10:17 am, June 4, 2020
Lookers are in crunch talks with a consortium of four banks to secure their future as they delay their annual results once again.
Results – originally due to be released on March 11 – for last year have been delayed again amid rumours auditors won’t sign off the company as a ‘going concern’ until negotiations with banks are complete.
Lookers – like most car dealers – have breached their banking covenants during the Covid-19 crisis, but unlike stronger competition the group was in poor shape going into the crisis.
Auditors will not sign off accounts and confirm businesses can survive unless they are completely confident they can, and with Lookers that currently isn’t possible.
Mike Allen, an analyst of the motor retail sector for Zeus Capital, told Car Dealer Magazine that Lookers was also dealing with two very ‘large and serious issues’ with fraud and the FCA.
He said: ‘This has been an extraordinary period for the sector and Lookers. They went into this with problems and there will be concerns across the sector from auditors about signing firms off as a going concern.
‘They will be a worry that if there is a second spike in coronavirus and businesses are locked down again how car dealers will survive. This isn’t just car dealers, it is all industries.’
Lookers announced this morning that its accounts for last year would hopefully be released by the end of June, but that could be pushed back as far as August.
Allen believes this is so the banks can be satisfied with the fraud investigation first.
He added: ‘The banks need to be happy that the investigation is complete and that it won’t cause further problems. The investigation identified finance control problems and culture issues and banks will want to be assured Lookers won’t make the same mistakes again.
‘I think Lookers will get through this and the cuts announced today will ensure the business is in better shape.’
Mike Jones, chairman of accountancy firm ASE Global said he believed the results have been delayed ‘until they have got banking covenants sorted’ and added that this was for ‘going concern purposes’.
Directors have a personal liability to sign off paperwork that confirms their company is a going concern – effectively trading with liquidity and not in such a way that will cause eventual collapse.
Chief executive Mark Raban, who joined the company in July last year and only took over as CEO in February, is likely to be understandably nervous about the personal guarantee while banking negotiations are ongoing.
Jones added: ‘Lookers is hoping to publish their annual results at the end of June, subject to the audit being finalised and the auditors reviewing the fraud investigation report, and the key agreement of certain amendments to their banking covenants.
‘Covenant adjustment is an issue across the sector given the impact the lockdown has had on financial performance and, as with all businesses, reaching a sensible agreement on these to account for Covid disruption will be vital to trading in the short to medium term.’
Commenting on the 12 dealership closures and 1,500 job losses Lookers announced this morning too, Jones said the board had clearly been using the lockdown down time to plan for the future.
He added: ‘Lookers has clearly used the lockdown period to have a long look at the business, work on its internal processes and develop a business fit for the future.
‘I’m guessing that the closures will be focussed on Lookers’ volume operations, which is sensible given the market aspirations of those brands.
‘While the crisis has been really tough for all businesses to deal with, it may have provided some welcome breathing space for Lookers to look at its operations and processes.’
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