More disposals dent profits at Lex Service

The recession in the UK car market was underlined yesterday when Lex Service, the motor retailer, announced lower profits and plans to sell a further 28 dealerships.

A pounds 9.8m provision to cover the cost of the disposal programme meant Lex's pre-tax profits fell from pounds 42.4m to pounds 32.1m. The company sold 86,000 new and used cars in 1995, about 5 per cent fewer than in 1994, and warned that there were no clear signs of any recovery in the market.

But David Leibling, corporate affairs director, said: "No further provisions are expected in 1996. We are confident that all the necessary action to refocus the group has now been taken and all the group's divisions are now pointing in the right direction."

Stripping out the exceptional charge, the underlying profits were in line with City forecasts, though some analysts have cut their 1996 figures from pounds 60m to pounds 54m.

Lex expects to net about pounds 40m from the sale of the dealerships, reducing gearing by between 10 to 15 per cent from its current 35 per cent. Lex's strategy has been to concentrate on higher value products such as trucks and fork lifts. The move will leave the group with about 60 national car outlets.

Mr Leibling said: "This latest divestment programme will leave the group much more clearly focused with a strong core base of dealerships with a wide range of franchises." About 10 dealership sites are currently under offer.

Last year's purchase of the Multipart group and the development of the truck and van dealerships helped the division turn in another record performance. A total of 3,100 trucks were sold in 1995, six per cent of the market.

Car retailing now accounts for about a quarter of group profits and in the 12 months to end of December operating profits from this division fell from pounds 16.5m to pounds 13.2m as falling private car demand and lower margins hit profitability.

Industry figures show that private new car sales last year fell 6 per cent, and total new cars in January were a disappointing 0.3 per cent higher than the same month in 1995.

All car dealerships are feeling the pressure, and early this month European Motor Holdings became the latest to issue a profits warning that sent the shares plunging 18 per cent.

Lex is paying a final dividend of 9p making 15p, compared with 13.7p (adjusted) in 1994.