari, Jaguar, Aston Martin, Audi, Bentley, Land Rover,
Lexus, Toyota and many more.
The company followed the strategically way of closely keep a track on its dealership
executives which was the only way they could detect that there was an internal executive
who was indulged in the whistleblowing policy and used to leak out the company policies. It
was a crucial turnaround for the business. The executive involved was immediately fired as
per the policy and strategic norms. (Companieshouse.gov.uk, 2019)
As stated the company was forced to change its strategy from offline to online. The
customers were increasing each day and with the advent of latest technologies, they were
keener on scrolling through their screen instead of visiting the showrooms for the offline
scanning of the products. Moreover, only half of the consumers were willing to still visit the
dealership and ask for a test drive. Others were reluctant to do so and were happy enough in
completing the transaction online.
With this digital conversion of the business, the company was not being able to generate the
profits as was done in the offline dealership.

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Lookers boasts of growing its existing businesses by combining with the organic growth,
looking for the profit making opportunities by increasing their revenues and presence. The
company has an academic record of the successful earnings-enhancing acquisitions and have
been able to produce an average return on investment of more than 15% on the acquisitions
done in the recent years. (Hancock, 2019)
3. Lookers SWOT Analysis
A famous motor retail of UK and after sales service provider, Lookers plc's operations includes
both the Republic of Ireland and all the four popular UK countries. It maintains its dominant
position by continuous evaluation and analysis of its SWOT (Strengths Weaknesses Threats and
Opportunities). (Fern Fort University, 2019) The below table clearly outlines the SWOT analysis
of the company.
Strengths Weakness Opportunities Threats
Strong distribution
network
Relatively Higher
days inventory
Decline in the
transportation costs
because of the lower
shipping charges
Scarcity of skilled
workforce in few
specific global
market

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Reliable suppliers Low investment in
new technology
The new taxation
policy-opening up of
newer opportunities
Changing consumer
behavior
Very successful at
the on going
Marketing
strategies for its
products
Poor forecasts of
products demand-
leading to missing
opportunities
Lower rate of
inflation -resulting in
more market
stability.
Rise in raw materials
prices
Successful
execution of new
projects
Lack of diverse
products range
Government duty
free trade agreement-
enables the lookers
with a chance to
enter new markets
Pay level rise and
the upward going
prices in China can
lead to threats to
profitability
Strong dealer
community
High rate of
workforce attrition
Currency
fluctuations in
politically volatile
climate

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Successful brand
portfolio
4. Lookers Accounting and Financial analysis
Financial analysis is the analytical process by which the performance and stability of a company
can be predicted and analysed on the basis of the financial data of same. It helps in analyzing if
any project, business or an entity is solvent, profitable, liquid and stable enough.
Lookers PLC is a small cap-sized stock having a market capitalization of £ 382m.Presently, the
stock of LOOK is undervalued when it’s growth outlook is factored into its intrinsic value. We
shall evealuate Lookers Plc. financial analysis on the basis of data given in table below:-
Annual Results Year
ending 31
December
2014
Year
ending 31
December
2015
Year
ending 31
December
2016
Year
ending 31
December
2017
Year
ending 31
December
2018
£m £m £m £m £m

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REVENUE 3042.9 3649.1 4281.7 4696.3 4879.5
OPERATING PROFIT -11.6 -13.8 -17.6 -16.3 -18.3
PROFIT BEFORE
TAXATION
59.2 62.8 91.8 58.4 53.1
TAXATION -12.4 -12 -10.5 -10.5 -9.6
PROFIT ATTRIBUTABLE
TO SHAREHOLDERS
46.8 50.8 81.3 47.9 43.5
PER SHARE DIVIDEND 2.84p 3.12p 3.64p 3.89p 4.08p
EARNINGS PER SHARE 12.03p 12.88p 20.51p 12.06p 11.07p
SHARE CAPITAL 19.7 19.8 19.8 19.9 19.4
RETAINED EARNINGS 145.7 185.7 229.6 272.1 286.4

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NET ASSETS 256.9 297.8 341.7 385 399.3
has been taken from (Yahoo, 2014)
As per the data above, we can inter the below observations:-
❖ Revenue has been on the rise from 2014 and has increased 60% approximately since
then, which is quite huge and promising
❖ Earnings per share has increased from 13.52 per share to 14.68 per share, which is also
very promising and in percentage terms is 7.9%
❖ Dividend per share distributed by the company has been on the rise every year from
2.84 per share in 2014 to 3.12 per share in 2015 to 4.08 per share, this is although not
very attractive feature as it could mean that there are no good investment opportunities
for the company to use it’s profits
❖ Net Assets of the company have experienced an increase of 35.66% from £256.9m to
£399.3m over a period of 5 years from 2014-2018
❖ Retained Earnings has also been on the rise over the same period, with% rise being as
high as 96%.(eCoinValues.com, 2019)
With the help of the data in the table below, we can analyze Lookers' cash flow statements over
the last 4 years to understand it’s liquidity and solvency situation:-

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Currency in GBP. All numbers
in thousands
Period ending 31-12-2015 31-12-2016 31-12-2017 31-12-
2018
Net income 50,800 81,300 47,900 43,500
Depreciation 18,300 21,500 20,700 20,600
Adjustments to net income -3,900 -1,09,000 -19,000 -5,200
Changes in accounts receivable -73,200 27,600 -16,100 48,900
Changes in liabilities 2,89,900 93,200 1,43,000 -60,400
Changes in inventory -2,67,200 -23,400 -1,44,700 1,400