Shares in troubled car retailer Lookers (LOOK) rallied 8.9% to 25.4p on Thursday, after the Manchester-based group announced plans to close 12 more sites and unfortunately, make 1,500 employees redundant.
While the lay-offs are devastating for the staff involved, the radical restructuring will help Lookers, which reportedly spurned a potential merger with Pendragon (PDG) in May, to conserve cash and emerge intact from the COVID-19 crisis.
REOPEN FOR BUSINESS
The motor trader and aftersales service provider re-opened its dealerships on Monday 1 June, in line with Government guidance. It resumed selling new and used cars and providing after sales service, ‘albeit at lower than normal capacity levels’.
Supported by online upgrades to improve the experience for consumers, in the past fortnight Lookers has taken retail orders for 2,865 new and used vehicles. On a like-for-like basis, that represents roughly half the level of sales achieved for the same period last year.
Understandably, management believes it is too early to give any reasonable guidance for 2020 and beyond due to the uncertainties created by the pandemic.
Indeed, according to the Society of Motor Manufacturers and Traders (SMMT), UK new car sales tumbled by an annual 89% in May, only slightly less negative than the 97% collapse witnessed in April, as dealerships were hit by the coronavirus lockdown.
New registrations of 20,247 units marked the weakest May for sales since 1952, said the SMMT.
PRUNING BACK THE PAYROLL
In today’s update, Lookers also said it has identified a further 12 dealerships (including 7 freehold sites) for either closure, consolidation or refranchising. Once this restructuring completes in the second half of 2020, Lookers will be operating from a portfolio of 136 dealerships.
Given the likelihood of lower demand, a smaller dealership estate and the structural changes taking place across the car industry, Lookers has begun group-wide consultations which could result in around 1,500 redundancies. This significant restructuring could shave £50m from the annual payroll.
Lookers, which ‘continues to enjoy the benefits of a strong property portfolio’ with an adjusted net book value of £325m or 83.3p per share at last count, will also absorb a one-off cash restructuring hit of £9m.
This has been a turbulent time for Lookers. Back in March, the company delayed its results for the 2019 calendar year after identifying ‘potentially fraudulent transactions’ in one of its operating divisions – the full year figures will be published by the end of June.
Grant Thornton’s probe is nearing completion and a further update will be provided once the final findings of the investigation are known.
‘The initial findings of the investigation have highlighted areas where financial controls require strengthening to prevent a repetition of such accounting irregularities in the future,’ said Lookers.
‘In addition, the investigation has highlighted the need for Lookers to further strengthen some behavioural and cultural aspects relating to its control environment. Robust remediation activity is in progress.’