TIDMLOOK
RNS Number : 4445G
Lookers PLC
25 November 2020
25 November 2020
Lookers plc ("Lookers" or the "Group")
2019 AUDITED FINANCIAL STATEMENTS
Lookers plc, one of the leading UK motor retail and aftersales
service groups, has today published its annual financial reports
comprising the audited financial statements, management report and
responsibility statements for the financial year ended 31 December
2019 (the "Year", "FYR" or the "Period") (the "Annual Report
2019").
Key financials:
FYR 2019 FYR 2018*
Revenue GBPm GBP4,787.2m GBP4,828.3m
------------ ------------
(Loss)/profit before (GBP45.5m) GBP41.9m
tax GBPm
------------ ------------
Underlying profit before GBP4.2m GBP42.8m
tax GBPm **
------------ ------------
Underlying earnings per
share (p) ** 0.87p 8.78p
------------ ------------
(Loss)/earnings per share
(p) (10.69p) 8.26p
------------ ------------
Total dividend per share
(p) 1.48p 4.08p
------------ ------------
Net debt GBPm *** GBP59.5m GBP85.9m
------------ ------------
*The 2018 previously audited and published financial results
have been restated to reflect the impact of adjustments arising
from the Grant Thornton investigation and internal review, IFRS 16
and voluntary presentational changes.
**Underlying profit before tax is profit before tax and
non-underlying items. Underlying earnings per share is
(Loss)/earnings per share after tax and before non-underlying
items.
*** Bank loans and overdrafts less cash and cash equivalents,
excluding stocking loans and lease liabilities under IFRS16.
2019 Results Summary:
-- The audited 2019 results published today reflect the
additional work carried out by Grant Thornton UK LLP, our internal
team and our auditor, Deloitte LLP.
-- Total revenue for the year was GBP4,787.2m (2018:
GBP4,828.3m) driven principally by the total 5.0% increase in used
car revenue and a total 6.7% increase in aftersales revenue.
-- Adjustments identified as relating to 2019 reflect
adjustments to previously unpublished results, and adjustments to
2018 and earlier reflect adjustments to previously published and
audited results.
-- A total of GBP25.5m of non-cash adjustments are necessary to
correct misstatements in PBT over a number of years.
-- Adjustments reduce PBT by GBP10.9m in 2019 and GBP7.2m in
2018 with the balance cumulatively decreasing PBT by GBP7.4m in
2017 and earlier.
-- Statutory loss before taxation of GBP45.5m compared with a
profit before taxation of GBP41.9m in the prior year.
-- Despite the impact of the adjustments and as previously
indicated, 2019 remains profitable at the underlying PBT level
GBP4.2m (2018: GBP42.8m).
-- Net total non-underlying charges for the year totalled
GBP49.7m (2018: GBP0.9m) reflecting significant restructuring
activity, non-cash impairment charges, gain on property disposals
and a provision of GBP10.4m for potential liabilities arising from
the ongoing Financial Conduct Authority (FCA) investigation.
-- The investigations identified a cash expenses fraud which led
to a loss of GBP327k in a single division and which accumulated
over several years.
-- As previously announced, no final dividend for 2019 was recommended.
-- Continued strong focus on cash management reduced net debt to GBP59.5m (2018: GBP85.9m).
2019 Operational Summary:
-- Difficult but necessary decisions made to implement the right
dealership portfolio and staffing profiles, which led to site
closures and the unfortunate redundancy of a number of our
colleagues.
-- Decisive restructuring activity commenced continuing into the
current financial year to reduce costs to sustainable levels.
2020 Trading and Outlook:
-- Temporary closure of the Group's dealerships throughout the
initial lockdown had a significant impact on financial performance,
with the Group expecting to report a material underlying loss
before tax in H1.
-- Trading in Q3 was better than expected with underlying PBT
significantly ahead of last year.
-- Q4 will benefit from the full impact of the Group's
restructuring activity although the financial performance for the
remainder of the year will inevitably be impacted by the closure of
our dealerships under the second lockdown in England which
commenced on 5 November 2020, and any further regional
restrictions.
-- The Group's net debt has improved during the year and was
GBP54.4m at the end of October (GBP59.5m at end December 2019). The
Group has recently agreed revised covenants with its banks and is
currently in discussions to refinance its GBP250m banking
facilities which are in place until March 2022.
-- Despite resilient liquidity and before mitigating actions,
ongoing uncertainties of COVID-19 and Brexit mean severe but
plausible downside sensitivities indicate material uncertainty
regarding going concern.
-- Activity is underway to enhance systems, controls and
policies and procedures to prevent recurrence of the issues which
led to the adjustments to our accounts.
-- The Group will publish its full Annual Report and Accounts
for the year end 31 December 2019 within two working days.
-- The Group will publish its interim results for 2020 as soon
as possible in December and expects to submit a request to the FCA
seeking to restore the listing of the Company's shares after the
publication of its interim results.
Phil White, Executive Chairman said:
"The last twelve months has been extremely challenging for
Lookers with the ongoing impact of COVID-19 and the accounting
issues. Significant restructuring activity has been necessary to
ensure we lay the right foundations for the future. On behalf of
the Board I would like to thank all of our employees for their
efforts and our wider stakeholders for their patience and ongoing
support. Despite our recent challenges, we are extremely proud of
how our people have responded, showing real dedication and
flexibility particularly through maintaining critical vehicle
servicing for key workers who have needed to remain on the
road."
" The Investigation into our financial systems and accounting
controls, the delay in the publication of our 2019 results and the
subsequent temporary suspension of our shares have been a great
disappointment. As Chairman of Lookers, I would like to apologise
unreservedly to all our stakeholders for the uncertainty this has
caused. "
"We emerged from the initial lockdown in a strong position and
are well equipped to deal with the second lockdown in England. We
have an industry leading portfolio, underpinned by a talented and
dedicated team which means that we can look to the future with
confidence."
"My focus now is to restore the listing of our shares and to
strengthen the Board to take advantage of the many opportunities
that lie ahead for Lookers, which is fundamentally a great
business."
Publication of 2019 statutory accounts
The financial information for the year ended 31 December 2018 is
derived from the statutory accounts for that year, which have been
delivered to the Registrar of Companies and which have been
subsequently restated. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain a statement under s498(2) or
(3) of the Companies Act 2006.
The statutory financial statements for the year ended 31
December 2019 will be filed with the Registrar of Companies
following a General Meeting to approve those accounts. The report
of the auditor dated 25 November 2020 was unqualified and did not
contain a statement under s498(2) or (3) of the Companies Act 2006,
but did include a section highlighting a material uncertainty that
may cast significant doubt on the Group and Company's ability to
continue as a going concern given the possible impact of the
COVID-19 pandemic and the effect of Brexit on both customer
confidence and the Group's supply chain.
In compliance with paragraph 9.6.1 of the Listing Rules, a copy
of this document has also been submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information:
Phil White, Executive Chairman Via MHP Communications
Mark Raban, Chief Executive Officer
MHP Communications
Charles Hirst, Alistair de Kare-Silver Tel: 07551 170 451
Email: Lookers@mhpc.com
STRATEGIC REVIEW SECTION
CHAIRMAN'S STATEMENT
Introduction
2019 was a difficult year for Lookers. The Group faced a series
of sector-wide challenges including a declining new car market,
Brexit-related political and economic uncertainty and increased
operating costs.
These challenges were compounded during 2020 by the lockdown of
our business for over two months in the face of the global COVID-19
pandemic and subsequent restrictions. This pandemic and the
eventual return to normality pose considerable uncertainty for the
motor retail sector and the wider global economy.
In addition to this we delayed the publication of our 2019
financial results as we identified potentially fraudulent
transactions in one of our operating divisions. In conjunction with
Grant Thornton LLP (Grant Thornton) the Board immediately commenced
a two-stage investigation (The Investigation). Initially the first
stage conducted by Grant Thornton reviewed the operating division
concerned and subsequently the Board extended the work performed by
Grant Thornton and also implemented an extensive internal review.
This process has now been completed to the Board's
satisfaction.
The Investigation and review identified a number of historic
adjustments required to the income statement and balance sheet.
These items gave rise to an additional net cumulative one-off
charge of GBP7.4m in the periods up to and including 31 December
2018, a net one-off charge of GBP7.2m in the year to 31 December
2018 and the restatement of the balance sheets at those dates. As a
consequence of these the Group's prior year results have been
restated. Further details of this restatement and its causes can be
found in the Financial Review. As explained in the Financial Review
in light of the Group's financial performance in 2019 the Board is
not recommending a final dividend for the year.
Despite the impact of the above adjustments the Group remained
profitable on an underlying profit basis during 2019 with an
underlying profit before tax of GBP4.2m (2018: GBP42.8m).
Notwithstanding this there were a number of non-underlying credits
and charges to the profit and loss account which led to a statutory
loss before tax of GBP45.5m (2018: Profit GBP41.9m). The loss has
largely arisen from additional operating costs including increases
in staff and related costs (GBP15.4m) and non-underlying costs
primarily arising from the impairment of goodwill (GBP30.4m),
restructuring costs (GBP14.3m) and costs and liabilities arising
from the FCA investigation (GBP15.1m).
The Board considers the issues that were identified as being
varied in nature arising from weaknesses in the design and
implementation of policies and procedures, an insufficiently
resourced and skilled finance function and instances of failure to
follow policies and procedures where they existed.
Details of the causes of the adjustments are identified in the
Financial Review. Given the additional procedures we had to perform
to finalise the Group's 2019 results we concluded that it would not
be possible to publish our 2019 audited financial statements by the
required deadline of 30 June 2020. In light of this and following
consultation with the FCA we requested that trading of our ordinary
shares should be temporarily suspended with effect from the 1 July
2020.
Whilst having a framework in place for its financial planning
and controls the Board recognises that historically these were
insufficient and is undertaking all the necessary improvements to
ensure that it is sufficiently robust to prevent any recurrence of
these issues. Consequently, the Board has implemented a review and
improvement programme for financial reporting, which will formalise
procedures and processes. In addition, we acknowledged that there
were some behavioural and cultural issues within the Group. We have
established an independent Board sub-committee comprised of the
most recently appointed Non-Executive Directors to provide
oversight of the proper implementation of the actions identified in
the conduct investigation. This sub-committee will stand down once
they are satisfied each action has been delivered and monitored
through the appropriate existing Governance forum by the Executive
and the Board.
Regulatory Relations
As previously reported, we have been assisting the FCA with a
review of our governance, systems and controls of our regulated
activity. This programme of work included the design and
implementation of revised sales and oversight processes, a robust
risk management framework, governance arrangements and systems and
controls. This work was sponsored and overseen by the Board and
subject to the independent assurance provided by FCA Skilled Person
Reports. The work included the appointment of a Chief Risk Officer
and two additional Non-Executive Directors with experience in
financial services and regulated businesses. Having concluded these
reviews we are now focused on ensuring that all the actions arising
from this programme of work are embedded in 2020 and 2021.
The FCA's Investigation into past sales processes is continuing
and we are cooperating fully with the regulator. The Group has made
a GBP10.4m provision against any liabilities which may arise from
the Investigation in addition to the in year non underlying cost of
GBP4.7m.
Delay in publishing the Annual Report and Accounts (ARA) and the
suspension of shares
The Board is undertaking a full review of its continuing
obligations under the Listing Rules and will take steps to enhance
its existing systems and controls where it deems that to be
appropriate.
COVID-19
On 23 March 2020 in order to protect the safety and welfare of
our people and customers and in response to the UK Government's
social distancing advice the Board took the decision to temporarily
close all its trading locations. Following the introduction of new
operating measures, the Group partly reopened 31 locations to
provide essential repairs and maintenance to key workers' vehicles
alongside 10 parts distribution centres. We also ensured that where
possible we had the technology and flexibility to allow for home
working.
From the middle of May, we progressively opened all our
locations in a manner consistent with appropriate local regulations
and ensuring the safety of our colleagues and customers. We have
implemented new operational processes to ensure the appropriate
COVID-19 secure protocols are in place protecting both staff and
customers. This has included the complete redesign of our sales
processes to offer a fully contactless experience if that is what
our customer wants. Our sites are well positioned for social
distancing with a large proportion of customer interaction taking
place outside on the forecourt and within our spacious
showrooms.
Following the recent announcement of new lockdown restrictions
which took effect from 5 November, we are providing our customers
with pre-booked aftersales appointments and have continued to
provide both new and used vehicles sales using our Click and Drive
contactless solution. We remain committed to providing the best
possible service whilst maintaining the well-being of both our
colleagues and customers.
Post year end restructuring
The Board has considered the future operating model of Lookers
in light of potential demand, a reduced dealership estate and
structural changes taking place across the industry. As a result,
the Board took the difficult decision to commence redundancy
consultations across all areas of the business, which has resulted
in approximately 1,500 redundancies and the closure or
consolidation of 12 sites. The Board carefully considered all
options and regrettably considered this action as being necessary
in the current environment to sustain and protect the Lookers
business over the long term.
Performance in 2019
We will look back on 2019 as a challenging year for the
business, one where hard but necessary actions had to be taken to
position our business for the future. For the third consecutive
year the UK new car market continued to contract and UK new car
registrations declined by 2.4% to 2.31m. Those challenging market
conditions, combined with margin pressure and excess cost growth,
resulted in a material reduction in profitability.
Management and Board changes
We have made a number of significant changes to our Board in
2019 and 2020.
Mark Raban was appointed Chief Financial Officer when Robin
Gregson stepped down on 5 July 2019. Andy Bruce and Nigel McMinn
stepped down on 1 November 2019 as Chief Executive Officer and
Chief Operating Officer respectively.
On 5 February 2020 we announced the appointment of Mark Raban as
Chief Executive Officer.
Heather Jackson and Victoria Mitchell were also appointed to the
Board in November and December 2019 respectively as Non-Executive
Directors.
On 30 March 2020 Jim Perrie was appointed as interim Chief
Financial Officer although he has not joined the Board.
As we emerged from lockdown, we recognised that the Board needed
to bring in new skills and experience to guide the business through
the next stage of its development. As a result, we agreed an
orderly transition to refresh the Board over the coming year.
Richard Walker, Senior Independent Director and Sally Cabrini,
Non-Executive Director and Chair of Remuneration Committee, decided
that they would not stand for re-election at our 2020 AGM held in
June. Stuart Counsell has agreed to stay on the Board until the
completion of the 2019 results and the appointment of his successor
as Chair of the Audit and Risk Committee.
Tony Bramall, Non-Executive Director has decided to retire at
the end of December 2020.
At the request of the Board I assumed the role of Executive
Chairman in July 2020 to oversee this transition period but will
not stand for re-election to the Board at the 2021 AGM.
Heather Jackson took over the role of Senior Independent
Director from Richard Walker on 1 July 2020. She will become Chair
of the Remuneration Committee at the completion of the 2019
results.
Victoria Mitchell has assumed the role of Chair of Lookers Motor
Group Limited, the FCA-regulated entity from 1 July 2020 subject to
FCA approval.
Now these financial statements have been concluded we will
recommence the search for a new Non-Executive Chairman during the
remainder of 2020 and 2021. We expect that recruitment process to
conclude before the next AGM. In addition, the Company is
finalising the recruitment of a new Chair of the Audit and Risk
committee during 2020 and into 2021 will appoint an additional
Non-Executive Director.
Current trading and financial outlook
The temporary closure of the Group's dealerships throughout the
lockdown period had a significant impact on the Group's financial
performance during the six-month period of 2020 ("H1"). As a
consequence, the Group expects to report a material underlying loss
before tax in H1.
As previously reported trading in the three months ended 30
September 2020 ("Q3") resulted in underlying PBT significantly
ahead of last year.
During 2020 the Group has maintained significant levels of
headroom in its funding which has ensured adequate liquidity for
the Business. Despite this resilient liquidity and before
considering appropriate mitigating actions, the ongoing
uncertainties presented by COVID-19 and Brexit mean severe but
plausible downside sensitivities indicate material uncertainty
regarding going concern.
Our OEM partners supported us with extended funding during the
first lockdown period and in addition the Group has accessed the
Job Retention Scheme for furloughed staff. Additionally, the Group
has deferred payment of VAT and initially deferred the payment of
payroll taxes although these have now been paid.
The announcement of the second COVID-19 lockdown and potential
impact of Brexit means that there is material uncertainty around
trading in the remainder of 2020 and 2021. However, we will benefit
from the full impact of the Group's restructuring activities which
we expect to mitigate some of the risk and we will continue to
access the Job Retention Scheme where appropriate. Against this
background the Board is not reinstating guidance at this point.
Conclusion
The Board's key focus remains to safeguard colleagues and
customers, strengthen our governance and systems and controls and
to ensure sustainable long-term liquidity.
Our Annual General Meeting was held on 29 June 2020. At that
point the investigation remained ongoing and in order to give this
as much time as possible to conclude to our satisfaction we took
the decision that the standard Shareholders' resolutions, including
receiving these audited financial statements and the Auditors' and
Directors' reports and approving the Directors' Remuneration Report
and Policy would not be tabled. Consequently, a separate General
Meeting of the Shareholders is to be convened during December to
consider these matters.
We are extremely proud of how our people have responded showing
real dedication and flexibility particularly through maintaining
critical vehicle servicing for key workers who have needed to
remain on the road. I would like to personally thank the whole
Lookers Team for their understanding and dedication during such a
challenging time for the Group.
Lookers is predominantly a franchise business and we have always
enjoyed strong relationships with our brand partners. We are
grateful for their support across a range of financial and other
measures.
I am also pleased that we continue to receive the support of our
banks and we have agreed revised covenants reflecting the post
COVID-19 environment.
The Investigation into our financial systems and accounting
controls, the delay in the publication of our 2019 results and the
subsequent temporary suspension of our shares have been a great
disappointment. As Chairman of Lookers plc, I would like to
apologise unreservedly to all our stakeholders and Team members for
the uncertainty this has caused.
Lookers is a great business with great brands and great people.
It is difficult to look too far ahead at the moment but I am
reassured that we have the resilience to weather the current storm
and the agility to emerge as a business which can build on its
strong foundations. We can now move forward from here focussing on
the many thousands of customers who rely on us for their
mobility.
Phil White
Executive Chairman
OPERATING REVIEW
The key aspects of our performance were:
-- The Group was slightly behind the UK new car market with
total like-for-like new car unit volumes down 4.4% compared to a UK
market decline of 2.4%.
-- Continued like-for-like growth in used car unit volumes up
3.3% partly offset by margin pressure, particularly in Q2 when
oversupply of vehicles impacted residual values.
-- Further progress in aftersales driven by 4.5% growth in like-for-like revenue.
Total revenue for the year was GBP4,787.2m (2018: GBP4,828.3m)
driven principally by the total 5.0% increase in used car revenue
and a total 6.7% increase in aftersales revenue.
Gross profit remained broadly in line with the prior year and at
GBP513.1m represented a gross profit margin of 10.7% (2018:
10.6%).
Whilst gross margin was maintained, our overall profitability
was impacted by an increase in net operating costs with an
underlying operating profit of GBP36.5m, a decrease of GBP35.2m
compared with the prior year.
We recorded a loss before taxation of GBP45.5m compared with a
profit before taxation of GBP41.9m in the prior year.
The 2019 movement on the prior year is largely driven by
GBP84.0m increase in operating expenses.
The movement on operating expenses comprises:
Increase in staff costs GBP15.4m
Increase in property costs GBP3.7m
Risk and compliance GBP2.1m
Increase in marketing costs GBP0.7m
Others (including additional operating costs GBP13.3m
from acquisitions)
Total underlying cost increases GBP35.2m
Non-underlying (see Financial Review) GBP48.8m
Total movement GBP84.0m
During the year the new car market was impacted by the ongoing
Brexit process which resulted in a significant level of political
and economic uncertainty. In addition, continuing consumer
confusion over the future of petrol, diesel and electric vehicles
(EV's) had a significant impact on the levels of new car sales.
There are notable regulatory pressures facing our brand partners
in achieving emissions targets. As a result of changing customer
preference and the evolving legislative landscape there is likely
to be a change in product mix with increased focus on the provision
of pure EV's and mild hybrids.
In 2019 the new car market was 2.31m units (2018: 2.37m). Our
share of the retail market is 5.8% which was broadly in line with
the previous year. Whilst the new car market remains challenging,
we believe there are opportunities to grow the business,
particularly in used cars, which currently has annual transactions
of approximately 8 million vehicles and where we benefit from
economies of scale, the skills of our people and our ability to
invest in improved technology.
Aftersales represents the servicing and repair of vehicles and
sale of franchised parts. In the UK there are approximately 39.3m
cars and light commercial vehicles, with a significant proportion
under three years old. This represents a significant opportunity
for franchised motor dealers, and we are focused on developing the
aftersales business and investing in our offering through
initiatives to increase volumes and margins.
The internet remains the primary means for our customers to
research and determine which new or used cars they are interested
in buying. We have migrated to our new and improved website on a
phased basis and this is now fully operational and provides
customer access across all dealerships. This has resulted in
further increases in our visitor and enquiry levels. The customer
experience will be enhanced by further significant improvements in
functionality, which will improve interaction with our
customers.
Portfolio management
Following a period of significant expansion in recent years we
announced the closure, consolidation and relocation of 15
dealerships as part of our ongoing portfolio review. The Board
believes that as well as driving financial efficiencies, this
decision is in accordance with the Group's strategy of partnering
with the right brands in the right locations.
By 31 December 2019 we had closed: Volkswagen sites in Morden,
Dumfries, Glasgow and Carlisle; Ford operations in Stockton and
Guiseley; two JLR sites in Amersham and Kings Langley; and seven
other franchised dealerships in Yorkshire and the North East. In
addition, we have relocated the former Camberley Audi dealership to
Farnborough as well as selling vacant sites in Colchester, Hexham,
Birmingham and Dublin. Total costs associated with the programme
have amounted to GBP14.3m and we have generated a cash inflow of
GBP17.6m following the disposal of properties and related assets
during the year. We expect to dispose of a number of additional
surplus properties during 2020 and 2021.
Analysis of revenue
Revenue 2019 GBPm 2018 GBPm*# Variance 2019 LFL 2018 LFL LFL variance
GBPm GBPm*#
New cars 2,226.4 2,364.7 -5.8% 2,141.2 2,212.8 -3.2%
========== ============ ========= ========= ========= =============
Used cars 2,326.3 2,215.7 5.0% 2,206.1 2,130.2 3.6%
========== ============ ========= ========= ========= =============
Aftersales 495.3 464.0 6.7% 467.1 446.9 4.5%
========== ============ ========= ========= ========= =============
Leasing and other 134.0 115.3 16.2% 127.0 114.3 11.1%
========== ============ ========= ========= ========= =============
Less: intercompany (394.8) (331.4) 19.1% (382.5) (320.1) 19.5%
========== ============ ========= ========= ========= =============
Total 4,787.2 4,828.3 -0.9% 4,558.8 4,584.0 -0.5%
========== ============ ========= ========= ========= =============
*Restated to show departmental revenue including intercompany
which is prior to elimination on consolidation
#LFL restated to include the impact of the adjustments
identified from the Investigation and internal review.
Analysis of gross profit
Gross profit 2019 GBPm 2018 GBPm*# Variance 2019 LFL 2018 LFL LFL variance
GBPm GBPm*#
New cars 147.0 156.9 -6.3% 142.0 152.1 -6.6%
========== ============ ========= ========= ========= =============
Used cars 138.1 140.3 -1.5% 134.2 135.9 -1.3%
========== ============ ========= ========= ========= =============
Aftersales 211.9 199.7 6.1% 200.5 195.5 2.6%
========== ============ ========= ========= ========= =============
Leasing and other 16.1 16.2 -0.8% 15.7 16.7 -6.3%
========== ============ ========= ========= ========= =============
Total 513.1 513.1 0.0% 492.4 500.2 -1.6%
========== ============ ========= ========= ========= =============
*Restated to show departmental revenue including intercompany
which is prior to elimination on consolidation
#LFL restated to include the impact of the adjustments
identified from the Investigation and internal review.
New cars
2019 2018 *# Variance 2019 LFL 2018 LFL LFL variance
New cars *#
Retail unit sales 59,212 64,750 -8.6% 56,101 61,405 -8.6%
======== ======== ========= ========= ========= =============
Fleet unit sales 53,694 56,158 -4.4% 52,209 51,933 0.5%
======== ======== ========= ========= ========= =============
Total unit sales 112,906 120,908 -6.6% 108,310 113,338 -4.4%
======== ======== ========= ========= ========= =============
Gross margin % 6.6% 6.6% 6.6% 6.9%
======== ======== ========= ========= ========= =============
*Restated to show departmental revenue including intercompany
which is prior to elimination on consolidation
#LFL restated to include the impact of the adjustments
identified from the Investigation and internal review.
The sale of new cars represented 28.6% (2018: 30.6%) of total
gross profit. The new car market reduced by 2.4% in 2019 to 2.31m
units. The Group's like-for-like unit sales of new vehicles over
the year were slightly behind the overall market seeing a reduction
of 4.4%. Like-for-like retail unit sales performed behind the
market and were impacted by the Group's volume brands.
Whilst in the early part of the year we benefitted to some
extent from a pre-Brexit pull forward of demand, Q3 saw some levels
of stock shortages across our brand portfolio as OEMs managed the
change in global emission standards. The final quarter saw an
impact on sales volumes as our dealership sales teams received
further training and assessment in the sale of regulated
products.
The fleet sector continues to represent a significant part of
the market, providing scope for further growth whilst taking a
sustainable and balanced approach to maintaining margins. During
the Year, the Group's like-for-like fleet unit sales increased by
0.5% compared to a market decrease of 1.7%.
Used cars
Used cars 2019 2018*# Variance 2019 LFL 2018 LFL*# LFL variance
Retail unit sales 100,764 97,709 3.1% 95,298 92,291 3.3%
======= ======= ========= ========= =========== =============
Gross margin % 5.9% 6.3% 6.1% 6.4%
======= ======= ========= ========= =========== =============
*Restated to show departmental revenue including intercompany
which is prior to elimination on consolidation
#LFL restated to include the impact of the adjustments
identified from the Investigation and internal review.
The sale of used cars represented 26.9% (2018: 27.3%) of total
gross profit. The used car market had a mixed performance during
the year with a robust Q1 followed by a fall in demand and a
significant price correction in Q2. The second half of the year
recorded a stabilisation of demand and volume. In Q4 we focused on
driving cash generation and maximising working capital efficiency.
This exercise helped drive the levels of used stock down by the end
of the year and significantly contributed to the level of cash we
generated from ordinary trading activities.
We continue to focus on stock management and sourcing good
quality vehicles, both of which help to improve profitability. The
used car market remains of significant importance to our business
model and, continues to represent a significant opportunity for the
Group. Digital channels will be a key tool to facilitate this
growth and we continue to benefit from the increasing number of
leads generated by our new website and contactless sales process.
We intend to continue our extensive investment in technology to
drive further increases in volumes and profitability.
Aftersales
Aftersales 2019 2018*# Variance 2019 LFL 2018 LFL*# LFL variance
Revenue GBPm 495.3 464.0 6.7% 467.1 446.9 4.5%
================= ======= ========= ========= =========== =============
Gross margin % 42.8% 43.0% 42.9% 43.7%
================= ======= ========= ========= =========== =============
*Restated to show departmental revenue including intercompany
which is prior to elimination on consolidation
#LFL restated to include the impact of the adjustments
identified from the internal review.
Aftersales is a key part of the Group and represented 41.3%
(2018: 38.9%) of total gross profit. The division continued to
perform as expected with a like-for-like revenue growth of 4.5% in
the year.
We have increased capacity when developing new dealership
premises in recent years, which has expanded the base
infrastructure to support higher volumes and growth in the car
parc. In addition, aftersales has benefited from the initiatives we
have implemented to develop our services, with an emphasis on
performance and improved customer retention through enhanced
technology, and ongoing investment of our technician apprenticeship
programme. We continue to increase the penetration of customer
service plans sold, and now have 162,000 plans providing strong
visibility and further opportunity in the future.
The impact of the changes in mix as described above coupled with
a comparable gross profit contribution from leasing/other sales and
an increase in general operating expenses (including non-underlying
items) has resulted in a statutory operating loss of GBP13.2m (2018
profit: GBP70.8m).
Developing a multichannel retail environment
We have continued to make a significant investment in our
multi-channel customer experience and our website plays an
important role in the customer journey, influencing how our
customers research vehicles before they enter the showroom.
Customer experience
Our goal is to be recognised as providing the best customer
experience and engagement in the UK motor retail sector.
Understanding customer needs is at the heart of our thinking. We
conduct extensive customer research to monitor feedback as we
appreciate that customers have high expectations and have
increasingly more access to detailed product information
themselves.
Our people
Our people are the key to helping us to deliver our strategy and
providing a first-class customer experience. We really appreciate
efforts of colleagues and continue to invest in them with further
improvements to our training and development programme and a formal
management development initiative. We believe Lookers offers the
most attractive employment prospects in our sector and we aim to be
the best place to work in our industry. This will help attract and
retain the best people, including those from outside the
sector.
It was therefore a great achievement to again be recognised as
the only motor retailer to be awarded the exclusive Top Employers
United Kingdom certification, which we have now achieved for a
fourth successive year. This success demonstrates our commitment to
building a positive employee experience and of our commitment to
optimise, develop and work with all our people to build a
meaningful and noticeably different experience for them and our
customers.
COVID-19 Response
Key Events 2020 Timeline
23 March Temporary closure of all trading locations announced.
Following the introduction of new operating measures,
the Group subsequently partly reopened 31 locations
providing essential repairs and maintenance to key workers
vehicles and 10 parts distribution centres.
20 April Group launched new website functionality allowing customers
to reserve vehicles, pay a deposit, complete an online
finance application and receive vehicle delivery and
handover at home. We subsequently developed this by
launching our 'Click & Drive' online offer.
11 May Successfully implemented and tested new operating procedures
the Group reopened all its aftersales facilities gradually
rebuilding capacity.
18 May Group implemented a new contactless vehicle handover
and delivery process delivering nearly 4,000 new and
used retail vehicle orders in May. Unaccompanied test
drives initiated.
1 June Group fully reopened all dealerships in England in accordance
with government policy and upweighted operating procedures.
8 June Group fully reopened all dealerships in Northern Ireland.
29 June Group fully reopened all dealerships in Scotland. All
UK dealerships fully operational from this point.
5 November New lockdown restrictions in place, pre-booked aftersales
service being provided with new and used car sales activity
carried out via 'Click & Drive'.
Responding to COVID-19
The COVID-19 global pandemic remains an unprecedented challenge.
Our response to the pandemic and its consequences has been guided
by three key principles:
-- Protecting colleagues and customers
-- Managing the financial consequences and protecting the business
-- Proactive engagement and communication with all stakeholders
Protecting Colleagues and Customers
Our first thoughts are for those impacted by the virus and their
families. The Group's key priority was and remains to protect our
colleagues and customers and to do everything possible to prevent
the further spread of the virus.
We provided a comprehensive suite of new operating procedures
and protocols to all colleagues and we keep these under constant
review as the situation continues to develop.
We have upgraded our cleaning regimes and continue to work with
our supply chain partners to ensure that personal protective
equipment, hand sanitizer and masks are available.
We introduced a comprehensive contactless handover process and
rapidly rolled out unaccompanied tests drives. Our vehicle cleaning
process is based on a 40-point check giving our customers
additional peace of mind when taking delivery of their vehicle or
undertaking a test drive.
Our new 'Click & Drive' website functionality provides an
additional route for our customers to remotely order a vehicle and
have it delivered to their home if required.
We rapidly rolled out new technology solutions to support remote
working from home wherever possible including our customer contact
colleagues, the head office team and certain dealership
administrative and sales functions.
Managing the Financial Consequences and Protecting the
Business
The Board took decisive action in managing the Group's finances
in order to protect the business for the long term. These actions
included:
-- The vast majority of colleagues were immediately furloughed
as all trading locations were temporarily closed.
-- All members of the Board and various members of senior
management took 30% pay cuts. These were reinstated on 1 September
2020. Executive bonus entitlement was also waived.
-- Various capital expenditure programmes were delayed.
-- Dividends were suspended.
-- All discretionary costs areas were reviewed and reduced.
-- Restructuring activity including further site closures and
redundancies were accelerated. These were regrettable but necessary
to protect the long-term future of the business.
-- The Group's fleet business was reviewed and restructured to
focus on margin retention and working capital control.
-- The Group accessed the Governments Coronavirus Job Retention
Scheme and other Government initiatives to protect cash flow.
The Board would like to thank its financing and banking partners
who have been very supportive through this difficult period.
Proactive Engagement and Communication with all Stakeholders
The Board is very grateful for the support of all stakeholders
throughout this challenging period. Our OEM brand partners have
been particularly supportive from both an operational and financial
perspective which has highlighted the underlying strength of the UK
franchised dealer model.
Employees: Communication and engagement with our colleagues is a
key priority for the Group. We made every effort to keep our teams
engaged including the use of our Workplace by Facebook application
and various video messages from the Executive Management Team. Team
wellbeing remains a key focus with additional measures and support
for those needing them.
Customers: We have remained in active dialogue with both our
retail and corporate customer base. We were particularly proud to
support key workers with subsidised servicing and repair and
continued safe fleet deliveries into the NHS during the lockdown
period.
Suppliers: We have been grateful for the support from our key
suppliers. We have sought to agree fair terms and have continued to
adhere to normal payment practices unless an alternative
arrangement has been mutually agreed.
Landlords: Unless otherwise agreed the Group continued to pay
rent throughout the period in accordance with our lease
obligations. We were very grateful to certain landlords who
responded positively to our request for deferred payment terms.
Shareholders: We sought to engage proactively with shareholders
and issued a number of trading and operational updates ensuring the
market was informed of our trading performance.
FINANCIAL REVIEW
Key performance indicators
The Group has a number of financial and non-financial KPIs to
monitor the development of the business against its strategic
objectives and specific business risks. These are defined and
measured as shown below:
Financial KPIs
KPI Definition Performance Link to risk
factor
------------------
Total revenue
generated from
the Group's principal
Revenue activities 2019: GBP4,787.2m 2018: GBP4,828.3m 1,3,4,5,6,7
------------------ --------------------------
A decrease
of 0.9%
------------------ --------------------------
Total revenue
less total direct
Gross profit costs 2019: GBP513.1m 2018: GBP513.1m 1,3,4,5,6,7
------------------ --------------------------
Remains the
same
------------------ --------------------------
Gross profit
Gross profit as a percentage
margin of revenue 2019: 10.7% 2018: 10.6% 1,3,4,5,6,7
An increase
of 0.1%
-------------------------- ------------------- --------------------- ------------------
Statutory (loss) Total gross profit
/ profit before less all costs
tax and interest 2019: (GBP45.5m) 2018: GBP41.9m 1,2,3,4,5,6,7
------------------ -------------------------- ------------------
A decrease
of GBP87.4m
------------------ -------------------------- ------------------- --------------------- ------------------
Operating profit
before the impact
Underlying of non-underlying
operating profit items as defined* 2019: GBP36.5m 2018: GBP71.7m 1,2,3,4,5,6,7
------------------ -------------------------- ------------------
A decrease
of GBP35.2m
------------------ -------------------------- ------------------- --------------------- ------------------
Profit before
Underlying tax before the
profit before impact of non-underlying
tax items as defined* 2019: GBP4.2m 2018: GBP42.8m 1,2,3,4,5,6,7
------------------ -------------------------- ------------------
A decrease
of GBP38.6m
------------------ -------------------------- ------------------- --------------------- ------------------
The ratio of
underlying profit
after tax (*as
defined) to the
weighted average
number of ordinary
Underlying shares in issue
basic earnings during the financial
per share year 2019: 0.87p 2018: 8.78p 1,2,3,4,5,6,7
------------------ -------------------------- ------------------
A decrease
of 7.91p
------------------ -------------------------- ------------------- --------------------- ------------------
Total borrowings
excluding lease
liabilities and
stocking loans
less cash and
Net debt cash equivalents 2019: GBP59.5m 2018: GBP85.9m 1,2,5,6,7
------------------ -------------------------- ------------------
A decrease
of GBP26.4m
------------------------------------------ -------------------------------------------- ------------------
* Non-underlying items defined in Note 2
The Board's target is to improve performance across all KPI's whilst
maintaining a balanced approach based on the future development
of the business.
In preparing the current year financial statements the Board has
taken the view to present the statement of total comprehensive income
incorporating the disclosure of underlying and non-underlying items
separately. Non-underlying items are presented separately in the
statement of total comprehensive income and have been defined by
the Board as:
Relating to costs or incomes which are not incurred in the normal
course of business or due to their size, nature and irregularity
are not included in the assessment of financial performance in order
to reflect management's view of the core-trading performance of
the Group.
Non-financial
KPIs
Link to
KPI Objective Definition Performance risk factor
The number of dealerships
operated by the 2019: 148 dealerships
Maintaining appropriate Group and number and 31 manufacturer brands
number of manufacturers of manufacturer 2018: 163 dealerships
and brands brands we sell and 32 manufacturer brands 1,7
--------------------------- ----------------------------- -------------
The split of new
cars, used cars,
aftersales and other 2019: new 43.0%, used
Maintaining an as a percentage 44.9%, aftersales 9.6%,
appropriate sales of total revenue other 2.6%
mix of new cars, before intercompany 2018: new 45.8%, used
used cars, aftersales eliminations in 42.9%, aftersales 9.0%,
and other the financial year other 2.2% 1,7
--------------------------- ----------------------------- -------------
Share of UK new
car retail by Our share of the
volume market 2019: 5.8% 1,6,7
2018: 6.2%
-------------
Group new car Number of new vehicles
sales sold 2019: 112,906 1,6,7
2018: 120,908
-------------
Group used car Number of used vehicles
sales sold 2019: 100,764 1,6,7
2018: 97,709
-------------
Alternative performance measures
The Group uses a number of Alternative Performance Measures
(APMs) which are non-IFRS (International Financial Reporting
Standards) measures in establishing their financial performance.
Like for Like is the collection of dealerships and other trading
businesses that have both a full year of trading activity in the
current year and prior year. The Group believes the APM's provide
useful, historical financial information to assist investors and
other stakeholders to evaluate the performance of the business and
are measures commonly used by certain investors for evaluating the
performance of the Group. APMs should be considered in addition to
IFRS measures and are not intended to be a substitute for IFRS
measurements.
Following the introduction of non-underlying items in the
Statement of Total Comprehensive Income the Group's APMs have also
been redefined to be based around underlying measures, whereas
previously the basis had been to use adjusted profit measures. More
details of the APM's and a reconciliation of the IFRS measures used
in the Annual Report & Accounts to those APMs used for KPI
monitoring are including in Note 18.
Financial statements
Presentational changes
From 1 January 2019 the Group adopted the new accounting
standard IFRS 16: Leases. This standard introduces a comprehensive
model for the identification of lease arrangements and accounting
treatment for both lessors and lessees. Unless otherwise stated,
the prior year financial comparatives contained within the Annual
Report & Accounts have been restated to reflect the first-time
adoption of IFRS 16. At 31 December 2019 the Group has right-of-use
assets with a net book value of GBP107.7m, related lease
liabilities of GBP134.1m and have repaid GBP21.3m of lease
liabilities and associated interest charges during the year.
As announced on 10 March 2020 and subsequently updated in RNS
announcements, following the identification of a potential fraud
and other issues in an operating division, in conjunction with
Grant Thornton the Board immediately commenced a two-stage
Investigation. Initially, the first stage, conducted by Grant
Thornton, reviewed the operating division concerned and
subsequently the Board extended the work performed by Grant
Thornton and also implemented an extensive internal review.
Together these are considered "the Investigation". Further details
of the Investigation are provided in the Chairman's Statement,
Report of the Audit and Risk Committee and Financial Review.
The Investigation has led to the identification of a total of
GBP21.8m of adjustments after tax to the 2019 balance sheet of
which GBP13.5m relates to 2018 and earlier.
Adjustments affecting the year ending 31 December 2018 have been
recorded in that financial year and the financial statement
comparatives have been restated to this effect. Adjustments
relating to periods prior to the year ending 31 December 2018 have
been adjusted through opening reserves as at 1 January 2018.
The nature, cause and remediation of these errors and
misstatements is considered below in Investigation and
restatements.
Financial Results
Group results
Total revenue for the year remained static at GBP4,787.2m (2018:
GBP4,828.3m) following increased contributions from used car,
aftersales and leasing being offset by a reduction from new car
sales. Gross profit remained comparable at GBP513.1m (2018:
GBP513.1m) and represented a gross profit margin comparable with
the prior year of 10.7% (2018: 10.6%). Whilst consistent
year-on-year, the gross profit margin was flat in new and
aftersales with contractions in both leasing & other and used
margins, despite the latter seeing a 3.3% increase on like-for-like
unit sales.
Operating profit
Operating profit has reduced by GBP84.0m to a loss of GBP13.2m
due to the factors described below.
The 2019 movement on the prior year is largely driven by
GBP84.0m increase in operating expenses.
The movement on operating expenses comprises:
Increase in staff costs GBP15.4m
Increase in property costs GBP3.7m
Risk and compliance GBP2.1m
Increase marketing costs GBP0.7m
Others (including additional operating GBP13.3m
costs from acquisitions)
Total underlying cost increases GBP35.2m
Non-underlying GBP48.8m
Total movement GBP84.0m
Net interest charges
The Group's bank borrowings are based on a floating rate linked
to LIBOR and net interest charges have increased by GBP3.4m
primarily as a result of increased interest payable on higher
average bank borrowings.
(Loss)/profit before tax
The effect of the non-underlying items noted above in
conjunction with the higher interest cost and the reduced
underlying operating profit to result in a pre-tax loss of GBP45.5m
(2018: pre-tax profit of GBP41.9m).
Taxation
The Group's taxation credit for the year is GBP3.9m (2018:
charge of GBP9.3m) which is composite of a corporation tax credit
of GBP3.7m and a deferred tax credit of GBP0.2m. The Group's tax
charge is considerably lower this year as a result of a reduction
in the profits chargeable for taxation which is driven by the
reduced underlying earnings and adjustments to prior year taxation
charges totalling GBP2.9m. The Group's effective current tax rate
is 8.1% compared with 22.2% in the prior year.
The reduced corporation tax charge coupled with the GBP9.3m of
payments made on account during the year has resulted in a current
tax recoverable of GBP9.8m being recorded in the Group statement of
financial position.
Cash flow
Despite the loss for the year, cash generated from operations
has increased by GBP30.3m to GBP221.1m a direct consequence of the
focus that was placed on the Group's working capital during the
second half of 2019. Cash generated from working capital totalled
GBP69.0m (2018: GBP(11.5m)) during 2019 driven by tighter controls
put in place across the Group around the management of inventory
levels and debt recovery.
During this period the Group has also paid particular attention
to the levels of inventory funding that is available to the Group
and has increased the overall level of funding by GBP108.3m to
GBP870.8m, representing 93.3% (2018: 80.7%) of inventory being
funded at the balance sheet date.
Property, plant and equipment capital expenditure totalled
GBP81.3m (2018: GBP47.6m) after including capitalised vehicle
leases of GBP35.5m (2018: GBP26.1m) and represented the Group's
investment in new or improved premises for dealerships, reflecting
our ongoing commitment to improve our retail environment to
maintain, modern and state of the art facilities. During the year
the Group has invested in the new JLR facility at Aston Clinton in
Buckinghamshire as well as at Audi in Farnborough, Guildford and
Basingstoke.
The Group realised GBP17.6m from the disposal of freehold
properties during the year. At 31 December 2019, the Group holds
freehold and leasehold properties (excluding properties held for
resale) with a combined net book value of GBP321.5m, (2018:
GBP309.5m), which remains a key strength to the business.
Total loan repayments and net revolving credit facility
movements resulted in a cash outflow of GBP38.7m (2018: GBP13.4m)
as further inroads were made to reducing the overall net debt
position of the Group.
Total net debt (excluding lease liabilities and stocking loans)
at 31 December 2019 was GBP59.5m (2018: GBP85.9m).
Bank funding
The Group has a revolving credit facility of GBP250.0m arranged
with five banks, (Bank of Ireland, Barclays, HSBC, Lloyds and
NatWest), with a term to March 2022. There is also the potential to
increase the facility up to an additional GBP50.0m to fund future
acquisitions.
Interest is charged on the facility at a margin of between 1.3%
and 2.25% above LIBOR, depending on the ratio of net bank debt to
EBITDA. These facilities are subject to half yearly covenant tests
on interest cover and net bank debt to EBITDA.
The banking club and the Group have agreed revised covenants for
the period from June 2020 to June 2021 which reflects anticipated
trading including the impact of COVID-19.
However, given the extent of downturn that was seen in wave 1 of
COVID-19, the ongoing uncertainty of COVID-19, the risks in respect
of Brexit and the macro-economic factors that could affect the
Group, additional stress testing of revenue volumes was performed
to model further downsides in the key assumptions, which the
Directors considered to be severe, but plausible. This scenario,
indicated that despite resilience of liquidity the aggregate of
these factors gave rise to a material uncertainty which may cast
significant doubt over the Company's and Group's ability to
continue as a going concern in the event that, following a covenant
breach, lenders elect to trigger a repayment of outstanding debt.
Without actioning the various mitigating actions available, the
Company and Group may be unable to realise assets and discharge
liabilities in the normal course of business. In view of the
various sensitivities and additional stress testing, the Board
concludes that preparing the accounts on the basis of going concern
is appropriate.
Dividends
We indicated in the Group's 2019 interim results statement that
the Board would be reviewing its dividend policy. The Board remains
mindful of its relationships with and commitments to all
stakeholders and recognises the importance of dividends to
Shareholders. It now intends to implement a policy where, subject
to satisfactory trading prospects, dividends are covered around 3.0
to 3.5 times underlying earnings (previously 3.5 to 4.0 times) and
paid in approximately one third (interim dividend) and two thirds
(final dividend) split. In the light of the year's financial
performance and in accordance with the new policy the Board is not
recommending a final dividend for the year noting that the interim
dividend for the year of 1.48p is covered 0.6 times by underlying
earnings per share.
The Board has become aware of an issue concerning technical
compliance with the Companies Act 2006 in relation to the interim
dividend paid to Shareholders in respect of the 2013 financial
year, and the interim and final dividends paid to Shareholders in
respect of the 2014 and 2015 financial years (the "Dividends"). The
Dividends were paid to Shareholders at a time when the Company did
not hold adequate distributable reserves by reference to its last
set of annual accounts (although there were sufficient reserves
held in subsidiaries of the Company which could have been
distributed to the Company in order to provide the Company with
adequate reserves). In addition, the Company did not file with the
Registrar of Companies (as required by the Companies Act 2006)
additional "interim" accounts which might otherwise have
demonstrated that the Company had the requisite level of reserves.
The Group's historic reported trading results and financial
condition are entirely unaffected; however, the Board proposes to
put resolutions to Shareholders at the 2021 annual general meeting
to address this past issue.
Pension schemes
The Group has three defined benefit pension schemes, The Lookers
Pension Plan, The Dutton Forshaw Pension Plan and The Benfield
Motor Group Pension Plan. All three schemes are closed to entry for
new members and closed to future accrual. The asset values of the
three pension schemes increased by GBP26.6m during the year due to
the favourable movements in global investments during the year, but
scheme liabilities increased by GBP13.4m. As a result, the net
deficit included in the balance sheet decreased by GBP13.2m in the
year.
The Group is currently in discussions with the respective scheme
trustees and the Pensions Regulator with regard to the latest
triennial valuation for the Lookers Pension Plan.
The combined deficit of the three schemes decreased in the year
and is now GBP55.7m (2018: GBP68.9m). Relatively small changes in
the bases of valuation can have a significant effect on the
calculated deficit hence the movement in the calculated deficit can
be subject to high levels of volatility.
Non-underlying Items
2019 has seen the recognition of a number of items disclosed as
non-underlying within the financial statements and 2018 has been
restated to reflect the Investigation:
2019 2018
GBPm GBPm
----------------------------------------- ------- -------
Gain on property disposal (4.9) (2.5)
========================================== ======= =======
Restructuring costs 14.3 -
========================================= ======= =======
Impairment of goodwill and intangible
assets 30.4 -
========================================= ======= =======
VAT matters (6.2) -
========================================= ======= =======
FCA Investigation and provision 15.1 -
========================================= ======= =======
Additional pension past service costs - 3.4
========================================== ======= =======
Accrual for potential tax penalties 1.0 -
========================================= ======= =======
Total non-underlying items at operating
profit 49.7 0.9
------------------------------------------ ------- -------
The Board has taken the view that each of the following items
relate to costs or incomes which are not incurred in the normal
course of business or due to their size, nature and irregularity
are not included in their assessment of financial performance.
These have been presented separately on the face of the Statement
of Total Comprehensive Income in order to reflect management's view
of the core-trading performance of the Group in the current and
preceding financial years.
Gain on Property Disposal
In November 2019 the Board announced an acceleration of its
portfolio consolidation to drive the future financial performance
of the Group. In line with the its strategy of partnering with the
right brands in the right locations and working closely with its
brand partners, the Board identified 15 dealerships for closure,
relocation or consolidation into existing dealerships in adjacent
territories.
Of the sites identified, 9 were owned on a freehold basis. The
programme is now largely complete and has contributed significantly
to the overall cash inflow of GBP17.6m and an accounting gain of
GBP4.9m following the disposals of property, plant and equipment
during the year.
Following the fully retrospective adoption of IFRS 16, the gains
recorded following the Group's previous sale and leaseback
transactions have been remeasured resulting in the GBP2.5m gain
recorded in the year ending 31 December 2018.
Restructuring
As identified above in November 2019 the Group announced an
acceleration of its portfolio consolidation which led to costs and
charges incurred:
Redundancy and other closure GBP8.8m
costs
Impairment charges - assets GBP3.7m
held for sale
Impairment charges - right of GBP1.8m
use assets
Total restructuring costs GBP14.3m
Total redundancy costs associated with this program amount to
GBP4.3m and there have been other closure costs in relation to
existing contracts and obligations relating to these dealerships
totalling GBP4.5m recorded in the year. Due to the size and nature
of the dealership closure programme, all related expenses (GBP8.8m)
have been recorded as non-underlying within the financial
statements.
As a consequence of this several properties have now been
presented as assets held for sale on the Group's statement of
financial position and have resulted in impairment charges of
GBP3.7m being recorded in order to reflect their fair value less
costs to sell. Notwithstanding, we expect to record a gain upon
disposal in 2020 in respect of some of the other properties which
have also been presented within assets held for sale in the
statement of financial position.
The closure programme has also affected the carrying values of
the right of use assets and impairment charges totalling GBP1.8m
(2018: GBPnil) have been recognised in the year for property leases
which are now considered onerous.
The Board has continued to review the operating portfolio during
2020 to ensure that the Group's key objectives and strategies can
continue to be met. Subsequent to the year end and having worked
closely with our brand partners, the Group has identified a further
12 dealerships (including 7 freehold sites) for either closure,
consolidation or refranchising. It is estimated this will be
completed in the second half of 2020. Following these closures, the
Group will operate from a portfolio of 136 dealerships.
Goodwill and intangible impairments
Following the deterioration in trading performance the Group has
recorded impairment charges totalling GBP30.4m (2018: nil) against
the Group's intangible asset base. GBP29.8m (2018: GBP0.3m) of this
has been charged against goodwill following the Group's annual
impairment review and has resulted in reductions to the Group's BMW
and Ford cash generating units (CGU's).
These adjustments are considered to be reflective of the
comparative downturn in the CGU's value in use when compared with
those that were expected when these past acquisitions were
made.
None of these impairments have had a cash impact in the current
year.
VAT matters
During the year the Group benefitted from a change in how HMRC
view the VAT treatment of dealer deposit contributions which has
given rise to a one-off credit totalling GBP5.6m. In addition, a
one-off VAT charge totalling GBP2.0m has been made in relation to
manufacturer deposit contributions. Following a challenge over the
VAT accounting treatment of bonuses received from Motability the
Group has recognised a credit of GBP2.6m in year ending 31 December
2019.
FCA Investigation
As previously announced, during 2018 the Board became aware of
certain matters requiring review in relation to the Group's
regulated activities.
At 31 December 2019 the Group has largely completed its
remediation plan which has included a detailed past business
review; implementation of a revised sales process; a full training
exercise across the Group; implementation of new risk management
and quality assurance frameworks; and several improvements to the
Group's IT systems.
Total costs of this programme recorded in the year amount to
GBP6.8m, GBP4.7m of which have been recorded as within
non-underlying items as these represent non-recurring one-off costs
for professional fees and setup costs.
As announced on 20 June 2019, the Group was informed by the FCA
that it's Enforcement Division intends to carry out an
Investigation into sales processes between the period of 1 January
2016 to 13 June 2019. This Investigation is underway with the full
support of the Group and the FCA will reach its conclusions in due
course.
The Board considers there to be a wide range of as yet unknown
possible outcomes to the FCA review of historic sales practices and
the ongoing Enforcement Investigation however it recognises there
are likely to be liabilities that arise from the process.
Therefore, the Board has made a provision of GBP10.4m for any
liabilities which might arise. These liabilities are considered to
be non-underlying in nature, are unlikely to crystallise within the
next financial year and are disclosed in Note 13.
The Board takes this matter very seriously and continues to
co-operate and co-ordinate fully with the FCA. We believe that
adapting to developments in regulation, which affects the retail
motor industry and the fast pace of changing customer demands and
behaviours, is a key challenge and an important priority for the
Group. When these improvements are fully deployed across the Group,
our strengthened infrastructure and enhanced customer experience
will create a robust and industry leading platform that will
facilitate further growth.
We will provide further updates in respect of the ongoing
remediation work and progression of the FCA Investigation as
appropriate.
Additional pension past service costs
In the year ending 31 December 2018, GBP3.4m of enhanced past
service pension costs were incurred in respect of pension
harmonisation charges and have been treated as non-underlying
items.
Investigation and restatements
The Investigation identified a number of adjustments. These
adjustments affected cumulative retained earnings by GBP21.8m of
which GBP8.3m related to the previously unreported 2019 financial
statements and GBP13.5m related to prior years. Those relating to
prior years have been subsequently adjusted through restating the
comparatives in these financial statements. Further details of the
impact of the adjustments on the previous years are disclosed in
Note 19.
For the purposes of this report, and to assist understanding,
the adjustments have been aggregated where the nature and cause of
the misstatement is similar. These groupings are as follows:
-- Correction of fictitious transactions;
-- Correction of errors arising from inappropriate or
inconsistent accounting standards application 'Policy
misapplication'; and
-- Correction of errors arising from weaknesses in controls
grouped by nature 'Control weaknesses'.
We note that as illustrated in Note 19, further restatements
were also required in respect of the adoption of IFRS 16 and some
voluntary changes to presentational disclosure of the Income
Statement for which further detail is included in that note.
A summary of the adjustments arising from the Investigation is
included below:
Profit and loss items
Nature of adjustment 2019 Impact 2018 Impact Pre 2018 Total Reference
- GBPm - GBPm Impact
- GBPm
Fictitious transactions (1.2) (1.6) - (2.8) (a)
Policy misapplication
Cash and bank (0.3) (0.7) 0.2 (0.8) (b)
Leasing companies 0.3 0.3 (1.2) (0.6) (c)
Staff car schemes (1.2) 0.4 (0.7) (1.5) (d)
(1.2) - (1.7) (2.9)
Control weaknesses
Property, plant and
equipment and intangible
assets (5.9) 2.2 (6.2) (9.9) (e)
Manufacturer bonuses (0.4) (0.6) (1.2) (2.2) (f)
Central finance function 1.6 (8.1) 2.5 (4.0) (g)
Divisional finance
function (3.8) 0.9 (0.7) (3.6) (h)
(8.5) (5.6) (5.6) (19.7)
Impact before taxation (10.9) (7.2) (7.4) (25.5)
Taxation 2.6 0.8 0.3 3.7
Total Retained Earnings
Impact (8.3) (6.4) (7.1) (21.8)
Analysis of the nature of the adjustments above are as
follows:
(a) Fictitious transactions
One operating division created fictitious journal entries to
recognise non-existent manufacturer bonuses. The initial
misstatement was created in 2018, the entries being reversed in
2019 and further fictitious sums being recorded in 2019. These
fictitious entries enabled the division to achieve its targets for
the year, were entirely internal in nature and were never
communicated to, reported to, nor claimed from the relevant
manufacturer.
The transactions arose because of local management override and
lack of central oversight and review, enabling unsubstantiated
journals to be processed without challenge.
(b) Policy misapplication- Cash and bank
The Group had incorrectly accounted for debt issuance costs, not
appropriately aligning them and amortising them in line with the
duration of the relevant facilities. In addition, the Group had
incorrectly omitted from the balance sheet a number of bank
accounts that were held for the purposes of managing ring-fenced
funds.
These errors arose because of lack of formality in accounting
policies and also lack of thorough and diligent control standards
around balance sheet reconciliations.
(c) Policy misapplication- Leasing companies
The Group has a division which provides vehicle leasing to
commercial and business customers. The Group had adopted a variety
of inconsistent accounting treatments for the vehicles, and in
particular failed to correctly record and report vehicles as fixed
assets where the Group retained a long-term financial interest in
the vehicle such that control had not transferred. This division
has a significant proportion of its business where it acts as
either a disclosed agent or an undisclosed agent. In both
instances, the Group previously treated the sale of vehicles to
3(rd) parties as 'vehicle sales', despite the Group retaining a
buy-back right and therefore, continuing to control the assets.
Instead, these vehicles should have been treated as rental fleet,
to be depreciated over the term of the contracts to the buy-back
date. Lease revenue associated with these contracts is recognised
over the period of the contract term.
The profit impact has been included above. However, the main
impact of rectifying these issues was the increase in rental fleet
in fixed assets of GBP68.8m, reduction in inventory of GBP12.9m and
the inclusion of vehicle lease creditors of GBP56.6m.
The errors arose because of lack of formality in accounting
policies, failure to review and implement new accounting standards
correctly, and lack of appropriate structure and training in the
finance department.
(d) Policy misapplication- Staff car schemes
The Group operates a number of company staff car schemes which
are operated by third party providers. The schemes have undergone
HMRC review and are not a benefit to the employee but enable the
franchises to make sales which count towards volume targets. In
review of these schemes, it was identified that one of the
arrangements should be accounted for in a manner consistent with
that described above due to the Group retaining control of the
assets. Furthermore, for this particular scheme, the nature of the
arrangement and practical application means that all vehicles are
continually marketed for sale to the market whilst being part of
the scheme and are available for immediate sale at all times. As a
consequence, to reflect the commercial substance of the
arrangement, these particular vehicles have been recognised within
inventory as disclosed in note 12, instead of being presented
within fixed assets.
The errors arose because of Divisional management override
changing the scheme from a standard structure to a non-compliant
structure to drive volume target achievement and manufacturer
bonuses. As a consequence of the management override, there was a
failure to apply the appropriate accounting to this scheme. This
included lack of formal documentation of appropriate accounting
policies and procedures, lack of clear operational and financial
approval for the scheme's operation, and failure to report and
monitor the use of the scheme centrally.
The profit impact has been included above. However, the main
impact of rectifying these issues was to include inventory of
GBP31.6m and a net creditors of GBP32.4m.
(e) Control weakness- PPE and intangible assets
In a number of divisions there was inappropriate treatment of
costs associated with capital projects. In some cases, costs
relating to actual or proposed capital projects were incorrectly
capitalised in a manner that was not consistent with IAS 16. In
addition, costs that had been incurred in anticipation of a capital
project remained on the balance sheet regardless of whether the
project was likely to proceed and instances were identified where
the period of depreciation for the costs exceeded the
Group-mandated life of the asset.
The errors arose because of a lack of formal documentation of
appropriate accounting policies and procedures, lack of approval to
capitalise costs, and inadequate central oversight and review of
balance sheet accounts.
(f) Control weakness- manufacturers bonuses
Manufacturers pay bonuses to the Group for a number of reasons,
including the achievement of general volume targets and to support
specific vehicle or customer types. The bonuses can be specific
against a transaction or cumulative with rachet over a period for
achieving different tier levels of sales. This leads to complexity
in recognising the timing of income associated with the bonus.
However, an overriding principle is that the bonus income should
not be recognised until the vehicle that the bonus is associated
with is sold outside the Group and until that point the bonus
should be offset against the inventory value of the vehicle. The
primary issue identified by the Investigation concerned the early
recognition of manufacturer bonuses when the Group was not entitled
to the income. This process wrongly inflated profit, simultaneously
overstating the carrying value of inventory. There were also a
smaller number of instances where manufacturer bonuses were
inappropriately deferred following the achievement of annual profit
targets.
One franchise division had high levels of fleet transactions
over a number of years which triggered a complex series of
manufacturer bonuses. These bonuses were not agreed with the
manufacturer on a timely basis but were recorded as recoverable
balances. Although the balances became aged and out with the
manufacturer payment terms, they were not fully provided for in
accordance with the appropriate debt provisioning policy. The aged
balances were known to both local and central management, but a
decision was taken not to provide in line with standard procedures.
Offsetting this were a series of credit balances that remained
unreconciled for a number of years, but which should have been
recognised in the Income Statement to match the sales to which they
related.
The errors arose from a lack of formal manufacturer bonus
recognition procedures, failure to perform basic accounting
reconciliations, lack of central oversight and failure to apply
correct debt provisioning at a number of year ends.
(g) Control weakness- Central finance function
The Central finance function fulfils a number of accounting
roles for the Group including the receipt of costs for the Group
and recharging the costs to divisions, receipt of revenue from
Group-wide sales and bonus contracts and distribution of the
associated income to divisions and the maintenance of provisions
for the Group relating to Group-wide or corporate activity.
For an extensive period of time the accounting and control of
the Central finance ledgers was poor, lacked structure, process and
oversight and this led to a significant level of under and over
accruals across a number of years. In some cases the failure to
identify recharges and revenue to divisions on a timely basis meant
that the divisions did not recognise the costs, revenues or
provisions accurately or in the correct period.
The issues arose because of lack of formal processes for
transactions, unnecessarily complex recharging mechanisms, lack of
reconciliations within the Central finance function or between the
central finance function and the divisional teams, the absence of
appropriate documentation to substantiate provisions and activity
on provisions, and inadequate resourcing of the Central finance
team. The adjustments primarily affected working capital
balances.
(h) Control weakness- Divisional finance function
Similar to the issues identified in the Central finance
function, the Investigation considered the quality of
reconciliations within the divisional finance functions that led to
the identification of issues including understatement of
liabilities and inappropriate deferral of expenses.
The issues arose from inadequate reconciliation processes, lack
of oversight and control, poor quality and under trained staff and
lack of formal policies and procedures.
Taxation - the inclusion of tax as part of the restatements
reflects the impact of the adjustments on the Group's corporation
tax position. The low level of impact for 2017 and 2018 reflects
management's conclusions that the recoverability of corporation tax
is not sufficiently certain. This will be reconsidered once the
returns have been resubmitted to the tax authorities.
Balance sheet items
In addition to the matters referred to above, a number of
reclassifications were identified in finalising the 2019 financial
statements. These included:
(i) Policy misapplication- bank balances
In prior years the Group had been misinterpreting the
requirements of IAS 32, and had been netting off cash held against
overdrafts with the same counterparty where there was a legal right
of offset. A review of the interpretation of IAS 32 identified that
the appropriate treatment was to separately present the overdrafts
and cash held where there is no intention to settle amounts net.
This has led to the restatement of Cash and Cash Equivalents and
Overdrafts and Bank loans. Further details of the amounts involved
are disclosed in note 14.
The errors arose because of lack of formality in accounting
policies, failure to review and implement accounting standards
correctly, and lack of appropriate structure and training in the
finance department.
(j) Policy misapplication - consignment stock
Following an acquisition in prior years, the Group failed to
ensure that the accounting policy for consignment stock was applied
consistently to the newly acquired business. This has since been
rectified in finalising the financial statements, resulting in an
increase in stock and consignment stock creditors of GBP22m in
2017.
The error arose because of lack of formality of procedures to
ensure that accounting policies were applied consistently for
acquisitions.
Cash flow statement
With the exception of the omitted bank accounts referred to
above, the impact of the adjustments does not affect the net
movement in cash and cash equivalents for 2018. However, by
adjusting for the items above, there have been a number of
reclassifications of items between Operating, Investing and
Financing cash flows. These are primarily attributed to the
combination of the effect of the adoption of IFRS 16 and the
correction of accounting policies applied to the Group's vehicle
leasing companies. As detailed above, the Group previously treated
these transactions as sales which was incorrect because control was
retained. As a consequence, the cash flow statement previously
treated such transactions as operating cash flows. In restating the
cash flow statement for the revised policy, this results in:
-- An increase in investing outflows to reflect the purchase of rental fleet assets; and
-- An increase in financing inflows and outflows to reflect the
financial liabilities arising in connection with the financing of
the vehicle lease arrangements.
Remediation activity
We are addressing the issues identified with the steps in the
table below
Remediation action Addresses
issues
Formalisation of accounting policies including (b),(c),(d),(e),(f),(g),(h)
upgrading technical accounting resource (i) and (j)
Implementation of formal financial processes (a),(b),(c),(d),
and a procedures manual and training of all finance (e), (f),(g),(h)
staff (i) and (j)
Restructuring of Finance Team to more closely (a),(c),(d),(g),(h)
align to the Group operating model and implementation (i) and (j)
of a first line of defence operational finance
review team
Implementation of a minimum control standards (a),(c),(d),
compliance review of all dealerships and Head (e), (f),
Office on a twice a year basis (g),(h), (i)
and (j)
Implementation of a financial reporting attestation (a),(b),(c),(d),
for senior finance and operation management on (e), (f),(g),(h)
a twice a year basis (i) and (j)
Implementation of a central approval, review (a),(b),(c),(d),
and oversight process for all major financial (e), (f),(g),(h)
reporting risk or judgemental areas (i) and (j)
Standardisation where possible of the Dealer (a),(c),(d),(e),
Management System allowing standardised processes (f),(g) (h)
and reporting, easier central visibility and and (j)
interrogation of ledgers and centralisation of
critical activities
The design of the remediation activity has included
input from internal audit to provide quality
assurance and robustness of the enhanced controls
and procedures and internal audit will also provide
a third line of defence assurance capability
following the rollout of remediation activity
RISK OVERVIEW AND MANAGEMENT
Enterprise Risk Management Framework
Lookers is exposed to internal and external risks as part of our
on-going activities. Enterprise risks are identified by the
business on an ongoing basis and escalated through risk management
processes and reporting. This is done through undertaking horizon
scanning, maintaining ongoing dialogue with the business and
keeping up to date with wider market and environment movements.
These risks are managed as part of our business model. To manage
our risks an Enterprise Risk Management Framework (ERMF) has been
developed. The Enterprise Risk Management Framework defines the
categorisation of the risks faced by Lookers and sets the
high-level principles and underpinning minimum requirements for the
identification, assessment, monitoring and controlling of each of
those risk categories in line with Lookers' defined risk appetite.
The aim is to support the business in embedding effective risk
management and a strong risk management culture. The ERMF specifies
the framework within which we identify and manage the principal
risks to Lookers and the approach to managing them. We adopt a
'three lines of defence' model. The management of risk is embedded
into each level of the business.
Three Lines of Defence
Lookers applies a "three lines of defence" governance model
across its business. The principal aim of this model is to ensure
that Lookers can demonstrate ownership of risk in the business, and
independent oversight and challenge of those risks by its second
line departments (Risk and Compliance). Internal Audit (the third
line) are in place to provide independent assurance to the Board of
the controls. In summary the accountabilities between lines are
split as follows:
-- The First Line of Defence (the business) are accountable for
owning, taking and managing the risk
-- The Second Line of Defence (Risk and Compliance) operate
independently of the first line. They do not own the risk but
instead independently oversee, advise and challenge the first line
activity
-- The Third Line of Defence (Internal Audit) provide
independent assurance to the Board of the controls
Risk appetite framework
The risk appetite framework defines the level of risk we are
willing to take across the different risk types. Risk appetite is
key for our decision-making process, including ongoing business
planning, new products approvals and business change
initiatives.
In pursuing its business strategy, Lookers recognises a range of
possible outcomes/objectives. The Board sets the "tone from the
top" and provides a basis for ongoing dialogue between management
and Board with respect to Lookers current and evolving risk
profile, allowing strategic and financial decisions to be made on
an informed basis.
Financial reporting
The Executive Directors oversee the preparation of the Group's
annual corporate plan; the Board reviews and approves it and
monitors actual performance against it on a monthly basis. When
deemed appropriate, revised forecasts are prepared and presented
for Board review and approval. To ensure that information
consolidated into the Group's financial statements is in compliance
with relevant accounting standards and the Group's own accounting
policies, internal reporting data is reviewed regularly.
The Audit and Risk Committee reviews the appropriateness of the
Group's accounting policies each reporting period. The Audit and
Risk Committee considers reports from Executive Management,
Internal Audit, the Risk and Compliance teams and the Group's
external auditor, the application of IFRS and the reliability of
the Group's system of control over financial reporting.
During 2019 there have been continued evolution of the Group's
internal controls over financial reporting, including the
development of a Financial Risk Policy and supporting Policy
Standards and a review of the underpinning processes and
procedures, as a part of the wider work on the Enterprise Risk
Management Framework. Progress has been made in a number of key
areas; however, the Board has identified areas where further
improvement is required, both in respect of the ERMF requirements
and in recognition of weaknesses identified from the fraud
Investigation and balance sheet review performed by Grant Thornton.
The Board considers the issues that were identified as being varied
in nature arising from weaknesses in the design and implementation
of policies and procedures, an insufficiently resourced and skilled
finance function and instances of failure to follow policies and
procedures where they existed. Further details of the causes are
identified in the Financial Review. In parallel to this,
consideration has also been made regarding the application and
impact of the new IFRS which are relevant for this and previous
reporting periods.
The Board has recognised the issues arising from the Grant
Thornton Investigation, and the continued development of the ERMF
and has implemented a review and improvement programme for
financial reporting including support from PwC LLP. This programme
will formalise current best practice, roles and responsibilities,
improve documentation of processes, and invest in people and
systems to improve consistency of financial reporting and reduce
scope for management override. The three lines of defence model
used throughout the Group will be further enhanced.
Controls have been designed to ensure that the Group's financial
reporting presents a true and fair reflection of the Group's
financial position. The Board has acknowledged the significant
weakness in the control environment identified by the GT
investigation and its own internal reviews. Responding to these
weaknesses it has considered and approved significant improvements
to the Group's financial reporting structure. Many of these
improvements have been implemented although the process of
improving controls will continue during the remainder of 2020 and
2021.
Overview of principal risks and uncertainties
Appreciating that the operation of any business entails an
element of risk, the Board maintains a policy of continuous
identification and review of risks which may cause the actual
future Group results to differ materially from those expected. The
tables below give an overview of the principal risks and their
impacts faced by the Group aligned to an indication of
corresponding controls and mitigating factors. These risks are not
intended to represent an exhaustive list of all potential risks and
uncertainties, and the factors outlined below should be considered
in conjunction with the Group's system for managing risk as
described below and in the Governance section of the Annual Report
& Accounts.
Financial risks
No. Principal risk and Impact Mitigating activity
description
---------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------
1. Funding and liquidity
risk * Failure of the Group to secure Bank funding, leadi * We ensure that this risk is managed by preparing
* The risk that Lookers does not hold enough liquid ng regular financial forecasts to evaluate our funding
assets to meet our financial obligations. Funding to a dramatic reduction in profitability which may and liquidity requirements for the foreseeable
risk is the risk that Lookers is unable to meet its adversely change the lending decision by banks. future. These forecasts are reviewed and approved,
strategic and business objectives due to lack of and appropriate solutions are put in place.
funding availability. Liquidity risk is the
shorter-term risk that Lookers may be unable to * Failure of the Group to secure Bank funding, leadi
access cash, or bank facilities such as deposits, ng * We ensure that monthly budget management accounts are
overdrafts or loans, required to meet its day-to-da to lack of cash to meet short term funding needs monitored.
y owing to banking convents being breached.
business requirements .
* We ensure that debt to equity ratios remain in line
with policies.
* We ensure that the position with our Bank Club is
kept under continual review including compliance of
our covenants.
* We ensure that cash, or short term, deposits exceed
short term liabilities.
* The management of this risk has been under close
daily review throughout the period of the COVID-19
outbreak and tactical measures put in place as
appropriate to ensure an appropriate level of
liquidity and funding until such time as the business
returns to our normal trading environment.
* The Group applied for and received support from the
Government's emergency measures for business, notably
the Coronavirus Job Retention Scheme
* We strive to achieve optimal working capital
efficiency and debt repayment forecasting. We
continually maintain open dialogue with the banking
club
---------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------
2. Pension risk
* The risk that Lookers does not adequately manage * Failure to manage the pension deficit leading to an * We maintain relationships with pension trustees and
pension liabilities. increase in the deficit which impacts on the level of deliver against pension investment plan. We have kept
deficit payments we are required to make to the both the trustees and regulator informed as we have
scheme. Indirectly it may also have an adverse managed the threats posed by the business being
* The Group is required to managing funding implication on share price and credit rating. temporarily closed as a result of COVID-19.
contributions to its defined benefit pension
obligations.
* Any deterioration in our credit rating would increase * We regularly review investment performance and
our cost of borrowing and may limit the availability liability. The investment strategy aims to partly
or flexibility of future funding for the Group, mitigate the impact of increases in liabilities, for
thereby affecting our ability to invest, pay example by investing in assets that will increase in
dividends or repay debt as it matures. value if future inflation expectations rise. The
assets held are also well diversified reducing the
impact.
* We maintain an open and ongoing dialogue with the
pension trustees understanding their expectations of
funding and sharing with them our financial status
and performance.
---------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------
It should be noted that the Group has had to respond to the
crystallisation of two material risks in the period between
year-end and producing the final ARA. The first was the
identification of an internal fraud (misappropriation of expenses)
in one of our trading divisions. This fraud (totalling circa
GBP327K across multiple years) was perpetrated by one individual
and he is now the subject of a criminal Investigation. Whilst
investigating that fraud, we also identified a material
misstatement in the year end accounts for that trading division
that saw us pause the publication of our Annual Report &
Accounts and undertake a forensic accounting Investigation across
all our divisions and Central Functions.
The conclusion of this accounting Investigation has been
disclosed in the Chairman's statement and the Financial Review. As
a result of this exercise, we have accelerated the implementation
of the Financial Risk minimum standards and controls mandated as a
part of the ERMF. The second has been the emergence of COVID-19 and
the range of management actions that the Group has had to take to
protect both colleagues and customers. Both of these risks have had
a material impact of the Groups risk profile and final reporting
position.
The Board carries out a top down risk assessment of the most
significant strategic risks to the achievement of the Group's
strategic objectives.
These risks are considered to be those that could cause the
greatest damage if not effectively evaluated, understood and
managed. The Board keeps the Group's risk appetite under periodic
review in light of changing market conditions and the Group's
performance and strategic focus.
Regulatory risk
No. Principal risk and Impact Mitigating activity
description
----------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------
3. Regulatory compliance
risk * Potential poor customer outcomes, loss or imposit * We have invested considerably during the year on
* Where the Group's activities are subject to ion capability and capacity within the Risk and
regulatory compliance there is risk that there will of penalties, damages or fines. Compliance function to support the business and
be failure to comply with applicable laws, manage our relationship with regulators and other
regulations, and codes. stakeholders.
* Failure to address forthcoming regulatory
developments.
* We have a Legal function which supports colleagues in
identifying and limiting Legal risks.
* Failure to maintain appropriate regulatory
permissions for Lookers activities.
* We have undertaken a regulatory rule mapping risk
assessment exercise to ensure applicable regulations
* Failure to manage regulatory relationships are caught and built appropriate compliance
effectively. Failure to comply with appropriate frameworks.
reporting disclosure and associated requirements.
* We conduct horizon scanning processes to identify
changes in regulatory expectations. These include any
changes that may be required as a result of the FCA
supervisory review and enforcement process.
* We ensure that we maintain open and transparent
relationships with our regulator. In the period we
have continued to work closely not only with our
Supervisory Team but also the Enforcement Team that
are reviewing some of our historic sales practices
and the Primary Market Oversight division who we have
kept informed of the developments with the year-end
accounts and suspension of our shares.
* We have also engaged appropriate external advisors to
provide knowledge and assurance to enable the Board
to assess its compliance with its legal and
regulatory obligations as and when appropriate.
* We have identified a number of gaps in our financial
reporting and financial control processes which we
are addressing by formalising procedures, training
staff, recruiting additional staff and implementing
compliance reviews.
----------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------
Conduct risk
No. Principal risk and Impact Mitigating activity
description
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
4. Conduct risk
* Conduct risk is a risk that our behaviours, attitudes * Ineffective governance and monitoring arrangements * We have invested considerably during the year on
, leading to unfair customer outcomes. capability and capacity within the Compliance
motivations and actions lead to unfair customer function to support the business and manage our
outcomes or poor standards of customer conduct in our relationship with the regulators and other
trading activities. * A culture that does not put the customer at the heart stakeholders. We ensure that fair customer outcomes
of everything we do. are embedded within our corporate strategy.
* Failure to securely maintain and monitor our customer * Our remuneration incentives, commissions and
data. performance management practices are being designed
to drive the right behaviours helping to deliver fair
customer outcomes.
* Failure to have procedures in place to identify and
treat vulnerable customers appropriately.
* We continually work towards ensuring the accuracy,
security and consistency of the customer data that we
* Failure to design products in accordance with the hold.
firm's business strategy or to meet customer needs.
* We ensure that identification and fair treatment of
* Failure to manage complaints and investigate vulnerable customers is integral to the Lookers way
appropriately. of doing business.
* We ensure new financial promotions, sales process and
products design processes are based on robust market
research and deliver clear and simple products that
meet the needs of our customers.
* We deliver effective training to help our people
understand how they can deliver the best customer
outcomes.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Financial crime risk
No. Principal risk and Impact Mitigating activity
description
------------------------------------------------------------ ----------------------------------------------------------- ------------------------------------------------------------
Financial crime risk
* The risk that Lookers is used to launder the proceeds * We fail to protect our customers and our business * We have put financial crime policies and procedures
of crime, finance terrorist activities, commit fraud from breaching obligations designed to prevent and in place and trained our colleagues accordingly to
or evade financial sanctions. This includes any deter the risk of Lookers being used to facilitate ensure that all colleagues understand their
actions perpetrated against Lookers involving fraud, financial crime. obligations of reporting all Anti Money
theft, dishonesty, internal or external, misconduct Laundering-related suspicions or concerns.
or misuse of information relating to a financial
market. * Failure to comply with the Group's obligations under
the Corporate Criminal Offence legislation and the * We ensure that colleagues understand their
subsequent consequences obligations and put in place processes that allow
them to report all suspicions of internal
fraud/malpractice by colleagues, contractors or
suppliers.
* We ensure that anonymous reporting processes are in
place via the whistleblowing process.
* Where instances of financial crimes arise such as the
internal expenses fraud experienced in the reporting
period these are thoroughly investigated and where
appropriate criminal prosecution is pursued.
------------------------------------------------------------ ----------------------------------------------------------- ------------------------------------------------------------
Strategic risk
No. Principal risk and Impact Mitigating activity
description
------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------
6. Strategic and business
risk * Failure to demonstrate the value-add of the franchise * We have comprehensive management information which
The risk that insufficient model resulting in manufactures moving to direct to tracks performance against strategic objectives and
strategic planning customer sales model. allows dynamic adjustments to be made to inventories,
and/or poor execution pricing and procurement processes in order to respond
result in a failure to market forces.
to: * Failure to meet customers demand for greener vehicles
* adequately manage relationships with the and adapt the business model to potentially lower
manufacturers. demand of diesel vehicles resulting in revenue and * We maintain manufacturer and brand diversity in order
profits suffering damage. to reduce risk.
* adapt to changing market demands including autonomous
driving, EVs and shared mobility demands. * Failure to prepare for Brexit and the departure from * We continually work on improving existing day-to-day
the EU, impacting supply chain business relationships with manufacturers.
* adequately prepare for departure from the EU.
* General economic uncertainty or downturn in consumer * We consider our manufacturers when setting our own
confident arising from Brexit or other macro-economic business objectives and strategies.
issues e.g. a COVID-19 resulting in loss of revenue
and operating profit.
* We ensure that research is conducted, and industry
leading advice is sought when setting the strategic
objectives.
* The impact on our market of the COVID-19 outbreak is
being carefully managed so that the firm is best
placed when the restrictions are relaxed.
* Work undertaken has included a shift in strategic
focus to digital and contactless journeys, ensuring
that we can meet the needs of our OEM partners and
customers whilst ensuring safety, compliance and
confidence.
* We are working closely with our OEM partners who
manage the global automotive supply chain to develop
the necessary mitigating actions to address the
eventual form that Brexit takes.
* We mitigate economic risk by managing a balanced
portfolio of new vehicle sales, used vehicle sales
and after sales and continually optimising our
Dealerships and operating model.
------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------
Operational risk
No. Principal risk and Impact Mitigating activity
description
------------------------------------------------------------- ---------------------------------------------------------------- ----------------------------------------------------------------
7. Operational risk is
defined as a failure * The Group is unable to meet its current and future * We have established Operational Risk policies which
of our people, policies business objectives because of Information Technology are regularly reviewed.
or procedures and systems failures, failing to keep pace with
is divided into a technological change, or logistical crisis and
number of subcategories inadequate investment in systems and controls. * We continually invest in our IT infrastructure.
(Level 2 Risks) including:
Information, IT and * Business interruption without robust business * We are making risk management improvements involving
Cyber security and continuity provisions could materially impact the people, processes and technology as well as
business continuity ability to service customers and clients, resulting prioritising the work according to our assessments of
risk in reputational damage and associated financial loss. security and resilience exposure.
* The Group relies heavily on its underlying IT
infrastructure both from a day-to-day operational
perspective but also to generate timely management * Failure of the Group to develop, retain and motivate * We have continued to tighten our control of sensitive
information. highly skilled employees, in a safe working personal data in accordance with the Data Protection
environment that are necessary to support operations. Act 2018 requirements.
* The Group processes personal information, failure to
protect confidential or sensitive data could result * The Group fails to meet its legal and regulatory * We are undertaking a wide-ranging programme of work
in significant operational and reputational damage. compliance, because of inappropriate sourcing to enhance our Cyber and information security
decisions including outsourcing, errors or omissions controls.
in supplier contracts, and / or supplier failure.
* The Group is responsible for the safeguarding of data,
in accordance with the DPA 2018 and related * We have implemented incident management processing to
legislation. * The Group could be subject to Cyber-attack resulting ensure major incidents are dealt with appropriately
in business interruption, theft of data or ransom. and problems are logged and actively progressed to
resolution.
* As the Group clearly defines its digital presence it
is also mindful of the additional Cyber risks that
require identification from management. * We undertake risk and control assessments to monitor
compliance.
Health, safety and * We continually monitor our mandatory regulatory
wellbeing risk training to ensure that all colleagues are kept
* The Group does not have adequate learning, informed.
development, resource and succession planning
arrangements in place.
* We ensure that incident reporting including lessons
learnt exercises take place to meet health and safety
* The risk that Lookers is unable to meet its business obligations.
objective including legal and regulatory compliance
owing to poor health and safety management and
failures to comply with legal obligations. * We have established Third Party Supplier and critical
outsourcing policies which are regularly reviewed.
Third party supplier * We ensure where relevant, that all suppliers are
and outsourcing risk subject to audits to ensure our suppliers are
* The risk that third-party suppliers and /or critical compliant with legal and regulatory requirements.
outsourcing provider are not appropriately managed in
the event of supplier failure.
* We have developed detailed health and safety
protocols to ensure social distancing and safe
working practices as we begin to reopen after the
COVID-19 lockdown. This includes ensuring the right
level of personal protective equipment (PPE) is
available at all of our sites.
------------------------------------------------------------- ---------------------------------------------------------------- ----------------------------------------------------------------
The assessment of key business risks has been updated from those
disclosed in the 2018 Annual Report & Accounts to incorporate
additional risks pertaining to Regulatory, Conduct and Financial
Crime risks. The Operational risk category includes risks that were
previously disclosed in the 2018 Annual Report & Accounts as
separate risks. We have not provided a trend comparison of the risk
from 2018 and 2019 as we have changed the risk groupings.
Statement of Total Consolidated Comprehensive
Income
For the year ended 31 December 2019 and
31 December 2018
2018
2019 (restated*)
Note GBPm GBPm
Revenue 1 4,787.2 4,828.3
=============================================== ===== ========== ==============
Cost of sales (4,274.1) (4,315.2)
=============================================== ===== ========== ==============
Gross profit 513.1 513.1
=============================================== ===== ========== ==============
Net operating expenses (526.3) (442.3)
=============================================== ===== ========== ==============
Operating (loss)/profit (13.2) 70.8
----------------------------------------------- ----- ========== --------------
Underlying operating profit 36.5 71.7
Non-underlying items 2 (49.7) (0.9)
----------------------------------------------- ----- ---------- --------------
Net interest 3 (32.3) (28.9)
=============================================== ===== ---------- ==============
(Loss)/profit before taxation (45.5) 41.9
=============================================== ===== ---------- ==============
Underlying profit before taxation 4.2 42.8
Non-underlying items (49.7) (0.9)
----------------------------------------------- ----- ---------- --------------
Tax credit/(charge) 4 3.9 (9.3)
=============================================== ===== ========== ==============
(Loss)/profit for the year (41.6) 32.6
=============================================== ===== ---------- ==============
Actuarial gains/(losses) on pension scheme
obligations (not recycled to profit and
loss) 15 7.1 (7.2)
=============================================== ===== ========== ==============
Deferred tax on pension scheme obligations
(not recycled to profit and loss) 4 (1.2) 1.2
=============================================== ===== ========== ==============
Total other comprehensive income/(expense)
for the year 5.9 (6.0)
=============================================== ===== ========== ==============
Total comprehensive (expense)/income for
the year (35.7) 26.6
=============================================== ===== ========== ==============
Attributable to:
====================================================== ========== ==============
Shareholders of the company (35.7) 26.6
=============================================== ===== ========== ==============
(Loss)/earnings per share:
=============================================== ===== ========== ==============
Basic (loss)/earnings per share (p) 6 (10.69) 8.26
=============================================== ===== ========== ==============
Diluted (loss)/earnings per share (p)** 6 (10.69) 7.94
=============================================== ===== ========== ==============
*Details of the restatements due to presentational changes, correction
of errors and adoption of IFRS 16 are in Note 19
**In the year ended 31 December 2019 the basic and diluted earnings
per share are equal as a result of the Group incurring a loss
for the year. This has therefore created an anti-dilutive impact.
Consolidated Statement of Financial Position
As at 1 January 2018, 31 December 2018 and 31 December
2019
Restated
Group Restated * 1 Jan
2019 * 2018 2018
Note GBPm GBPm GBPm
====================================== ====== ========= ========== =========
Non-current assets
====================================== ====== ========= ========== =========
Goodwill 7 81.9 111.7 104.7
======================================= ====== ========= ========== =========
Intangible assets 8 114.2 113.4 111.3
======================================= ====== ========= ========== =========
Property, plant and equipment 9 429.2 416.8 410.3
======================================= ====== ========= ========== =========
Right of use assets 10 107.7 103.3 84.2
======================================= ====== ========= ========== =========
Deferred tax assets - - -
======================================= ====== ========= ========== =========
733.0 745.2 710.5
====================================== ====== ========= ========== =========
Current assets
====================================== ====== ========= ========== =========
Inventories 12 956.5 972.9 941.8
======================================= ====== ========= ========== =========
Trade and other receivables 140.2 160.8 233.5
======================================= ====== ========= ========== =========
Current tax receivable 9.8 - -
====================================== ====== ========= ========== =========
Rental fleet vehicles 59.4 54.2 60.9
======================================= ====== ========= ========== =========
Cash and cash equivalents 150.3 152.8 135.6
======================================= ====== ========= ========== =========
Assets held for sale 11 10.0 8.0 -
======================================= ====== ========= ========== =========
1,326.2 1,348.7 1,371.8
====================================== ====== ========= ========== =========
Total assets 2,059.2 2,093.9 2,082.3
======================================= ====== ========= ========== =========
Current liabilities
====================================== ====== ========= ========== =========
Bank loans and overdrafts 14 119.4 110.0 108.8
======================================= ====== ========= ========== =========
Trade and other payables 1,261.5 1,220.4 1,250.8
======================================= ====== ========= ========== =========
Lease liabilities 14 18.5 18.6 15.8
========== =========
Current tax payable - 3.3 1.9
======================================= ====== ========= ========== =========
1,399.4 1,352.3 1,377.3
====================================== ====== ========= ========== =========
Net current (liabilities)/assets (73.2) (3.6) (5.5)
======================================= ====== --------- ---------- ---------
Non-current liabilities
====================================== ====== ========= ========== =========
Bank loans 14 90.4 128.7 122.8
======================================= ====== ========= ========== =========
Trade and other payables 42.3 39.3 39.0
======================================= ====== ========= ========== =========
Lease liabilities 14 115.6 109.8 89.3
======================================= ====== ========= ========== =========
Provisions 13 10.4 - -
======================================= ====== ========= ========== =========
Pension scheme obligations 15 55.7 68.9 63.8
======================================= ====== ========= ========== =========
Deferred tax liabilities 34.0 33.0 31.6
======================================= ====== ========= ========== =========
348.4 379.7 346.5
====================================== ====== ========= ========== =========
Total liabilities 1,747.8 1,732.0 1,723.8
======================================= ====== ========= ========== =========
Net assets 311.4 361.9 358.5
======================================= ====== ========= ========== =========
Shareholders' equity
====================================== ====== ========= ========== =========
Ordinary share capital 19.5 19.4 19.9
======================================= ====== ========= ========== =========
Share premium 78.4 78.4 78.4
======================================= ====== ========= ========== =========
Capital redemption reserve 15.1 15.1 14.6
======================================= ====== ========= ========== =========
Retained earnings 198.4 249.0 245.6
======================================= ====== ========= ========== =========
Total equity 311.4 361.9 358.5
======================================= ====== ========= ========== =========
*Details of the restatements due to presentational changes, correction
of errors and adoption of IFRS 16 are made below in Note 19.
Consolidated Statement of Changes
in Equity
As at 1 January 2018, 31 December 2018 and 31 December
2019
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
Year ended 31 December
2018 (restated*) Note GBPm GBPm GBPm GBPm GBPm
------------------------------- ===== ========= ========= ============ ========== ========
As at 1 January 2018 19.9 78.4 14.6 272.1 385.0
===== ========= ========= ============ ==========
Correction of errors - - - (7.1) (7.1)
===== ========= ========= ============ ========== ========
Effects of new accounting
standards 0.0 0.0 0.0 (19.4) (19.4)
--------- --------- ------------ ---------- --------
As at 1 January 2018
(restated*) 19.9 78.4 14.6 245.6 358.5
------------------------------- ----- --------- --------- ------------ ---------- --------
Profit for the year - - - 32.6 32.6
=============================== ===== ========= ========= ============ ========== ========
Total other comprehensive
expense for the year - - - (6.0) (6.0)
-------------------------------------- --------- --------- ------------ ---------- --------
Total comprehensive income
for the year - - - 26.6 26.6
========= ========= ============ ========== ========
New shares issued - - - - -
=============================== ===== ========= ========= ============ ========== ========
Share based compensation - - - 1.7 1.7
=============================== ===== ========= ========= ============ ========== ========
Share buy-back (0.5) - 0.5 (9.3) (9.3)
=============================== ===== ========= ========= ============ ========== ========
Foreign exchange translation
differences - - - - -
====================================== ========= ========= ============ ========== ========
Dividends paid 5 - - - (15.6) (15.6)
========== ========
As at 31 December 2018 (restated*) 19.4 78.4 15.1 249.0 361.9
====================================== ========= ========= ============ ========== ========
Year ended 31 December
2019
-------------------------------
As at 1 January 2019 19.4 78.4 15.1 249.0 361.9
=============================== ===== ========= ========= ============ ========== ========
Loss for the year - - - (41.6) (41.6)
=============================== ===== ========= ========= ============ ========== ========
Total other comprehensive
income for the year - - - 5.9 5.9
-------------------------------------- --------- --------- ------------ ---------- --------
Total comprehensive expense
for the year - - - (35.7) (35.7)
========== ========
New shares issued 0.1 - - - 0.1
=============================== ===== ========= ========= ============ ========== ========
Share based compensation - - - 1.4 1.4
=============================== ===== ========= ========= ============ ========== ========
Foreign exchange translation
differences - - - (0.4) (0.4)
====================================== ========= ========= ============ ========== ========
Dividends paid 5 - - - (15.9) (15.9)
========== ========
As at 31 December 2019 19.5 78.4 15.1 198.4 311.4
=============================== ===== ========= ========= ============ ========== ========
*Details of the restatements due to presentational changes, correction
of errors and adoption of IFRS 16 are made below in Note 19.
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Restated*
2019 2018
Note GBPm GBPm
===== ======== ==========
Cash flows from operating activities
============================================== ===== ======== ==========
(Loss)/profit for the year (41.6) 32.6
============================================== ===== ==========
Tax (credit)/charge (3.9) 9.3
============================================== ===== ==========
Depreciation of property, plant and
equipment, rental fleet and right
of use assets 54.1 46.1
============================================== ===== ==========
Profit on disposal of property, plant
and equipment 2 (5.2) . (3.6)
============================================== ===== ==========
Gain on lease surrenders (0.4) 0.0
============================================== ===== ==========
Amortisation of intangible assets 6.1 5.6
============================================== ===== ==========
Share based compensation 1.4 1.7
============================================== ===== ==========
Impairment of property, plant and
equipment 2 4.3 -
============================================== ===== ==========
Impairment of right of use assets 2 1.8 -
============================================== ===== ==========
Impairment of intangible assets (underlying) 2 0.4 0.5
============================================== ===== ==========
Impairment of goodwill and intangible
assets (non-underlying) 3 30.4 -
============================================== ===== ==========
Interest income excluding pension
related interest 3 0.0 (0.3)
============================================== ===== ==========
Interest payable excluding pension
related interest and debt issue costs 3 30.0 26.4
============================================== ===== ==========
Debt issue costs 0.4 1.1
============================================== ===== ==========
Difference between pension charge
and cash contributions (6.1) (2.1)
============================================== ===== ==========
Proceeds from sale of vehicles for
long term leasing 11.3 12.8
============================================== ===== ==========
Proceeds from sale of rental fleet
vehicles 58.7 72.2
============================================== ===== ==========
Creation of provisions 10.4 -
============================================== ===== ==========
Changes in inventories 23.1 (28.2)
============================================== ===== ==========
Changes in receivables 20.6 49.6
============================================== ===== ==========
Changes in payables 25.3 (32.9)
============================================== ===== ==========
Cash generated from operations 221.1 190.8
============================================== ===== -------- ----------
Interest paid (24.3) (20.9)
============================================== ===== ==========
Interest paid - finance leases (5.7) (5.5)
============================================== ===== ==========
Interest received 0.0 0.3
============================================== ===== ==========
Tax paid (9.3) (7.1)
============================================== ===== ==========
Net cash inflow from operating activities 181.8 157.6
============================================== ===== -------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (45.8) (21.5)
============================================== ===== ==========
Purchase of vehicles for long term
leasing (35.5) (26.1)
============================================== ===== ==========
Purchase of rental fleet vehicles (61.7) (60.1)
============================================== ===== ==========
Purchase of intangibles (7.9) (7.9)
============================================== ===== ==========
Purchase of subsidiaries net of cash
received - (13.7)
============================================== ===== ==========
Proceeds from disposal of property,
plant and equipment 17.6 35.1
============================================== ===== ==========
Net cash outflow from investing activities (133.3) (94.2)
============================================== ===== -------- ----------
Cash flows from financing activities
============================================== =====
Proceeds from issue of ordinary shares 0.1 -
============================================== ===== ==========
Redemption of ordinary shares - (9.3)
============================================== ===== ==========
Receipt of funding advanced for vehicle leasing
arrangements 76.5 72.7
===================================================== ==========
Repayment of funding advanced for vehicle leasing
arrangements (69.0) (79.3)
===================================================== ==========
Repayment of loans 14 (1.4) (14.6)
============================================== ===== ==========
Draw down on RCF 14 186.9 135.3
============================================== ===== ==========
Repayment on RCF 14 (224.2) (134.1)
============================================== ===== ==========
Repayment of lease liabilities 14 (15.6) (14.2)
===== ==========
Receipt of lease incentives 14 1.2 -
===== ==========
Dividends paid (15.9) (15.6)
============================================== ===== ==========
Net cash outflow from financing activities (61.4) (59.1)
============================================== ===== -------- ----------
(Decrease)/increase in cash and cash
equivalents (12.9) 4.3
============================================== ===== ==========
Cash and cash equivalents at 1 January 44.3 40.0
============================================== ===== ==========
Cash and cash equivalents at 31 December 31.4 44.3
============================================== ===== -------- ----------
Analysis of cash and cash equivalents
Cash and cash equivalents 150.3 152.8
============================================== ===== ==========
Bank overdraft (118.9) (108.5)
============================================== ===== ==========
Cash and cash equivalents at 31 December 31.4 44.3
============================================== ===== -------- ----------
*Details of the restatements due to presentational changes,
correction of errors and adoption of IFRS 16 are made below
Notes to the financial statements
For the year ended 31 December 2019
Basis of preparation
These consolidated financial statements have been prepared in
accordance with the accounting policies set out in the annual
report for the year ended 31 December 2019. While the financial
information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRSs), as
adopted for use in the EU, this announcement does not itself
contain sufficient information to comply with IFRSs. The Group
expects to publish full financial statements that comply with IFRSs
within two working days.
The financial statements have been prepared on the historical
cost basis of accounting except as disclosed in the accounting
policies set out in the annual report for the year ended 31
December 2019. The same accounting policies, presentations and
methods of computation are followed in the condensed set of
financial statements as applied in the Group's latest annual
audited financial statements. The annual financial statements of
Lookers plc are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
The Directors have made an assessment of going concern,
considering the Group's cash and liquidity position, current
performance and outlook, which considered the impact of the
COVID-19 pandemic, using the information available up to the date
of issue of these financial statements. Management have modelled a
number of adverse scenarios to assess the potential impact that
COVID-19 may have on the Group's operations in addition to the
scenarios discussed in the Viability Statement.
During the lockdown period management worked closely with its
key OEM partners, who have positively supported the business
through the first three quarters of 2020 and are continuing to do
so. Management also took a number of immediate actions to protect
the balance sheet and cash flow including temporary closure of most
of the Group's trading operations, furloughing of the majority of
employees, agreement of a Time to Pay Arrangement with HMRC,
deferral of capital expenditure and identification of property
assets available for sale and cessation of the FY19 dividend.
Additionally, management has taken a number of longer term
actions to protect cash including accelerating and investing in the
development of the Group's end-to-end online ordering capability, a
comprehensive review of working capital management, taking
additional measures to resize the operating footprint and cost base
of the business, and changed operational practices to de-risk the
intra-month cash requirements.
Following the first COVID-19 lockdown, management ran two
forecast scenarios to assess the liquidity needs of the business
and likely impact on banking covenants. Based on further updates
from the government on re-opening management revisited several of
the underlying assumptions in its financial forecasts for the
remainder of FY20 and FY21-23 and prepared a 3 year forecast, with
the benefit of greater clarity around certain strategic decisions,
OEM engagement, SMMT predictions for the sector, the Job Retention
Scheme and HMRC.
The forecast has been sensitised up to 31 December 2021 for what
management consider a reasonable downside scenario being a 20%
decline in aftersales revenue, a compound reduction in new, used
and fleet volumes of 10-20%, a significant regulatory fine and the
inability to dispose of surplus properties throughout 2021. Under
this scenario, the business would continue to operate within the
current banking covenants up until 31 December 2021.
However, given the extent of downturn that was seen in wave 1 of
COVID-19, the ongoing uncertainty of COVID-19, the risks in respect
of Brexit, the uncertainty of resolution of the ongoing regulatory
investigations and the macro-economic factors that could affect the
Group's ability to realise surplus properties, additional stress
testing of revenue volumes was performed to model further downsides
in the key assumptions over and above those previously set out
which the Directors considered to be severe, but plausible. This
scenario, indicated that despite resilience of liquidity the
aggregate of these factors gave rise to a material uncertainty
which may cast significant doubt over the Company's and Group's
ability to continue as a going concern in the event that, following
a covenant breach, lenders elect to trigger a repayment of
outstanding debt. In addition, the Group is subject to certain
reporting deadlines with its lenders. Delays in achievement of
those deadlines could also cause a covenant breach. In such
circumstances and without actioning the various mitigating actions
available, the Company and Group may be unable to realise assets
and discharge liabilities in the normal course of business. The
Company and Group consolidated financial statements do not include
the adjustments that would result if the Company and Group were
unable to continue as a going concern.
In view of the various sensitivities and additional stress
testing, the Board concludes that preparing the accounts on the
basis of Going Concern is appropriate.
1. Segmental reporting
In preparing the financial statements the Directors have reassessed
and revised the presentation of the segmental information to
better reflect the Group's revenue streams, gross profit contributions
and the single-segment trading nature of the business' operations.
No further disclosures have been made given the single segment
trading nature of the business' operations which are predominantly
transacted in the United Kingdom.
In preparing the revised presentation, revenues from leasing
and other revenue channels have been shown separately from
aftersales and all channels have been shown as gross totals
prior to the elimination of intercompany trading activity so
as to provide more granular detail around the Group's internal
trading activities.
2019 2018 (restated)**
GBPm Mix* GBPm Mix*
--------------------------- ------------- ----------------------------- ------ ------------------ --------
New cars 2,226.4 43.0% 2,364.7 45.8%
Used cars 2,326.3 44.9% 2,215.7 43.0%
Aftersales 495.3 9.5% 464.0 9.0%
Leasing and other 134.0 2.6% 115.3 2.2%
Less: intercompany (394.8) - (331.4) -
------------------------------------------ ----------------------------- ------ ------------------
Revenue 4,787.2 100% 4,828.3 100%
------------------------------------------ ----------------------------- ------ ------------------ --------
*Mix calculation excludes the effect
of intercompany revenues.
**Previously New car revenue was disclosed as GBP2,384.8m,
Used car revenues was disclosed as GBP1,939.4m and Aftersales
was disclosed as GBP545.3m. No disclosures were made with regards
to Leasing and other, intercompany eliminations or the relative
revenue channels gross profit contributions.
2. Non-underlying items
The following details items of income and expenditure that the
Group has classified as non-underlying in its statement of total
comprehensive income.
2019 2018
Note GBPm GBPm
----------------------------------------------------------------- -------------- ------------------ ---------
Non-underlying items at operating
profit
================================================================= ============== ================== =========
1 - Gain on property disposals 9,11 (4.9) (2.5)
================================================================= ============== ================== =========
2 - Impairment of property, plant
and equipment 9 3.7 -
================================================================= ============== ================== =========
2 - Impairment of right of use assets 10 1.8 -
================================================================= ============== ================== =========
2 - Restructuring costs 8.8 -
================================================================= ============== ================== =========
3 - Impairment of goodwill and intangible
assets 7 30.4 -
================================================================= ============== ================== =========
4 - Value added tax (VAT) (6.2) -
================================================================= ============== ================== =========
5 - Restructure of regulated activities 4.7 -
================================================================= ============== ================== =========
5 - FCA provision 10.4 -
================================================================= ============== ================== =========
6 - Additional pension past service
costs - 3.4
================================================================= ============== ================== =========
7 - Accrual for potential tax penalties 1.0 -
================================================================= ============== ================== =========
49.7 0.9
================================================================= ============== ================== =========
1 - Property disposals relate to the net gains on the sale of a
number of freehold properties during the current year. In the
comparative period the net gains were recognised following the sale
and leaseback of two properties.
2 - In addition to the group-wide restructuring, costs relating
to site closure and impairment losses have been recognised during
the year net of GBP0.6m of insurance income recorded herein.
3 - During the year the Directors have concluded that impairment
charges against the carrying value of certain elements of the
groups intangible asset base is required given the current market
conditions.
4 - During the year the Group has benefitted from a change in
how HMRC view VAT treatment for dealer deposit contributions which
was previously uncertain and has given rise to a one-off credit of
GBP5.6m in respect of prior periods. In addition, a one-off VAT
charge totalling GBP2.0m has been made in relation to manufacturer
deposit contributions and following a challenge over accounting for
VAT on Motability sales, the Group has recognised a credit of
GBP2.6m in year ending 31 December 2019.
5 - Costs totalling GBP4.7m in respect of the Group wide FCA
focused restructure plan have been recorded as non-underlying.
These costs represent the infrequently occurring set-up expenditure
for the establishment of new processes and controls and governance
structure in order to improve internal control, risk assurance
systems and internal audit as well as delivering best practice and
an enhanced customer experience. A provision of GBP10.4m has been
recorded in respect of FCA related matters. See Note 13 for further
details
6 - In the year ending 31 December 2018, GBP3.4m of enhanced
past service pension costs were incurred in respect of pension
harmonisation charges and have been treated as non-underlying
items.
7 - An accrual of GBP1.0m has been recognised in respect of
potential tax penalties arising from the understatement of taxable
profits in prior years in some of the Group's subsidiary
undertakings.
3. Net interest
2019 2018 (restated)
GBPm GBPm
------------------------------------------ ------- ----------------
Interest expense:
------------------------------------------ ------- ----------------
Interest payable on bank borrowings (10.0) (5.6)
=========================================== ======= ================
Interest on consignment, repurchase
vehicle liabilities and stocking loans (12.1) (13.1)
=========================================== ======= ================
Leasing finance interest (2.2) (2.2)
=========================================== ======= ================
Interest on lease liabilities (5.7) (5.5)
=========================================== ======= ================
Interest cost on defined benefit pension
obligation (8.1) (7.4)
=========================================== ======= ================
Debt issue costs (0.4) (1.1)
(38.5) (34.9)
------------------------------------------ ------- ----------------
Interest income:
------------------------------------------ ------- ----------------
Interest income on bank balances - 0.3
=========================================== ======= ================
Interest income on pension scheme assets 6.2 5.7
6.2 6.0
------------------------------------------ ------- ----------------
Net interest (32.3) (28.9)
------------------------------------------- ------- ----------------
4. Taxation
2019 2018 (restated)
GBPm GBPm
--------------------------------------------- ------- ----------------
Current tax (credit)/charge:
============================================= ======= ================
Current year (1.2) 11.1
=============================================== ======= ================
Adjustment in respect of prior
years (2.5) (1.8)
(3.7) 9.3
--------------------------------------------- ------- ----------------
Deferred tax (credit)/charge:
============================================= ======= ================
Deferred tax - origination and reversal
of temporary differences 0.2 -
============================================== ======= ================
Adjustment in respect of prior
years (0.4) -
(0.2) 0.0
--------------------------------------------- ------- ----------------
Total tax (credit)/charge (3.9) 9.3
----------------------------------------------- ------- ----------------
Tax on items charged to other comprehensive
income:
============================================== ======= ================
Tax on pension scheme obligations 1.2 (1.2)
=============================================== ======= ================
1.2 (1.2)
--------------------------------------------- ------- ----------------
Reconciliation of total tax
============================================= ======= ================
(Loss)/profit before tax (45.5) 41.9
=============================================== ======= ================
Standard rate of corporation tax
at 19% (2019: 19%) (8.6) 7.9
=============================================== ======= ================
Disallowable items 6.4 2.8
=============================================== ======= ================
Share based compensation 0.7 0.5
=============================================== ======= ================
Adjustment in respect of prior
years (2.9) (1.8)
=============================================== ======= ================
Difference on overseas tax rate 0.5 (0.1)
======= ================
Total tax (3.9) 9.3
----------------------------------------------- ------- ----------------
A reduction in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016, and the deferred tax liability as at 31 December
2019 has been calculated at this rate. In the 11 March 2020 budget
it was announced that the UK tax rate will remain at the current
rate of 19% and not reduce to 17% from 1 April 2020. This will have
a consequential effect on the Group's future tax charge. If this
rate change had been substantively enacted at the current balance
sheet date the deferred tax liability would have increased by
GBP4.0m.
5. Dividends
Group
-------------------------------------------------- ------ ------
2019 2018
GBPm GBPm
================================================== ====== ======
Interim dividend for the years ended 31 December
2019 and 2018 1.48p
(2018: 1.48p) 5.8 5.8
==================================================== ====== ======
Final dividend for the years ended 31 December
2018 and 2017 2.60p
(2017: 2.48p) 10.1 9.8
==================================================== ------ ------
15.9 15.6
-------------------------------------------------- ------ ------
The Directors do not propose a final dividend in respect of the
financial year ended 31 December 2019 (2018: final dividend
2.60p).
6. (Loss)/earnings per share
2019 2018 (restated)
(Loss)/earnings attributable to ordinary
shareholders (GBPm) (41.6) 32.6
=============================================== ============ ================
Weighted average number of shares in issue 389,182,654 394,662,632
Basic (loss)/earnings per share (p) (10.69) 8.26
----------------------------------------------- ============ ----------------
(Loss)/earnings attributable to ordinary
shareholders (GBPm) (41.6) 32.6
=============================================== ============ ================
Dilutive effect of share based payment
options and weighted average number of
shares in issue 393,961,890 410,404,570
Diluted (loss)/earnings per share (p) (10.69) 7.94
----------------------------------------------- ------------ ----------------
(Loss)/profit before tax (GBPm) (45.5) 41.9
=============================================== ============ ================
Add: Non-underlying items (GBPm) 49.7 0.9
----------------------------------------------- ------------ ----------------
Underlying profit before tax (GBPm) 4.2 42.8
=============================================== ============ ================
Tax rate 19.0% 19.0%
=============================================== ============ ================
Underlying tax (GBPm) (0.8) (8.1)
----------------------------------------------- ------------ ----------------
Underlying earnings attributable to ordinary
shareholders (GBPm) 3.4 34.7
=============================================== ============ ================
Weighted average number of shares in issue 389,182,654 394,662,632
Underlying basic earnings per share (p) 0.87 8.78
----------------------------------------------- ------------ ----------------
In the year ended 31 December 2019 the basic and diluted
earnings per share are equal as a result of the Group incurring a
loss for the year. This has therefore created an anti-dilutive
impact. The diluted weighted average number of shares in issue in
2019 was 393,961,890. The weighted average number of ordinary
shares in 2018 has been restated following a restatement to the
Company's share capital at 31 December 2018 and earnings per share
have been restated following the adoption of IFRS 16 and the
recognition of prior period adjustments.
7. Goodwill
Group
2019 2018 (restated) 2017 (restated)
Cost GBPm GBPm GBPm
At 1 January 122.4 115.1 119.3
========================================= ====== ================ ================
Correction of errors - - (4.2)
------------------------------- --- --- ------ ---------------- ----------------
At 1 January (restated) 122.4 115.1 115.1
=============================== === === ====== ================ ================
Additions - 7.3 -
As at 31 December 122.4 122.4 115.1
------------------------------- --- --- ------ ---------------- ----------------
Aggregate impairment
=============================== === === ====== ================ ================
At 1 January 10.7 10.4 10.4
========================================= ====== ================ ================
Charge for the year 29.8 0.3 -
As at 31 December 40.5 10.7 10.4
------------------------------- --- --- ------ ---------------- ----------------
Carrying amount at 31 December 81.9 111.7 104.7
------------------------------------ --- ------ ---------------- ----------------
Following the Group's annual impairment review and a
deterioration in expected market conditions underpinning the value
in use calculations, an impairment charge of GBP29.8m has been
recognised during the year (2018: GBP0.3m).
The following table summarises goodwill and intangibles with an
indefinite useful economic life allocated by CGU:
2019 2018 2017
2019 Licence 2019 2018 Licence 2018 2017 Licence 2017
Goodwill and brands Total Goodwill and brands Total Goodwill and brands Total
CGU GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
JLR 9.0 - 9.0 11.8 - 11.8 11.8 - 11.8
Audi 22.1 28.9 51.0 22.1 28.9 51.0 22.1 28.9 51.0
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Charles
Hurst 9.4 - 9.4 9.4 - 9.4 9.4 - 9.4
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Renault
Nissan Dacia 2.6 2.9 5.5 2.6 2.9 5.5 2.6 2.9 5.5
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Mercedes-Benz 15.2 28.2 43.4 15.2 28.2 43.4 15.2 28.2 43.4
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Volkswagen 6.9 15.9 22.8 6.9 15.9 22.8 7.2 15.9 23.1
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Ford 7.4 2.9 10.3 24.8 2.9 27.7 17.5 2.9 20.4
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
BMW 0.0 21.7 21.7 9.6 22.3 31.9 9.6 22.3 31.9
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Vauxhall 0.2 - 0.2 0.2 - 0.2 0.2 - 0.2
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Fleet &
Leasing 9.1 - 9.1 9.1 - 9.1 9.1 - 9.1
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
81.9 100.5 182.4 111.7 101.1 212.8 104.7 101.1 205.8
---------- ----------- ------- ----------- ----------- ------- ---------- ----------- -------
Figures included in the 2017 and 2018 goodwill allocations by
CGU have been re-presented following the recognition of prior
period adjustments.
The Group's three-year strategic review considers the Group's
profit and loss, cashflows, debt and other key financial ratios
over the period.
There are a number of key assumptions within these forecasts and
these have been based on management's past experience and knowledge
of the market. The key assumptions that have been used in
determining the value in use of each cash generating unit in the
impairment model are set out in the table below:
Assumption 2019 2018 2017
One to five-year revenue 0.0% to 0.0% to 0.0% to
growth 1.0% 1.4% 1.6%
One to five-year operating 0.0% to 0.0% to 0.0% to
expenses growth 2.0% 1.1% 1.1%
-------- -------- --------
Post year five growth rate 0% 0% 0%
-------- -------- --------
Discount rate 8.51% 8.70% 9.70%
-------- -------- --------
The value-in-use of each CGU is calculated using cash flow
projections for a five-year period; from 1 January 2020 to 31
December 2024. These projections are based on the Board approved
budget for the year ending 31 December 2020 forming the basis for
the Group's strategic plan. The key assumptions in the most recent
annual budget on which the cash flow projections are based relate
to expectations of sales volumes and margins and expectations
around changes in the operating cost base.
The pre-tax adjusted discount rate used has been calculated
using the Group's estimated cost of capital, adjusted for the
impact of IFRS 16 and benchmarked against externally available
data.
As noted above an impairment of GBP29.8m has been recognised to
reduce the carrying amount of goodwill in three cash generating
units where the value in use estimation was lower than the
associated carrying value. Acknowledging continued uncertainty in
the UK economy, including the impact of post-Brexit negotiations,
we have performed further sensitivity analysis. This principally
has been a reduction in forecast revenues and associated margins of
up to 5.5% and 2.5% respectively as well as up to 2.0% increase in
direct costs. This shows that, with the exception of the JLR, Ford
and BMW CGU's, no impairment arises in response to reasonable
possible change scenarios as at 31 December 2019 balance sheet
position. This sensitivity reduces the headroom on the Renault
Nissan Dacia CGU to GBP0.9m and for the three CGU's that show
additional impairment, the additional impairment that would arise
is as follows:
Additional impairment
CGU - GBPm
JLR 15.9
Ford 11.9
----------------------
BMW 5.9
----------------------
Total 33.7
----------------------
Details with regards to subsequent events effecting the carrying
value of goodwill and non amortised intangible assets are
considered in Note 16.
Since the finalisation of the impairment review the Group has
merged the operational activities of the Renault Nissan Dacia CGU
with that of the Vauxhall CGU. Subsequent impairment reviews will
therefore be undertaken based on this revised CGU.
8. Intangible assets
Licences
and brands IT development Total
Group GBPm GBPm GBPm
----------------------------------------- ------------ --------------- ------
Cost
At 1 January 2018 102.6 23.8 126.4
========================================== ============ =============== ======
Additions - 7.9 7.9
========================================== ============ =============== ======
At 31 December 2018 102.6 31.7 134.3
------------------------------------------ ------------ --------------- ------
At 1 January 2019 102.6 31.7 134.3
========================================== ============ =============== ======
Additions - 7.9 7.9
========================================== ============ =============== ======
At 31 December 2019 102.6 39.6 142.2
------------------------------------------ ------------ --------------- ------
Accumulated amortisation and impairment
========================================== ============ =============== ======
At 1 January 2018 1.5 12.6 14.1
========================================== ============ =============== ======
Correction of
errors - 1.0 1.0
------------------------------------------ ------------ --------------- ------
At 1 January 2018 (restated) 1.5 13.6 15.1
========================================== ============ =============== ======
Charge for the year - 5.6 5.6
========================================== ============ =============== ======
Correction of
errors - 0.2 0.2
------------------------------------------ ============ ======
At 31 December 2018 (restated) 1.5 19.4 20.9
------------------------------------------ ------------ --------------- ------
At 1 January 2019 1.5 19.4 20.9
========================================== ============ =============== ======
Charge for the year - 6.1 6.1
========================================== ============ =============== ======
Impairment charge 0.6 0.4 1.0
========================================== ============ ======
At 31 December 2019 2.1 25.9 28.0
------------------------------------------ ------------ --------------- ------
Carrying amount
As at 1 January 2018 (restated) 101.1 10.2 111.3
------------------------------------------ ------------ --------------- ------
As at 31 December 2018 and 1 January
2019 (restated) 101.1 12.3 113.4
------------------------------------------ ------------ --------------- ------
As at 31 December 2019 100.5 13.7 114.2
------------------------------------------ ------------ --------------- ------
The impairment charge of GBP0.6m relating to licences and brands
incurred in the year has been included in non-underlying items
following the Group's annual impairment review. The impairment
charge of GBP0.4m has been recorded in underlying items and has
arisen following a review of the continued use of IT platforms that
were capitalised in 2019.
At 31 December 2019 there is an amount of GBPnil (2018: GBPnil)
committed for future capital expenditure.
9. Property, plant and equipment
Motor
Freehold Leasehold vehicles
property property for rental Other Total
Group GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ------------ ------- -------
Cost
At 1 January 2018 (as stated) 267.8 77.7 - 77.3 422.8
======================================= ========== ========== ============ ======= =======
Corrections of errors - policy
misapplication - - 98.9 - 98.9
======================================= ========== ========== ============ ======= =======
Corrections of errors - control
weakness 1.4 4.2 (4.9) 0.7
======================================= ========== ========== ============ ======= =======
Effect of IFRS 16 - (5.8) - - (5.8)
--------------------------------------- ---------- ---------- ------------ ------- -------
At 1 January 2018 (restated) 269.2 76.1 98.9 72.4 516.6
--------------------------------------- ---------- ---------- ------------ ------- -------
Additions 12.8 0.9 26.1 7.8 47.6
======================================= ========== ========== ============ ======= =======
Additions from business combinations 11.4 0.5 - 0.6 12.5
======================================= ========== ========== ============ ======= =======
Disposals (13.2) (0.1) (1.0) (3.3) (17.6)
======================================= ========== ========== ============ =======
Transfers to inventories - - (25.5) - (25.5)
======================================= =======
Transfers to assets held
for sale (11.7) - - - (11.7)
======================================= ========== ========== ============ ======= =======
Corrections of errors - control
weakness - - 7.4 7.4
======================================= ========== ========== ============ ======= -------
At 31 December 2018 (restated) 268.5 77.4 98.5 84.9 529.3
--------------------------------------- ---------- ---------- ------------ ------- -------
At 1 January 2019 268.5 77.4 98.5 84.9 529.3
======================================= ========== ========== ============ ======= =======
Movements in foreign exchange (1.0) - - (0.1) (1.1)
======================================= ========== ========== ============ ======= =======
Additions 3.7 10.5 35.5 31.6 81.3
======================================= ========== ========== ============ ======= =======
Disposals (9.7) (1.6) (0.4) (10.2) (21.9)
======================================= ========== ========== ============ ======= =======
Transfers 15.3 6.6 - (21.9) -
======================================= ========== ========== ============ ======= =======
Transfers to inventories - - (32.5) - (32.5)
======================================= ========== ========== ============ ======= =======
Transfers to assets held
for sale (6.6) - - - (6.6)
========== ============ ======= =======
At 31 December 2019 270.2 92.9 101.1 84.3 548.5
--------------------------------------- ---------- ---------- ------------ ------- -------
Accumulated depreciation and impairment
At 1 January 2018 (as stated) 18.6 17.1 - 45.1 80.8
======================================= ========== ========== ============ ======= =======
Corrections of errors - policy
misapplication - - 29.8 - 29.8
======================================= ========== ========== ============ ======= =======
Corrections of errors - control
weakness 1.5 (0.4) - (2.9) (1.8)
======================================= ========== ========== ============ ======= =======
Effect of IFRS 16 - (2.5) - - (2.5)
--------------------------------------- ---------- ---------- ------------ ------- -------
At 1 January 2018 (restated) 20.1 14.2 29.8 42.2 106.3
--------------------------------------- ---------- ---------- ------------ ------- -------
Charge for the year 2.0 2.4 16.1 6.3 26.8
======================================= ========== ========== ============ ======= =======
Disposals (1.1) - (0.7) (3.3) (5.1)
======================================= ========== ========== ============ ======= =======
Transfers to inventories - - (14.3) - (14.3)
======================================= ========== ========== ============ ======= =======
Transfers to assets held
for sale (1.2) - - - (1.2)
========== ========== ============ ======= =======
At 31 December 2018 (restated) 19.8 16.6 30.9 45.2 112.5
--------------------------------------- ---------- ---------- ------------ ------- -------
At 1 January 2019 19.8 16.6 30.9 45.2 112.5
======================================= ========== ========== ============ ======= =======
Movements in foreign exchange - - - (0.1) (0.1)
======================================= ========== ========== ============ ======= =======
Charge for the year 2.5 3.0 19.0 9.5 34.0
======================================= ========== ========== ============ ======= =======
Impairment loss 3.1 - - 1.2 4.3
======================================= ========== ========== ============ ======= =======
Disposals (0.6) (1.3) (0.4) (10.0) (12.3)
======================================= ========== ========== ============ ======= =======
Transfers to inventories - - (17.6) - (17.6)
======================================= ========== ========== ============ ======= =======
Transfers to assets held
for sale (1.5) - - - (1.5)
========== ============ =======
At 31 December 2019 23.3 18.3 31.9 45.8 119.3
--------------------------------------- ---------- ---------- ------------ ------- -------
Carrying amount
As at 1 January 2018 (restated) 249.1 61.9 69.1 30.2 410.3
--------------------------------------- ---------- ---------- ------------ ------- -------
As at 31 December 2018 and
1 January 2019 (restated) 248.7 60.8 67.6 39.7 416.8
--------------------------------------- ---------- ---------- ------------ ------- -------
As at 31 December 2019 246.9 74.6 69.2 38.5 429.2
--------------------------------------- ---------- ---------- ------------ ------- -------
Assets in the course of construction relate to build costs that
have been incurred but the property is not yet in use and are
included in Other. The total of these assets held at 31 December is
GBP3.6m (2018: GBP8.9m). These assets will be transferred to
Freehold or Leasehold property when complete. Other includes plant
and machinery, fixtures, fittings and tools and equipment.
Included within freehold property is freehold land at a cost of
GBP7.5m (2018: GBP6.5m) which is not depreciated. At 31 December
2019 there is an amount of GBP7.2m (2018: GBPnil) committed for
future capital expenditure.
Following the identification of prior period adjustments, the
analysis of property plant and equipment has been altered to
account for the restatement of leased motor vehicles for rental as
property, plant and equipment. In addition, there are several other
reclassifications as a result of the prior period adjustments.
During the year ending 31 December 2019 the total net book value
of disposals from property amounted to GBP9.6m. Total proceeds
received was GBP14.7m resulting in a gain on disposals of
GBP5.1m.
Following the Group's restructuring program, an impairment
charge of GBP3.1m has been recorded representing an adjustment to
the expected recoverable values of assets subsequently transferred
into assets held for sale. A further GBP1.2m has been recognised as
an impairment loss against the carrying amount of affected assets
following a fire at one of the Group's dealerships during 2019. At
the balance sheet date GBP5.1m of properties have been reclassified
into to assets held for sale. See Note 11 for further details.
10. Right of use assets
Property Other Total
Group GBPm GBPm GBPm
Cost
At 1 January 2018 205.3 3.6 208.9
========================================== ========= ====== ======
Additions 30.7 2.4 33.1
========================================== ========= ====== ======
Additions from business
combinations 4.5 - 4.5
========================================== ========= ====== ======
Retirements and surrenders (0.4) - (0.4)
========= ====== ======
At 31 December 2018 240.1 6.0 246.1
------------------------------------------ --------- ------ ------
Cost
At 1 January 2019 240.1 6.0 246.1
========================================== ========= ====== ======
Additions 19.5 2.9 22.4
========================================== ========= ====== ======
Retirements and surrenders (5.3) (2.6) (7.9)
======
At 31 December 2019 254.3 6.3 260.6
------------------------------------------ --------- ------ ------
Accumulated depreciation and impairment
At 1 January 2018 123.4 1.3 124.7
========================================== ========= ====== ======
Charge for the year 10.4 2.6 13.0
========================================== ========= ====== ======
Sale and leaseback remeasurement 5.2 - 5.2
========================================== ========= ====== ======
Retirements and surrenders (0.1) - (0.1)
========================================== ========= ====== ======
At 31 December 2018 138.9 3.9 142.8
------------------------------------------ --------- ------ ------
At 1 January 2019 138.9 3.9 142.8
========================================== ========= ====== ======
Charge for the year 11.5 2.8 14.3
========================================== ========= ====== ======
Impairment charge 1.8 - 1.8
========================================== ========= ====== ======
Retirements and surrenders (3.4) (2.6) (6.0)
========================================== ========= ====== ======
At 31 December 2019 148.8 4.1 152.9
------------------------------------------ --------- ------ ------
Carrying amount
----------------------------------------- --------- ------ ------
As at 1 January 2018 81.9 2.3 84.2
As at 31 December 2018 and 1 January
2019 101.2 2.1 103.3
------------------------------------------ --------- ------ ------
As at 31 December 2019 105.5 2.2 107.7
------------------------------------------ --------- ------ ------
Included within the Other category are leases for
motor vehicles and IT equipment.
11. Assets held for sale
Group Group Group
Lower of carrying amount and fair 2019 2018 2017
value less cost to sell GBPm GBPm GBPm
At 1 January 8.0 - -
================================================== ====== ====== ======
Net transfers from property, plant and equipment
and financial liabilities 5.1 8.0 -
=================================================== ====== ====== ======
Disposals (3.1) - -
================================================== ====== ====== ======
At 31 December 10.0 8.0 -
--------------------------------------------------- ------ ------ ------
During the year the total carrying amount disposed from held for
sale amounted to GBP3.1m. Total proceeds received was GBP2.9m
resulting in a loss on property disposals of GBP0.2m. As a result
of the restructuring events during 2019 certain properties have
been transferred from property, plant and equipment into assets
held for sale at 31 December 2019.
12. Inventories
2017
2019 2018 (restated) (restated)
Group GBPm GBPm GBPm
---------------------- ------------ ---------------- ------------
Goods for resale 398.7 464.9 443.2
======================== ============ ================ ============
Vehicle spare parts
for resale 24.1 28.0 34.6
======================== ============ ================ ============
Consignment vehicles 533.7 480.0 464.0
956.5 972.9 941.8
---------------------- ------------ ---------------- ------------
Total write-offs of GBP0.0m (2018: GBP0.1m, 2017: GBP0.0m) have
been incurred during the year and there has been no reversals of
past write-downs (2018: none, 2017: none). Stocking loans provided
by third party finance houses are secured over the vehicles used
for the provision of such finance.
Included within goods for resale are vehicles leased out to
staff employees on short-term lease arrangements via a third party
but are still actively marketed for immediate sale to third parties
by the Group as the group has not relinquished control of these
vehicles. As at 31 December 2019 these total GBP33.0m (2018:
GBP26.1m, 2017 GBP21.3m).
At 31 December 2019 the Group had entered into a number of
future purchase commitments amounting to GBP11.6m (2018: GBP8.1m,
2017: GBP3.2m) which are not recognised in the financial
statements.
13. Provisions
Group
2019 2018 2017
GBPm GBPm GBPm
------------------ ------ ------
Provision in respect of regulatory
matters 10.4 - -
===================================== ==================
At 31 December 10.4 - -
------------------------------------ ------------------ ------ ------
Provisions
for other
Group charges
------------------------------------ ------------------
At 1 January 2019 -
==================================== ==================
Created in the year 10.4
===================================== ==================
Utilised during the
year -
====================================
At 31 December 2019 10.4
------------------------------------- ------------------
The Group is currently in discussion with the FCA on a number of
matters including the past business review, ongoing enforcement
review and the events that led to the delay in publishing the
Annual Report & Accounts and the suspension of shares on 1 July
2020. After careful consideration of the open matters, the Board
has concluded that it is more likely than not that the Group will
incur an outflow of economic resources in respect of at least some
of these matters and has therefore recorded a provision at 31
December 2019. The spectrum of possible outcomes which includes
restitution of customer detriment, additional costs associated with
the regulated activities and potential sanctions (which may or may
not include a fine) is broad and the considered outcome based on
that range is GBP10.4m.
14. Financial instruments
At 1 At 31
Movement in Jan Net RCF Loan Lease Lease Lease Non-cash Dec
financial 2019 movement repayment incentives repayment receipt movement 2019
liabilities GBPm GBPm GBPm GBPm GBPm GBPm GBP m GBPm
------------- -------- ---------- ------------ ----------- ---------- -------- --------- ---------------------------
Other loans 11.5 - (1.4) - - - - 10.1
============= ======== ========== ============ =========== ========== ======== ========= ===========================
RCF 118.7 (37.3) - ` ` - (0.6) 80.8
============ =========== ========== ======== ========= ===========================
Lease
liabilities 128.4 - - 1.2 (15.6) - 20.1 134.1
============= ======== ========== ============ =========== ========== ======== ===========================
Vehicle
rental
finance
liabilities 89.7 - - - (69.0) 76.5 - 97.2
============= ======== ========== ============ =========== ======== ========= ===========================
348.3 (37.3) (1.4) 1.2 (84.6) 76.5 19.5 322.2
------------- -------- ---------- ------------ ----------- ---------- -------- --------- ---------------------------
Cash and
cash
equivalents (152.8) (150.3)
============= ======== ========== ============ =========== ========== ======== ========= ===========================
Bank
overdraft 108.5 118.9
============= ========== ============ =========== ========== ======== =========
Net debt
excluding
lease and
vehicle
rental
liabilities 85.9 59.5
============= -------- ========== ============ =========== ========== ======== ========= ---------------------------
Net debt
including
lease and
vehicle
rental
liabilities 304.0 290.8
============= -------- ========== ============ =========== ========== ======== ========= ---------------------------
Non-cash movements in relation to IFRS 16 relate to the recognition
and de-recognition of lease liabilities.
Debt
At 1 arising At 31
Movement in Jan Net RCF on Loan Lease Lease Non-cash Dec
financial 2018 movement acquisition repayment repayment receipt movement 2018
liabilities GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------- ---------- ------------ ----------- ---------- -------- --------- ---------------------------
Term loans 75.0 - - (5.0) - - (70.0) 0.0
============= ======== ========== ============ =========== ========== ======== ========= ===========================
Other loans 15.2 - 5.9 (9.6) - - - 11.5
============= ======== ========== ============ =========== ========== ======== ========= ===========================
RCF 45.8 1.2 - - - - 71.7 118.7
Lease
liabilities 105.1 - - - (14.2) - 37.5 128.4
============= ======== ========== ============ =========== ========== ======== ========= ===========================
Vehicle
rental
finance
liabilities 96.3 - - - (79.3) 72.7 - 89.7
=============
337.4 1.2 5.9 (14.6) (93.5) 72.7 39.2 348.3
------------- -------- ---------- ------------ ----------- ---------- -------- --------- ---------------------------
Cash and
cash
equivalents (135.6) (152.8)
============= ======== ========== ============ =========== ========== ======== ========= ===========================
Bank
overdraft 95.6 108.5
============= ======== ========== ============ =========== ========== ======== ========= ===========================
Net debt
excluding
lease and
vehicle
rental
liabilities 96.0 85.9
============= ========== ============ =========== ========== ======== =========
Net debt
including
lease and
vehicle
rental
liabilities 297.4 304.0
============= -------- ---------------------------
A non-cash movement of GBP1.7m arose in the prior year following
the retranslation of a Euro denominated loan and the reclassification
and amortisation of the Group's debt issue costs. Non-cash movements
in relation to IFRS 16 relate to the recognition and de-recognition
of lease liabilities.
15. Pensions
The Group operates three defined benefit pension schemes, The
Lookers Pension Plan (operated by Lookers plc company), The
Dutton Forshaw Group Pension Plan and the Benfield Group Pension
Plan. The summary of the assets, liabilities and surplus or
deficits of these schemes are summarised below. The Group's
risk management strategy for pension liabilities is summarised
within the Strategic Review section.
During the previous year the Dutton Forshaw Group Pension Plan
merged with the Lookers Pension Plan. Some assets were retained
in the Dutton Forshaw Group Pension Plan to cover any remaining
scheme liabilities and associated costs with closing the scheme.
The Dutton
Forshaw
The Lookers Group The Benfield
Pension Pension Group Pension
Plan Plan Plan Total
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ----------- --------------- --------
Defined benefit obligation (283.1) (2.7) (14.2) (300.0)
Scheme assets 226.4 4.4 13.5 244.3
============ =========== ===============
(Deficit)/surplus (56.7) 1.7 (0.7) (55.7)
====================================== ============ =========== =============== ========
Amounts recognised in the
income statement 2.8 0.1 - 2.9
====================================== ============ =========== =============== ========
Actuarial gains/(losses) recognised
in the statement of comprehensive
income 6.8 0.1 0.2 7.1
====================================== ============ =========== =============== ========
Cumulative fair value losses
on plan assets (10.5) - (1.0) (11.5)
The Dutton
Forshaw
The Lookers Group The Benfield
Pension Pension Group Pension
Plan Plan Plan Total
2018 2018 2018 2018
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ----------- --------------- --------
Defined benefit obligation (271.2) (2.8) (12.6) (286.6)
====================================== ============ =========== =============== ========
Scheme assets 201.8 4.5 11.4 217.7
====================================== ============ =========== =============== ========
(Deficit)/surplus (69.4) 1.7 (1.2) (68.9)
====================================== ============ =========== =============== ========
Amounts recognised in the
income statement 5.8 0.3 0.2 6.3
====================================== ============ =========== =============== ========
Actuarial losses recognised
in the statement of comprehensive
income (6.5) (0.1) (0.6) (7.2)
====================================== ============ =========== =============== ========
Cumulative fair value losses
on plan assets (17.3) (0.1) (1.2) (18.6)
16. Subsequent events
COVID-19
Subsequent to the balance sheet date the UK is subject to the
COVID-19 pandemic. The impact of COVID-19 on the UK resulted in the
Group making the decision to temporarily close all of its
dealerships and subsequently reopen following appropriate local
restrictions and actions to ensure the safety and wellbeing off all
staff members. The Group considers COVID-19 to be a non-adjusting
subsequent event.
Given the inherent uncertainties it is not possible at this time
to fully quantify the impact of COVID-19 nor provide a quantitative
assessment of this impact. In light of the temporary closure of
Group's dealerships and with the support of the banking club, the
Group Board has made a further draw down on its revolving credit
facility in order to ensure it has sufficient cash reserves
available to meet its short term financial liabilities.
The Board's impairment review assessment over goodwill and
non-amortised intangible assets was based on economic and market
conditions prevalent at 31 December 2019.
The impact of COVID-19 is likely to result in a contraction of
the market and thereby have a detrimental timing impact on the
Group's expected revenues and cash inflows. As a result of this
expected contraction in revenues and volumes, the level of
manufacturer bonus is expected to decrease as a result of decreased
volumes. It is too early to fully quantify what the impact will be
in terms of the cash realisation relating to the Group's
inventories and whether the Group's property portfolio and the
carrying values of goodwill and non amortised intangible assets
will be adversely affected.
The Group has also reassessed the impact on the Lookers Pension
Plan (the Group's largest scheme) at 30 September 2020. The deficit
of this scheme has been estimated to increase to GBP69.7m based on
a decrease in the discount rate applied of 1.6% which has increased
the estimate of the total of the defined benefit obligation. This
increase in the benefit obligation has been offset somewhat by an
increase in expected returns of scheme assets but not to the same
extent. The effect of these is shown in the increase in the overall
scheme deficit compared with 31 December 2019. The combined schemes
had contributions of GBP9.0m in 2019.
Other pension scheme matters
During 2020 the Dutton Forshaw Pension Plan trustees resolved
the transfer of all remaining assets and liabilities to the Lookers
Pension Plan which has resulted in the Dutton Forshaw Pension Plan
retaining negligible scheme assets and liabilities.
The negotiation of the Lookers Pension Plan triennial review
which was completed on 31 March 2019 remains ongoing. The impact of
the events in the Group and Covid-19 has delayed negotiations with
the Trustees. The Pension Regulator has engaged with the Trustees
and is monitoring progress of the negotiations. Working closely
with the actuary and advisors, management has negotiated a position
in principle with Trustees to increase payments to GBP12.0m plus
expenses over a similar time profile for the Lookers Pension Plan.
This is above the limit of GBP9.0m set out in the current RCF
facility. This was approved by the Board on 13 November 2020. It
will now require approval from the Group's Lenders to increase the
pension deficit payments on this scheme.
In a ruling issued on 20 November 2020, the High Court indicated
that the trustees of the Group's defined benefit schemes could not
rely on any statutory provisions, scheme rules or any discharge
agreements made with the transferring members that would prevent
the schemes needing to pay additional top-ups in respect of GMP
equalisation. As a result, all transfers out since 17 May 1990 will
need to be equalised. The Group is currently assessing the
potential impact of this ruling on transfers out from its relevant
pension schemes but does not believe that this impact will be
material.
Fraud investigation
During the first quarter of 2020 the Board became aware of
potentially fraudulent transactions arising in one of its operating
divisions and in March 2020, in conjunction with Grant Thornton
LLP, the Board commenced an investigation focused on the operating
division concerned and identified certain misrepresented debtor
balances in respect of bonus receivables together with a number of
fraudulent expenses claims.
At the request of the Board the initial investigation was
extended across all operating divisions. The investigation has
finalised and has resulted in a number of prior period adjustments
presented in the financial statements.
Post year end restructuring and portfolio management
The Board has considered the future structure of Lookers in
light of potential demand, a smaller dealership estate and the
structural changes taking place across the industry. As a result,
the Group took the difficult decision to commence redundancy
consultations across all areas of the Group which has resulted in
approximately 1,500 redundancies. The Board carefully considered
all options and regrettably considered this action as being
necessary in the current environment to sustain and protect the
Lookers business over the long term.
In addition and having worked closely with our brand partners,
the Group identified a further 12 dealerships (including seven
freehold sites) for either closure, consolidation or refranchising.
It is estimated this will be completed by the end of 2020.
Following these closures, the Group will operate from a portfolio
of 136 dealerships.
17. Related party
transactions
The following table provides the total amount of transactions
that have been entered into with related parties for the relevant
financial year:
Amounts Amounts
Sales Purchases owed by owed to
to related from related related related
parties parties parties parties
GBPm GBPm GBPm GBPm
------------- ---------------- ------------- ------------
Key management personnel
of the Group:
Other directors'
interests: 2019 0.9 0.4 - -
2018 - 0.1 - -
-------- ------------------- ------------- ---------------- ------------- ------------
During 2019, Group companies made sales at market prices to
Winterquay Limited, Bramall Properties Limited and Vantage Motor
Group Limited. During both 2019 and 2018, Group companies made
purchases at market prices from Bramall Properties Limited. These
are considered to be related parties due to them having directors
common to those of Lookers plc.
18. Reconciliation of Alternative Performance
Measures
The Group uses a number of Alternative Performance Measures
(APMs) which are non-IFRS measures in establishing their financial
performance. Like for Like is the collection of dealerships and
other trading businesses that have both a full year of trading
activity in the current year and prior year. The Group believes
these Measures provide useful, historical financial information to
assist investors and other stakeholders to evaluate the performance
of the business and are measures commonly used by certain investors
for evaluating the performance of the Group. In particular, the
Group uses Measures which reflect the underlying performance on the
basis that this provides users of the financial statements with
additional useful information to better assess the a more relevant
focus on the core business performance of the Group. Details of the
definitions of APM's are made within the Glossary. The table below
shows restated comparative figures to show the impact of the
adjustments identified in the notes below. A reconciliation of the
statutory measures to the Alternative Performance Measures is set
out below:
Like-for-like revenue 2019 2018 - restated*
------------------------------------------ ------------ -----------------
Revenue (GBPm) 4,787.2 4,828.3
========================================== ============ =================
Less: Non like-for-like revenue (228.3) (244.3)
========================================== ------------ -----------------
Like-for-like revenue (GBPm) 4,558.8 4,584.0
========================================== ============ =================
Gross profit margin
========================================== ============ =================
Revenue (GBPm) 4,787.2 4,828.3
========================================== ============ =================
Gross profit (GBPm) 513.1 513.1
========================================== ============ =================
Gross profit margin (%) 10.7% 10.6%
========================================== ============ =================
Underlying operating profit (GBPm)
------------ -----------------
Operating (loss)/profit (GBPm) (13.2) 70.8
========================================== ------------ =================
Add: Non-underlying items (GBPm) - Note
2 49.7 0.9
========================================== ------------ -----------------
Underlying operating profit (GBPm) 36.5 71.7
========================================== ============ =================
Underlying profit before tax and underlying basic
EPS
-----------------
(Loss)/profit before tax (GBPm) (45.5) 41.9
========================================== ------------ -----------------
Add: Non-underlying items (GBPm) - Note
2 49.7 0.9
========================================== ------------ -----------------
Underlying profit before tax (GBPm) 4.2 42.8
========================================== ------------ -----------------
Tax rate (%) 19.0% 19.0%
------------ -----------------
Underlying tax (GBPm) - Note 6 (0.8) (8.1)
------------ -----------------
Underlying profit after tax (GBPm) 3.4 34.7
========================================== ------------ -----------------
Weighted average number of shares in
issue - Note 6 389,182,654 394,662,632
Underlying basic EPS (p) 0.87 8.78
==========================================
Property portfolio and property portfolio
by share
Property, plant and equipment (GBPm) 429.2 416.8
Less: Other property, plant and equipment
(GBPm) - Note 9 (36.6) (37.8)
------------ -----------------
Less: Motor vehicles (GBPm) - Note 9 (73.7) (72.1)
========================================== ------------ -----------------
Property portfolio (GBPm) 318.9 306.9
========================================== ------------ -----------------
Share capital at 31 December 390,138,374 389,038,358
==========================================
Property portfolio per share (p) 81.7 78.9
==========================================
Net debt excluding lease liabilities
Bank loans and overdrafts (GBPm) 209.8 238.7
Less: Cash and cash equivalents (GBPm) (150.3) (152.8)
========================================== ------------ -----------------
Net debt (GBPm) 59.5 85.9
========================================== ------------ -----------------
19. Other presentational changes, prior period adjustments and impact of IFRS 16
Non-underlying items
In preparing the financial statements the Board have taken the
view to present the statement of total comprehensive income
incorporating the disclosure of underlying and non-underlying items
separately. Non-underlying items are n Note 2.
The Board have concluded that in preparing the current year
statement of total comprehensive income; share based compensation
charges, net interest on pension scheme obligations and debt issue
costs will all be recorded within underlying profit before tax as
it is no longer the view of the Board that these items are
non-underlying.
In addition, in order to better reflect the retail nature of the
Group's operations, expenses disclosed within administration
expenses and distribution costs have been reclassified to be
disclosed within Net operating expenses.
Correction of errors
During the preparation of the financial statements for the year
ended 31 December 2019 the Group has identified a significant
number of prior period adjustments including rectification of
accounting errors, application of appropriate accounting standards
and the grossing up and restatement of balance sheet accounts. Due
to the number of adjustments identified and the range of income
statement and balance sheet captions the adjustments relate to the
effect of such adjustments are described by the following three
prior period adjustment categories:
-- Fictitious transactions recorded with no commercial substance or merit
-- Corrections for the misapplication of the Group's accounting policies
-- Corrections required following failures in the Group's internal control and processing
Further details of these adjustments are made in the restatement
tables below.
IFRS 16
The fully retrospective adoption of IFRS 16 has resulted in the
recognition of right of use assets totalling GBP84.2m at 1 January
2018. Lease premiums with a net book value totalling GBP3.3m
previously capitalised within property, plant and equipment have
been reclassified to right of use assets. The effect of this has
been to increase total assets by GBP80.9m. Lease liabilities less
than one year and movements in accruals of GBP0.7m for onerous
leases previously recognised increase current liabilities by
GBP15.1m. Non-current liabilities have increased by GBP85.2m after
the recognition of long-term lease liabilities totalling GBP89.3m
and deferred tax of GBP4.1m. Previously reported Shareholders'
funds have decreased by GBP19.4m.
Profit for the year ending 31 December 2018 has been affected by
an increase in depreciation of GBP13m, an increase in interest
costs of GBP5.5m offset by a decrease in operating lease rental
costs of GBP19.7m. In addition, right of use asset remeasurements
for sale and leaseback transactions totalling GBP5.2m has been
recognised. The effect of these adjustments has resulted in
adjustment to profit for the year from GBP37.1m to GBP32.6m.
At 31 December 2018, right of use assets total GBP103.3m. Lease
premiums with a net book value totalling GBP3.2m previously
capitalised within property, plant and equipment have been
reclassified to right of use assets. Lease liabilities less than
one year and movements in accruals of GBP0.7m for onerous leases
previously recognised increase current liabilities by GBP17.9m.
Non-current liabilities have increased by GBP106.1m after the
recognition of long-term lease liabilities totalling GBP109.8m and
deferred tax of GBP3.7m. Previously reported Shareholders' funds
have decreased by GBP23.9m.
In respect of Lookers plc company, right of use assets totalling
GBP1.3m at 1 January 2018 (GBP1.2m at 31 December 2018), short term
lease liabilities totalling GBP0.5m at 1 January 2018 (GBP0.6m at
31 December 2018) and long term lease liabilities totalling GBP0.8m
at 1 January 2018 (GBP0.6m at 31 December 2018) have been
recognised. There was negligible impact on the adoption of IFRS 16
on Shareholders' funds at 1 January 2018 and 31 December 2018.
The transition to IFRS 16 has resulted in a number of accounting
judgments and estimates to be made, with a key one being the
discount rate used in the calculation of the lease liability, which
involves estimation. Discount rates are calculated on a lease by
lease basis. For the property leases that make up substantially all
of the Group's lease portfolio this been based on estimates of
incremental borrowing costs. These will depend on the date of lease
inception and the lease term. As a result, reflecting the breadth
of the Group's lease portfolio, the transition approach adopted has
required estimation of historic discount rates, and estimations as
to lease lives has resulted in a number of discount rates within a
wide range
Prior period adjustments
The reconciliation on pages below demonstrates the effect of the
changes in presentational basis, the correction of the prior period
error and the impact of changing accounting policies from those
adopted in the 2018 financial statements to those now comprising
the 2018 comparative period.
Notes to the financial statements
For the year ended 31 December 2018
Statement of Total Comprehensive Income
(restated)
As
previously Correction
reported Correction of errors
31 of errors - accounting
December Presentational - fictitious policy
2018 adjustments transactions misapplication
Group GBPm GBPm GBPm GBPm
Revenue 4,879.5 0.0 (1.6) (45.7)
Cost of sales (4,364.0) 0.0 0.0 48.7
Gross profit 515.5 0.0 (1.6) 3.0
Distribution costs (294.6) 294.6 0.0 0.0
Administration expenses (153.3) 153.3 0.0 0.0
Share based compensation (1.7) 1.7 0.0 0.0
Net operating expenses (441.9) 0.0 (0.1)
Gain on property, plant and
equipment 7.7 (7.7) 0.0 0.0
Operating profit 73.6 (0.0) (1.6) 2.9
Underlying operating profit 73.6 (4.3) (1.6) 2.9
Non-underlying items below
operating profit 4.3 0.0 0.0
Net interest (18.3) (2.2) 0.0 (2.9)
Net interest on pension scheme
obligations (1.7) 1.7 0.0 0.0
Debt issue costs (0.5) 0.5 0.0 0.0
Profit before taxation 53.1 (0.0) (1.6) (0.0)
Underlying profit before
taxation 53.1 (4.3) (1.6) (0.0)
Non-underlying items 4.3 0.0 0.0
Tax charge (9.6) 0.0 0.0 0.0
Profit for the year 43.5 (0.0) (1.6) (0.0)
Actuarial losses on pension
scheme obligations (7.2) 0.0 0.0 0.0
Deferred tax on pension scheme
obligations 1.2 0.0 0.0 0.0
Total other comprehensive
expense
for the year (6.0) 0.0 0.0 0.0
0.0 0.0 0.0
Total comprehensive
income/(expense)
for the year 37.5 (0.0) (1.6) (0.0)
(Loss)/earnings per share:
Basic (loss)/earnings per share
(p) 11.02 -0.00 -0.41 -0.00
Diluted (loss)/earnings per
share (p) 10.60 -0.00 -0.39 -0.00
Non-underlying items at
operating profit
Gain on property, plant and
equipment 7.7 0.0 0.0
Share based compensation 0.0 0.0 0.0
Past service cost on pension
scheme obligations (3.4) 0.0 0.0
VAT credits 0.0 0.0 0.0
Goodwill impairment 0.0 0.0 0.0
0.0 4.3 0.0 0.0
Non-underlying items below
operating profit
Net interest on pension scheme
obligations 0.0 0.0 0.0
Debt issue costs 0.0 0.0 0.0
0.0 0.0 0.0 0.0
Non-underlying items at profit
before tax 4.3 0.0 0.0
Notes to the financial statements
For the year ended 31
December 2018
Statement of Total Comprehensive Income (restated) continued
Correction
of errors Impact As restated
- control of IFRS 31 December
weaknesses Subtotal 16 2018
Group GBPm - GBPm GBPm GBPm
Revenue (3.9) 4,828.3 0.0 4,828.3
Cost of sales 0.1 (4,315.2) 0.0 (4,315.2)
Gross profit (3.8) 513.1 0.0 513.1
Distribution costs 0.0 0.0 0.0 0.0
Administration expenses 0.0 0.0 0.0 0.0
Share based compensation 0.0 0.0 0.0 0.0
Net operating expenses (1.8) (443.8) 1.5 (442.3)
Gain on property, plant
and equipment 0.0 0.0 0.0 0.0
Operating profit (5.6) 69.3 1.5 70.8
Underlying operating profit (5.6) 65.0 6.7 71.7
Non-underlying items below
operating profit 0.0 4.3 (5.2) (0.9)
Net interest 0.0 (23.4) (5.5) (28.9)
Net interest on pension scheme
obligations 0.0 0.0 0.0 0.0
Debt issue costs 0.0 0.0 0.0 0.0
Profit before taxation (5.6) 45.9 (4.0) 41.9
Underlying profit before
taxation (5.6) 41.6 1.2 42.8
Non-underlying items 0.0 4.3 (5.2) (0.9)
Tax charge 0.8 (8.8) (0.5) (9.3)
Profit for the year (4.8) 37.1 (4.5) 32.6
Actuarial losses on pension scheme
obligations 0.0 (7.2) 0.0 (7.2)
Deferred tax on pension scheme
obligations 0.0 1.2 0.0 1.2
Total other comprehensive expense
for the year 0.0 (6.0) 0.0 (6.0)
0.0 0.0 0.0 0.0
Total comprehensive income/(expense)
for the year (4.8) 31.1 (4.5) 26.6
(Loss)/earnings per share:
Basic (loss)/earnings
per share (p) -1.22 9.40 -1.14 8.26
Diluted (loss)/earnings
per share (p) -1.17 9.04 -1.10 7.94
Non-underlying items at operating
profit
Gain on property, plant
and equipment 0.0 7.7 (5.2) 2.5
Share based compensation 0.0 0.0 0.0 0.0
Past service cost on pension
scheme obligations 0.0 (3.4) 0.0 (3.4)
VAT credits 0.0 0.0 0.0 0.0
Goodwill impairment 0.0 0.0 0.0 0.0
0.0 4.3 (5.2) (0.9)
Non-underlying items below operating
profit
Net interest on pension scheme
obligations 0.0 0.0 0.0 0.0
Debt issue costs 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0
Non-underlying items at profit
before tax 0.0 4.3 (5.2) (0.9)
Details of the presentational adjustments, corrections of errors
and impact of adoption of IFRS 16 are made below
Notes to the financial statements
As at 1 January 2018 and 31 December
2018
Statement of Financial Position
(restated)
As previously Correction Correction Correction Impact At 31
reported of errors of errors of errors of December
31 December - ficticious - accounting - control IFRS 2018
2018 transactions policy misapplication weaknesses 16 (restated)
Group GBPm GBPm GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 116.2 0.0 0.0 (4.5) 0.0 111.7
Intangible assets 114.6 0.0 0.0 (1.2) 0.0 113.4
Property, plant and
equipment 350.9 0.0 67.7 1.4 (3.2) 416.8
Right of use assets 0.0 0.0 0.0 0.0 103.3 103.3
581.7 0.0 67.7 (4.3) 100.1 745.2
Current assets
Inventories 1,027.7 0.0 (54.8) 0.0 0.0 972.9
Trade and other receivables 179.5 (1.6) (1.2) (15.9) 0.0 160.8
Current tax receivable 0.0 0.0 0.0 0.0 0.0 0.0
Rental fleet vehicles 54.2 0.0 0.0 0.0 0.0 54.2
Cash and cash equivalents 44.4 0.0 108.4 0.0 0.0 152.8
Assets held for sale 8.0 0.0 0.0 0.0 0.0 8.0
1,313.8 (1.6) 52.4 (15.9) 0.0 1,348.7
Total assets 1,895.5 (1.6) 120.1 (20.2) 100.1 2,093.9
Current liabilities
Bank loans and overdrafts 2.6 0.0 107.4 0.0 0.0 110.0
Trade and other payables 1,235.7 0.0 (5.5) (9.1) (0.7) 1,220.4
Lease liabilities 0.0 0.0 0.0 0.0 18.6 18.6
Current tax payable 0.9 0.0 0.0 2.4 0.0 3.3
1,239.2 0.0 101.9 (6.7) 17.9 1,352.3
Net current assets 74.6 (1.6) (49.5) (9.2) (17.9) (3.6)
Non-current liabilities
Bank loans 128.7 0.0 0.0 0.0 0.0 128.7
Trade and other payables 19.4 0.0 19.9 0.0 0.0 39.3
Lease liabilities 0.0 0.0 0.0 0.0 109.8 109.8
Pension scheme obligations 68.9 0.0 0.0 0.0 0.0 68.9
Deferred tax liabilities 40.0 0.0 0.0 (3.3) (3.7) 33.0
257.0 0.0 19.9 (3.3) 106.1 379.7
Total liabilities 1,496.2 0.0 121.8 (10.0) 124.0 1,732.0
Net assets 399.3 (1.6) (1.7) (10.2) (23.9) 361.9
Shareholders' equity
Ordinary share capital 19.4 0.0 0.0 0.0 0.0 19.4
Share premium 78.4 0.0 0.0 0.0 0.0 78.4
Capital redemption
reserve 15.1 0.0 0.0 0.0 0.0 15.1
Retained earnings 286.4 (1.6) (1.7) (10.2) (23.9) 249.0
Total equity 399.3 (1.6) (1.7) (10.2) (23.9) 361.9
Notes to the financial
statements
As at 1 January 2018 and 31 December
2018
Statement of Financial Position
(restated)
As previously Correction Correction Correction Impact At 1
reported of errors of errors of errors of January
1 January - ficticious - accounting - control IFRS 2018
2018 transactions policy misapplication weaknesses 16 (restated)
Group GBPm GBPm GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 108.9 0.0 0.0 (4.2) 0.0 104.7
Intangible assets 112.3 0.0 0.0 (1.0) 0.0 111.3
Property, plant and equipment 342.0 0.0 69.1 2.5 (3.3) 410.3
Right of use assets 0.0 0.0 0.0 0.0 84.2 84.2
563.2 0.0 69.1 (2.7) 80.9 710.5
Current assets
Inventories 984.1 0.0 (42.3) 0.0 0.0 941.8
Trade and other receivables 241.1 0.0 (1.6) (6.0) 0.0 233.5
Current tax receivable 1.0 0.0 0.0 (1.0) 0.0 0.0
Rental fleet vehicles 60.9 0.0 0.0 0.0 0.0 60.9
Cash and cash equivalents 45.3 0.0 90.3 0.0 0.0 135.6
Assets held for sale 0.0 0.0 0.0 0.0 0.0 0.0
1,332.4 0.0 46.4 (7.0) 0.0 1,371.8
Total assets 1,895.6 0.0 115.5 (9.7) 80.9 2,082.3
Current liabilities
Bank loans and overdrafts 19.6 0.0 89.2 0.0 0.0 108.8
Trade and other payables 1,228.1 0.0 26.5 (3.1) (0.7) 1,250.8
Lease liabilities - 0.0 0.0 0.0 15.8 15.8
Current tax payable 0.0 0.0 0.0 1.9 0.0 1.9
1,247.7 0.0 115.7 (1.2) 15.1 1,377.3
Net current assets 84.7 0.0 (69.3) (5.8) (15.1) (5.5)
Non-current liabilities
Bank loans 123.5 0.0 (0.7) 0.0 0.0 122.8
Trade and other payables 36.8 0.0 2.2 0.0 0.0 39.0
Lease liabilities - 0.0 0.0 0.0 89.3 89.3
Pension scheme obligations 63.8 0.0 0.0 0.0 0.0 63.8
Deferred tax liabilities 38.8 0.0 0.0 (3.1) (4.1) 31.6
262.9 0.0 1.5 (3.1) 85.2 346.5
Total liabilities 1,510.6 0.0 117.2 (4.3) 100.3 1,723.8
Net assets 385.0 0.0 (1.7) (5.4) (19.4) 358.5
Shareholders' equity
Ordinary share capital 19.9 0.0 0.0 0.0 0.0 19.9
Share premium 78.4 0.0 0.0 0.0 0.0 78.4
Capital redemption reserve 14.6 0.0 0.0 0.0 0.0 14.6
Retained earnings 272.1 0.0 (1.7) (5.4) (19.4) 245.6
Total equity 385.0 0.0 (1.7) (5.4) (19.4) 358.5
Details of the corrections of errors and impact of adoption of
IFRS 16 are made below
Notes to the financial statements
For the year ended 31 December
2018
Statement of Cash Flows (restated)
As previously
reported Correction Impact At 31
31 December Correction of errors of IFRS December
2018 of errors - leasing 16 2018 (restated)
GBPm GBPm GBPm GBPm GBPm
Cash flows from operating activities
Profit for the year 43.5 (6.7) 0.3 (4.5) 32.6
Tax charge 9.6 (0.8) 0.5 9.3
Depreciation of property, plant
and equipment, rental fleet
and right of use assets 20.6 (3.6) 16.1 13.0 46.1
Profit on disposal of property,
plant and equipment (8.2) - (0.6) 5.2 (3.6)
Amortisation of intangible assets 5.6 - - 5.6
Impairment of right of use assets - - - 0.0
Impairment of goodwill 0.0 0.3 - 0.3
Impairment of intangible assets - 0.2 - 0.2
Share based compensation 1.7 - - 1.7
Interest income (0.3) - - (0.3)
Interest payable 18.6 2.3 5.5 26.4
Debt issue costs 0.5 0.6 - 1.1
Difference between pension charge
and cash contributions (2.1) - - (2.1)
Purchase of rental fleet vehicles (89.4) 89.4 0.0
Proceeds from sale of vehicles
for long term leasing 0.0 12.8 12.8
Proceeds from sale of rental
fleet vehicles 90.3 (90.3) 72.2 72.2
Changes in inventories 1.4 (32.5) 2.9 - (28.2)
Changes in receivables 48.9 0.7 - 49.6
Changes in payables (60.4) 38.4 (10.9) - (32.9)
Cash generated from operations 80.3 (4.3) 95.1 19.7 190.8
Interest paid (18.6) 0.0 (2.3) (20.9)
Interest paid - finance leases - (5.5) (5.5)
Interest received 0.3 - 0.3
Tax paid (7.1) - (7.1)
Net cash inflow from operating
activities 54.9 (4.3) 92.8 14.2 157.6
Cash flows from investing activities
Purchase of property, plant
and equipment (25.7) 4.2 - (21.5)
Purchase of vehicles for long
term leasing 0.0 (26.1) (26.1)
Purchase of rental fleet vehicles 0.0 (60.1) - (60.1)
Purchase of intangibles (7.9) - - (7.9)
Purchase of subsidiaries net
of cash received (13.7) - - (13.7)
Proceeds from disposal of property,
plant and equipment 35.1 - - 35.1
Net cash outflow from investing
activities (12.2) 4.2 (86.2) 0.0 (94.2)
Cash flows from financing activities
Proceeds from issue of ordinary
shares 0.0 - - 0.0
Redemption of ordinary shares (9.3) - - (9.3)
Increase in leasing finance
liabilities 72.7 72.7
Repayment of leasing finance
liabilities (79.3) (79.3)
Repayment of loans (14.6) - - (14.6)
Draw down on RCF 135.3 - - 135.3
Repayment on RCF (134.1) - - (134.1)
Repayment of lease liabilities - - (14.2) (14.2)
Dividends paid (15.6) - - (15.6)
Net cash outflow from financing
activities (38.3) 0.0 (6.6) (14.2) (59.1)
Increase in cash and cash equivalents 4.4 (0.1) 0.0 0.0 4.3
Cash and cash equivalents at
1 January 38.9 1.1 0.0 40.0
Cash and cash equivalents at
31 December 43.3 1.0 0.0 0.0 44.3
Analysis of cash and cash equivalents
Cash and cash equivalents 44.4 108.4 0.0 152.8
Bank overdraft (1.1) (107.4) 0.0 (108.5)
Cash and cash equivalents at
31 December 43.3 1.0 0.0 0.0 44.3
Details of the corrections of errors and impact of adoption of
IFRS 16 are made below
Notes to the financial statements
As at 1 January 2018 and 31 December 2018
Notes of restatements
As detailed in the Financial Review, a number of restatements
and adjustments were identified arising from the Investigation and
subsequent internal review. The nature and cause of the items are
detailed in the Financial Review. This note summarises the impact
of the adjustments to each financial year and to each of the
primary financial statements.
For the purposes of this report, the adjustments have been
aggregated where the nature and cause of the misstatement is
similar. These groupings are as follows:
Correction of fictitious transactions;
Correction of errors arising from inappropriate or inconsistent
accounting standards application 'Policy misapplication'; and
Correction of errors arising from weaknesses in controls grouped
by nature 'Control weaknesses'.
Statement of Total Consolidated Comprehensive Income
Presentational adjustments
This column discloses the reclassification of distribution
costs, administration expenses and share based payments to net
operating expenses, the reclassification of debt issue costs to net
interest expense and the introduction of non-underlying items.
These reclassifications are presentational only and do not change
the reported result for the year ending 31 December 2018..
Correction of errors - fictitious transactions
Correction of error totalling GBP1.6m in relation to the
fictitious entries created in one of the Group's operating entities
for manufacturer bonus credits in the year ending 31 December
2018.
Correction of errors - accounting policy misapplication
Correction of errors in relation to misapplication of accounting
policies. These consist of the following categories of
adjustments:
1 - Adjustments to correctly recognise ring-fenced cash and
associated financial liabilities, adjustments to disclose cash and
overdrafts gross of any offsetting and adjustments to impair
unamortised debt issue costs in the year ending 31 December
2018
2 - Adjustments to correct the accounting entries made within
the Group's leasing business units including adjustments to
recognise revenue and cost of sales in addition to the recognition
of increased depreciation and lease interest charges. Balance sheet
adjustments relate to the reclassification of inventories to
property, plant and equipment and the recognition of lease buy-back
creditors and deferred income
3 - Adjustments to correct the accounting entries made within
the Group's motor trading business units with regards to company
staff car schemes. This has resulted in adjustments to revenue and
cost of sales in addition to balance sheet adjustment for
inventories, trade and other receivables and trade and other
payables
Year ending 31 December 2018/Adjustment
# 1 2 3 Total
Impact on profit before tax - GBPm -0.7 0.3 0.4 0
Opening reserves impact - GBPm 0.2 -1.2 -0.7 -1.7
Correction of errors - control weaknesses
Correction of errors in relation to failures in internal control
and processing. These consist of the following categories of
adjustments:
4 - Adjustments in relation to corrective accounting entries to
property plant and equipment, goodwill and intangible assets which
principally effects net operating expenses and associated balance
sheet cost and accumulated depreciation and impairment totals
5 - Adjustments in relation to corrective measures for the
recognition of manufacturer bonus income in cost of sales and motor
vehicle trade debtors
6 - Adjustments in relation to corrective measures across the
head office accounting function which has resulted in corrections
to a number of trade and other receivable and trade and other
payable balances in relation to cut-off errors and recharge
accounting which have affected net operating expenses
7 - Adjustments in relation to corrective measures across the
divisional accounting functions which has resulted in corrections
to a number of trade and other receivable and trade and other
payable balances in relation to cut-off errors and recharge
accounting which have affected net operating expenses
Year ending 31 December 2018/Adjustment
# 4 5 6 7 Total
2018 Impact on profit before
tax - GBPm 2.2 -0.6 -8.1 0.9 -5.6
Opening reserves impact - GBPm -6.2 -1.2 2.5 -0.5 -5.4
Impact of IFRS 16
Adjustments in relation to the fully retrospective adoption of
IFRS 16
Consolidated statement of financial position
Correction of errors - fictitious transactions
Correction of error totalling GBP1.6m in relation to the
fictitious entries created in one of the Group's operating entities
for manufacturer bonus credits in the year ending 31 December
2018.
Correction of errors - accounting policy misapplication
Correction of errors in relation to misapplication of accounting
policies. These consist of the following categories of
adjustments:
1 - Adjustments to correctly recognise ring-fenced cash and
associated financial liabilities, adjustments to disclose cash and
overdrafts gross of any offsetting and adjustments to impair
unamortised debt issue costs in the year ending 31 December
2018
2 - Adjustments to correct the accounting entries made within
the Group's leasing business units including adjustments to
recognise revenue and cost of sales in addition to the recognition
of increased depreciation and lease interest charges. Balance sheet
adjustments relate to the reclassification of inventories to
property, plant and equipment and the recognition of lease buy-back
creditors and deferred income
3 - Adjustments to correct the accounting entries made within
the Group's motor trading business units with regards to company
staff car schemes. This has resulted in adjustments to revenue and
cost of sales in addition to balance sheet adjustment for
inventories, trade and other receivables and trade and other
payables
8 - Adjustments to correctly recognise consignment inventories
and associated financial liabilities in accordance with the Group's
accounting policies at 1 January 2018
31 December 2018/Adjustment
# 1 2 3 8Total
Impact on non-current assets - 67.7 - - 67.7
Impact on current assets 107.8 (57.1) 1.7 - 52.4
Impact on current liabilities 108.3 (8.4) 2.0 -101.9
Impact on non-current liabilities - 19.9 - - 19.9
1 January 2018/Adjustment
# 1 2 3 8 Total
Impact on non-current assets - 69.1 - - 69.1
Impact on current assets 88.8 (55.8) (6.2) 19.6 46.4
Impact on current liabilities 89.3 12.3 (5.5) 19.6 115.7
Impact on non-current liabilities (0.7) 2.2 - - 1.5
Correction of errors - control weaknesses
Correction of errors in relation to failures in internal control
and processing. These consist of the following categories of
adjustments:
4 - Adjustments in relation to corrective accounting entries to
property plant and equipment, goodwill and intangible assets which
principally effects net operating expenses and associated balance
sheet cost and accumulated depreciation and impairment totals
5 - Adjustments in relation to corrective measures for the
recognition of manufacturer bonus income in cost of sales and motor
vehicle trade debtors
6 - Adjustments in relation to corrective measures across the
head office accounting function which has resulted in corrections
to a number of trade and other receivable and trade and other
payable balances in relation to cut-off errors and recharge
accounting which have affected net operating expenses
7 - Adjustments in relation to corrective measures across the
divisional accounting functions which has resulted in corrections
to a number of trade and other receivable and trade and other
payable balances in relation to cut-off errors and recharge
accounting which have affected net operating expenses
31 December 2018/Adjustment
# 4 5 6 7 Total
Impact on non-current assets (4.3) - - - (4.3)
Impact on current assets (5.1) (1.8) (7.6) (1.4) (15.9)
Impact on current liabilities (5.4) - (2.0) 0.7 (6.7)
Impact on non-current liabilities - - - (3.3) (3.3)
1 January 2018/Adjustment
# 4 5 6 7 Total
Impact on non-current assets (2.7) - - - (2.7)
Impact on current assets (4.3) (1.2) (2.6) 1.1 (7.0)
Impact on current liabilities (0.8) - (5.1) 4.7 (1.2)
Impact on non-current liabilities - - - (3.1) (3.1)
Correction of errors - accounting policy misapplication
Correction of errors in relation to failures in internal control
and processing. These consist of the following categories of
adjustments:
9 - Adjustments in relation to corrective accounting entries to
property plant and equipment and intangible assets which
principally effects net operating expenses and associated balance
sheet cost and accumulated depreciation and impairment totals
10 - Adjustments in relation to corrective measures across the
head office accounting function which has resulted in corrections
to a number of trade and other receivable and trade and other
payable balances in relation to cut-off errors and recharge
accounting which have affected net operating expenses
31 December 2018/Adjustment # 9 10 Total
Impact on non-current assets (1.0) - (1.0)
Impact on current assets - 9.8 9.8
Impact on current liabilities - 9.5 9.5
Impact on non-current liabilities - - -
1 January 2018/Adjustment # 9 10 Total
Impact on non-current assets 1.0 - 1.0
Impact on current assets - 18.9 18.9
Impact on current liabilities - 15.7 15.7
Impact on non-current liabilities - - -
Impact of IFRS 16
Adjustments in relation to the fully retrospective adoption of
IFRS 16
Consolidated cash flow statement
With the exception of the omitted bank accounts referred to
above, the impact of the adjustments does not affect the net
movement in cash and cash equivalents for 2018. However, by
adjusting for the restatements above, there have been a number of
reclassifications of items between Operating, Financing and
Investing cash flows. These are primarily attributed to the effect
of the adoption of IFRS 16 as disclosed on page [x] and the
correction of accounting policies applied to the Group's vehicle
leasing companies. As detailed above, the Group previously treated
these transactions as sales which was incorrect because control was
retained. As a consequence the cash flow statement previously
treated such transactions as operating cash flows. In restating the
cash flow statement for the revised policy, this primarily results
in:
- an increase in investing outflows of to reflect the purchase
of GBP86.2m rental fleet assets; and
- an increase in financing inflows of GBP72.7m and outflows of
GBP79.3m to reflect the financial liabilities arising in connection
with the financing of the vehicle lease arrangements
GLOSSARY OF TERMS
Introduction
In the reporting of the financial statements, the Directors have
adopted various Alternative Performance Measures (APMs) of
financial performance, position or cash flows other than those
defined or specified under International Financial Reporting
Standards (IFRS). These measures are not defined by IFRS and
therefore may not be directly comparable with other companies'
APMs, including those in the Group's industry. APMs should be
considered in addition to IFRS measures and are not intended to be
a substitute for IFRS measurements.
Purpose
The Directors believe that these APMs provide additional useful
information on the underlying performance and position of the
Group.
APMs are also used to enhance the comparability of information
between reporting periods by adjusting for irregularity factors
which affect IFRS measures, to aid the user in understanding the
Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes. The key APMs that the Group has focused on this period
are as follows:
Performance measure Definition Why we measure it
Like-for-like (LFL) These are calculated To provide a consistent
where dealerships have overview of comparative
contributed twelve months trading performance
of revenue and profit
contribution in both
the current and comparative
periods presented.
Gross profit margin Gross profit as a percentage A measure of the significant
of revenue. revenue channels' operational
performance
Non-underlying Relate to costs or incomes A key metric of the
items which are not incurred Group's non-underlying
in the normal course business performance.
of business or due to
their size, nature and
irregularity are not
included in the assessment
of financial performance
in order to reflect management's
view of the core-trading
performance of the Group.
Underlying operating Operating profit before A key metric of the
profit the impact of non-underlying Group's underlying
items as defined above. business performance.
Underlying profit Profit before tax before A key metric of the
before tax the impact of non-underlying Group's underlying
items as defined above. business performance
Profit after tax Profit after tax before A key metric of the
the impact of non-underlying Group's underlying
items as defined above. business performance
Underlying earnings Earnings per share before A key metric of the
per share (EPS) the impact of non-underlying Group's underlying
items as defined above. business performance
Net debt Bank loans and overdrafts A measure of the Group's
less cash and cash equivalents. net indebtedness that
Lease liabilities and provides an indicator
stocking loans are not of the overall balance
included in net debt. sheet strength
Property portfolio The net book value of A key metric of the
freehold and leasehold Group's statement of
properties as at the financial position
balance sheet date.
New car unit sale A new vehicle sale which A measure of statistical
has generated revenue volumes and indicator
for the Group. of operational performance
Used car unit sale Any vehicle sold that A measure of statistical
isn't a new car unit volumes and indicator
sale. of operational performance
Car parc The approximate number A measure of the UK
of vehicles on the UK market size and indicator
road network. for growth opportunities
New car market Total number of annual A measure of the UK
new vehicle unit registrations market size and indicator
made in the UK as defined for growth opportunities
by the Society of Motor
Manufacturers and Traders
(SMMT).
New car market The Group's annual share Our relative performance
share of the new car market against the UK market
calculated as a percentage
of the Group's new car
unit sales to the new
car market size.
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END
FR FIFVRLLLEFII
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