Problems continue to mount for British car dealership Lookers, as the London-listed firm today said it expects costs to rise as it tries to address problems found with its sales practices.
The small cap firm this morning posted a sharp drop in profit for the first half of the year, after car sales were affected by stricter emissions regulations, Brexit uncertainty and a customer shift towards electric and hybrid cars.
Lookers was founded 110 years ago in Manchester, and has grown to be one of the biggest dealerships in the UK. It sells cars for manufacturers including Volkswagen, Ford and BMW.
Pre-tax profit was £24.9m for the first six months of the year, down 39.7 per cent on the same period in 2018. Revenue rose 2.7 per cent to 2.6bn.
New car sales were down 1.2 per cent on a like-for-like basis, though this was still stronger than the market average of a 3.4 per cent decline.
The interim dividend to shareholders remained unchanged at 1.48p, while basic earnings per share fell 41.3 per cent to 5.2p.
Net debt spiralled 35.6 per cent to £73.9m.
Why it’s interesting
Lookers warned profits would fall last month, after it suffered from “weaker demand” for its new and used cars. The British new car market shrunk 4.1 per cent in July, its fifth straight month of decline, according to the Society of Motor Manufacturers and Traders.
The profit warning came shortly after arch-rival Pendragon, which said in June that it expected “significant” losses in the first half.
To compound Lookers’ headaches, the Financial Conduct Authority said in June that it was investigating the company’s sales processes between January 2016 and June this year. This morning, the dealership said it would make a one-off investment of £10m into improving its sales processes over 2019 and 2020.
Costs will then rise by about £3m a year after 2020, for a plan that will include reviewing its past business, revising its sales process and putting new quality checks in place.
Read more: Car industry investment grinds to a halt
What Lookers said
Chief executive Andy Bruce said: “Our performance for the first half reflects an ongoing backdrop of challenging UK market conditions for the sector. Whilst we are reporting lower profits year-on-year, we have made good progress on a number of strategic initiatives and have a clear investment plan to restructure and strengthen our regulated activities.
“Working closely with our brand partners I am confident in the long-term prospects for the business. The board’s current outlook for the full year at the underlying profit before tax level remains unchanged.”
Main image: Getty