Car dealership’s top team steps down as trading slumps
Altrincham motor dealership Lookers has announced its chief executive and chief operating officer are both stepping down with immediate effect.
The news has come amid falling profits and an ongoing investigation by financial authorities. The firm has slashed its profit forecast by almost half.
A search for permanent replacements for Andy Bruce and COO Nigel McMinn has begun.
In the meantime, chairman Phil White has agreed to become executive chairman and Richard Walker, currently a non-executive director, will assume a part time executive role, both to take effect from today.
The changes are in the wake of a tough trading period for the company, which operates 165 franchised dealerships representing 31 manufacturers from 110 locations.
Lookers expects to report underlying profit before tax for the full year of approximately £20m, down from £63.7m in 2018.
The departures come just months after the launch of an investigation by the City watchdog which sent shares in the firm crashing.
The firm is facing a Financial Conduct Authority investigation into the way it sold financing plans as far back as 2016.
Lookers was founded 110 years ago in Manchester, and is now one of the biggest dealerships in the UK.
In early July the group issued a profit warning, blaming uncertain market conditions and a decline in the new car market.
And in its trading update for the third quarter period ending September 30, it said these challenging conditions have continued, particularly in the weeks since mid-September.
Phil White said: “It is disappointing to report this downturn in trading, but we have taken action to drive the future financial performance of the group.
“The board is resolute in its determination to restore the group’s fortunes with market-leading practices in the sector.”
He added: “I would like to thank both Andy and Nigel for their significant contributions to the group since joining and wish them both well in the future.”
Andy Bruce said: “After nearly two decades with Lookers, it is now time for me to move onto new ventures and allow new leadership to take the business into its next chapter.
“I am extremely proud of what we have achieved in building the group into one of the leading car retailers in the sector and I am confident that the talented people in the business will continue to take the business forwards. I wish them all the best for the future.”
Nigel McMinn said: “I have enjoyed helping to build the business at Lookers and working with a great team of people.”
Andy Bruce has held a number of roles in the group since joining in 2000, appointed to the board in 2002 and becoming CEO in 2014.
Nigel McMinn joined the group as a director in 2013, becoming COO in 2017.
Both Andy and Nigel will remain available to the group until December 31, 2019 to ensure an effective transition.
Reporting on the third quarter period, Lookers said tough trading conditions have been driven by ongoing weakness in consumer confidence in the light of political and economic uncertainty, pressure on used car margins and retail cost inflation.
It said it expected these conditions to continue to impact the group during the second half, but trading, particularly over recent weeks since mid-September, has been much more challenging than expected.
As a result, and reflecting the board’s caution about the outlook for the remainder of the year, it now expects to report underlying profit before tax for the full year of approximately £20m.
It said in light of the ongoing market challenges, the board has accelerated its portfolio consolidation to drive the future financial performance of the group.
Trading in new vehicles during the period was below the board’s expectations.
In Q3 the group recorded a -3.2% (H1 -1.2%) decline in like-for-like unit sales of new cars.
This compared to a market decline of -0.6% (H1 -3.4%).
September is normally one of the most profitable trading months of the year. Despite the level of orders for new cars both before September and in the first half of the month being satisfactory, Lookers said it lost momentum as the month progressed and had a much weaker than expected finish.
Like-for-like unit sales to retail customers declined by -11.5% in the period, being particularly impacted by the group’s volume brands.
The group also experienced margin pressure leading to total gross profit from the sale of new vehicles during the period to be around £7m below last year.
The used car market has remained relatively stable during the period.
Like-for-like unit sales of used cars increased by 2.6% (H1 +2.0%).
In the first half used car gross margins were 60 percentage points below last year and, although remaining below last year, gross margins showed some improvement in the third quarter.
The group’s higher margin aftersales business continued to perform broadly as anticipated. Like-for-like gross profit was 2.9% above last year during the period.
The board accelerated its portfolio consolidation to drive the future financial performance of the group.
Working closely with its brand partners, the group identified 15 dealerships for closure and, where possible, relocation or consolidation into existing dealerships in adjacent territories.
The board believes that, as well as driving financial efficiencies, this will facilitate an enhanced customer experience in line with the group’s strategy of partnering with the right brands in the right locations. With the exception of two dealerships, all will be closed by December 31.
One-off closure costs are expected to be approximately £8m, including around £2m of non-cash items. Financial efficiency benefits, together with elimination of losses, are expected to be in the region of £3m on a full year proforma basis.
Nine of the sites to be closed are owned on a freehold basis. These sites and an additional four surplus legacy freehold sites will be sold and are expected to realise total proceeds of around £28m, which in aggregate is above book value.
As reported in the group’s interim results statement, following an independent review of its regulated activities, the board implemented a plan to improve the group’s internal control, risk assurance systems and internal audit.
The plan requires a one-off investment of around £10m as well as an ongoing £3m, approximately, per annum to deliver best practice and an enhanced customer experience. The improvement plan is progressing as expected and will be implemented by the end of 2019.
In June, shares in Lookers fell by almost a quarter after it revealed it was to be investigated by the Financial Conduct Authority over its sales practices.
The following month its chief financial officer, Robin Gregson, announced he was stepping down after 10 years in the role.
The group said today: “As announced on 25 June 2019, the group was informed by the FCA (Financial Conduct Authority) that it intends to carry out an investigation into legacy sales processes between the period 1 January 2016 to 13 June 2019.
“Following discussions with the FCA in October, that investigation has now commenced and is in its initial planning and fact-finding phase.
“The group continues to fully support the FCA in its investigation but, at this stage, we are unable to predict what, if any, impact the outcome of the investigation may have.”
Lookers said its balance sheet remains underpinned by a strong property portfolio.
As at June 30, 2019, the group held £312.1m of freehold and leasehold property, equivalent to 80p per share.
The group’s bank facilities consist of a revolving credit facility of £250m with a term to March 2022.
Net debt, as at June 30, 2019, was £73.9m (31 December 2018: £86.9m) representing 0.9 times EBITDA.
Lookers said: “The group remains focused on driving cash flow through improved working capital management, tighter control of discretionary costs, additional capital expenditure discipline and disposal of surplus property.”
Russ Mould, investment director at Manchester investment platform AJ Bell, said: “The car industry seems to be going from bad to worse judging by the latest profit warning from retailer Lookers.
“A severe downgrade to earnings expectations and the departure of its chief executive and chief operating officer follow previous earnings warnings and a probe by the financial regulator into past selling practices.
“So much bad news is piling up at Lookers that it isn’t really a surprise to see the board want new leadership.
“Chief executive Andy Bruce and COO Nigel McMinn have being trying to keep the business on the road during one of its most difficult periods in history with weakness across the UK car sector.
“But it is perhaps time for a different skillset considering the sector’s turmoil is unlikely to improve in the near future and the regulator’s probe has only just got going.
“In times of strife you need someone who is prepared to make very bold decisions to stop the business going into a ditch. But finding someone brave enough to take the top job at Lookers won’t be easy given the headwinds facing the sector.
“Chairman Phil White is stepping up to an executive role until a permanent CEO is appointed and non-executive director Richard Walker is also going to take a part-time executive position as a temporary measure.
“Lookers is now guiding for £20m underlying pre-tax profit for the current financial year. Analysts had previously forecast just over £38m, illustrating the scale of today’s profit warning.
“If you go back to 2016 you’ll see that the business made £77m in pre-tax profit, which goes to show how Lookers has subsequently fallen on hard times.
“However, that year is the start of the period being investigated by the Financial Conduct Authority amid concerns about the way financing plans were sold to motorists.
“There are growing concerns that the car industry could be ‘the next PPI scandal’ if the regulator forces retailers to compensate some car buyers by proving that personal contract purchase (PCP) car financing deals were improperly sold, such as inadequate disclosure around interest rates versus hire purchase agreements.
“If this blows up into a huge mis-selling situation then the whole car industry potentially faces a very large bill at a time when their normal day-to-day business is drying up.”