2019 Annual Report & Accounts
Contents
06
09
10
12
18
22
24
36
44
45
51
56
66
70
76
80
109
113
116
129
142
143
144
145
146
202
203
Strategic Review
Chairman’s Statement
2019 at a Glance
Our Business and Locations
Business Model and Strategy
Operating Review
COVID-19 Response
Financial Review
Risk Overview and Management
Viability Statement
Section 172 Statement and Non-financial
Information Statement
Governance
Board of Directors
Chairman’s Statement on
Corporate Governance
Report from the Chairman of the
Nomination Committee
Report from the Chairman of the Audit and
Risk Committee
Corporate Social Responsibility Review
Directors’ Remuneration Report
Directors’ Report
Directors’ Responsibilities Statement
Financial Statements
Independent Auditor’s Report to the
members of Lookers plc
Principal Accounting Policies
Statement of Consolidated Total
Comprehensive Income
Consolidated and Company Statements
of Financial Position
Consolidated Statement of Changes
in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Trading outlets
Glossary of terms
03
Lookers plc Annual Report & Accounts 2019
04
Lookers plc Annual Report & Accounts 2019 Strategic
Review
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 £7.4m in the periods up to and including 31
December 2017, a net one-off charge of £7.2m 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 £4.2m (2018: £42.8m).
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 £45.5m (2018: profit £41.9m).
The loss has largely arisen from additional operating costs
including increases in staff and related costs (£15.4m) and
non-underlying costs primarily arising from the impairment of
goodwill (£30.4m), restructuring costs (£14.3m) and costs and
liabilities arising from the FCA investigation (£15.1m).
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 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 £10.4m provision against any liabilities which may arise
from the Investigation in addition to the in year non-underlying
cost of £4.7m.
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.
Strategic Review
06
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 2020, 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
07
Lookers plc Annual Report & Accounts 2019 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
25 November 2020
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 resulted in underlying Profit Before Tax
(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 Original Equipment Manufacturer (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 Auditor's 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.
Strategic Review
08
2019
at a glance
148
franchise dealerships
(2018: 163)
Sold over
213,000
new and used cars and light
commercial vehicles
(2018: 218,000)
31
manufacturer brands
(2018: 32)
NOTE: Throughout the Annual Report & Accounts, Alternative Performance Measures
(APMs) have been used which are non-GAAP measures that are presented to
provide readers with additional financial information that is regularly reviewed by
management. These have been updated in the current year as explained on page
200 and should not be viewed in isolation or as an alternative to the equivalent GAAP
measures. As explained on page 200 these APMs have been changed during the
year ending 31 December 2019 to reflect the amendments made to the presentation
of the Group’s Statement of Total Comprehensive Income and the recognition of
non-underlying items. Definitions of APMs are made within the Glossary of Terms on
page 203.
2018 financial results have been restated to reflect adjustments arising from
the Investigation, IFRS 16 and voluntary presentation changes. Further details
can be found in the Financial Review on pages 24 to 35 and Note 1a-e of the
financial statements.
09
£4.79bn
revenue
(2018: £4.83bn)
10.7%
gross profit margin
(2018: 10.6%)
£36.5m
underlying operating profit
(2018: £71.7m)
£(13.2)m
operating (loss)/profit
(2018: £70.8m)
£(45.5)m
(loss)/profit before tax
(2018: £41.9m)
£59.5m*
net debt
(2018: £85.9m)
*Bank loans and overdrafts less cash and cash equivalents. Lease liabilities and
stocking loans are not included in net debt.
Lookers plc Annual Report & Accounts 2019
Our business and locations
Manufacturer brands in our portfolio
Cars and commercial vehicles
1
13
1
3
BMW
13
Ford
3
Kia
3
5
1
Citroen
1
Honda
10
Land Rover
8
Nissan
8
Aston Martin
7
Dacia
1
Audi
1
DS
4
Hyundai
Jaguar
1
Lexus
1
1
7
Bentley
1
Ferrari
1
Jeep
14
2
Seat
16
Maserati
Mercedes-Benz
MINI
Peugeot
Renault
3
12
Skoda
smart
3
Toyota
Vauxhall
Volkswagen
Volvo
Motorcycles
1
1
1
BMW
Honda
Yamaha
10
Strategic Review Our locations
11
Lookers plc Annual Report & Accounts 2019 Our business model and strategy
Business model
With a Group turnover of £4.79 billion in 2019, Lookers is
one of the leading motor retail and aftersales Groups in the
UK. We sold over 213,000 new and used cars and light
commercial vehicles last year and have operations across
the UK and Ireland, with a presence in most of the major
population centres.
As at 31 December 2019 our motor retail business consisted
of 148 franchised dealerships representing 31 manufacturers
from 102 locations. The business generates revenue from the
sale of new and used cars, vans and aftersales activities.
The number of new cars sold per annum in the UK has varied
between 2.31m and 2.69m over the past five years. Our share
of the retail sector of this market is just under 6% in 2019,
compared to 4% in 2011.
After five consecutive years of growth since 2011, the UK new
car market reduced by 5.6% in 2017, to 2.54m cars, down
from 2.69m cars the year before, which was the highest ever
level. The market reduced again in 2018 by 6.8% to 2.37m
cars and then by 2.4% to 2.31m cars in 2019.
The new car market has two principal segments, each of
which historically represent approximately 50% of the market.
The retail segment includes sales to individual customers
and the fleet sector provides sales to corporate customers.
Retail sales are generally at higher margins whilst fleet sales
consume significantly higher levels of working capital given
their volume requirements.
The used car market in the UK has annual transactions of just
under 8m vehicles, of which franchised dealers represent
approximately 50%. There continues to be a major opportunity
for Lookers to increase volume and share in this growing part
of the market.
Aftersales represents the servicing, repair and sale of
franchised parts to customers’ vehicles. The aftersales market
is related to the overall number of cars in use on UK roads,
which is referred to as the UK car parc.
There are approximately 37m vehicles that make up the UK
car parc with 23% (8.5m) under three years old. This is the
predominant market for franchised motor dealers.
The internet continues to be the primary means for our
customers to research and determine which new or used cars
they are interested in buying. We continue to strive to provide
our customers with a seamless customer experience in this
omni-channel retail environment and are investing to ensure
we are adapting to evolving customer preferences.
We utilise our brand partners’ and third-party lenders’ financial
support to ensure adequate stock funding. Preservation of
such funding lines allows us to manage our remaining working
capital effectively.
Across our Group we also offer leasing services to individuals
or commercial organisations on a fleet basis over a variety of
lease terms. Upon cessation of leased contract terms, many
leased vehicles are returned into the used vehicle stock pool
ready for resale.
The new car market has two principal sectors,
each representing approximately 50% of the total:
Retail sector
Sales to individual
customers, generally
at higher margins.
Fleet sector
Deals with corporate
customers. Fleet sales
consume significantly
higher levels of working
capital than retail.
12
Strategic Review Business strategy
Our strategy is focused on having the right brands and
locations combined with excellent operational execution.
Underpinning this strategy is our commitment to providing an
outstanding retail experience for our customers.
We deliver on our strategy by operating a diverse business in
the UK motor sector, supported by a variety of manufacturing
partners across various geographies. This helps reduce our
exposure to anomalies or fluctuations in demand, which may
affect specific manufacturers or geographic locations.
Another key differentiator is the service and retail experience
we offer to our customers. We aim to provide the highest
standards of customer experience in the sector by continually
investing in and improving three key areas of our business:
• People - To continue to succeed, we know the importance
of a stable, engaged and high-quality workforce aligned
to our operating model. We have highlighted future
focused roles to offer specialist support including Group
qualifications to manage the Apprenticeship Levy, and
Group diversity. We aim to ensure the best talent from
all backgrounds have the opportunity to succeed at
Lookers. We have extensive training and development
programmes for all our staff, and this year we have
particularly focused on training and assessment of the sale
of regulated products.
• Technology - We expect to deliver a best-in-class
customer experience. To support this, we have revised
our sales process, making it faster, more efficient, and
enhancing compliance. As a progressive business, we will
continue to drive efficiency through a cycle of continuous
improvement. We recognise the importance of the omni-
channel experience that our customers now expect. Our
new website embodies our aim to put information at our
customers’ fingertips and give them more control over how
they interact with us. We also understand that customers
are increasingly demanding a different experience within
our dealerships and we are completing a programme to
upgrade our Wi-Fi infrastructure to give them the best
possible experience, including the ability to connect
and work from the comfort of our showrooms whilst we
complete their vehicle service.
• Partnerships: We expect to maximise the benefit for our
Customers and other stakeholders by developing our
relationships with our strategic partners. We will achieve
this by ensuring we have the right infrastructure, portfolio
and proposition to support our OEM brand partners.
The Group’s business activities, financial condition, results of
operations or the Company’s share price could be affected by
certain principal risks or uncertainties which are detailed on
pages 37 to 43.
13
Lookers plc Annual Report & Accounts 2019 How we create value
Having the ‘right brands in the right locations’, remains a
key focus for the business and ensures that we continually
enhance our portfolio and align it to our business strategy to
ensure it has a direct impact on financial success.
As part of this focus, we continually review our existing
portfolio. In 2019 we identified 15 sites for closure, relocation
or consolidation with the majority of this programme
completed within the year. We have continued the review in
2020 and closed a further 12 sites.
Our vision of a ‘best in brand customer experience’ is
supported by continuing investment in our people, to attract,
retain and nurture the best talent; invest in our technology
and engage our colleagues and customers in a seamless and
effortless experience. This, in turn, helps to strengthen our
brand allowing us to become a partner of choice for customers,
colleagues, brand partners and investors alike.
The development of our portfolio and customer experience
is always underpinned by a commitment to operational
excellence in our everyday delivery.
We are adapting our strategy to reflect market changes
with a clear focus on optimising our cost base, making roles
in our dealerships simpler and providing more focus on key
measurements. In addition to this, we continue to improve
our service capacity and adapt to changing consumer
expectations with regards to opening hours and omni-
channel integration.
We aim to be innovative and flexible in order to enhance
business for both our brand partners and our customers
and we aim to share best practices for success across our
dealership network allowing us to simplify, standardise and
streamline our offering.
We also believe that adapting to developments in regulation,
which affects the retail motor industry and the fast pace
of changing customer demands and behaviours are key
challenges and are important priorities for the Group. Our
commitment to invest in and implement improvements
across the Group alongside a strengthened infrastructure
and enhanced customer experience will create a robust and
industry leading platform that will facilitate further growth.
14
Strategic Review Developing our customer experience
In an ever-changing and highly competitive marketplace we
continue to develop our retail proposition as a differentiator
to our competition. We are creating a customer-centric
engagement strategy across all channels which will allow us to
become ‘best in brand’ for an added-value retail experience
and embracing next generation digital capabilities. When
faced with the many choices across the market we want to
become the brand of choice for customers. To do this we
strive to provide the highest level of customer engagement,
be it face to face in our showrooms, through our call centres
or in the digital space. We aim to give the customer expert
advice relevant to their personal needs to help them make
the best choice for them and, in turn, build loyalty and positive
sentiment for our brands.
We are constantly looking to improve our dealership estate
investing in modern, contemporary multi-channel motor retail
environments that will enhance our customers’ experiences.
We continue to invest in our customer experience, including
new technologies, our Lookers retail brand proposition, new
training and development plans for our people, our dealership
portfolio, customer research and our operational capabilities.
We believe this investment will make the customer journey
more seamless and rewarding.
We are implementing further significant developments to
our website which will result in exciting improvements in
functionality and interaction with our customers. We have
successfully migrated to the new and considerably improved
website during this year. With over 70% of visits to our website
being via mobile or tablet we have ensured that functionality
has concentrated on this area. Our aim is to produce an
industry-leading website, which will improve the customer
experience and ultimately increase sales and profitability. We
also believe that this investment in technology will result in
greater operational efficiencies which will give us a significant
competitive advantage and improved profitability.
Our goal is to be recognised as providing the best customer
experience and engagement in the UK motor retail sector. We
do this through personal, relevant, meaningful and memorable
expert advice that helps our customers understand the
product and make the right choice. We conduct extensive
customer research to monitor feedback as we appreciate
that customers have high expectations and increasingly have
greater access to detailed product information themselves.
15
Lookers plc Annual Report & Accounts 2019 We are Lookers
At Lookers we believe our people are our most
important asset. We know an engaged and
motivated workforce will allow us to maintain our
competitive advantage. That’s why we offer training,
development and benefit schemes to attract
the best talent and empower our teams to put
customers first on every occasion.
Our new employee engagement platform Workplace
has been introduced and seen record engagement
within all areas of the business. It allows us to
communicate instantly with all our employees on
important matters as well as giving everyone a fun,
engaging place to interact.
The Lookers brand
Our brand is built around the concept of the car as
an ‘enabler’. We aim to show our understanding
of customers’ individual needs through simple,
engaging content depicting everything from
everyday life to aspirational experiences. This
lifestyle content is always backed up by a message
of advice and putting the customer at ease in all
scenarios from prestige to Motability.
Always advancing
Working closely with our brand partners we are
always looking to improve our retail offer including
efficient technology solutions across all channels
and platforms.
16
Strategic Review Who we are
At Lookers we are proud to call ourselves a ‘people business’.
This doesn’t just mean a personal service to our customers,
it extends to the communities we work within and, of course,
the people all across the UK who make us who we are. We are
always exploring ways to make people’s experience of Lookers
noticeably and meaningfully different both within the business
and to the customers we serve.
If there is one thing we can all be proud of here at Lookers, it
is the tireless work that our people do for charity. Whether it is
volunteering out in the local community or making complete
fools of ourselves for Red Nose Day, our people love to
get involved.
As well as encouraging our people to support causes in
their local area, we have identified Group wide objectives for
Corporate Social Responsibility (CSR). These are split into
four key areas; consumer, employee, industry and community.
In each area we will support charitable organisations
including Macmillan, Duke of Edinburgh Award, 353, Ben
and Cardioproof.
The Lookers Apprenticeship Programme continues
to be recognised as one of the best in the country and
was recognised as Highly Commended at the National
Apprenticeship Awards. Once again, the apprentice intake
has increased in 2019, with over 170 vacancies across the
Group. Lookers has again been listed as part of ‘The Sunday
Times Best Companies to Work For’ ranking of the UK’s top
employers and Lookers was the best-performing dealer Group
in the 2019 survey.
We are always striving to reflect the customers and the
communities that we serve. We are reaching out of the
automotive sector to encourage new talented individuals to
come and work for us. Our goal is to create a best in class
working environment where all employees feel safe, nurtured
and respected.
17
Lookers plc Annual Report & Accounts 2019 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 the three
months ended 30 June 2019 (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 £4,787.2m (2018: £4,828.3m)
driven principally by 5.0% increase in used car revenue and 6.7%
increase in aftersales revenue.
Gross profit remained broadly in line with the prior year and at
£513.1m 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 £36.5m, a decrease of £35.2m compared with
the prior year.
We recorded a loss before taxation of £45.5m compared with a
profit before taxation of £41.9m in the prior year.
The 2019 movement on the prior year is largely driven by £84.0m
increase in operating expenses.
The movement on operating expenses comprises:
Increase in staff costs
Increase in property costs
Risk and compliance
Increase in marketing costs
Others (including additional operating costs
from acquisitions)
Total underlying cost increases
Non-underlying (see Financial Review)
Total movement
£15.4m
£3.7m
£2.1m
£0.7m
£13.3m
£35.2m
£48.8m
£84.0m
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 (EVs) 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
£14.3m and we have generated a cash inflow of £17.6m 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.
18
Strategic Review 2019 £m
2018 £m*#
Variance
2019 LFL £m
2018 LFL £m*#
LFL variance
Analysis of revenue
Revenue
New cars
Used cars
Aftersales
2,226.4
2,364.7
-5.8%
2,141.2
2,326.3
2,215.7
495.3
464.0
115.3
5.0%
6.7%
2,206.1
467.1
16.2%
127.0
Leasing and other
134.0
Less: intercompany
(394.8)
(331.4)
19.1%
(382.5)
Total
4,787.2
4,828.3
-0.9%
4,558.8
4,584.0
*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
2,212.8
2,130.2
446.9
114.3
(320.1)
-3.2%
3.6%
4.5%
11.1%
19.5%
-0.5%
Gross profit
2019 £m
2018 £m*#
Variance
2019 LFL £m
2018 LFL £m*#
LFL variance
New cars
Used cars
Aftersales
147.0
138.1
211.9
Leasing and other
16.1
Total
513.1
156.9
140.3
199.7
16.2
513.1
-6.3%
142.0
-1.5%
134.2
6.1%
200.5
-0.8%
15.7
0.0%
492.4
152.1
135.9
195.5
16.7
500.2
-6.6%
-1.3%
2.6%
-6.3%
-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
New cars
2019
Retail unit sales
59,212
Fleet unit sales
53,694
2018*#
64,750
56,158
Variance
2019 LFL
2018 LFL*#
LFL variance
-8.6%
56,101
-4.4%
52,209
61,405
51,933
-8.6%
0.5%
-4.4%
Total unit sales
112,906
120,908
-6.6%
108,310
113,338
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
19
Lookers plc Annual Report & Accounts 2019
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
Gross margin %
5.9%
6.3%
6.1%
92,291
6.4%
3.3%
*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.
20
Strategic Review
Aftersales
Aftersales
Revenue £m
2019
495.3
Gross margin %
42.8%
2018*#
Variance
2019 LFL
2018 LFL*#
LFL variance
464.0
43.0%
6.7%
467.1
42.9%
446.9
43.7%
4.5%
*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
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 £13.2m (2018 profit: £70.8m)
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.
21
Lookers plc Annual Report & Accounts 2019
COVID-19 response
Key events 2020 timeline
MARCH
23
APRIL
20
MAY
11
MAY
18
JUNE
1
JUNE
8
JUNE
29
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.
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.
Successfully implemented and tested new
operating procedures the Group reopened all its aftersales
facilities gradually rebuilding capacity.
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.
Group fully reopened all dealerships in England
in accordance with government policy and upweighted
operating procedures.
Group fully reopened all dealerships in
Northern Ireland.
Group fully reopened all dealerships in Scotland. All
UK dealerships fully operational from this point.
NOVEMBER
5
New lockdown restrictions in place, pre-booked
aftersales service being provided with new and used car
sales activity carried out via ‘Click & Drive’.
22
Strategic Review 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:
• Various capital expenditure programmes were delayed.
• Dividends were suspended.
• Protecting colleagues and customers
• Managing the financial consequences and protecting
the business
• 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.
• Proactive engagement and communication with
• The Group’s fleet business was reviewed and restructured to
all stakeholders
focus on margin retention and working capital control.
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.
• The Group accessed the Government's 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.
23
Lookers plc Annual Report & Accounts 2019
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
Revenue
Gross profit
Total revenue generated from the
Group’s principal activities
Total revenue less total
direct costs
2019: £4,787.2m 2018: £4,828.3m
1,3,4,5,6,7
A decrease of 0.9%
2019: £513.1m 2018: £513.1m
1,3,4,5,6,7
Remains the same
Gross profit margin
Gross profit as a percentage
of revenue
2019: 10.7% 2018: 10.6%
1,3,4,5,6,7
An increase of 0.1%
Statutory (loss) / profit
before tax
Total gross profit less all costs
and interest
2019: £(45.5)m 2018: £41.9m
1,2,3,4,5,6,7
A decrease of £87.4 m
Underlying
operating profit
Underlying profit
before tax
Underlying basic
earnings per share
Net debt
Operating profit before the
impact of non-underlying items
as defined*
Profit before tax before the
impact of non-underlying items
as defined*
The ratio of underlying profit
after tax (*as defined) to the
weighted average number of
ordinary shares in issue during
the financial year
Total borrowings excluding
lease liabilities less cash at bank
in hand
2019: £36.5m 2018: £71.7m
1,2,3,4,5,6,7
A decrease of £35.2m
2019: £4.2m 2018: £42.8m
1,2,3,4,5,6,7
A decrease of £38.6m
2019: 0.87p 2018: £8.78p
1,2,3,4,5,6,7
A decrease of £7.91p
2019: £59.5m 2018: £85.9m
1,2,5,6,7
A decrease of £26.4m
*Non-underlying items defined in Note 4
# 2018 restated to include the impact of adjustments identified from the internal review, IFRS16 and presentational changes.
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.
24
Strategic Review
Non-financial KPIs
KPI Objective
Definition
Performance
Maintaining
appropriate number
of manufacturers
and brands
The number of dealerships
operated by the Group and
number of manufacturer brands
we sell
2019: 148 dealerships and 31
manufacturer brands
2018: 163 dealerships and 32
manufacturer brands
Link to
risk factor
1,7
Maintaining an
appropriate sales mix
of new cars, used cars,
aftersales and other
The split of new cars, used
cars, aftersales and other
as a percentage of total
revenue before inter-company
eliminations in the financial year
2019: new 43.0%, used 44.9%, aftersales
9.6%, other 2.6%
1,7
2018: new 45.8%, used 42.9%, aftersales
9.0%, other 2.2%
Share of UK new car
retail by volume
Our share of the market
2019: 5.8% 2018: 6.2%
Group new car sales
Number of new vehicles sold
2019: 112,906 2018: 120,908
Group used car sales
Number of used vehicles sold
2019: 100,764 2018: 97,709
1,6,7
1,6,7
1,6,7
25
Lookers plc Annual Report & Accounts 2019 Alternative performance measures (APMs)
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 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
included in Note 30.
26
Strategic Review Operating profit
Operating profit has reduced by £84.0m to a loss of £13.2m
due to the factors described below.
The 2019 movement on the prior year is largely driven by
£84.0m increase in operating expenses.
The movement on operating expenses comprises:
Increase in staff costs
Increase in property costs
Risk and compliance
Increase marketing costs
Others (including additional operating costs
from acquisitions)
Total underlying cost increases
Non-underlying
Total movement
£15.4m
£3.7m
£2.1m
£0.7m
£13.3m
£35.2m
£48.8m
£84.0m
Net interest charges
The Group’s bank borrowings are based on a floating rate
linked to LIBOR and net interest charges have increased by
£3.4m 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 £45.5m
(2018: pre-tax profit of £41.9m).
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 £107.7m, related lease liabilities
of £134.1m and have repaid £21.3m 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
£18.1m of adjustments after tax to the 2019 balance sheet of
which £10.8m 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 £4,787.2m (2018:
£4,828.3m) following increased contributions from used car,
aftersales and leasing being offset by a reduction from new car
sales. Gross profit remained comparable at £513.1m (2018:
£513.1m) 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 and other, and
used margins, despite the latter seeing a 3.3% increase on
like-for-like unit sales.
27
Lookers plc Annual Report & Accounts 2019 Taxation
The Group’s taxation credit for the year is £3.9m (2018: charge
of £9.3m) which is composite of a corporation tax credit of
£3.7m and a deferred tax credit of £0.2m. 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 £2.9m. 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 £9.3m
of payments made on account during the year has resulted in a
current tax recoverable of £9.8m being recorded in the Group
statement of financial position.
Cash flow
Despite the loss for the year, cash generated from operations
has increased by £30.3m to £221.1m 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 £69.0m (2018: £(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 £108.3m to
£870.8m, representing 93.3% (2018: 80.7%) of inventory
being funded at the balance sheet date.
Property, plant and equipment capital expenditure totalled
£81.3m (2018: £47.6m) after including capitalised vehicle
leases of £35.5m (2018: £26.1m) 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 £17.6m 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
£321.5m, (2018: £309.5m), which remains a key strength to
the business.
Total loan repayments and net revolving credit facility
movements resulted in a cash outflow of £38.7m (2018:
£13.4m) 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 £59.5m (2018: £85.9m).
Bank funding
The Group has a revolving credit facility of £250.0m 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 £50.0m 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
28
Strategic Review 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
£26.6m during the year due to the favourable movements
in global investments during the year, but scheme liabilities
increased by £13.4m. As a result, the net deficit included in the
balance sheet decreased by £13.2m 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.
FCA investigation
Additional pension past
service costs
2019
£m
15.1
-
2018
£m
-
3.4
Provision for taxation charges
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.
The combined deficit of the three schemes decreased in the
year and is now £55.7m (2018: £68.9m). 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.
Of the sites identified, nine were owned on a freehold basis.
The programme is now largely complete and has contributed
significantly to the overall cash inflow of £17.6m and an
accounting gain of £4.9m following the disposals of property,
plant and equipment during the year.
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,
IFRS 16 and voluntary presentation changes.
Gain on property disposal
Restructuring costs
Impairment of goodwill and
intangible assets
VAT matters
2019
£m
(4.9)
14.3
30.4
(6.2)
2018
£m
(2.5)
-
-
-
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 £2.5m
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 costs and other closure costs
Impairment charges - assets held for sale
Impairment charges - right of use assets
Total restructuring costs
£8.8m
£3.7m
£1.8m
£14.3m
29
Lookers plc Annual Report & Accounts 2019
Total redundancy costs associated with this program amount
to £4.3m and there have been other closure costs in relation to
existing contracts and obligations relating to these dealerships
totalling £4.5m recorded in the year. Due to the size and nature
of the dealership closure programme, all related expenses
(£8.8m) 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
£3.7m 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.
Goodwill and intangible impairments
Following the deterioration in trading performance the Group
has recorded impairment charges totalling £30.4m (2018:
nil) against the Group’s intangible asset base. £29.8m (2018:
£0.3m) of this has been charged against goodwill following
the Group’s annual impairment review and has resulted in
reductions to the Group’s JLR, BMW and Ford cash generating
units (CGUs).
These adjustments are considered to be reflective of the
comparative downturn in the CGUs 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.
The closure programme has also affected the carrying values
of the right of use assets and impairment charges totalling
£1.8m (2018: £nil) 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
seven 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.
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 £5.6m. In
addition, a one-off VAT charge totalling £2.0m 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
£2.6m 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.
30
Strategic Review 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, £3.4m of enhanced
past service pension costs were incurred in respect of pension
harmonisation charges and have been treated as non-
underlying items.
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 £6.8m, £4.7m of which have been recorded within non-
underlying items as these represent non-recurring costs for
professional fees and setup costs.
As announced on 20 June 2019, the Group was informed by
the FCA that its 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 £10.4m 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 21.
31
Lookers plc Annual Report & Accounts 2019 Investigations and restatements
The Investigation identified a number of adjustments. These
adjustments affected cumulative retained earnings by
£21.8m of which £8.3m related to the previously unreported
2019 financial statements and £13.5m 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 1a-e.
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 1a-e, 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
Fictitious transactions
Policy misapplication
Cash and bank
Leasing companies
Staff car schemes
Control weaknesses
Property, plant and equipment and
intangible assets
Manufacturer bonus
Central finance function
Divisional finance function
IMPACT BEFORE TAX
Taxation
TOTAL RETAINED
EARNINGS IMPACT
Reference
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Total
(2.8)
(0.8)
(0.6)
(1.5)
(2.9)
(9.9)
(2.2)
(4.0)
(3.6)
(19.7)
(25.5)
3.7
(21.8)
2019 Impact
- £m
2018 Impact
- £m
Pre 2018
Impact - £m
(1.2)
(0.3)
0.3
(1.2)
(1.2)
(5.9)
(0.4)
1.6
(3.8)
(8.5)
(10.9)
2.6
(8.3)
-
0.2
(1.2)
(0.7)
(1.7)
(6.2)
(1.2)
2.5
(0.7)
(5.6)
(7.4)
0.3
(7.1)
(1.6)
(0.7)
0.3
0.4
0.0
2.2
(0.6)
(8.1)
0.9
(5.6)
(7.2)
0.8
(6.4)
32
Strategic Review
(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 third 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 £68.8m, reduction in inventory of
£12.9m and the increase in creditors of £56.6m.
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 16, 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
£31.6m and a net creditors of £32.4m.
(e) Control weakness - Property, plant and equipment
(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.
33
Lookers plc Annual Report & Accounts 2019 (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 ratchet 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 outwith 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.
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 19.
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.
34
Strategic Review and financing cash flows as illustrated in Note 19. 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.
(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 £22m 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
Remediation activity
We are addressing the issues identified with the steps in the
table below
Remediation action
Addresses issues
Formalisation of accounting policies including upgrading technical accounting resource
(b),(c),(d),(e),(f),(g),(h),(i) and (j)
Implementation of a formal financial processes and procedures manual
and training of all finance staff
(a),(b),(c),(d),(e),(f),(g),(h),(i) and (j)
Restructuring of Finance Team to more closely align to the Group operating model
and implementation of a first line of defence operational finance review team
(a),(c),(d),(g),(h),(i) and (j)
Implementation of a minimum control standards compliance review of all dealerships
and Head Office on a twice a year basis
(a),(c),(d),(e),(f),(g),(h),(i) and (j)
Implementation of a financial reporting attestation for senior finance
and operation management on a twice a year basis
Implementation of a central approval, review and oversight process for all major
financial reporting risk or judgemental areas
(a),(b),(c),(d),(e), (f),(g),(h), (i) and (j)
(a),(b),(c),(d),(e),(f),(g),(h),(i) and (j)
Standardisation where possible of the Dealer Management System
allowing standardised processes and reporting, easier central visibility and interrogation
of ledgers and centralisation of critical activities
(a),(c),(d),(e),(f),(g),(h) and (j)
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.
35
Lookers plc Annual Report & Accounts 2019
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 ERMF 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)
Accountable for owning, taking
and managing the risk.
The Second Line of Defence
(Risk & 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 has 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 (ERMF). 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 investigation and balance sheet review
performed by Grant Thornton. The Board considers the
issues that were identified as being varied in nature, arising
from inadequately designed, documented and implemented
policies and procedures, inadequately resourced and skilled
finance function and instances of failure to follow policies and
procedures. 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
standards which are relevant for this and previous reporting
periods (see Principal Accounting Policies on page129).
36
Strategic Review 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 Grant Thornton 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 over pages 38 to 43 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.
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 £327K 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.
37
Lookers plc Annual Report & Accounts 2019 Financial Risk
No.
Principal risk and description
Impact
Mitigating activity
• Failure of the Group to secure
Bank funding, leading to a
dramatic reduction in profitability
which may adversely change the
lending decision by banks.
• Failure of the Group to secure
Bank funding, leading to Lack of
cash to meet short term funding
needs owing to banking convents
being breached.
1.
Funding & Liquidity Risk
• The risk that Lookers does not
hold enough liquid assets to
meet our financial obligations.
Funding risk is the risk that
Lookers is unable to meet
its strategic and business
objectives due to lack of
funding availability. Liquidity
risk is the shorter-term risk
that Lookers may be unable to
access cash, or bank facilities
such as deposits, overdrafts or
loans, required to meet its day-
to-day business requirements.
• We ensure that this risk is managed by
preparing regular financial forecasts
to evaluate our funding and liquidity
requirements for the foreseeable future.
These forecasts are reviewed and
approved, and appropriate solutions are
put in place.
• We ensure that monthly budget
management accounts are monitored.
• 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 with
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.
38
Strategic Review Financial Risks
No.
Principal risk and description
Impact
Mitigating activity
2.
Pension Risk
• The risk that Lookers does
not adequately manage
pension liabilities.
• The Group is required to
managing funding contributions
to its defined benefit
pension obligations.
• Failure to manage the pension
deficit leading to an increase in
the deficit which impacts on the
level of deficit payments we are
required to make to the scheme.
Indirectly it may also have an
adverse implication on share price
and credit rating.
• Any deterioration in our credit
rating would increase our cost
of borrowing and may limit the
availability or flexibility of future
funding for the Group, thereby
affecting our ability to invest,
pay dividends or repay debt as
it matures.
• We maintain relationships with pension
trustees and deliver against pension
investment plan. We have kept both the
trustees and regulator informed as we
have managed the threats posed by the
business being temporarily closed as a
result of COVID-19.
• We regularly review investment
performance and liability. The
investment strategy aims to partly
mitigate the impact of increases in
liabilities, for example by investing in
assets that will increase in 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.
Regulatory Risk
39
Lookers plc Annual Report & Accounts 2019 Regulatory Risk
No.
Principal risk and description
Impact
Mitigating activity
3.
Regulatory Compliance Risk
• Potential poor customer outcomes,
• Where the Group’s activities
are subject to regulatory
compliance there is risk
that there will be failure to
comply with applicable laws,
regulations, and codes.
loss or imposition of penalties,
damages or fines.
• Failure to address forthcoming
regulatory developments.
• Failure to maintain appropriate
regulatory permissions for
Lookers activities.
• Failure to comply with appropriate
reporting disclosure and
associated requirements.
• We have invested considerably during
the year on capability and capacity
within the Risk and Compliance
function to support the business
and manage our relationship with
regulators and other stakeholders.
• We have a Legal function which
supports colleagues in identifying
and limiting Legal risks.
• We have undertaken a regulatory rule
mapping risk assessment exercise
to ensure applicable regulations
are caught and built appropriate
compliance frameworks.
• 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.
40
Strategic Review Conduct Risk
No.
Principal risk and description
Impact
Mitigating activity
4.
Conduct Risk
• Conduct risk is a risk that
our behaviours, attitudes,
motivations and actions lead
to unfair customer outcomes
or poor standards of customer
conduct in our trading activities.
• Ineffective governance and
monitoring arrangements leading
to unfair customer outcomes.
• A culture that does not put the
customer at the heart of everything
we do.
• Failure to securely maintain and
monitor our customer data.
• Failure to have procedures in place
to identify and treat vulnerable
customers appropriately.
• Failure to design products in
accordance with the firm's
business strategy or to meet
customer needs.
• Failure to manage complaints and
investigate appropriately.
• We have invested considerably during
the year on capability and capacity
within the Compliance function to
support the business and manage our
relationship with the regulators and
other stakeholders. We ensure that fair
customer outcomes are embedded
within our corporate strategy.
• Our remuneration incentives,
commissions and performance
management practices are
being designed to drive the right
behaviours helping to deliver fair
customer outcomes.
• We continually work towards ensuring
the accuracy, security and consistency
of the customer data that we hold.
• We ensure that identification and fair
treatment of vulnerable customers
is integral to the Lookers way 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 description
Impact
Mitigating activity
5.
Financial Crime Risk
• The risk that Lookers is used to
launder the proceeds of crime,
finance terrorist activities,
commit fraud or evade financial
sanctions. This includes any
actions perpetrated against
Lookers involving fraud,
theft, dishonesty, internal or
external, misconduct or misuse
of information relating to a
financial market.
• We fail to protect our customers
and our business from breaching
obligations designed to prevent
and deter the risk of Lookers being
used to facilitate financial crime.
• Failure to comply with the Group’s
obligations under the Corporate
Criminal Offence legislation and the
subsequent consequences.
• We have put financial crime policies
and procedures in place and trained our
colleagues accordingly to ensure that all
colleagues understand their obligations
of reporting all Anti Money Laundering-
related suspicions or concerns.
• We ensure that colleagues understand
their 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.
41
Lookers plc Annual Report & Accounts 2019 Strategic Risk
No.
Principal risk and description
Impact
Mitigating activity
6.
Strategic and Business Risk
• Failure to demonstrate the value-
• We have comprehensive
The risk that insufficient strategic
planning and/or poor execution
result in a failure to:
• adequately manage relationships
with the manufacturers.
• adapt to changing market demands
including autonomous driving,
electric vehicles and shared
mobility demands, or
• adequately prepare for departure
from the European Union.
add of the franchise model resulting
in manufactures moving to direct to
customer sales model.
• Failure to meet customers demand
for greener vehicles and adapt
the business model to potentially
lower demand of diesel vehicles
resulting in revenue and profits
suffering damage.
• Failure to prepare for Brexit and the
departure from the EU, impacting
supply chain
• General economic uncertainty or
downturn in consumer confident
arising from Brexit or other macro-
economic issues e.g a COVID-19
resulting in loss of revenue and
operating profit.
management information which
tracks performance against
strategic objectives and allows
dynamic adjustments to be
made to inventories, pricing and
procurement processes in order to
respond to market forces.
• We maintain manufacturer
and brand diversity in order to
reduce risk.
• We continually work on improving
existing day-to-day business
relationships with manufacturers.
• We consider our manufacturers
when setting our own business
objectives and strategies.
• 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.
42
Strategic Review Operational Risk
No.
Principal risk and description
Impact
Mitigating activity
7.
Operational Risk is defined as a
failure of our people, policies or
procedures and is divided into a
number of sub categories
(Level 2 Risks) including:
Information, IT and Cyber security
and business continuity Risk
• The Group relies heavily on its
underlying IT infrastructure both
from a day-to-day operational
perspective but also to generate
timely management information.
• The Group processes personal
information, failure to protect
confidential or sensitive data could
result in significant operational and
reputational damage.
• The Group is responsible for
the safeguarding of data, in
accordance with the DPA 2018 and
related legislation.
• As the Group clearly defines
its digital presence it is also
mindful of the additional Cyber
risks that require identification
from management.
Health, Safety and wellbeing Risk
• The Group does not have
adequate learning, development,
resource and succession planning
arrangements in place.
• The risk that Lookers is unable
to meet its business objective
including legal and regulatory
compliance owing to poor
health and safety management
and failures to comply with
legal obligations.
Third Party Supplier and
Outsourcing Risk
• The risk that third-party suppliers
and /or critical outsourcing provider
are not appropriately managed in
the event of supplier failure.
• The Group is unable to meet
its current and future business
objectives because of Information
Technology systems failures, failing
to keep pace with technological
change, or logistical crisis and
inadequate investment in systems
and controls.
• Business interruption without
robust business continuity
provisions could materially impact
the ability to service customers and
clients, resulting in reputational
damage and associated
financial loss.
• Failure of the Group to develop,
retain and motivate highly skilled
employees, in a safe working
environment that are necessary to
support operations.
• The Group fails to meet its legal and
regulatory compliance, because of
inappropriate sourcing decisions
including outsourcing, errors or
omissions in supplier contracts, and
/ or supplier failure.
• We have established Operational Risk
policies which are regularly reviewed.
• We continually invest in our
IT infrastructure.
• We are making risk management
improvements involving people,
processes and technology as well
as prioritising the work according
to our assessments of security and
resilience exposure.
• We have continued to tighten our
control of sensitive personal data in
accordance with the Data Protection
Act 2018 requirements.
• We are undertaking a wide-
ranging programme of work to
enhance our Cyber and information
security controls.
• We have implemented incident
management processing to ensure
major incidents are dealt with
appropriately and problems are
logged and actively progressed
to resolution.
• We undertake risk and control
assessments to monitor compliance.
• The Group could be subject
to Cyber-attack resulting in
business interruption, theft of data
or ransom.
• We continually monitor our
mandatory regulatory training
to ensure that all colleagues are
kept informed.
• We ensure that incident reporting
including lessons learnt exercises
take place to meet health and
safety obligations.
• We have established Third Party
Supplier and critical outsourcing
policies which are regularly reviewed.
• We ensure where relevant,
that all suppliers are subject to
audits to ensure our suppliers
are compliant with legal and
regulatory requirements.
• 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.
43
Lookers plc Annual Report & Accounts 2019 Viability statement
In accordance with the ‘Code’, the Board have assessed the
viability of the Company over the three-year period to 31
December 2023.
The Board believe this period to be appropriate as:
i) The Group’s detailed plan encompasses this period, and;
ii) We typically look to obtain a revolving credit facility for at
least three years.
The three-year strategic review considers the Group’s profit
and loss, cash flows, debt and other key financial ratios
over the period including compliance with existing covenant
arrangements. These metrics are subject to sensitivity analysis
which involves modifying one or more of the main assumptions
underpinning the 3 year forecast.
Where appropriate, this analysis is carried out to evaluate
the potential impact of the Group’s principal risks actually
occurring. The three-year review also makes certain
assumptions about the use of capital and associated return
thereon and considers whether additional financing facilities
will be required.
This analysis has been supplemented by the considerations
over principal risks and uncertainties that may affect the
business coupled with the mitigating controls that the
Group has established. In particular, in light of the short-
term disruption caused by the COVID-19 pandemic, further
sensitivities have been considered, commencing with the
short-term forecasts used in the going concern assessment
but assuming progressive recovery to pre-pandemic levels
over a period of time to 2023. As noted within the going
concern assessment, this identified a materiality uncertainty
with regard to the impact of covenant tests but resilience
of liquidity against available facilities. The Board thereby
assessed the potential impacts of these risks which could
affect solvency or liquidity in severe but plausible scenarios
over the three year period. Whilst acknowledging the material
uncertainty within the next 12 months with respect to covenant
tests, the Board also considered various mitigating actions
available and concluded that the business would remain viable.
The principal risks and the mitigation steps that the Board
considered as part of this viability statement were as follows:
• The impact of the COVID-19 pandemic on historic and
prospective trading. This is mitigated by development of on-
line and contactless trading capability and a re-alignment
and restructuring of locations and staffing levels.
• Any adverse effect following Brexit and the associated
potential for political instability, changes in the level
of consumer credit and/or market confidence. This is
mitigated by continued delivery of our business strategy
and maintaining the diversity in our manufacturers and
brands as well as our sales mix and revenue channels.
• Refinancing of the revolving credit facilities. This is
mitigated by ongoing open dialogue with the club of banks
to seek an appropriate funding package reflective of the
working capital needs and supported by material property
security. The Group’s lenders have continued to support the
business in response to the challenges identified in 2020
and continue to work with the Group to secure a refinancing
of the facilities early in 2021.
• Repayment of external working capital facilities. This is
mitigated by achieving optimal working capital efficiency
and debt repayment forecasting and ensuring an open
dialogue with the club of banks is maintained.
• The risk of regulatory intervention. This is mitigated by
an open and transparent relationship with our regulator,
supported by a wide ranging programme of continuous
improvement of our regulated activities.
Based on the results of the processes described above, and
noting the material uncertainty with regard to the impact of
covenant tests upon the going concern assessment, the Board
have concluded the Group will remain viable over the period
of assessment.
During 2019, the Board carried out a robust assessment of the
principal and emerging risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity.
The Directors have also considered viability for a longer period
of time to the end of 2023 which could be considered to be
commensurate with average investment horizons that might be
appropriate to shareholders and conclude that the business is
viable over this period.
There are clearly several developments in the wider
automotive sector in terms of the influence of new technology,
EVs and different ways of owning or paying for vehicles. We
acknowledge that these factors could affect the business
model of the Company in the future. However, independent
research indicates that there should still be a meaningful
business for dealerships in the future, as there will still be a
need for dealerships to fulfil the role of the distributor between
the manufacturer and the customer. This fulfilment role will
continue to provide advice and assistance to the customer in
their choice of model and the options that may be appropriate
as well as dealing with the part exchange and providing
finance for the transaction. There is also the important role
of aftersales to service and repair the vehicles which is likely
to remain with the dealership. We therefore believe that the
current business model will continue to be viable, albeit with
some modifications, over the longer term and regardless of the
powertrain that may be the choice of the consumer.
44
Strategic Review Section 172 statement
The Board is accountable to shareholders for the
management, performance and long-term success of the
Company. The Directors have regard to their duty under
Section 172 of the Companies Act 2006 to act in the way
which they consider, in good faith, would be most likely to
promote the success of the Company for the benefit of its
members as a whole and, in doing so, consider (amongst
other matters):
(i) the likely consequences of any decision in the long term;
(ii) the interests of the Company’s employees;
(iii) the need to foster the Company’s business relationships
with suppliers, customers and others;
(iv) the impact of the Company’s operations on the community
and the environment;
(v) the desirability of the Company maintaining a reputation
for high standards of business conduct; and
(vi) the need to act fairly as between members of
the Company.
Section 172 requires Directors to have regard to wider
stakeholder interests when discharging their duty to promote
the success of the Company. The Board understands that the
long-term prosperity and success of the Group is dependent
on understanding and respecting the views and needs of our
stakeholders including Shareholders, customers, employees,
and the wider communities in which we operate across the UK
and Republic of Ireland.
Reputation, culture and ethics
The Board sets the tone from the top. The Board considers
that the fostering and promotion of a culture of treating
customers fairly and behaving ethically in all our interactions
is of paramount importance. As a retailer, we appreciate that
our reputation for excellent customer service is key to our
success, and that retaining the trust of our customers is crucial
to our business. Our strapline “Lookers for Life” embodies our
focus on having positive and long-lasting relationships with
our customers.
We acknowledge that there are some behavioural and cultural
issues within the Group which are being addressed at the
same time as part of the transformation programme. We have
established an independent Board committee comprised
of the most recently appointed Non-Executive Directors to
ensure oversight of the proper implementation of the actions
identified in the Investigation.
Our colleagues
Our people are central to our business. We strive to create a
culture of diversity and inclusion. We provide a workplace with
attractive benefits and opportunities for career progression.
We undertake regular employee surveys to obtain feedback
from our colleagues.
One of the key priorities for the Board during the year was the
implementation of a change programme in our dealerships,
affecting colleagues at every level of the business from the
Board to the showroom. This Board-sponsored programme
of work was created to address weaknesses that had been
identified in the Group’s governance and systems and controls
and incurred costs of £6.8m in the year to December 2019.
It is the Board’s view that our ability to engage effectively with
our stakeholders is critical to the success of the Group. Details
of our stakeholder engagement in relation to Workforce
Engagement, Corporate Social Responsibility, our Modern
Slavery policy and Relations with Shareholders are detailed in
the Non-Financial Information Statement below and are also
covered in part in this statement. The Board are also cognisant
of the ongoing impact of the country’s departure from the EU
which has a direct impact on the risks identified within the Risk
Overview as discussed above. Medium to longer-term matters
related to climate change, including the proposed Government
ban on the sale of new petrol and diesel powertrains are also
driving the Group’s governance, strategy, risk management
and targets in order to meet longer-term legislative goals.
This work included the appointment of a Chief Risk Officer
to the Board of the regulated entity, Lookers Motor Group
Limited and the Board of the CBI-regulated entity, Charles
Hurst Dublin Limited, and the appointment of two new
Non-Executive Directors with significant financial services
experience to the Board of Lookers plc. The programme of
work covered the design and implementation of a sector-
leading enterprise risk management framework covering
compliance, sales process and oversight, governance and
the capability and capacity across our three lines of defence
model. The focus is now on ensuring that it is fully implemented
and embedded throughout 2020 and 2021. The Board
receives regular updates on the implementation of the change
programme including feedback from affected colleagues.
45
Lookers plc Annual Report & Accounts 2019
Our investors
The Board engages with Shareholders and investors on a
regular basis on matters of policy and strategy. We have
regular communications such as trading results, annual reports
and stock exchange announcements. We have engaged with
our top Shareholders regarding the Remuneration Policy and
investor opinions were taken into account in shaping the policy.
Our customers
Ensuring a fantastic customer experience is fundamental to
the success of Lookers. We take on board our customers’
feedback, using it to improve the customer experience.
We obtain the views of our customers in a number of
different ways, including from manufacturer, in-house and
online surveys.
We benchmark our performance in relation to customers using
research including net promoter scores and manufacturer
balanced scorecard metrics. We undertake mystery shopping
exercises to gain insights into the sales process and ensure
that we are obtaining good customer outcomes.
Customer complaints metrics are reviewed at Board meetings
with updates given on numbers of complaints, speed with
which complaints are resolved, complaint themes, and root
cause analysis undertaken to improve customer outcomes.
We have identified instances where the Group has not acted
appropriately when interacting with our customers and
we have sought to remedy that as quickly as possible by
addressing the customer loss, identifying the root cause of the
problem and improving our training, processes and systems to
ensure the issues do not reoccur. We view this as a continual
improvement process.
Our suppliers
The Group is fortunate to have as its key suppliers the leading
automotive manufacturers in the world. The executive and
senior management engage with our brand partners on a
regular basis. Almost all of our manufacturer partners use a
variety of ways to measure the performance of our dealerships
such as balanced scorecards, customer feedback surveys and
dealership audits. We engage fully with these assessments
and use the data to improve our processes, reviewing
dealership KPIs on a monthly basis and sharing best practice
across divisions to improve processes and performance.
Our communities
Lookers supports its communities through a number of
different initiatives including supporting colleagues to
volunteer in our communities, creating an award-winning
apprenticeship programme which creates routes into work for
young people, and charitable giving. More information on the
way we engage with our people and our diversity policies can
be found on page 109.
The environment
The Group recognises that its activities have an impact on the
environment and is therefore keen to promote and support
initiatives that minimize the effect of such activities through
adherence to its environment policy. We continue to monitor
the areas of our business that may impact on the environment
including contamination, asbestos, waste oil, waste recycling
together with energy, water and fuel efficiency. Lookers
monitors its energy consumption and continues to implement
energy saving initiatives such as solar PV installations, biomass
boilers and energy saving technologies such as smart controls.
We recognise the importance of committing to reducing our
carbon emissions. We work to review our use of resources
and the emissions of the products that we sell with the goal of
improving our carbon footprint and reducing our emissions.
46
Strategic Review Our “Next Generation Network” (NGN) project is a key
technology infrastructure investment which is increasing the
bandwidth at our dealerships, allowing us, quite simply, to work
faster. Modern day car servicing is dependent on software
downloads and internet bandwidth is therefore crucial to our
business. The demand for more bandwidth will only increase
so NGN is not only delivering significantly more bandwidth
now, but also provides the scalability to cope with anticipated
demand for at least the next 5 years. In addition, the NGN
solution has been designed to deliver greater control of our
network traffic and enhanced levels of security.
When considering whether to make the capital investment into
the improved infrastructure, the Board considered feedback
from customers, our IT specialists, and dealership employees
that the Wi-Fi in dealerships was sub-optimal and that this
negatively impacted the dealerships from the point of view of
customer experience, site productivity, and our ability to meet
the expectations of our manufacturer partners.
In view of the improvements to the productivity and security
of our sites, the improvements to the customer Wi-Fi enabling
a better customer experience and making our dealerships a
more rewarding and effective workplace for our employees,
the Board decided the investment in the NGN was the right
way forward.
We are pleased to report that we have reduced our carbon
emissions this year. Further reporting on Mandatory Carbon
Reporting can be found on page 76 and on the environment on
page 76.
Lookers recognises that the automotive industry is key
component of the global response to the threat of climate
change, given the potential for EVs to reduce overall carbon
emissions. The UK Government has confirmed its ambition
to see at least half of new cars to be ultra-low emission by
2030. The Group considers that EVs will become increasingly
common, as increased regulation of CO2 emissions and fuel
consumption, government incentivisation, and the increasing
choice and improved technology in the electric vehicle market
shifts consumer behaviour. Lookers’ position as a leading
auto-retailer and the range of franchises that Lookers offers,
means it is ideally positioned to help drive significant change in
the market. Lookers is responding to the changes by engaging
closely with manufacturer partners, investing internally
through initiatives such as including a section on our website
dedicated to EVs, training staff in the new technology, and
installing charging points at our sites where possible.
Decision-making
We have set out below an example of a key decision the Board
has taken in 2019, to illustrate how the Board takes into
account the requirements of s.172.
Infrastructure investment: The Next Generation
Network Project
Our goal is to deliver high quality customer service working
at optimal capacity. Ensuring the continued long-term
success of the Company, requires the Group to invest
appropriately in technology infrastructure which enable us
to increase our productivity and efficiency, maintaining our
competitive advantage.
47
Lookers plc Annual Report & Accounts 2019 Non-financial information statement
This section of the Strategic Review constitutes Lookers plc’s Non-Financial Information Statement, produced to comply with
sections 414CA and 414CB of the Companies Act. The information listed is incorporated by cross-reference.
Reporting requirement
Environmental matters and
greenhouse gases
Policies and standards which
govern our approach
Page(s) in the Annual Report & Accounts
Environmental policy (1)
Lookers and the environment – Page 76
Mandatory carbon reporting – Page 76
Employees
Health and Safety Policy (1)
Lookers as an employer – Page 78
Ethical Policy Statement (1)
Recruitment and retention – Page 77
Code of Conduct Policy (1)
Staff communication – Page 77
Respect for human rights
Modern Slavery Act Statement
Data Privacy Policy (1)
Information and Cyber-Security
Policy (1)
Health and safety – Page 78
Human rights – Page 77
Social matters and
Community Engagement
Volunteering Standards (1)
Who we are – Page 17
Anti-corruption and anti-bribery
Anti-bribery and Anti-Corruption
Operational and other risks – Page 41
Fraud Risk Management Policy
Description of principal risks and
impact of business activity
Description of the business model
Non-financial key
performance indicators
Risk overview and management – Pages 36
to 43
Business model and strategy – Pages 12 to 13
Non-financial key performance
indicators – Page 25
1 – Certain Group policies are internal standards and guidelines and are not published externally.
This report was approved by the Board of Directors and is signed on its behalf by:
M. D. Raban
Chief Executive Officer 25 November 2020
Strategic Review
48
Strategic Review
Governance
50
Governance Board of Directors
We are committed to ensuring the right balance of skills and
experience in the Board and regularly review its composition
in line with our Company purpose.
We have announced a number of changes in the Board
throughout the year. In 2019, we were pleased to welcome
Heather Jackson and Victoria Mitchell as Independent
Non-Executive Directors; Mark Raban as Chief Financial
Officer (now Chief Executive Officer from February 2020).
In addition, Philip Kenny was appointed as General Counsel
and Company Secretary in December 2019.
Richard Walker and Sally Cabrini both left the board on 29th
June 2020.
Key:
• PLC: Board of Directors of Lookers plc;
• A&RC: Audit and Risk Committee;
• NomCo: Nomination Committee;
• RemCo: Remuneration Committee;
• LMGB: Board of Directors of Lookers Motor
Group Limited;
• LMGBRC: Lookers Motor Group Board Risk Committee*;
• Exco: Executive Committee;
• CC: Change Committee**;
• PGC: Product Governance Committee;
• ERC: Executive Risk Committee***;
• OpsCo: Operations Committee.
*LMGBRC: this committee’s last meeting occurred in July
2020 after which it was reincorporated into LMGB
**CC: this committee was reincorporated into Exco in
July 2020.
***ERC: this committee was incorporated into Exco with
oversight from LMGB in July 2020.
51
Lookers plc Annual Report & Accounts 2019 Board of Directors
Phil White CBE
Executive Chairman
Tony Bramall
Non-Executive Director (Non Ind)
Appointed: September 2006 (Non-Executive Chairman), November
2019 (interim Executive Chairman until 31 March 2020 when he returned
to his Non-Executive role). Phil White once again commenced an
executive role on 1 July 2020.
Appointed: June 2006.
Membership: PLC
Skills and Experience:
Membership: PLC (Chair), LMGB (Chair)*, NomCo (Chair), RemCo**
• Qualified chartered accountant
*Victoria Mitchell became Chair of LMGB from 1st July (subject to Regulatory Approval).
• Proven track record delivering successful acquisitions
**Phil White was not a member of RemCo during his periods of executive office both during 2019
• AM Awards: Hall of Fame 2009 winner
and 2020.
Skills and Experience:
• Qualified Chartered Accountant
• Considerable board governance experience, at both non-executive and
executive level
Phil was Chief Executive of National Express plc for nearly 10 years until
2007. Prior to this, Phil joined West Midlands Travel Limited as Finance
Director in 1994 before taking on the role of Managing Director in 1995
where he stayed for two years. Phil brings his wealth of experience as
a Chair of FTSE and other companies to the Group, ensuring board
effectiveness and corporate governance. Within the Board, he helps
ensure clarity, critical thinking, constructive debate and challenge and
the running of an effective Board. Externally, he ensures there is effective
engagement with our investors over our strategy, long-term sustainability
and corporate governance.
External Appointments:
• Chairman of The Unite Group plc
• VP plc
• Vibroplant Trustees Limited
• Vantage Motor Group Limited
• Vantage Garages (Blackburn) Limited
• Vantage Motor Group Automotive Limited
• Vantage Motor Group Holdings Limited
Tony has an enviable track record of almost five decades, building two
hugely successful public limited companies virtually from scratch. He
was Chairman and Director of CD Bramall plc until February 2004. Tony
is highly regarded in the motor industry for his negotiation and leadership
skills. Tony’s deep sector expertise and insight is greatly helpful to the
Board as the Board plots its way through the changing and challenging
environment which the Group faces. His strategic thought and pragmatic
mindset are a real asset to the long-term sustainability of the Group.
External Appointments:
• The Tony Bramall Charitable Trust
• Director of and shareholder in Guernsey Investments Limited
• Bramall Properties Limited
• A Bramall and Company Limited
• DCAB & Company Limited
• KSBO 2016 Limited
• Winterquay Limited
52
Governance Stuart Counsell
Non-Executive Director
Appointed: June 2017.
Heather Jackson
Non-Executive Director
Appointed: November 2019.
Membership: PLC, LMGB, A&R (Chair)*, NomCo, RemCo, LMGBRC**
Membership: PLC, LMGB, A&R, NomCo, RemCo*, LMGBRC**
*A&R (Chair) from December 2017.
*RemCo Chair from the date hereof.
**Until July 2020 when LMGBRC was reincorporated into LMBG.
**Until July 2020 when LMGBRC was reincorporated into LMGB.
Skills and Experience:
Skills and Experience:
• Considerable experience in audit and accounting
• Specialist in corporate finance and mergers and acquisitions
Stuart had a long and successful career with Deloitte where he spent
over 30 years, during which time he held a variety of senior management
positions including Managing Partner of the 17 UK Regional offices
and latterly Managing Partner Finance and Legal. As Managing Partner
Finance and Legal, he was responsible for the financial and legal aspects
of a £2 billion professional services business. Stuart also spent time at
Deloitte as Deputy to the Chief Executive with a specific mandate around
operational excellence. Stuart is Chair of the Audit and Risk Committee
and his experience as an accountant and his strong professional services
background are key attributes for the Group.
External Appointments:
• Non-Executive Chairman of Singleton Birch Limited
• Trustee of the Katherine Martin Trust
• Director, Counsell Advisory Limited
• Proven track record in delivering successful cultural and behavioural
change in retail and financial services organisations
• Specialises in change management, digital, IT and operations
• Valuable regulatory expertise
Heather brings a wealth of experience in IT, technology and change
management to the Group, having held both the position of Chief
Information Officer and Chief Operations Officer at HBOS/Lloyds plc.
Alongside current Non-Executive Director roles at Ikano Bank AB, JD
Sports Fashion plc, and Skipton Building Society, Heather is also the
co-founder of Actinista Limited, the Change Management company that
helps businesses deliver positive change. Heather has a strong focus
on delivering exceptional business results whilst doing the right thing
for customers which combined with her strong experience contributes
massively to the long-term sustainability of the Group.
External Appointments:
• Non-Executive Director of Ikano Bank AB
• Non-Executive Director of JD Sports Fashion plc
• Non-Executive Director of Skipton Building Society
• Co-Founder of Actinista Limited
53
Lookers plc Annual Report & Accounts 2019 Board of Directors
Victoria Mitchell
Non-Executive Director
Appointed: December 2019.
Mark Raban
Chief Executive Officer
Appointed: July 2019 (CFO) (February 2020 (CEO))
Membership: PLC, LMGB*, LMGBRC (Chair)**, A&R, NomCo, RemCo
Membership: PLC, LMGB, Exco, CC*, ERC**, OpsCo
*Chair of LMGB from 1st July (subject to Regulatory Approval)
* Until July 2020 when CC was collapsed into Exco.
** Until July 2020 when LMGBRC was reincorporated into LMGB.
** Until July 2020 when ERC was collapsed into LMGB.
Skills and Experience:
• Experienced Chief Operating Officer
• Strong risk and legal experience
Victoria has a 30-year history of working in the financial services industry.
She is skilled in financial services and risk management.
Victoria was formerly Chief Operating Officer of Capital One (Europe)
plc after previously holding the positions of Chief Risk Officer and Chief
Legal Counsel.
As well as her legal background, Victoria also brings board experience
across operations and risk within the financial services sector. Victoria’s
deep regulatory experience and understanding of regulation and risk in
the financial services sector is of the upmost importance to the long-term
sustainability of the Group given its current challenges.
External Appointments:
• Non-Executive Director of The West Bromwich Building Society
• Non-Executive Director of N Brown Group plc
Skills and Experience:
• 30 years’ retail experience
• Significant experience with acquisitions, integration and disposals
Mark has 30 years’ retail experience including Finance and Acquisitions
Director at Inchcape Retail Limited, Finance & Commercial Director at
Care UK and Finance Director at Selfridges. Mark played a significant role
in the IPO of Marshall Motor Holding, and its subsequent growth in his role
as Chief Financial Officer.
Mark specialises in IPO and debt financing; financial planning and
analysis; business development initiatives and project management;
working capital improvement and cash management; turnaround and
performance improvement. Mark is a natural leader and his deep sector
knowledge alongside his strong finance and turnaround background
makes him a strong and invaluable Chief Executive Officer of the Group.
External Appointments:
• Director, Precise Finance Limited
54
Governance Philip Kenny
General Counsel and Company Secretary
Appointed: December 2019 (General Counsel and Company Secretary)
Skills and Experience:
• Qualified Solicitor (2007)
• Significant experience in corporate finance and commercial law
• Specialising in aerospace, IT and the textile industries
Philip joined the Group in December 2019. Philip graduated from the
University of Central Lancashire in 2004 with a Bachelor of Laws. He has
13 years’ legal experience as a qualified solicitor including as Counsel
for Defence Information: Military Air and Information at BAE Systems plc
and Director, General Counsel and Company Secretary at Best Dressed
Group Limited (incorporating Jigsaw Clothing).
Philip has significant experience in sitting on and advising both plc
and private company boards of Directors in all areas of business
and commercial/corporate finance law including IPR, IT, general
commercial, data, terms and conditions, cross border, employment,
litigation, corporate finance, company secretarial matters and mergers
and acquisitions.
External Appointments:
• Legal Consultant - PK Business Consulting Limited
• Director, Perfect Human Limited
55
Lookers plc Annual Report & Accounts 2019 Chairman’s statement on corporate governance
Introduction from the Chairman
In 2019, the Group faced significant challenges both externally
and internally as it proved to be a very difficult year for the
Group. We will continue to respond to these challenges, and
we are determined to drive the required change through
all aspects of our business. We are pleased to report that
transformative change is underway in many areas. Our
continued focus on improving governance will play an
increasing role in the delivery of our strategy and in ensuring
that we are able to fulfil and deliver on our purpose.
The Board oversaw two FCA Section 166 Skilled Person
Reviews. The findings of reviews into our governance, and into
our systems and controls in relation to the sale of regulated
products are being implemented and embedded throughout
the Group during 2020 and 2021. Further details of this
programme of work can be found in the Risk Overview and
Management section on page 40 and in the Report from the
Chairman of the Audit and Risk Committee on page 71.
In March 2020 we identified potentially fraudulent
transactions in one of our operating divisions. In conjunction
with Grant Thornton, the Board initiated an investigation which
initially focused on the operating division concerned but was
then extended across all operating divisions. Additionally, the
Group conducted an extensive, internal balance sheet review.
The investigation and review are now complete and have
identified a number of accounting irregularities including
misrepresented commercial income from manufacturers,
fraudulent expense claims and non-compliance with certain
Group accounting policies. It also identified a number of
adjustments required to prior years and these are set out in
more detail in the Financial Review on page 32.
In response the Group has re-evaluated its risk and internal
control framework. Interim remedial actions have been taken
to mitigate the risks identified and to form a bridge to fuller
action in 2020 and 2021. In addition, we acknowledge that
there are some behavioural and cultural issues within the
Group, and these are also being addressed.
As we look forward, we see continued risk from the market
disruption arising from COVID-19, uncertainties within the
UK over post-Brexit arrangements and the slowdown and
vulnerability of our domestic market.
However, we also see economic resilience in some regions with
some strong strategic opportunities for the Group including
preparation for the switch to electrification. The changes
we have made - and continue to make - to strengthen the
business will stand us in good stead for the future.
Corporate Governance Statement
The Board is responsible for the culture and values of the
Group, and the system for internal controls. The Board
has accepted the recommendations made in relation to
improvements in its governance, systems and controls, and
financial reporting. The Board is confident that there are
processes and practices in place within the Group to promote
the long-term sustainable success of the business and protect
the interests of our stakeholders.
The UK Corporate Governance Code published by the
Financial Reporting Council in July 2018 (the Code) sets out
principles for good corporate governance. Good governance
supports the Board’s decision-making and ensures risks
are identified and appropriately managed to enable the
long-term sustainable success of the company. In 2019,
the group complied with the provisions of the Code, with the
following exceptions: Provision 4 on reporting where there is
a significant vote at the AGM; Provision 11 stating that at least
half the Board, excluding the Chair, should be Non-Executive
Directors whom the Board considers to be independent; and
Provision 19 in relation to the tenure of the Chair.
As required by the Code, Lookers published an Update
Statement further to the votes received against the Directors'
Remuneration Report resolution at the 2019 AGM. This was
not published until 11 February 2020, following the changes
to the Board, including the appointment of the new Chief
Executive Officer. As explained in the Update Statement, the
2019 vote related to the remuneration of the previous Chief
Executive Officer. The Directors' Remuneration Policy can
56
Governance be found at page 84 and the Report from the Chair of the
Remuneration Committee on page 80.
colleagues have the knowledge, tools and motivation to do the
right thing. The practical steps we have taken to achieve this
are summarised below.
As detailed in the Nomination Committee Report on page 66
Lookers recruited two independent Non-Executive Directors
in 2019. However, the timing of these recruitment processes
meant that the Company was not compliant with Provision 11
until December 2019. We have detailed below the composition
of the Board throughout the year.
The Company appointed an external search firm to recruit
a new Non-Executive Chair of the Board although the
search was paused during the process of completing these
financial statements. Now these financial statements have
been concluded we will recommence the search during the
remainder of 2020 and 2021. We expect that recruitment
process to conclude before the next AGM. In addition, the
Company is recruiting for a new Chair of the Audit and Risk
Committee during 2020, and subsequently will commence the
search for an additional Non-Executive Director.
Board Leadership and the Company’s Purpose
Culture
Treating customers fairly is central to our culture and is
fundamental to the delivery of our business strategy. The
Board is ultimately responsible for the oversight of the
Company’s culture and ensuring that this reflects our
customer-centric values. The Board believes that tone is set
from the top and in the importance of leading by example.
We are taking steps to ensure our values are reflected in the
behaviours of our colleagues and other stakeholders and
in the undertaking of activities which support our strategic,
operational and risk management objectives
We recognise that governance and culture is central to
achieving fair treatment of our customers and return for our
shareholders. The period under review has, in many ways,
been the ultimate test of the where the Lookers culture was
and where we wanted to be. We believe, in the management of
the challenges across this period, from the financial reporting
issues to the emergence of the COVID-19 pandemic, that we
have shown adaptability and acceptance of challenge on and
of our culture. We acknowledge and are addressing areas
where there is need for improvement. We seek to embed
and build trust with our colleagues and stakeholders, acting
with integrity, identifying our mistakes if made, putting things
right where so and preventing them from occurring again in
the future.
We have undertaken a number of practical steps to embed
a much stronger culture and reinforce and reward the right
behaviours. Put simply, our intention has been to ensure that
People
• We redesigned our training and competency framework
including investing in accreditation for all sales staff and an
overhaul of our training modules.
• We have restructured our Board and also appointed a
completely new Executive Team including a Chief Risk
Officer, Chief Executive Officer and Chief Financial Officer
to set a new and consistent tone at the top.
• We continue our work to encourage a culture of
accountability through the adoption of the FCA's Senior
Manager & Certification Regime.
Communication
• We have deployed a new interactive communication
platform called 'Workplace' to modernise the channels
available to communicate with all colleagues and enhance
visibility of senior leaders across a geographically
dispersed operation.
• We have encouraged a ‘speak up’ culture, re-launching
our whistleblowing process independently overseen by
our Chief Risk Officer and a Non-Executive member of
our board.
Technology
• We invested in technology to digitise our sales process
and, in response to COVID-19, created a contactless sales
process, building in greater control for our customers.
• We have redesigned and implemented a new Quality
Assurance framework to measure the fair treatment
of customers.
Reward
• We have introduced a set of standards (the Lookers
standards) that act as a compliance gateway for all
sales incentives.
Governance
• We have redesigned our governance framework to make it
more efficient and focused on the material issues.
• 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. 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.
57
Lookers plc Annual Report & Accounts 2019 Chairman’s statement on corporate governance
Measurement
We only know the impact of the above steps by monitoring and
reporting to senior management and the Board. During the
year we have made a number of enhancements with regard to
the measurement of our culture. Including but not limited to:
• Development of a new complaints handling tool and
enhanced management information
• Social media monitoring using tools such as Reputation.
com
• Colleague exit interviews, and
• Our OEM’s own assessment of our performance through
their own scorecards
Looking to the future…
We know that to fully embed a healthy culture takes time.
The points above illustrate that we have the foundations of a
strong culture but we fully acknowledge some of our activity
simply was not good enough in the past. We now move to the
next phase of our culture transformation and have formally
mobilised CEO sponsored programme. This includes a refresh
of our mission and values and the statement of clear purpose.
We believe that the Group’s future high level of business
performance will be made possible by the fundamental values
that underpin each of the Company’s actions. Keeping these
values in mind, we build our customers and stakeholders trust
in us, our employees’ dedication to the company, a comfortable
work environment and effective business practices. We want
to run our business being values led with a clear purpose.
Purpose
Our purpose and values from the showroom to the boardroom
are set out below:
• We are proud to serve the communities around us
• We inspire and excel in the work we do and the talent
we build
• We promote a workplace culture that rewards merit and
values diversity and cares for the environment
• We work with our suppliers in a spirit of partnership
• We faithfully represent the values and culture of our global
OEM brand partners through commitment to technology,
training and people development and
• We trade responsibly and govern to ensure the long-term
sustainability of the Company
The Board recognises that enhanced reporting in this area
should be a continued focus for the Company to provide
additional value for stakeholders.
Stakeholder Engagement
In its decision-making, the Board considers the interests of
its investors, key stakeholders, and the wider communities
in which it operates. Further information on stakeholder
engagement activities can be found in the Strategic Report
on page 46, the Corporate Social Responsibility Statement,
and Diversity Statement at page 111 and the Section 172
statement on page 45. We are committed to acting with
integrity in all our business relationships and to implementing
and enforcing effective systems and controls to ensure slavery
and human trafficking is not taking place anywhere in our
supply chains. Further details can be found in our Modern
Slavery Statement which is available on our website at
www.lookersplc.com
Shareholders
The Company places considerable importance on
communications with shareholders and responds to them on a
wide range of issues. It has an ongoing programme of dialogue
and meetings with major institutional shareholders, where a
wide range of relevant issues including strategy, performance,
remuneration, management and governance are discussed.
The Chairman always makes himself available to meet any
major shareholder, as required.
All Company announcements are posted on our website
www.lookersplc.com as soon as they are released. Our
website contains a dedicated investor relations section,
with an archive of past announcements and presentations,
historical financial performance, share price data and a
calendar of events. The principal communication with private
investors is through the ARA, the Interim Report and the
Annual General Meeting. A presentation is made at the
Annual General Meeting to facilitate greater awareness of the
Group’s activities. The Board were unable to offer this at the
Annual General Meeting held on the 29 June 2020 due to
Governmental restrictions imposed as a consequence of the
global COVID-19 pandemic, although investors were given the
opportunity to submit questions beforehand.
Under normal circumstances, Shareholders are given the
opportunity to ask questions of the Board and of the Chairs of
each Board Committee and to meet the Directors informally
after the meeting. The Board values the opportunity given
by the Annual General Meeting to meet with Shareholders in
person and to take their questions. Separate resolutions are
proposed for each item of business and the ‘for’, ‘against’ and
‘vote withheld’ proxy votes cast in respect of each resolution
proposed at the Meeting are counted and announced after
the Shareholders present have voted on each resolution. All
valid proxy appointment forms are recorded and counted and,
58
Governance after a vote has been counted, information regarding the proxy
votes is given at the meeting and published on the Company’s
website. Notice of the Annual General Meeting is posted to
Shareholders at least twenty-one days before the date of the
Annual General Meeting. Should a significant proportion of
the votes cast be against the resolution, the Company would
explain, when announcing the result, what action it intends to
take to understand the reasons behind the result.
The Board look forward to the opportunity to hold Annual
General Meetings in the normal manner and to utilise this
important method of engagement with the Shareholders once
again in 2021.
Division of Responsibilities
The Board
There has been a degree of change in Board composition
in 2019 as we saw the departure of the previous Executive
Team, and we also welcomed two new independent Non-
Executive Directors who have significant regulatory, risk,
and change management expertise. The Board currently
comprises the Executive Chairman, Chief Executive Officer,
Senior Independent Director, two independent Non-Executive
Directors, and a Non-Executive Director. Biographies of the
Directors and details of their external appointments appear on
pages 52 to 55.
Chairman and Chief Executive Officer
The Chairman leads the Board and the Chief Executive Officer
manages the Group and implements the strategy and policies
adopted by the Board. The division of responsibilities between
the role of Chairman and Chief Executive Officer is clear and
is set out in writing. The Chairman and the Chief Executive
Officer work together to set the Board’s agenda, supported by
the Company Secretary.
Senior Independent Director
It is the primary responsibility of the Senior Independent
Director to act as a sounding board for the Chairman, and
to provide a communication channel between the Chairman
and the Non-Executive Directors ensuring that the views of
each Non-Executive Director are given due consideration.
The Company Secretary would minute any unresolved
concerns expressed by any Director. The Senior Independent
Director leads the other Non-Executive Directors in the
annual performance evaluation of the Chairman. The Senior
Independent Director also chairs the Nomination Committee in
respect of the Chairman’s succession.
Board Balance and Independence
The Code requires a balance of Executive and Non-Executive
Directors such that no individual or small Group of individuals
can dominate the Board’s decision-making process. The
Board has reviewed the overall balance of skills, experience,
diversity, independence and knowledge, making two
additional Non-Executive Director appointments in 2019
as detailed above. The appointment process is set out in
more detail in the Nomination Committee Report on page
67. The Non-Executive Directors are encouraged by the
Chairman to provide constructive challenge and scrutiny of
management performance.
Time Commitment
The time commitment of Non-Executive Directors is set out on
appointment and is regularly monitored. The Board is satisfied
that each of the Non-Executive Directors is able to devote
sufficient time to the Group’s business.
Board Operation
The Board meets regularly throughout the year. It is
responsible, with the support of Board Committees and the
Executive Committee, for setting the purpose, values, culture,
and strategy of the Group. The Board has a schedule of
matters reserved that is regularly monitored. Matters reserved
for decision by the Board include decisions in relation to the
Group’s strategy, oversight of the system of internal control,
compliance and risk management, major capital expenditure,
approval of bank borrowings, and major changes to the
Group’s corporate structure. The Group maintains appropriate
Directors and Officers’ insurance in respect of legal action
against its Directors.
Induction and training
The Chairman takes overall responsibility for the Directors
training and development. Following appointment to the
Board, Directors receive a comprehensive induction including
meetings with senior management, meeting with the Chairs of
the Board Committees and the Chairman, to enable them to
acquire a detailed understanding of the Group’s business and
strategy, and the key risks and issues facing the business.
Throughout the year, updates on developments in legal and
governance matters are provided to all Directors. All Directors
are required to complete our e-learning training modules which
includes training on a variety of legal and regulatory topics.
The Board has received specific training on the Senior
Managers and Certification Regime in 2019.
59
Lookers plc Annual Report & Accounts 2019 Chairman’s statement on corporate governance
External appointments
Details of the Board’s external appointments can be found
on page 67. The Board has considered each of these
appointments, noting the Directors other commitments and
concluded that they have sufficient time to devote to their roles
with the Group.
Role of the Company Secretary
In furtherance of their duties, the Directors have full access
to the advice and services of the Company Secretary and
may take independent professional advice at the Company’s
expense. The Company Secretary attends all meetings and
is responsible for advising the Board and its Committees,
through the respective Chairs, on corporate governance and
matters of procedure. The appointment and removal of the
Company Secretary is a matter for the Board
Board procedures
The Company Secretary, on behalf of and at the instruction of
the respective Chair who remains responsible, ensures that
the Directors receive accurate, timely and clear information
and provides advice and support in relation to regulatory and
governance matters. Monthly financial, operational and risk
management information is provided to the Directors.
Regular and ad hoc reports and presentations are circulated,
with all Board and Committee papers being issued in advance
of meetings by the Company Secretary and made available to
all Directors on the Board portal. In addition to formal Board
meetings, the Chairman maintains regular contact with the
Chief Executive and the other Directors to discuss specific
issues. The Board meets regularly and is given adequate time
to probe and debate issues.
Conflicts of interest
The Board maintains a register of interests to identify and,
where appropriate, manage conflicts or potential conflicts
of interest. At each Board meeting, the Board considers the
register and any potential conflicts of Directors and gives,
where appropriate, any necessary approvals.
60
Governance Board and Committee attendance
The following table shows the attendance of Directors at regular Board meetings. Attendance at meetings of the Audit,
Remuneration and Nomination Committees is shown below.
Scheduled meetings held in 2019:
Board
Audit
Remuneration
Nomination
Number held
Number attended
Tony Bramall
Andy Bruce*
Sally Cabrini
Stuart Counsell
Robin Gregson*
Mark Raban**
Richard Walker
Nigel McMinn*
Phil White
Victoria Mitchell**
Heather Jackson**
11
10
8
11
11
7
4
11
9
11
1
2
6
3
1
6
6
3
3
6
2
5
0
0
7
7
1
7
7
0
0
7
0
7
1
2
7
0
0
7
7
0
0
7
0
7
0
1
* Robin Gregson, Andy Bruce and Nigel McMinn resigned in 2019 hence limiting their attendance at Board and
Committee meetings.
** Mark Raban, Heather Jackson and Victoria Mitchell joined the Board in 2019, limiting attendance at Board and
Committee meetings.
61
Lookers plc Annual Report & Accounts 2019 Chairman’s statement on corporate governance
Composition, succession, and evaluation
The table below sets out the composition of the Board during 2019, excluding the Chairman:
Date(s) of
Board Meeting
Executives
Independent
Non-Executive
Directors
Non-Independent
Non-Executive
Director
Notes
Andy Bruce
Robin Gregson
Nigel McMinn
Sally Cabrini
Stuart Counsell
Richard Walker
Tony Bramall
There were no changes in Board composition
between January and June 2019. There were 4
Non-independent Directors and 3 independent
Directors during this period.
31 January 2019
28 February 2019
28 March 2019
25 April 2019
31 May 2019
27 June 2019
26 July 2019
Andy Bruce
Mark Raban
Nigel McMinn
Sally Cabrini
Stuart Counsell
Richard Walker
Tony Bramall
1 October 2019
Andy Bruce
Mark Raban
Nigel McMinn
Sally Cabrini
Stuart Counsell
Richard Walker
Tony Bramall
Robin Gregson resigned from the Board on 5
July 2019 and Mark Raban was appointed to the
Board on 15 July 2019. There were therefore 4
Non-independent Directors and 3 independent
Non-Executive Directors between 6 July and 14
July 2019.
There were 4 Non-independent Directors and
3 independent Non-Executive Directors during
this time.
31 October 2019
Andy Bruce
Mark Raban
Nigel McMinn
Sally Cabrini
Stuart Counsell
Richard Walker
Tony Bramall
There were 4 Non-independent Directors and
3 independent Non-Executive Directors during
this time.
Period from 1
November 2019 to
24 November 2019
Richard Walker
Phil White
Mark Raban
Sally Cabrini
Stuart Counsell
Tony Bramall
25 November 2019
Richard Walker
Phil White
Mark Raban
Sally Cabrini
Stuart Counsell
Heather Jackson
Tony Bramall
On 1 November 2019 Andy Bruce and Nigel
McMinn resigned from the Board with immediate
effect. Phil White became interim Executive
Chairman and Richard Walker became interim
CEO. This meant that the Board had 4 Non-
independent Directors and 2 independent
Non-Executives until the appointment of Heather
Jackson on 25 November 2019.
On 25 November 2019, we announced that
Heather Jackson had joined the Board with
immediate effect. This meant that from this date
the Board had 4 Non-independent Directors and
3 independent Non-Executive Directors.
27 November 2019
Richard Walker
Phil White
Mark Raban
Sally Cabrini
Stuart Counsell
Heather Jackson
Tony Bramall
As a result of Heather’s appointment, the Board
meeting on 27 November comprised 4 Non-
independent Directors and 3 independent Non-
Executive Directors.
20 December 2019
Phil White
Richard Walker
Mark Raban
Sally Cabrini
Stuart Counsell
Heather Jackson
Victoria Mitchell
Tony Bramall
On 20 December 2019, Victoria Mitchell joined
the Board with immediate effect.
This means that the Board comprised 4
Non-independent Directors and 4 independent
Non-Executive Directors.
62
Governance Succession planning, election, and diversity
The UK Corporate Governance Code 2018 includes a
recommendation that the Chairman of the Board does not
remain in post in excess of 9 years from the date of their first
appointment to the Board. The Code acknowledges that, if a
clear explanation is provided, the Code permits a limited time
extension where this would facilitate effective succession
planning and the development of a diverse board. This provision
of the Code is relevant to Lookers, as the Chairman has been in
post for 13 years.
We announced in our 2018 Annual Report that we had started
the succession planning process for the Chairman. In view of
the Executive management changes in November 2019, it was
decided to postpone the recruitment process for a new Chairman
until the handover process to a new Chief Executive Officer was
completed, in order to maintain the stability of the Group during
a period of significant change. At the request of the Board,
Phil White assumed the role of Interim Executive Chairman on
the 1st November 2019 until 31st March 2020 to oversee the
transition in the Business arising from the Board changes and the
accounting and governance issues identified.
Although the appointment of a new Chief Executive Officer
was concluded in February 2020, in view of the executive
management changes in 2019 and the significant challenges
faced by the Group in 2020 including the Grant Thornton
investigation, the Board asked the Chairman to fulfil an executive
role once again from 1 July 2020. The Board considers that
it benefits from the Chairman’s corporate knowledge and
experience during this time of transformation, complementing
the new skills and experience of its recent Non-Executive
Director appointments and until new Non-Executive Directors
are appointed.
The succession planning and recruitment process for a new Non-
Executive Chairman will recommence shortly after publication
of these financial statements and should be completed before
the next AGM. Phil White has confirmed that he will not stand for
re-election at the 2021 AGM.
The process of appointing new Directors is managed by the
Nomination Committee which makes recommendations to the
Board. Lookers recognises and embraces the benefits of having
a diverse Board and sees increasing diversity at Board level as
an essential element of maintaining competitive advantage.
All Directors stand for election or re-election as appropriate at
the AGM. Further information about the succession planning
process, including its consideration of diversity in its succession
plans is detailed in the Nomination Committee Report on
page 66.
We are keen to do more to look at diversity in its widest sense.
We are building frameworks to ensure that everyone is paid fairly
based on talent and performance. We want to be renowned as a
place where talented individuals can thrive and be at their best,
combining all aspects of diversity and representation including
areas such as age, background, gender and sexual orientation.
The Board had wished to see greater progress in this regard
during 2020, however, the challenge presented by both the
internal and external distractions during the year has limited
progress. The Board recognise the need for additional focus on
this issue during 2021.
Board evaluation
A formal independent evaluation exercise in relation to the
Board and its Committees was undertaken in 2019 by Equity
Communications Limited (which has no other connection with
the Company). This is discussed further in the Nomination
Committee Report on page 66.
Risk management and internal control
Accountability
The Code requires the Company to maintain a sound system
of internal control to safeguard Shareholders’ investment and
the Company's assets. The Board is responsible for ensuring a
robust framework is in place for risk management and internal
control against the backdrop of fulfilling the Group’s objectives.
The Board has established a system of control that addresses
the mitigation of business and operational risks as well as risks
to financial reporting.
The system of internal control is designed to manage rather
than eliminate the risk of failure to achieve business objectives
and can provide reasonable assurance against material
misstatement or loss.
How risk is managed
The Board determines the Group’s overall risk strategy and
risk appetite. The Board, in conjunction with management,
identifies the principal risks to which the Group is exposed
and establishes a risk management framework and internal
controls to identify, assess, monitor and mitigate its risk
exposure. Further details on the Group’s risk management
framework and how risks are evaluated and mitigated are
detailed on pages 37 to 43.
Lookers operates a three lines of defence model, which
provides a framework of responsibilities and accountabilities
across the organisation. This is detailed more fully on page 36.
The effectiveness of the Group’s internal controls is reviewed
by the Board and the Audit and Risk Committee. The
management of risk is independently overseen and challenged
63
Lookers plc Annual Report & Accounts 2019 Chairman’s statement on corporate governance
by the Group’s Risk Management and Compliance Teams
who constitute the second line of defence. Internal audit, as
the third line of defence, undertakes independent assurance
activities and provides reports to the Board and senior
management on the quality and effectiveness of governance,
risk management and internal controls.
The Group has invested significantly in its Second Line of
Defence Teams in the period, appointing a permanent Chief
Risk Officer and restructuring its Risk Management and
Compliance departments. Internal audit was restructured in
late 2019 to achieve increased coverage and a higher level
of assurance. Following the first COVID-19 lockdown the
functioning and structure of the internal audit department has
been further reviewed and a new permanent head of internal
audit appointed in 2020.
Identifying, evaluating and managing risks, including
emerging risks
There is a continuous process for the identification,
assessment and management of risk which is covered in
further detail in Risk Overview and Management on page 36.
Management, Internal Audit and the Audit and Risk Committee
assess the probability and potential impact of risk to determine
the level of exposure. Reporting has been developed to track
the Groups performance against board agreed risk appetite
and escalate new and emerging risks to the Audit and Risk
Committee and the Board as appropriate.
Internal control
The Board is responsible for overseeing the Group’s system
of internal controls, reviewing its effectiveness at least once a
year and reporting to Shareholders that it has done so.
Review of risk management during the year
In 2019, the Company continued to review and improve its
processes for identifying, evaluating managing and monitoring
the risks faced by the Group. The key focus of the risk strategy
was the design and implementation of a new enterprise risk
management framework to strengthen controls over the
business operations. After the year end, management has
been heavily involved in risk assessment and related actions
arising from COVID-19 and the management of the internal
fraud and financial reporting control issues. Our response is
detailed in the Risk Overview and Management section.
In December 2018 the Board commissioned an independent
review by Duff and Phelps of the Group’s internal control, risk
assurance systems and internal audit. This was shared with
the FCA who asked that the suggested recommendations
be carried out under the supervision of two Skilled Person
reviews, one covering governance and the other covering
systems and controls. During the second have of 2019
the Company responded by enhancing its governance
arrangements, developing the customer sales process and
strengthening compliance with FCA requirements through the
implementation of a robust risk management framework, all
64
Governance under the supervision of the FCA Skilled Person. Whilst both
reviews are now concluded, work on the implementation and
embedding of these improvements in both areas is ongoing.
• Principal and emerging risks identified in the risk
management process
•
Identification and application of appropriate
accounting standards
Audit and Risk Committee
Subsequent to the year-end the Committee has spent
considerable time working with the Executive Directors in
considering the outcomes of the Investigation into potential
fraud and accounting irregularities and in determining the
remedial actions required to strengthen internal controls in
specific areas. During the year under review, an area of focus
was the design and implementation of a revised Internal Audit
Universe and annual plan together with a robust enterprise
risk management framework. For further insight on the Audit
and Risk Committee’s oversight of risk, internal controls
and financial reporting please refer to the Audit and Risk
Committee Report on page 70.
The Chairman of the Audit and Risk Committee, Stuart
Counsell, met the specific requirements with regard to recent
and relevant financial experience throughout 2019. Further
information about the role and work of the Audit and Risk
Committee can be found in the Audit and Risk Committee
Report on page 70.
Remuneration
The Company’s approach to remuneration, including the
role and work of the Remuneration Committee is set out in
the Remuneration Committee Report and the Directors’
Remuneration Report detailed on page 80. As required by
the Code, the Chair of the Remuneration Committee, Sally
Cabrini, had served on a remuneration committee for at least
12 months before being appointed as Chair.
The Code recommends that companies establish a method
for obtaining the views of the workforce and suggests one
of three options. The Board decided in 2018 to designate a
Non-Executive Director to lead on colleague engagement and
appointed the Chair of the Remuneration Committee to take
on this role. Further considerations in relation to the employee
interaction initiatives undertaken by the Board in 2019 are
given on page 13 of our business model and strategy.
Phil White
Executive Chairman
25 November 2020
Steps are also being taken to restructure the Group’s operating
model through greater central control of divisional activity. This
will further enhance internal controls and the management of
risk in our business operations.
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
Team and the Group’s external auditor, the application of
IFRS and the reliability of the Group’s system of control over
financial reporting.
Internal control effectiveness
The Board confirms it has performed its annual review of
the effectiveness of internal controls. 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
Grant Thornton investigation and its own internal reviews.
Responding to these weaknesses, it has considered and
approved significant improvements to the Group’s internal
control and 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.
Materiality
The financial statements aim to provide a fair, balanced and
understandable assessment of the Group’s business model,
strategy and performance and prospects in relation to material
financial, economic, social, environmental and governance
issues. The material focus areas have been determined
considering the following:
• Specific quantitative and qualitative criteria
• Matters critical in relation to achieving strategic objectives
65
Lookers plc Annual Report & Accounts 2019 Nomination Committee Report
Dear Shareholder
I am pleased to be able to take this opportunity as Chair of the
Nomination Committee to share with you the work which has been
carried out during the year and our plans for 2020 and 2021.
During the year both the Nomination Committee and the Board
have closely reflected upon the leadership needs of the Group,
together with the skills, knowledge, independence, diversity and
experience needed from the Board and senior management.
The Nomination Committee oversaw a number of significant
changes to the Board and Senior Management Team over the
year, requiring them to meet on 7 occasions.
Composition and attendance
The Nomination Committee is composed solely of Non-Executive
Directors and met 7 times during 2019. The CEO and Group
HR Director attend by invitation as appropriate. The attendance
at meetings by each member of the Committee is set out in the
table below:
Process for Appointments
The Nomination Committee leads the following process for
appointments to Board and senior management positions (other
than for the Chairman and the Chief Executive Officer being
matters considered at the plc Board).
The Nomination Committee determines:
• Specification for the role, (including a definition of the role and
capabilities required) taking into account the current balance of
skills and experience on the Board;
• The search agency to support the appointment or the usage
of open advertising while having regard to internal talent
when appropriate;
• Other ways it can access a more diverse pool of candidates
including a wide range of backgrounds;
• The structure of the interview process;
• The interview panel;
Meetings attended
during the year
• Referencing requirements and candidate checks;
• Shareholder consultation; and
Director
Phil White (Chair)
Sally Cabrini
Stuart Counsell
Richard Walker*
Victoria Mitchell**
Heather Jackson***
7
7
7
7
0
1
*Richard Walker resigned from the Committee on
1 November 2019.
** Victoria Mitchell was appointed to the Committee in
December 2019. No meetings of the Committee were held in
December 2019,
*** Heather Jackson was appointed to the Committee on in
November 2019, limiting her attendance to one meeting
The Role of the Nomination Committee
The role of the Nomination Committee is to establish a framework
for appointments of Executive and Non-Exec Directors and
senior management. The Nomination Committee further assists
the Board in ensuring its composition is regularly reviewed
and refreshed, so that it is effective and able to operate in the
best interests of the Shareholders. In addition, the Nomination
Committee oversees the development of a diverse pipeline for
succession to the Board and senior management roles.
The Terms of Reference of the Nomination Committee are
available on the Group’s website.
• Engagement with the Remuneration and other Board
committees as appropriate.
Once the above are agreed, a timetable for the appointment is
approved and the process commences.
Diversity
Lookers recognises the benefits of having a diverse Board and
sees increasing diversity at Board level as an essential element
of maintaining both a competitive advantage and good corporate
governance. Appointments to the board are based on merit and
objective criteria reflecting the skills, knowledge, experience,
diversity and independence needed to ensure a balanced and
effective Board. The Committee’s diversity policy has set a target
of ensuring that the proportion of women on the Board is not less
than 20% by 2022 and not less than 33% by 2024. The Board is
pleased to report that the percentage of women on the Board is
currently 33%.
Board Evaluation
The Board Commissioned an external Board evaluation in 2019,
which was carried out by Equity Communications Ltd, which has
no other connection with the Company or individual Directors. The
evaluation was conducted through a series of in-depth interviews
with the Board Directors and the Company Secretary. The
interviews comprised a series of questions focusing on strategy,
risk, succession planning, Board dynamics and the effectiveness
of Board committees. The outcomes were presented and
prioritised including a series of mid-term and long-term actions.
Key recommendations included improving the quality of the
management information provided to the Board, greater clarity
66
Governance
around the strategic plan for the Group and enhancing the role
and resourcing of key functions. The recommendations presented
a clear path forward to refresh the Board and its strategy. The
report by Equity Communications Ltd formed part of the rationale
for the change in composition of the Board later in the year. In
addition, the Board has acted to strengthen key functions in terms
of skills and resource requirements.
Appointment of Directors
The Nomination Committee reviews the size, structure, and
composition of the Board and its Committees and makes
recommendations to the Board with regards to any changes that
are considered necessary.
Robin Gregson stepped down from the Board as Chief Financial
Officer on 5th July 2019.
On 25th Nov 2019 Heather Jackson was appointed a
Non-Executive Director of the Board. Heather brought
regulatory experience and expertise in Digital Technology and
Change Management.
Victoria Mitchell was appointed a Non-Executive Director of the
board on 20th December 2019. As well as her legal background
Victoria brought experience across operations and risk within the
financial services sector.
2020 - the year so far
On 5th February 2020 Mark Raban and Cameron Wade
were appointed Chief Executive Officer and Chief Operating
Officer respectively. It was also announced that Richard Walker
and I would return to our former non-Executive roles on 31st
March 2020.
Mark Raban, formally of Marshall Motor Holdings plc, was
appointed as Chief Financial Officer on the 15th July 2019.
On 12th March 2020 it was announced that Cameron Wade had
stepped down from the Board.
On 1st Nov 2019 we announced that Andy Bruce, Chief Executive
Officer, and Nigel McMinn, Chief Operating Officer, had agreed
to step down from the Board. Until permanent successors were
appointed, I agreed to become Executive Chairman and Richard
Walker the Senior Independent Director, agreed to assume a part
time Executive role.
On 30th March 2020 Jim Perrie was appointed to the role
of Interim Chief Financial Officer, although he has not joined
the Board.
67
Lookers plc Annual Report & Accounts 2019 Nomination Committee Report
On 24th June 2020 we announced changes to the Board in order
to refresh and strengthen the Board for the long-term future of
the business. The Board recognised the need to bring in new
skills and experience to guide the business through the next
stage of development. With our dealerships re- opened after the
COVID-19 lockdown, we believed it was the time to put in place
plans for the future of Lookers and we agreed an orderly transition
to refresh the Board over the coming months.
At the request of the Board I assumed the role of Executive
Chairman from 1st July 2020 to oversee this transitional period.
Richard Walker, Senior Independent Director and Sally Cabrini
Non-Executive Director and Chair of the Remuneration
committee respectively confirmed that they would not stand for
re-election at the AGM held on 29th June 2020 and would step
down from the Board at the conclusion of that AGM.
Stuart Counsell, Non-Executive Director and Chair of Audit
and Risk committee agreed to remain on the Board until
the completion of the 2019 results and the appointment of
his successor.
Tony Bramall, Non-Executive Director confirmed that he would
not stand for re-election at the 2021 AGM, subsequently
Tony announced he was retiring from the Board on 31st
December 2020.
Heather Jackson, Non-Executive Director, was appointed as
Senior Independent Director from 1 July 2020 and shall become
Chair of the Remuneration Committee on completion of the
2019 results.
Victoria Mitchell, Non-Executive Director would assume the role
of Chair of Lookers Motor Group Ltd, the FCA regulated entity,
from 1st July 2020, subject to regulatory 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 recruiting for a new Chair of the Audit and Risk
committee during 2020, and subsequently, will commence the
search for an additional Non-Executive Director.
Objectives for 2020
As a new Board and senior management structure is embedded
into the business in 2020, the Nomination Committee will
continue to review our succession plans for the short, medium,
and long term, for the Board and senior management positions.
A core element for this programme will be to develop the training
and resources available to support internal progression to senior
management positions and the Board.
The Nomination Committee will keep under review for
2020 and beyond the options for workforce engagement
covered elsewhere.
Phil White
Executive Chairman
25 November 2020
68
Governance 69
Lookers plc Annual Report & Accounts 2019 Audit and Risk Committee Report
Dear Shareholder
I set out the annual report of the Audit and Risk Committee (the
Committee) for 2019. The report details the Committee’s role,
responsibilities and activities including the consideration of
and response to developments in the business.
The period under review has been very challenging for the
Board and the Committee with investigations concerning
our regulated activities, fraudulent activity and accounting
irregularities. I refer to these below and they are also detailed in
the Chairman’s Report on page 6.
In December 2018 the Board commissioned an independent
report to consider control issues in the sales processes of the
regulated subsidiary Lookers Motor Group Limited (LMGL).
The report was shared with the FCA. Subsequently, on 20th
June 2019 the FCA informed LMGL that it intended to carry
out an investigation into its sales processes. On 5th July 2019
the FCA issued requirement notices for Section 166 reviews
into the Group’s governance and systems and controls. Further
details are set out in the Regulated Systems and Controls
section below.
In 2020, an investigation into fraudulent activity and
accounting irregularities identified further control
weaknesses, non-compliance with laid down policies and
procedures and financial misstatements. In addition, it
identified a disappointing level of cultural and behavioural
issues which significantly impacted the control environment.
This investigation seriously delayed the finalisation of the
Company’s 2019 Annual Report and Accounts.
The Committee has spent considerable time in 2020 working
with the Board and Executive Management on the outcomes
of this investigation and the determination of remedial actions
to strengthen internal controls.
In addition, COVID-19 significantly affected Group activities.
The Committee reviewed the business response to the
pandemic including the impact on business operations, the
wellbeing of our employees and customers, cost reduction
measures and cash management.
The Committee is an essential part of the Lookers governance
framework. Our role is to oversee and advise the Board on
the Group’s financial reporting, risk management and internal
control procedures.
• Assessing the Group’s overall risk appetite, risk exposures
and strategy including the review of reports and activity by
risk and compliance functions established by the Group to
comply with its regulatory obligations
• Considering the roles and effectiveness of both the group
internal audit function and the external auditor
• Reviewing the arrangements and procedures in place
to deal with whistleblowing, fraud, bribery and anti-
money laundering
• Concluding whether the Annual Report, when read as a
whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess
the Group’s position and performance, business model
and strategy
The Committee’s terms of reference, which provide a
framework for its work, were reviewed and updated by the
Committee and approved by the Board in October 2019.
Composition and attendance
The Committee is composed solely of independent Non-
Executive Directors.
Members:
Stuart Counsell (Chairman)
Sally Cabrini (resigned 29 June 2020)
Richard Walker (resigned 1 November reappointed 5 March
2020 resigned 29 June 2020)
Vicky Mitchell (appointed 20 December 2019)
Heather Jackson (appointed 25 November 2019)
Richard Walker resigned from the Committee when he
assumed the role of interim Chief Executive Officer following
the departure of the Chief Executive Officer and Chief
Operating Officer on 1 November 2019. He relinquished
the role following the appointment of Mark Raban as Chief
Executive Officer on 5 February 2020.
The Committee members have, through their current and
previous business activities, broad experience in financial, risk
and commercial matters. Committee member biographies are
set out on pages 52 to 55.
The Committee is also specifically responsible for:
• Reviewing accounting and financial reporting processes
• Advising the Board in the assessment of judgements and
estimates arising from material accounting issues
• Assisting the Board in assessing the Company’s going
concern and viability statements
The Committee met five times during the year and meetings
were fully attended by members. The Chief Financial Officer
attended every meeting. As appropriate, the Chairman, other
Executive Directors and Non-Executive Directors, the Chief
Risk Officer, Head of Internal Audit, Deloitte LLP (Deloitte)
as external auditors, KPMG LLP (KPMG) as internal audit co-
source providers and other managers attend meetings at the
Chairman’s invitation.
70
Governance
In addition, following the year end, Committee members
have spent a considerable amount of time considering and
approving the Board’s response to the outcomes of the two
investigations and the impact of COVID-19 on the Group.
development of a revised governance structure and the design
of a new enterprise risk management framework. Considerable
work has been carried out on the design and implementation of
the framework and this is substantially complete.
Investigations
The period under review and to date has been heavily impacted
by the two investigations noted below and their outcomes;
these have significantly influenced the activities of the
Committee during 2019 and 2020 through to the finalisation
of the Annual Report and Accounts in November 2020.
Regulated Systems and Controls
In December 2018, the Board commissioned an independent
review of the regulated sales activities of LMGL which
was shared with the FCA. This encompassed the Group’s
internal controls, risk assurance systems and internal audit
and identified underlying cultural and behavioural issues
and a number of control issues. In consequence, the Board
instigated a reorganisation and remediation plan to establish a
comprehensive enterprise risk framework as well as delivering
best practice and an enhanced customer experience.
As announced on 20th June 2019 the Group was informed
by the FCA that it intended to carry out an investigation into
the Group’s sales processes between 1 January 2016 and
13 June 2019. This is ongoing and the Company is fully
supporting the FCA in its investigation.
On 5 July 2019 the FCA informed the Company that it intended
to issue requirement notices for Section 166 reviews into
the Group’s governance and systems and controls. Grant
Thornton UK LLP (Grant Thornton) were appointed to perform
the review and reported on governance on 12 November
2019 and on systems and controls on 14 February 2020.
These reviews continue and the Company fully supports
the recommendations made to date. A key focus for the
Committee is to ensure these are fully implemented and
embedded in 2020 and 2021.
The restructuring actions taken by the Company included the
appointment of a Chief Risk Officer and the introduction of a
number of risk and compliance enhancements within LMGL.
In addition, in December 2019 a Board Risk Committee (BRC)
was established within LMGL to monitor and advise on the
company’s regulatory response. The membership included
three Audit and Risk Committee members - Vicky Mitchell
(Chair), Stuart Counsell and Heather Jackson - together with
the Chief Risk Officer. The activities and findings of the BRC
were reported to the Committee and the main Board. In July
2020 the BRC was integrated into the LMGL Board.
The Committee and the BRC, in conjunction with the
LMGL Board and PLC Board, were closely involved in the
Fraud and accounting irregularities
On 10 March 2020 the Group announced an investigation into
potentially fraudulent transactions working in conjunction with
a forensic team from Grant Thornton.
The Investigation identified accounting irregularities including
certain financial systems and controls weaknesses, non-
compliance with the Group’s accounting policies or accounting
standards and poor accounting.
Committee members have been closely involved throughout
the period of work performed by Grant Thornton, PwC LLP
(acting in an accounting support role) and Group management
as they determined the nature and extent of accounting
irregularities. This included agreement of their scope of work,
consideration of the nature and size of adjustments proposed,
and the level of controls remediation required.
As the investigation progressed there was regular dialogue
with the external auditors who needed to challenge the
conclusions arising from the investigation and to consider the
impact on the scope of their audit plan.
In considering the remedial actions necessary to improve
and strengthen the control environment, the Committee
was also considerate of Deloitte management letters for the
previous two financial years, that highlighted a series of control
issues and recommendations as to where controls needed to
be improved.
Remedial actions to strengthen internal controls and
accounting procedures have been established and are set
out on page 35. During 2020 and 2021 the Committee will
monitor the effectiveness and embedding of these actions
Other activities:
• Scheduled updates on risk management, financial reporting
and accounting matters; also, on health and safety, and
pension matters
• Review and approval of interim and preliminary statements
and the Annual Report and Accounts
• Updates from the Chief Risk Officer on regulatory
compliance and progress on the introduction of a revised
sales process and the design and implementation of the
new enterprise risk management framework
• Review of management’s papers in support of key
accounting judgements and estimates
71
Lookers plc Annual Report & Accounts 2019 • Review of the scope of the external audit plan and
consideration of the auditor’s reports on financial reporting
and accounting matters and their observations on the
Group’s internal controls
• Scheduled updates from internal audit, the BRC and latterly
from the LMGL Board . This included the review of risk
registers and dashboards
• Review of presentations by the head of IT regarding
planned improvements to general IT controls
• Review and approval of the restructuring of internal audit
as part of the reorganisation plan, the consideration and
selection of KPMG as a co-sourced internal audit partner,
the review and agreement of internal audit resourcing and
their 2019/2020 work programme
• Consideration of reports on GDPR compliance and cyber
security, detailing procedural improvements
• Overseeing a formal audit tender process.
Independent review
In September 2019 the company engaged Equity
Communications to undertake a review of the Board
and its Committees. There was one recommendation
regarding Committee composition which was accepted
and implemented.
Financial reporting, including significant reporting and
accounting matters
In addition to the Committee’s work regarding the
investigations noted above, the Committee assessed the
overall quality of the Group’s current financial reporting, by
review and discussion of significant accounting matters.
The assessment also considered: the appropriateness of
the Group’s accounting policies, judgements and estimates;
confirmed compliance with regulatory and financial reporting
standards and the adequacy of disclosures.
Accounting errors and restatements
The investigation into fraud and financial irregularities by Grant
Thornton and the Company identified a significant number of
accounting adjustments in 2019 and prior periods including
rectification of accounting errors, application of appropriate
accounting standards and the grossing up and restatement of
balance sheet accounts.
These are detailed on pages 32 to 35 and their presentational
impact on the previously reported financial results of prior
years is set out on pages 146 to 154.
Throughout the period of the investigation, which lasted
several months, the Committee monitored the outcomes and
adjustments arising from specific areas and challenged the
conclusions and related disclosures.
We have also considered and agreed with management’s
response to the financial reporting and control issues
identified which are set out on page 35. The Committee will
continue to review the implementation and embedding of the
proposed steps during 2020 and 2021.
Other significant reporting and accounting matters
The Committee also considered a number of other significant
matters, estimates and judgements included within the
Annual Report and Accounts. A summary of those matters is
listed below.
Leasing
During the year, IFRS 16 was adopted retrospectively
by the Group and a comprehensive model developed for
the identification of lease arrangements and accounting
treatments for both lessors and lessees.
Details of the fully retrospective adoption and financial effects
are set out in accounting policy 1.27 on page 140.
The Committee reviewed management’s assessment,
implementation and specific judgements and estimates
including the use of incremental borrowing rates, the
assessment of extension and termination options and the
treatment of past sale and leaseback transactions and were
satisfied with the approach taken.
The investigation into accounting irregularities identified
the incorrect accounting treatment of leases undertaken by
certain leasing subsidiaries. Where this was identified work
was done to ascertain the correct accounting treatment under
IFRS15 and IFRS 16. The financial impact of this is set out on
Note 1a-e. The Committee discussed the factors involved with
management and were satisfied with the conclusions reached.
Commercial income (Key Estimate page 132)
Of particular focus for the Committee is the receipt of
commercial income from manufacturer partners, because of
the risks relating to recognition and recoverability.
Following the identification of fictitious transactions in respect
of commercial income the Committee closely followed the
progress of the investigation procedures and its outcomes
and was satisfied with the work undertaken and the
resulting adjustments.
Goodwill and intangibles (Key Estimate and Judgements
on page 132)
The Company undertakes an annual assessment of the
carrying value of goodwill and intangibles. The impairment
reviews performed by management on cash generating
units (CGUs) contain a number of significant judgements and
estimates including long term growth rates, forecast cash
flows, forecast timeframe and discount rates to determine the
72
Governance recoverable amounts on a value in use basis.
The Committee considered and challenged the methodology
and underlying assumptions, ensuring the impact of
specific adjustments arising from the investigation
had been recognised and agreed with the proposed
impairment provision
The Committee also considered the outcome of reasonable
downside sensitivity analyses performed by CGU and whether
this resulted in potential material impairment and agreed with
management’s conclusion that a sensitivity disclosure was
required in the current year, in relation to the JLR, Ford and
BMW CGUs.
Inventories
The valuation of inventories is another key focus for the
Committee. The fair value of inventories is reviewed by
management regularly, applying a mix of standard and
judgmental provisions to adjust values, where appropriate,
down to prevailing market values. We reviewed and agreed
management’s assessment of the overall level of inventory
provisioning and, in particular, for used vehicles, which can
fluctuate as a result of market factors and vehicle condition.
We also considered the impact on inventories arising from the
investigation procedures in respect of commercial income
and leasing irregularities and agreed with the approach taken
by management.
Pensions (Key Estimate page 132)
The Group operates three defined benefit schemes.
The Committee discussed the assumptions underpinning
the valuations with management and reviewed reports from
external providers instructed by the Company and concluded
that the assumptions were reasonable and appropriate.
The Committee also discussed with management and an
external adviser the factors involved in determining an
appropriate approach to deficit reduction. Discussions
with the pension trustees and the Pensions Regulator
are ongoing with regard to the latest triennial valuation
of the Lookers Pension Plan.
Alternative performance measures
The financial statements include certain items which are
disclosed as non-underlying.
These items and their financial effect are detailed on page
157 and include costs or income arising from portfolio
consolidation, goodwill and intangible impairments,
restructuring of regulated activities, FCA provision and value
added tax matters.
The Committee considered their treatment as non-underlying
and agreed with management’s view that they were not
incurred in the normal course of business or due to their size,
nature and irregularity they should not be included in the
assessment of the core trading performance of the Group.
Provisions (Key Estimate and Judgement on page 132)
As explained in the Chairman’s statement on page 6 the
Company has been in discussion with the FCA regarding
control issues in the regulated sales processes of LMGL.
In addition, the FCA is carrying out an investigation into
the Group’s sales processes between January 2016 and
June 2019.
To assess the need for any provision for future liabilities
and make appropriate disclosure in the Annual Report and
Accounts, the Committee reviewed with management the
Company’s current position. This considered discussions held
with the FCA, advice from the Company’s legal advisers and
the views of the external auditor.
Following careful consideration by the Committee it was
concluded that a provision was appropriate based on the
likelihood of an outflow of economic resources.
Customer remediation
The Group makes provision for customer remediation if there
is an obligation (legal or constructive) which has arisen from a
past event. A past business review conducted in 2019 did not
identify significant customer detriment.
The Committee reviewed and agreed management’s approach
in determining known customer detriment and redress and is
satisfied that adequate remediation provision has been made
in the Annual Report and Accounts.
Brexit
The potential impacts of a no-deal Brexit were reviewed
by the Committee. Key risks, including new vehicle prices,
vehicle parts supply and used vehicle asset values were
considered as well as possible macro-economic and consumer
reactions. The actions taken by management to mitigate
these risks were reviewed and felt to be appropriate in a very
uncertain environment.
Further references are set out in the Annual Report and
Accounts as follows:
• Risk overview and management (page 42)
• Viability statement (page 44)
Going concern and viability statements
The impact of COVID-19 resulted in a substantial restructuring
of Group operations and resources as well as a rigorous focus
on working capital management, asset realisations and cost
reduction. Regular discussions were held with the Group’s
73
Lookers plc Annual Report & Accounts 2019 bankers and revised facilities and covenants agreed.
risk and internal control structures.
The Committee monitored and agreed management
actions throughout and discussed the Group’s three-year
forecasts, availability of committed facilities and sensitised
headroom against revised financial covenants in support of
going concern and the longer-term viability statement. The
Committee was satisfied that the assumptions underlying
management’s projections had been properly considered
and, where appropriate, that the Group’s principal risks were
considered in the sensitivity modelling.
Following review and discussion with the external auditors
the Committee was satisfied that it was appropriate to adopt
the going concern basis in the preparation of the financial
statements and supports the appropriateness of the going
concern and viability statements which can be found on
pages 130 and 44 retrospectively of the Annual Report
and Accounts.
Fair balanced and understandable
The Committee advises the Board on whether the Annual
Report and Accounts taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position, performance,
business model and strategy. The Committee reviewed the
Annual Report and Accounts, considered the overall content
and whether:
• Satisfactory verification and remedial processes were
undertaken by management, following receipt of the Grant
Thornton report, in respect of adjustments required in 2019
and prior years
• Key events occurring in the year were fairly reported
• Key messages and judgements in narrative and financial
reporting were consistent
• Alternative performance measures were clearly explained
and appropriate to understanding the underlying
performance of the business
The Committee also considered the perspective of the
external auditor before reaching its conclusion that the Annual
Report and Accounts taken as a whole, is fair, balanced and
understandable and provides the necessary information
for shareholders.
Risk management and internal control (refer to Risk
Overview and Management on page 36 of the Annual
Report and Accounts)
The Board has overall responsibility for the Group’s internal
control environment and for monitoring its effectiveness. The
Committee, supported by LMGL, assists the Board by advising
on the Group’s overall risk appetite, tolerance and strategy.
2019 and 2020 were years of transformation for the Group’s
In December 2018, the Board commissioned an independent
review of the Group’s internal controls, risk assurance
systems and internal audit. In consequence, a reorganisation
and remediation plan was implemented encompassing
investment in internal and external resources, the development
of a comprehensive enterprise risk framework and the
establishment of a strengthened internal audit function.
The Committee reviewed and approved the design of the
framework together with associated metrics and remediation
plans. Further activities included the review of risk registers
and risk dashboards.
The investigation into fraud and accounting irregularities
identified further control issues, non-compliance with existing
policies and procedures and poor accounting at Head Office
and Franchise level. The Committee considered and agreed
with management’s remedial actions set out on page 35.
The Committee also received and agreed with briefings
and reports on general IT controls, GDPR compliance,
cyber security, whistleblowing, the Bribery Act and money
laundering. Internal and external audit reports were also
considered, and findings actioned where appropriate.
Internal audit
During the year, the structure, scope and effectiveness of
internal audit was enhanced through investment in additional
resources and the introduction of a co-sourcing arrangement
with KPMG. The Committee participated in both the co-
sourcing selection process and the appointment of the Head
of Internal Audit.
A new Audit Charter, detailing Internal Audit’s objectives,
scope and responsibilities was reviewed and approved.
Revised Terms of Reference and the scope of a three-year
work programme were also approved.
Throughout the year and in 2020 internal audit reports were
considered by the Committee including risk register and risk
dashboard reviews together with specific reports completed
as part of the approved work programme. Following reports on
GDPR compliance and Cyber security enhanced procedures
are to be introduced in 2020 and 2021.
The roll out of the agreed resourcing and work programme
was paused in March 2020 due to the impact of COVID-19.
Subsequently, a new Head of Internal Audit was appointed,
further resourcing is planned, and a refreshed work
programme is to be introduced in 2021.
The Committee considers that the enhanced Internal Audit
structure and approach will provide effective audit support to
the Group in the future.
74
Governance The Committee engaged with Deloitte throughout the audit
process and is satisfied that Deloitte provided appropriate
challenge to management. In making this assessment,
the Committee considered their expertise, resourcing,
independence and objectivity.
Auditor appointment
Subsequent to the year end the Board was informed by
Deloitte that it intended to resign as auditors following
completion of the Company’s 2019 audit. The Committee
consequently invited two firms to compete for the provision
of external audit services and each firm confirmed their
independence to act.
The tender process was conducted in a manner which ensured
each firm had fair and equal access to information. The firms
met Committee members, the Company’s Chairman, Chief
Executive Officer, Chief Financial Officer, Chief Risk Officer
and other relevant members of the Senior Management Team.
Following these procedures, the firms were invited to
present to the Committee. In reaching a conclusion
the Committee considered sector and public company
experience, independence, ability to challenge management
and audit quality, including the latest Audit Quality reports.
The Committee recommended to the Board that BDO LLP
should be appointed as the Group’s statutory auditor for the
year ending 31 December 2020. The Board subsequently
approved BDO’s appointment and a resolution to this effect
will be put forward at the General Meeting to approve the 2019
accounts in December 2020.
The Committee would like to thank Deloitte, on the Board’s
behalf, for their contribution over many years
Looking Forward
In 2020 and 2021 the Committee's work will include particular
focus on the successful embedding of the Group's enterprise
risk management framework and the internal control
remediation measures.
S. R. Counsell
Chairman of the Audit and Risk Committee
25 November 2020
External auditor
The Committee is responsible for assessing the effectiveness
of Deloitte’s audit including their independence, objectivity
and scepticism.
During the year the Committee monitored and agreed:
• Terms of engagement and proposed fees
• The scope of audit work to be performed in respect of the
2019 audit and prior periods
• The 2018 management letter and
management’s responses
• Reports on key audit findings and recommendations
• Feedback from the business on their approach
and performance
• The level of non-audit work undertaken by Deloitte.
In considering Deloitte’s independence the Committee
considered their annual independence statement, their
compliance with relevant law, regulations, other professional
requirements and the Ethical Standard.
Non-audit services
The Company will not use Deloitte for non-audit services,
except in limited circumstances, and as permitted by the
Ethical Standard. Audit Committee approval is required prior
to awarding non audit contracts above a de-minimis amount of
£10,000.
Non-audit fees of nil (2018: £20,000). In 2018, non-audit
fees were incurred in respect of agreed upon procedures in
relation to the Group’s interim announcement. The Committee
considered that given the nature of the procedures required,
that the engagement of the external auditors was the
most appropriate.
The Group maintains an active relationship with three other
accounting firms.
Audit Quality Review
During the year, Deloitte’s audit of the Company’s 2018
financial statements was reviewed by an Audit Quality Review
Team from the Financial Reporting Council. The review was
assessed as "limited improvements required" with only one
issue raised in respect of goodwill and intangibles impairment
which has been addressed during 2019 audit procedures.
In addition, three areas were identified as being of a
high standard.
Deloitte has been the Group’s auditor for fourteen years
covering the years 31 December 2006 to 31 December 2019
although the lead audit partner rotates every five years. The
current lead partner, Christopher Robertson, has been in that
role for two years.
75
Lookers plc Annual Report & Accounts 2019 Corporate social responsibility review
Corporate social responsibility management
Whilst our focus is on creating a great place to work, the
Board sets a clear standard when it comes to corporate social,
environmental and ethical issues.
Our continuous programme of dealership newbuilds and
refurbishments offers us the opportunity to deploy the latest
and most efficient building materials together with systems to
control the use of water, heating, cooling and lighting.
Each operating company includes social, environmental and
ethical issues in their risk assessment processes to ensure any
potential problems are identified and contingency strategies
are in place.
Lookers and the environment
The Group recognises that its activities have an impact on the
environment and is therefore keen to promote and support
initiatives that minimize the effect of such activities through
adherence to its environment policy.
We continue to monitor the areas of our business that may
impact on the environment including contamination, asbestos,
waste oil, waste recycling together with energy, water and
fuel efficiency.
We continue to reduce energy consumption and related
carbon emissions. This is achieved through a number of
areas including:
• Regular energy surveys of our dealership estate
• Regular monitoring of energy consumption
• Deployment of energy-saving technologies including, biomass
heating and cooling, solar PV installations and the increasing
use of smart controls
As ever, the reduction of carbon emissions continues to be a
high priority for the Group, and we continue with our reporting
responsibilities in respect of energy consumption and
management in the following three areas:
1. CRC Energy Efficiency Scheme, whereby we report to the
Environment Agency each year. We have been fully compliant
for the past nine years. Like for like CO2 emissions in 2018 /
2019 decreased by 4.4% compared to the previous year.
2. Greenhouse Gas Reporting (GHG). This is our seventh year of
reporting and the results are shown at the end of this section.
3. Energy Savings Opportunity Scheme (ESOS). This reporting
requirement was introduced by the European Union and we
have been compliant since 2015
We continue to seek to achieve waste reduction within our
businesses and can report that:
(a) our water management processes, which monitor and
reduce usage, continue to be effective. Our like for like water
charges increased by 5.0%.
(b) during 2019 we recycled 95.9% of all waste (2018: 72.7%)
Mandatory carbon reporting
As has been noted in previous years, the Company reports
each year to the Environment Agency under the Government’s
CRC Energy Efficiency Scheme. The Group aligns its carbon
reporting period with that used for data submitted under the
CRC scheme (April to March).
This is our seventh year of mandatory carbon reporting and
covers the period 1 April 2018 to 31 March 2019.
Our carbon reporting methodology is the Greenhouse Gas
Protocol and the requirements of the Companies Act 2006
(Strategic Report and Directors' Report) Regulations. Our
reporting boundary is the financial control method and covers
all occupied premises and vehicles operated by the Group,
whether owned or leased, relating to our UK based operations.
Data relating to our business in the Republic of Ireland has
been excluded. As this business accounts for 1.2% of our
turnover, this exclusion is not considered material.
We report under Scope 1 and Scope 2 in respect of emissions
from diesel and petrol consumed, gas burnt, and electricity
purchased. The information relating to emissions from gas and
electricity has been extracted in full from the data that we have
reported to the Environment Agency under CRC reporting.
This data is collected and collated by an independent supplier
to the Group. The information relating to emissions resulting
from the use of diesel and petrol has been extracted from data
supplied by the Group’s main fuel card provider. The intensity
ratio being adopted is emissions (tonnes of CO2) per million
pounds of turnover.
76
Governance Our mandatory carbon reporting data for the 2018/2019 and 2017/2018 reporting years are summarised as follows:
Scope 1
Gas
Vehicle fuels
Total
Scope 2
Electricity
Statutory Total
2018/2019
(tCO2e)
2018/2019
(tCO2e/£m)
2017/2018
(tCO2e)
2017/2018
(tCO2e/£m)
6,191
17,927
24,118
11,234
35,352
1.27
3.68
4.95
2.30
7.25
5,911
18,056
23,967
13,127
37,094
1.23
3.75
4.98
2.73
7.71
Diversity and our people
Lookers is an equal opportunities employer with
comprehensive policies which ensure employees, customers
and third parties are free of discrimination, victimisation and
harassment. We regularly reach out to any under-represented
groups for gainful employment.
The HR Director reports directly into the Chief Executive
Officer and is responsible for developing the HR function
alongside a team of divisional HR Managers. We are
continuously seeking to improve our gender split and gender
pay gap, with a focus on attracting more women and changing
perceptions of our industry.
Our continued objective is to reflect our customers and the
communities our businesses operate in. We strive for an
environment that is cohesive and respects and nurtures all
irrespective of any differences.
In 2019, we introduced the role of Group Employee Relations
Manager to support development and delivery of a fair and
consistent approach to our people which also drives the
performance and success of Lookers.
Our bespoke training schemes support colleagues in meeting
regulatory requirements whilst delivering outstanding
results. We have also introduced dedicated training for
sales colleagues in order to support them through sales
process improvements.
Communicating with our people
We believe the way we communicate has a huge impact on
how our people feel about the Company. We communicate
with our people on a regular basis through team briefings,
digital magazines, Workplace by Facebook, Microsoft Teams
and more.
It is imperative to the success of the business to allow
colleagues to have a voice and we are continuously looking
at ways to seek feedback. In 2019, we introduced an Ask
the Director campaign where anyone in the Group can ask
questions to our Directors.
Our ‘Lookers is for Everyone’ campaign celebrates diversity
across the Group and encourages people to demonstrate their
individuality in a safe environment.
Our employees must regularly complete mandatory
diversity and equality eLearning. New employees and line
managers also take part in additional company values and
inclusivity training.
Human rights
All of our direct employees are based in the UK or Republic
of Ireland and are covered by UK and Irish employment
law. Our supply chain in the motor division is predominantly
major international motor manufacturers who take this issue
very seriously.
Recruiting, retaining and developing our people
We are committed to building success together by putting
our people first. We actively encourage promoting talent
from within, demonstrated recently by a number of senior
level promotions. Our people policies provide guidance
on key issues including equal opportunities, disciplinary
and grievances, recruitment and selection, discrimination
and harassment.
77
Lookers plc Annual Report & Accounts 2019
Stay safe and healthy
Lookers is committed to providing a safe and healthy
environment to all who work or visit our premises. We
continuously promote high standards of health and safety
provision, which will minimise risks and avoid accidents and
ill health.
The Board retains ultimate responsibility for health and safety
at Lookers. Senior management take responsibility for the
implementation of day-to-day health and safety standards,
with the support of dedicated Health and Safety Advisors
who assist with Health, Safety and Environmental risk. The
Health and Safety Advisors undertake activity such as site
visits, accident investigation, Health and Safety training and
guidance for management on best practice. The activity of this
team has been crucial in the defining and implementation of
our COVID-19 Secure protocols, designed to keep both our
colleagues and customers safe as we reopened our business.
All colleagues are issued with the Group Health and Safety
Policy and have access to a detailed Health and Safety guide.
Health and Safety training is mandatory for all employees.
The Group has significantly streamlined the Health and Safety
Management systems and standardised documentation
and processes.
All managers have access to a Health referrals system for their
teams and where required we offer health surveillance.
The statistics for the Group, under UK Health and Safety
regulations for the year ended 31 December 2019, are set
out below:
2019
2018
Number of fatalities
Injuries resulting in absence
over three days
Major injuries reported
under RIDDOR*
Dangerous occurrences
reported under RIDDOR*
Number of enforcement
notices issued by HSE
Number of prohibition
notices issued by HSE
-
23
17
-
-
-
-
42
27
-
-
-
*Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 1995
78
Governance 79
Lookers plc Annual Report & Accounts 2019 Directors' remuneration report
Dear Shareholder
This letter sets out the performance for the year ended 31
December 2019 and the resulting pay outcomes, the work
undertaken by the Committee and the implementation of the
policy for 2020.
Sally Cabrini chaired the Remuneration Committee during
2019 but stepped down from this position and from the Board
on 29 June 2020. For this reason, as Chairman of the Board, I
have prepared this letter. Heather Jackson will take on the role
of Chairman of the Remuneration Committee, effective from
the date of publishing the 2019 financial results.
Context for Executive pay
We continued to face a deterioration in trading conditions
during 2019, with a number of macro-economic and industry
challenges that have impacted our ability to deliver anticipated
profits, this is reflected in the remuneration outcomes for the
2019 financial year.
Changes to Board
Robin Gregson stepped down from the Board in July 2019.
Robin’s employment terminated on 30 September 2019
and payments of salary, pension and benefits in lieu of a 12
months’ notice period were made. It was determined that no
bonus would be payable in respect of performance during
2019, aligned with the outcome for other outgoing Executive
Directors. The Committee determined that Robin would be
entitled to retain unvested LTIP awards with pro-rating for
time employed but as detailed further below, no awards have
yet vested as the Committee is reviewing whether to allow any
subsisting awards under the LTIP to vest pursuant to the rules
of the plan.
Mark Raban was appointed to replace Robin Gregson as Chief
Financial Officer on 15 July 2019, with a salary of £300,000,
incentives in line with policy and with a pension provision of
5%, which is in line with the wider workforce.
Following the trading update for Q3, Andy Bruce and Nigel
McMinn agreed to step down from the Board and from
their respective roles as Chief Executive Officer and Chief
Operating Officer on 1 November 2019. Other than fixed pay
to their termination and payments in lieu of notice, no other
form of pay was receivable in respect of 2019. They both
remained employed until 31 December 2019 after which the
Company exercised its right to terminate their employment
and make a payment in lieu of notice calculated by reference
to base salary and benefits, payable in monthly instalments
and subject to mitigation. In response to the Company’s
circumstances and the ongoing investigations, the Committee
considered it appropriate to suspend the notice payments.
Neither Andy Bruce nor Nigel McMinn have been awarded
any bonus for 2019 and all their unvested LTIP awards lapsed
on termination.
From 1 November 2019 to 31 March 2020, our Chairman, Phil
White, took up a role as Interim Executive Chairman and from 1
November 2019 to 29 February 2020 our Senior Independent
Director, Richard Walker, took up a role as Interim Executive
Director. It was agreed that both individuals would receive a
fee for their interim roles commensurate with the roles and
responsibilities, with no other remuneration provision. The fee
was £350,000 per annum for Phil White and £450,000 per
annum for Richard Walker, payable instead of (rather than in
addition to) the fees for their non-executive roles and paid on
a pro-rata basis in respect of time served. Phil White returned
to his role as Chairman on 1 April 2020 and Richard returned
to his role as Senior Independent Director on 1 March 2020.
Phil White was subsequently re-appointed Interim Executive
Chairman with effect from 1 September 2020 with a fee level
of £350,000 per annum.
Heather Jackson was appointed as a Non-Executive Director
with effect from 25 November 2019 and Vicky Mitchell was
appointed to the Board as a Non-Executive Director with
effect from 20 December 2019. Their fee arrangements were
aligned with those for the other Non-Executive Directors
on appointment.
Following a robust recruitment process, it was announced that
Mark Raban would be appointed to the role of Chief Executive
Officer and that Cameron Wade would be appointed to the
role of Chief Operating Officer with effect from 5 February
2020. Mark’s salary was increased to £450,000 to reflect the
promotion, and Cameron’s remuneration was determined to be
a salary of £310,000, incentives in line with the remuneration
policy and pension provision equal to 5% of salary. Cameron
subsequently resigned and stepped down from the Board on
11 March 2020 and left employment with immediate effect.
No further payments were made to Cameron. In particular, he
was not eligible for any bonus in respect of his service as an
Executive Director and his outstanding share awards lapsed
on termination.
The Non-Executive Director base fee was reviewed by the
Board during 2019. An increase in the fee from £42,500 to
£65,000 was agreed with effect from 1 November 2019
to recognise the additional level of responsibility and time
commitment required of the role. This fee is payable in place of
additional fees for chairing a subcommittee or for undertaking
the role of Senior Independent Director. Temporary reductions
in Executive and Non-Executive remuneration were agreed
with effect from 1 April 2020, as detailed below.
80
Governance Annual bonus outcome
No bonus was paid to any Executive Director in respect of
2019. The annual bonus was based on Profit Before Tax,
Operating cash flow and non-financial performance targets.
After careful consideration of Mark Raban’s performance
since appointment, it was agreed that a bonus equal to 50% of
maximum should be payable. Accordingly, after the application
of pro-rating for the time he was appointed to the Board, a
bonus equal to 38% of salary would be payable. In view of the
cash constraints and disruption to the business as a result of
COVID-19, Mark subsequently volunteered, and the Board
agreed, that he would waive any bonus in respect of 2019.
No discretion was applied in determining the original bonus
outcome, prior to the waiver for Mark being agreed
Long term incentive outcome
LTIP awards granted in 2017 were based on performance to
31 December 2019. 75% of the award was based on Adjusted
EPS, and this portion of the award lapsed as the outcome of
0.2p for 2019 was below the required threshold of 18.25p.
The remaining 25% of the award was based on the ratio of
Net Debt to EBITDA and was met in full as the outcome was
a ratio of 0.98, which was below the ratio of 1.0, required for
maximum entitlement. The Adjusted EPS target was set prior
to changing the definitions of financial elements to be on an
underlying basis. The underlying EPS has been re-stated to
give Adjusted EPS for consistency with the basis on which the
target was set.
Therefore, 25% of the total LTIP target was met. As noted
above, in light of the ongoing investigations, the Committee is
reviewing all subsisting awards and therefore the award whose
performance period ended on 31 December 2019 has not
at the time of writing been formally signed off as exercisable.
Robin Gregson is the only Director or former director who has
outstanding awards under this grant as the awards for other
Executive Directors (namely Andy Bruce, Nigel McMinn and
Cameron Wade) lapsed as detailed above.
Shareholder engagement and review of policy
We recognise that a significant minority of our shareholders
voted against the annual report on remuneration at our
2019 AGM. We understand that the primary reason for this
was a salary increase awarded to Andy Bruce, the previous
Chief Executive Officer. Our Directors' Remuneration Policy
was approved by shareholders at our AGM in 2017. As the
Committee is required to table a new policy during 2020, it has
undertaken a light touch review of the policy during 2019 to
be put to a shareholder vote at a General Meeting to be held
during 2020, following a process of engagement with major
investors. The policy from 2017 shall continue to apply until
such time as the new policy is approved.
While the core elements of the policy are unchanged, we have
updated it to reflect market practice and the requirements of
the UK Corporate Governance Code and an increased focus
on our status as a regulated business.
We continue to operate with the principle that pay
arrangements for Executive Directors should be aligned to our
strategy, thereby creating long term value for our stakeholders.
We aim to pay only what is required to recruit, retain and
motivate the Senior Management Team.
Further details are included in the Directors' Remuneration
Policy section of this report.
While the Directors’ Remuneration Policy has a three year life,
we intend to review it during the remainder of 2020 and during
early 2021. We will engage with shareholders on any proposed
changes to the policy in advance of seeking approval at our
AGM in 2021.
81
Lookers plc Annual Report & Accounts 2019 COVID-19
In order to support the Group following cash constraints and
disruption to the business caused by the ongoing outbreak
of the coronavirus, the Directors volunteered to accept
reductions in remuneration as follows for the five month period
between 1 April 2020 and 31 August 2020:
In conclusion
We recognise that a significant minority of our shareholders
voted against the annual report on remuneration at our 2019
AGM. We understand that the primary reason for this was a
salary increase awarded to Andy Bruce, the previous Chief
Executive Officer.
• Non-Executive Directors: Annual fee of £50,000 p.a.
(reduced from £65,000 p.a.);
• The Non-Executive Chairman: Annual fee of £97,500 p.a.
(reduced from £130,000 p.a.);
• Mark Raban: Salary of £315,000 (reduced from £450,000).
We have reflected on feedback, corporate governance
developments and best practice in forming the proposed
Directors' Remuneration Policy. We thank shareholders for
their engagement and hope that you will continue to support
our revised proposals and the implementation for 2019.
Contents
This Directors' Remuneration Report has been prepared on
behalf of the Board by the Committee in accordance with
the requirements of the Companies Act 2006 and the Large
and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and in addition to
this statement, is split into the following sections.
Page 83
Remuneration summary
A summary of the main elements of
remuneration including how they link to
the business strategy
Now we have appointed Mark Raban as Chief Executive
Officer, we will continue to review the appropriateness of the
remuneration principles and policies as the business strategy
evolves during the remainder of 2020 and in early 2021 and
will continue to engage with shareholders as we develop our
proposals over time.
As detailed earlier in the Annual Report, Sally Cabrini stepped
down from the Board and from her position as Chair of the
Remuneration Committee at the AGM on 29 June 2020. It
has been agreed that Heather Jackson will take on the role of
Chairman of the Remuneration Committee, effective from the
date of publishing the 2019 financial results.
By Order of the Board
Phil White
Executive Chairman
25 November 2020
Pages 84 to 108
Directors' Remuneration Policy
This sets out the Company’s policy
on Directors' Remuneration which is
subject to a binding shareholder vote at
the 2020 AGM.
Pages 94 to 106
Annual report on remuneration
This sets out payments and awards
made to the Directors and details the
link between Company performance
and remuneration for 2019 and,
together with this statement, is subject
to an advisory shareholder vote at this
year’s AGM.
82
Governance Remuneration summary
Our strategy is focused on having the right brands and
locations alongside excellent execution. Underpinning this
strategy is our commitment to providing an outstanding retail
experience and good outcomes for our customers. We have
developed a reward strategy and elements of remuneration
that align with this business strategy.
Lookers business strategy
Base salary
Grow the business through organic growth and acquisition.
Provide great service and expertise to customers through
our people, technology and brand.
Purpose and link to strategy
Fair
Competitive
Shareholder-aligned
To ensure that the Executive
Directors are fairly rewarded for their
individual contributions to the Group’s
overall performance.
To provide a competitive remuneration
package to Executive Directors,
including long-term incentive plans,
to motivate individuals.
A substantial proportion of the
remuneration of the Executive Directors
is performance related. Executive
Directors should build up a significant
holding of shares in the Company.
Elements of reward
Base salary and
pension benefits
Annual bonus
Long-term
incentive plan
Purpose
Attract and retain
Executives of
high calibre and
provide funding for
future pension.
Incentivises and
motivates the
achievement of
business objectives
by and rewarding
performance against
annual targets.
Alignment of interests
with shareholders by
providing long-term
incentives delivered in
the form of shares.
In-employment and
post-employment
shareholding requirement
To ensure alignment between
the interests of Executive
Directors and Shareholders.
Operation
in 2020
Base salaries:
Maximum bonus:
M Raban: £450,000
(reduced to £315,000
for a period from 1
April 2020)
Pension allowance:
5% of salary
Benefits: include
Participation in
the Company’s car
schemes, health
insurance, life assurance
and the opportunity to
join the SAYE.
150% of salary
The performance
targets for the 2019
bonus were based on
operating cash flow,
underlying Profit Before
Tax and non-financial
strategic objectives
Up to 50% of bonus
earned is deferred
into shares
Subject to regulatory,
customer and
performance underpin
bonus is subject to
malus and clawback.
Normal
LTIP opportunity:
Shareholdings at 31
December 2019:
M Raban: 9% vs requirement
of 200%
of salary.
CEO: 150% of salary
Other Executives:
100% of salary
Subject to regulatory,
customer and
performance underpin
3-year performance
period and 2 year
holding period
LTIP is subject to
malus and clawback.
83
Lookers plc Annual Report & Accounts 2019 Directors' remuneration policy
Remuneration policy
The policy of the Committee, the principles underlying which
are unchanged from the previous policy approved at the
2017 AGM, is to ensure that the Executive Directors are fairly
rewarded for their individual contributions to the group’s overall
performance and to provide a competitive remuneration
package to Executive Directors, including long-term incentive
plans, to motivate individuals and align their interests with
those of shareholders, customers and other stakeholders. In
addition, the Committee’s policy is that a substantial proportion
of the remuneration of the Executive Directors should be
performance related and that they be required to build up
a significant holding of shares in the company, which are
retained for two years post-employment.
The new remuneration policy set out in this section is subject
to shareholder approval at a General Meeting to be held during
2020 and will be effective from the date of this meeting. It
is intended to apply until the close of the 2023 AGM. In the
interim period until the General Meeting to be held in 2020,
the policy approved at the 2017 Annual General Meeting shall
continue to apply. The Remuneration Committee is currently
undertaking a review of the policy, in the light of changes to
the business and the appointment of Mark Raban as Chief
Executive Officer.
This policy has been determined by the Committee, with input
from management and external advisers. The Committee
members have no conflicts of interest arising from cross-
Directorships and no Director is involved in any decisions as to
his or her own remuneration.
Future policy table
Base Salary
Attract and retain high calibre Executive Directors to deliver the strategy.
Operation
Maximum potential value
Paid in monthly instalments during the year.
Reviewed annually to reflect role, responsibility and
performance of the individual and the company, and to
take into account rates of pay for comparable roles in
similar companies.
When selecting comparators, the Committee has regard
to the Group’s size and business sector.
Salaries are generally set at or below market median, with an
emphasis on incentive pay.
There is no prescribed maximum increase, but normally increases
will be in line with those for the wider workforce, unless there
are reasons such as a change in Executive Director’s role and/
or responsibilities, or to apply salary progression for an Executive
Director who has been appointed below market level.
Performance metrics
None
Pension
Attract and retain Executive Directors for the long term by providing funding for retirement.
Operation
All Executive Directors are entitled to participate in
money purchase arrangements, or to receive a cash
allowance in lieu of pension contributions.
N.B. Any pensions paid as salary supplements are
not counted for the purposes of determining bonus or
LTIP levels.
Maximum potential value
5% of salary.
Performance metrics
None
84
Governance Benefits
Provide benefits consistent with role.
Operation
Maximum potential value
The cost of providing benefits is borne by the Company and varies
from time to time.
Performance metrics
None
Currently these consist of participation in the Company’s
car schemes, health insurance, life assurance
premiums, D&O insurance and the opportunity to join
the company’s savings related share option scheme
(SAYE).
The Committee reviews the level of benefit provision
from time to time and has the flexibility to add or remove
benefits to reflect changes in market practice or the
operational needs of the Group.
Annual Bonus
Incentivises achievement of business objectives by providing a reward for performance against annual targets.
Maximum potential value
Up to 150% of salary.
Performance metrics
Performance conditions are determined annually by the Committee
and threshold and maximum targets are set for each condition.
At least 50% of the bonus is subject to financial targets.
The measures vary from year to year to reflect priorities and
business strategy.
In exceptional circumstances such that the Committee believes the
original measures and/or targets are no longer appropriate, the
Committee has discretion to amend performance measures and
targets during the year.
Operation
A proportion of the bonus earned (up to 50%) is paid in
cash and the remaining amount is deferred into shares
for two years.
Annual bonus awards are subject to provisions which
enable the Committee to recover (clawback) or withhold
(malus) value in the event of a misstatement of the
accounts for the financial year in respect of which the
bonus was paid, an error in the assessment of the extent
to which the applicable performance target had been
met, an error in the assessment of the extent to which
the applicable performance target had been met, fraud,
employee misconduct, failure of risk management and
regulatory failure within two years of the payment date
of the cash bonus and within two years of the vesting
date of the deferred shares.
A sliding scale operates between threshold and target
performance, and between target and maximum
performance. No bonus is payable where performance
is below the threshold.
The proportions of bonus payable for different levels of
performance may vary based on the nature of measures
and the level of stretch in the targets.
Payment of any bonus is subject to the overriding
discretion of the Committee. The Committee may
adjust the bonus outcome (either upwards or
downwards) from the formulaic outcome to ensure
that any bonus paid reflects individual and underlying
company performance, customer outcomes and
regulatory compliance.
85
Lookers plc Annual Report & Accounts 2019 Long-Term Incentive Plan (LTIP)
Alignment of interests with Shareholders by providing long-term incentives delivered in the form of shares.
Operation
Maximum potential value
Maximum annual award over shares with a market value of 150%
of base salary for the CEO and 100% of base salary for other
Executive Directors.
In exceptional circumstances, such as to secure an external
appointment or in specific retention scenarios, an award up to
250% of salary may be made.
Performance metrics
Awards are based on a combination of performance metrics, with at
least 50% being financial measures.
Threshold and maximum targets are set at grant.
The Committee has discretion to amend the performance
conditions/targets attached to outstanding awards granted under
this policy in the event of a major corporate event or significant
change in economic circumstances, or a change in accounting
standards having a material impact on outcomes.
Grant of nil-cost options, which vest at least 3 years
from grant subject to the achievement of performance
conditions and may not be exercised after the tenth
anniversary of grant.
A two-year holding period applies to all vested awards,
during which time Executive Directors may not sell
shares, save to settle tax due.
LTIP awards are subject to provisions which enable the
Committee to recover (clawback) or withhold (malus)
value in the event of a misstatement of the accounts for
the financial year in respect of which the LTIP award
vested, an error in the assessment of the extent to which
the applicable performance target had been met, fraud,
employee misconduct, failure of risk management and
regulatory failure within two years of the vesting of the
LTIP award.
The Committee has discretion to:
(i) adjust the vesting of LTIP awards and/or the
number of shares underlying unvested LTIP
awards on the occurrence of a corporate event or
other reorganisation;
(ii) amend the formulaic outcome of LTIP awards
upwards or downwards to reflect the Committee’s
assessment of individual and underlying
business performance, customer outcomes and
regulatory compliance.
Share Ownership Requirement
To ensure alignment between the interests of Executive Directors and Shareholders.
Maximum potential value
Not applicable
Performance metrics
Not applicable
Operation
200% of salary for all Executive Directors, to be
reached over a five-year period from appointment to
the Board.
Executive Directors must retain 50% of any deferred
shares and shares they acquire under the LTIP, after
allowing for the sale of shares to pay tax and other
deductions, until such time as they have built up the
required holding level.
Executive Directors must retain a shareholding on
cessation of employment for two years equal to the
lower of 200% of salary and the actual shareholding on
cessation. Shares bought by Executive Directors and
shares granted prior to this policy coming into force are
not subject to this holding requirement.
86
Governance Notes to the policy table
Performance metrics
The Committee selects the performance metrics for incentive
awards from year to year based on the company’s strategy and
priorities, and therefore the measures may vary over the life of
Element
Metric
Rationale
the policy. For the first year in which the policy is operated, the
following metrics are proposed to be used:
Annual bonus
Underlying Profit
Before Tax (PBT)
• PBT is a primary measure in determining the in-year success of the
business growth
Ratio of Net debt
to EBITDA
• Net debt is a critical measure in the financial health of the business
LTIP
Underlying
Earnings Per
Share (EPS)
• EPS is a key driver of business value as well as a measure over which management
have influence.
• Underlying EPS is considered to be a suitable measure of performance as it is not
affected by pension costs, debt issue costs, amortisation or share based payments
as these costs are not within the control of the Executive Directors.
Absolute TSR
• Aligned with shareholder value and incentivises Executive Directors to return value
to investors over the longer term.
87
Lookers plc Annual Report & Accounts 2019 Changes from previous policy
As set out in the annual statement from the Chairman of
the Committee, the Committee undertook a review of the
Executive Directors' remuneration policy during the course of
2019 and the table below summarises the key changes from
the previous policy and the rationale for the changes:
Element
Changes made
Rationale for change
Incentive plans
Standardise deferral from being bonus above
110% of salary to be a proportion of up to 50% of
the total bonus earned.
Introduction of broader discretions for bonus
and LTIP, in particular to reflect customer
outcomes and regulatory compliance. Review and
strengthening of malus and clawback provisions
to include failure of risk management and
regulatory failure.
Introduction of ability to grant an LTIP award of up
to 250% of salary in exceptional circumstances
(normal maximum 150% of salary).
• More in line with typical market practice.
• Ensures some earned bonus is deferred regardless of
amount earned, increasing alignment with longer term
shareholder value.
• Provides greater ability for the Committee to reflect
the overall performance of the business when
determining incentive outcomes.
• Prevents pay for failure.
• Provides flexibility for Committee in exceptional
cases e.g. recruitment.
Extension of the holding period for vested LTIP
awards from 50% of the award to the whole award.
• Further aligns Executive Directors with
shareholder value.
• Compliant with Corporate Governance Code.
Pensions
Reduction in the maximum pension level for
Executive Directors from 20% to 5% of salary.
• Aligned with pension provision for the majority
of the workforce.
• Compliant with Corporate Governance Code and
investor expectations.
Shareholding
requirement
Increase in shareholding requirement to 200% of
salary for all Executive Directors (previously 150%
for some Directors).
• Aligned with best practice.
• Ensures consistent approach for all
Executive Directors.
Post cessation
shareholding
Introduction of requirement to hold up to 200% of
salary in shares for two years.
• Requirement is in line with prevailing market practice.
• Compliant with Corporate Governance Code.
88
Governance Considerations when forming the remuneration policy
This policy has been formed in accordance with the principles
and provisions in the Code. The table below sets out how the
Committee has addressed various aspects in the Code:
Aspect
Clarity
How this is addressed in the policy
• The Committee’s policy has been clearly set out in this report, including the individual
elements of remuneration and their operation.
Simplicity
• This policy has been simplified in a number of ways including in relation to bonus deferral
and shareholding requirements.
• The structure of remuneration is in line with normal market practice.
Risk
• The Committee believes that the incentive structure does not encourage undue
risk-taking. There are a number of mechanisms available to the Committee, including
discretions within incentive plans that allow adjustment in the case that the Committee
believes the outcomes are excessive.
• In particular, the underpins, discretion and malus and clawback provisions attached to
incentive plans have been reviewed and amended for this policy, with specific reference
to customer outcomes and regulatory compliance.
Predictability
• The policy table and the illustrations of remuneration provide an indication of the
possible levels of remuneration that may result from the application of the policy under
different performance scenarios.
• The Committee believes that the range of potential total remuneration scenarios is
appropriate for the roles and responsibilities of the Executive Directors and in the
context of the performance required for incentive awards to pay out.
Proportionality
• The policy has been designed to give overall flexibility in operation, particularly in
relation to incentive plan metrics. This allows the Committee to implement the policy
from year to year using the metrics that most closely align with the group’s strategy.
• The policy contains discretion to allow the Committee to adjust remuneration outcomes
to ensure that they are reflective of overall performance in the short and long term.
Alignment to culture
• As well as aligning with the strategy of the business, the policy has been formed to allow
focus on broader stakeholders.
• In particular, there is an increased focus on customer outcomes through incentive
metrics and discretion by the Committee.
89
Lookers plc Annual Report & Accounts 2019 Statement of consideration of shareholder views
The Chairman of the Committee consults with major
shareholders from time to time to understand their
expectations with regard to Executive Director remuneration
and reports back to the Committee.
Any other concerns raised by individual shareholders
are also considered, and the Committee also takes into
account emerging best practice and guidance from major
institutional shareholders.
The Committee undertook a consultation with the largest
shareholders in preparing this policy. The Chairman wrote to
shareholders to set out initial proposals and held a number of
conversations with shareholders to take on board feedback.
The final policy presented has taken into account the feedback
provided and the Chairman has reported back to shareholders
to summarise the Committee’s proposals in advance of
publication in this report. The Committee and Chairman are
grateful for the input received from shareholders and plan to
continue two-way engagement over the life of this policy.
Statement of consideration of employment conditions
of employees elsewhere in the Group
The Committee receives reports on an annual basis on the
level of pay rises awarded across the group and takes these
into account when determining salary increases for Executive
Directors. In addition, the Committee receives regular reports
from the Human Resources Team on workforce remuneration
and on the structure of remuneration for senior management in
the tier below the Executive Directors and uses this information
to ensure a consistency of approach for the most senior
managers in the group. The Committee approves the award of
any long-term incentives. The Chairman of the Remuneration
Committee has attended meetings with the Human Resources
Director to develop a greater level of understanding in relation
to pay and people practices in the business.
The Committee does not specifically invite employees to
comment on the Directors' Remuneration Policy, but it does
take note of any comments made by employees.
The first CEO to employee pay ratios were calculated while
formulating this Directors' Remuneration Policy and the
results are included within this report. Given there was not
a permanent Chief Executive Officer throughout 2019, the
Committee did not believe it was appropriate to use these
ratios when forming the policy.
The elements of pay are broadly the same for Executive
Directors as for the rest of the Company’s employees, save
that Executive Directors are entitled to participate in annual
bonus and long-term incentive plans. Other members of the
Senior Management Team are eligible to participate in these
plans on a selected basis.
90
Governance Total remuneration opportunity
The chart below illustrates the remuneration that
would be paid to Mark Raban on a forward-looking basis
under this Directors' Remuneration Policy under the
following different performance scenarios: (i) Minimum; (ii)
On-target; (iii) Maximum; and (iv) Maximum with 50% share
price appreciation.
The elements of remuneration have been categorised into
three components: (i) Fixed; (ii) Annual variable (annual bonus
awards); and (iii) Multiple year (LTIP awards) which are set out in
the future policy table.
Maximum with 50% share price appreciation
Maximum
On-target
21%
26%
35%
31%
36%
48%
£2,123
38%
£1,786
34%
31%
£1,298
Minimum
100%
£458
£0
£200
£400
£600
£800 £1,000 £1,200 £1,400 £1,600 £1,800 £2,000 £2,000
*Values above £’000’s
91
Lookers plc Annual Report & Accounts 2019 Each element of remuneration is defined in the table below:
Element
Fixed
Annual bonus
LTIP
Description
Base salary for 2020 plus pension and benefits (benefits being estimated for a full
year from the single total figure of remuneration for 2019).
Annual bonus awards, applied as minimum: 0% of opportunity, on-target: 67% of
opportunity, maximum: 100% of opportunity.
LTIP awards. These awards take the form of nil cost options.
For the on-target scenario, 60% of the award is assumed to vest. For the
maximum scenario, full vesting is assumed.
Illustrations have not been provided for Phil White and Richard Walker as they were performing executive roles only on an interim
basis with remuneration for those roles comprising an annual fee only.
Approach to recruitment remuneration
The Committee’s approach to recruitment remuneration is to
offer a market competitive remuneration package sufficient to
attract high calibre candidates who are appropriate to the role
but without paying any more than is necessary.
Any new Executive Director's regular remuneration
package would include the same elements and be in
line with the policy table set out earlier in this Directors'
remuneration policy, including the same limits on performance
related remuneration.
combination of performance and non-performance related
awards, reflecting the profile of the awards forgone. The terms
of these awards will reflect those forgone so far as is possible
to provide an equivalent opportunity, including taking into
account the likelihood of meeting performance conditions.
Where an internal candidate is promoted to the Board,
the original grant terms and conditions of any bonus or
share awards made before that promotion will continue
to apply, as will their membership of any of the group’s
pension arrangements.
Where it is necessary to “buy-out” an individual’s awards
of variable remuneration made by a previous employer,
the Committee will make replacement awards through a
Reasonable relocation and other similar expenses may be paid
if appropriate.
92
Governance Directors' service contracts, notice periods and termination payments
Executive Directors have service contracts with a 12-month notice period by the company and 6 months by the Executive
Director, with the elements of variable remuneration dealt with in accordance with the rules of the relevant scheme, as more fully
described in the table below:
Provision
Policy
Notice periods and compensation
for loss of office in Executive Directors'
service contracts
Treatment of annual bonus
on termination
Treatment of unvested
LTIP awards
12 months’ notice by the company and 6 months’ notice by Executive Director.
Payment in lieu of any part of the notice period not served may be made by the
company equal to basic salary, pensions and benefits for that part of the notice
period only. The payment of any sum in lieu of notice will be phased over the
notice period and subject to mitigation.
A bonus for the financial year of termination may be paid at the discretion of the
Committee having regard to applicable performance conditions and normally
with time pro-rating being applied. Any bonus would normally be subject to
deferral in shares, although the Committee has discretion to pay the bonus fully
in cash.
Good leavers (i.e. leavers in circumstances of death, injury, disability, redundancy,
retirement or transfer of employing business outside group) will be allowed to
retain their deferred share awards. The Committee has discretion to treat any
other leaver as a good leaver. The deferred share awards of any leaver who is not
a good leaver will lapse on cessation of employment.
Awards for good leavers will normally vest following the end of the applicable
vesting period.
Good leavers (i.e. leavers in circumstances of death, injury, disability, redundancy,
retirement or transfer of employing business outside group) will be allowed to
retain their LTIP awards. The Committee has discretion to treat any other leaver
as a good leaver. The awards of any leaver who is not a good leaver will lapse on
cessation of employment.
Awards for good leavers will normally vest following the end of the applicable
performance period subject to an assessment of the extent to which
performance targets have been met and the application of time pro-rating.
The Committee has discretion to allow awards to vest immediately on a cessation
of employment subject to an assessment of the extent to which performance
targets have been met.
The Committee has the discretion to waive the requirement to pro-rate for time.
Good leavers may exercise their LTIP awards within 6 months of vesting (1 year
for death).
On a change of control, awards will vest immediately subject to an assessment
of the extent to which the performance targets have been met. The number of
shares subject to LTIP awards is reduced pro-rata to reflect the proportion of the
vesting period completed before cessation. The Committee has the discretion to
waive the requirement to pro-rate.
Outside appointments
One outside appointment is permitted subject to Board approval.
Executive Directors may retain the fees paid in respect of any
external appointment.
Non-Executive Directors
All non-Executive Directors are subject to annual re-election. No compensation
is payable if a non-Executive Director is required to stand down.
93
Lookers plc Annual Report & Accounts 2019 In the event of the negotiation of a compromise or settlement
agreement between the company and a departing Director,
the Committee may make payments it considers reasonable
in settlement of potential legal claims. Such payments may
also include reasonable reimbursement of professional fees in
connection with such agreements.
Non-Executive Directors' fee policy
The policy for the remuneration of the non-Executive Directors
is as set out below. Non-Executive Directors are not entitled to
a bonus, they cannot participate in the company’s share option
schemes and they are not eligible for pension arrangements.
The Committee may also include the reimbursement of
repatriation costs or fees for professional or outplacement
advice in the termination package, if it considers it reasonable
to do so. It may also allow the continuation of benefits for a
limited period.
Non-Executive Director fees
To attract non-Executive Directors who have a broad
range of experience and skills to oversee the
implementation of our strategy.
Service contracts
Executive Directors have service contracts with a 12-month
notice period by the company and 6 months by the
Executive Director.
There are no provisions in service contracts that could give rise
to, or impact on, remuneration payments or payments for loss
of office that are not disclosed in this policy.
Copies of Directors' service contracts and letters of
appointment are available for inspection at the company’s
registered office.
Director
Tony Bramall
Sally Cabrini
Stuart Counsell
Date of service contract/
letter of appointment
30 June 2006
1 January 2016
29 June 2017
Heather Jackson
25 November 2019
Victoria Mitchell
Mark Raban (1)
Richard Walker
Phil White
20 December 2019
5 February 2020
4 February 2014
4 September 2006
Notes:
1. Reflects Mark Raban’s appointment as Chief Executive Officer.
Operation
Maximum potential value
Non-Executive Director fees
are determined by the Board
within the limits set out in the
Articles of Association.
Reviewed annually to
reflect role, responsibility
and performance of the
individual and the company.
Annual rate set out in
the annual report on
remuneration for the current
year and the following year.
No prescribed maximum
annual increase.
An additional fee may be
paid for additional duties
and/or specific roles.
Paid in 12 equal monthly
instalments during the year.
Expenses, including travel
to and from board meetings,
are reimbursed by the
company including any tax
payable on those expenses.
Annual Report on Remuneration
The information included in this report has been prepared in
accordance with the requirements of the Companies Act 2006
and the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended) (the
Regulations). The report also meets the relevant requirements
of the Listing Rules of the Financial Conduct Authority, and the
principles and provisions of the UK Corporate Governance Code
relating to remuneration matters. Remuneration disclosures are,
where stated, subject to audit in accordance with the relevant
statutory requirements.
94
Governance Single total figure of remuneration (audited)
The table below sets out the single total figure of remuneration and breakdown for each Director in respect of the 2019
financial year. Comparative figures for the 2018 financial year have also been provided.
£’000
Salary / Fees
Benefits(10)
Annual bonus
LTIP(11)
Pension
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Executive Directors
Mark Raban (1)
139
-
Interim Executive Directors
Richard Walker (2)
Phil White (3)
116
167
47
124
Former Executive Directors
Andy Bruce (4)
Robin Gregson (5)
Nigel McMinn (6)
375
146
234
368
281
281
Non-Executive Directors
Tony Bramall
Sally Cabrini
Stuart Counsell
Heather Jackson (7)
Victoria Mitchell (8)
46
52
52
11
5
42
42
42
-
-
Former Non-Executive Directors
Bill Holmes
-
10
Aggregate Directors'
emoluments (9)
1,343 1,237
Notes:
1
-
-
1
1
1
-
-
-
-
-
-
4
-
-
-
17
1
1
-
-
-
-
-
-
19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
190
145
145
-
-
-
-
-
-
-
-
-
-
23
-
-
-
-
-
-
-
480
23
-
-
-
-
-
-
-
-
-
-
-
-
-
7
-
-
75
29
47
-
-
-
-
-
-
-
-
-
74
56
56
-
-
-
-
-
-
147
-
116
167
47
124
451
199
282
649
483
483
46
52
52
11
5
42
42
42
-
-
-
10
158
186
1,528 1,906
1. Mark Raban joined the Group as Chief Financial Officer on 15 July 2019 and was
8. Victoria Mitchell was appointed to the Board as a Non-Executive Director on 20
appointed to the Board on this date.
December 2019.
2. Following the departure of Nigel McMinn, Richard Walker fulfilled a part-time
9. The aggregate Directors' emoluments excluding pension and LTIP awards in 2019
Executive role from 1 November 2019 to 29 February 2020. Prior to this, Richard
was a Non-Executive Director.
was £1,347,000 (2018: £1,720,000).
10. Benefits are participation in the Company’s car schemes, health insurance and life
3. Following Andy Bruce’s departure as Chief Executive Officer, Phil White became
assurance premiums.
interim Executive Chairman effective from 1 November 2019. Prior to this date,
Phil was the Non-Executive Chairman.
4. Andy Bruce stepped down from the Board as Chief Executive Officer on 1
November 2019 and left the Group on 31 December 2019. The 2018 benefits
figure has been re-stated to reflect the value of taxable benefits received during
the year.
5. Robin Gregson stepped down from the Board on 5 July 2019, left his role as Chief
Financial Officer on 15 July 2019 and left the Group on 30 September 2019.
6. Nigel McMinn stepped down from the Board as Chief Operating Officer on 1
November 2019 and left the Group on 31 December 2019.
7. Heather Jackson was appointed to the Board as a Non-Executive Director on 25
November 2019.
11. The value of the LTIP for 2019 relates to the award granted in 2017, which
had a three-year performance period ending 31 December 2019. Based on
performance over this period, 25% of the targets were met. This performance
outcome, together with his award being pro-rated up to his departure from the
Group corresponds to a total of 43,949 nil-cost options for Robin Gregson.
The value included in the table for Robin is therefore £23,310, based on the
three-month average share price of £0.530 to 31 December 2019, none of which
relates to share price appreciation. In light of the ongoing investigations, the
Committee is reviewing all subsisting awards and therefore has not at the time of
writing been formally signed off as exercisable. Awards to Andy Bruce and Nigel
McMinn lapsed on departure. Further details on the LTIP outcomes for the 2017
awards are set out on page 97 and in the Payments for Loss of Office section on
page 98.
95
Lookers plc Annual Report & Accounts 2019 Following the departure of the previous Executive Directors,
Phil White became interim Executive Chairman and Richard
Walker took on an Executive role on a part-time basis from 1
November 2019. The fee they receive has been increased to
reflect the Executive duties they are temporarily undertaking
as follows (all figures are annualised):
Director
Non-Executive
Director fee up to
31 October 2019
Interim Executive
Director
fee from 1
November 2019
Richard Walker(1)
£49,000
£450,000
Phil White
£130,000
£350,000
Notes:
1. Based on a Non-Executive Director base fee of £42,500 and additional fee for
Senior Independent Director of £6,500.
Salary and fees (audited)
No salary increases took place during the year prior to the
departure of Andy Bruce, Robin Gregson and Nigel McMinn.
The table below sets out their salary, on an annual basis, up to
their departure dates. Mark Raban joined the Group on 15 July
2019 and no salary increases took place during the year.
Director
Andy Bruce(1)
Robin Gregson(2)
Nigel McMinn(3)
Director
Mark Raban(4)
Notes:
Salary from 1 January 2019
£450,000
£281,250
£281,250
Salary from 15 July 2019
£300,000
1. Andy Bruce stepped down from the Board as Chief Executive Officer on 1
November 2019 and left the Group on 31 December 2019.
2. Robin Gregson stepped down from the Board on 5 July 2019, left his role as Chief
Financial Officer on 15 July 2019 and left the Group on 30 September 2019.
3. Nigel McMinn stepped down from the Board as Chief Operating Officer on 1
November 2019 and left the Group on 31 December 2019.
4. Mark Raban joined the Group as Chief Financial Officer on 15 July 2019 and was
appointed to the Board on this date.
Non-Executive Director fees were increased with effect from 1 November 2019 as follows:
Role
Non-Executive Chairman
Non-Executive base fee (1)
Additional fees for:
Senior Independent Director
Audit and Risk Committee Chairman
Remuneration Committee Chairman
Fee from 1 January 2019
to 31 October 2019
Fee from 1 November 2019
£130,000
£65,000
Included within base fee
Included within base fee
Included within base fee
£130,000
£42,500
£6,500
£6,500
£6,500
96
Governance Annual bonus (audited)
Bonuses of up to 150% of salary are earned by reference
to the performance during the financial year and are paid in
March following the end of the financial year. In summary, no
bonuses were payable in respect of 2019 performance.
be payable. In view of the cash constraints and disruption to
the business as a result of COVID-19, Mark subsequently
volunteered, and the Board agreed, that he would waive any
bonus earned in respect of 2019.
The annual bonus for 2019 was based on Adjusted PBT,
Operating cash flow and non-financial performance targets.
After careful consideration of Mark Raban’s performance
since appointment, it was agreed that a bonus equal to 50% of
maximum should be payable. Accordingly, after the application
of pro-rating for the time he was appointed to the Board
since 15 July 2019, a bonus equal to 38% of salary would
Andy Bruce and Nigel McMinn left the Group on 31 December
2019 and were not eligible to receive an annual bonus for
2019. Robin Gregson left the Group on 30 September 2019
and although he remained eligible for bonus the Remuneration
Committee determined it would be inappropriate to make
any bonus payment. As such, this resulted in no payment to
outgoing Executive Directors.
LTIP awards vesting during the year (audited)
Andy Bruce, Robin Gregson and Nigel McMinn were granted
LTIP awards on 13 June 2017 with a three-year performance
period commencing on 1 January 2017 and ending on 31
December 2019. Performance under the awards was based
on Adjusted EPS (75% weighting) and Net Debt:EBITDA (25%
weighting), as set out below:
Measure
Weighting
Threshold
(20% of max)
Maximum
(100% of max)
Actual
Outcome
(% of max)
Adjusted EPS
75%
15% growth over three years
= 18.25p
30% growth over three years
= 20.63p
4.1p
0%
Measure
Weighting
Threshold
(50% of max)
Mid-point
(75% of max)
Maximum
(100% of max)
Actual
Outcome
(% of max)
Net
Debt: EBITDA
25%
Less than 2.0 but
more than 1.5
Less than 1.5 but
more than 1.0
Equal to or less
than 1.0
0.98
25%
The Adjusted EPS target was set at grant, prior to changing the
definitions of financial elements to be on an underlying basis.
The underlying EPS has been re-stated to give Adjusted EPS
for consistency with the basis on which the target was set.
A total of 25% of the LTIP targets were therefore met. The
outcome of the LTIP is purely formulaic and therefore no
discretion was applied.
97
Lookers plc Annual Report & Accounts 2019 Awards to Andy Bruce and Nigel McMinn lapsed in full as a
result of their departure from the Group. Awards for Robin
Gregson were pro-rated to reflect the proportion of the
vesting period served up to the date of departure from the
Group. While the awards were originally due to vest on 13 June
2020, in light of the ongoing investigations the Committee is
reviewing all subsisting awards and therefore the award whose
performance period ended on 31 December 2019 has not at
the time of writing been formally signed off as exercisable.
Director
Original
number of
awards
granted
Number
of awards
vesting
Lapsed awards
Due to
performance
Due
to departure
Attributable to
performance (1)
Value
Attributable
to share price
appreciation(2)
Total (3)
Andy Bruce
450,612
-
-
450,612
-
-
-
Robin Gregson
229,591
43,949
131,846
53,796
£53,838
£(30,528)
£23,310
Nigel McMinn
229,591
-
-
229,591
-
-
-
Notes:
1. Based on the number of shares vesting multiplied by the closing share price on the day prior to grant (£1.225).
2. The value during the three months to 31 December 2019 was less than the face value of awards on grant.
3. Based on the three-month average share price to 31 December 2019 (£0.530).
Pension entitlements and cash allowances (audited)
Andy Bruce remains a member of the Group defined benefit
scheme, which closed to future accrual from 31 March 2011.
As at 31 December 2019, Mr Bruce’s accrued pension was
£31,300 per annum.
The scheme provides a pension of up to two-thirds of final
pensionable salary on retirement at age 60 years, as well
as lump sum death-in-service benefit and pension benefits
based on final pensionable salary. Pension increases are in line
with Limited Price Indexation. Death-in-service pays at four
times salary and death-in-retirement pays benefits at 50%.
No enhanced benefits are payable on early retirement.
Andy Bruce’s pension in the defined benefit scheme is no
longer linked to his salary and therefore no value is attributable
to the increase in the value of his defined benefits for the
purposes of the single total figure of remuneration. All of
the pension entry in the single total figure of remuneration
therefore relates to a salary supplement in lieu of pension.
The cash in lieu of pension payments to Directors during the
year were 20% of salary per annum for Andy Bruce, Robin
Gregson and Nigel McMinn, and 5% of salary per annum for
Mark Raban.
Payments for loss of office (audited)
Robin Gregson
As announced on 5 July 2019, Robin Gregson stepped down
from the Board as Chief Financial Officer on 15 July 2019 and
remained employed by the Company until 30 September 2019
to support the transition to Mark Raban.
Following his cessation as a Director of the Company, Robin
earned the following while he remained in employment with
the Company:
• Payments of £65,200
• Pension contributions of £13,040.
Robin also received payments in lieu of a 12-month notice
period effective from 30 September 2019 as follows:
• Salary payments of £281,250
• Benefits of value £19,500, which included pay in respect of
accrued annual leave and medical benefits
• Pension contributions of £56,250.
98
Governance At the time of exit, the Committee exercised its discretion to
treat Robin as a good leaver under the Company’s incentive
schemes. The treatment of his awards was therefore
as follows:
Following his cessation as a Director of the Company, Nigel
received the following payments in respect of the period from
1 November 2019 to 31 December 2019 during which he
remained in employment with the Company:
• 2019 Annual Bonus - Robin was eligible to be considered
for a time pro-rated bonus in respect of the period from 1
January 2019 to 30 September 2019. As described on
page 80, the Committee determined that no bonus would
be payable.
• 2017, 2018 and 2019 LTIP - awards under the Company’s
Long-Term Incentive Plan in 2017, 2018 and 2019 will be
pro-rated to reflect the period from their date of grant to the
end of his employment. The Awards were due to vest on the
third anniversary of the date of grant, remain subject to their
original performance conditions and to all scheme rules,
including malus and clawback provisions. and a two-year
holding period for 50% of awards that vest.
• 2015 and 2016 LTIP - awards under the Company’s Long-
Term Incentive Plan in 2015 and 2016 have vested and
remain subject to the Plan rules. They remain exercisable
for six months after the end of his employment.
• 2011 and 2014 Employee Share Option Scheme - awards
under the Company’s Employee Share Option Scheme
in 2011 and 2014 have vested and remain subject to the
scheme rules. They remain exercisable for six months after
the end of his employment.
Andy Bruce and Nigel McMinn
Andy Bruce and Nigel McMinn stepped down from the Board
as Chief Executive Officer and Chief Operating Officer on 1
November 2019 and left the Company on 31 December 2019.
Both former Directors were entitled to payments in lieu of the
remaining proportion of their notice period only.
Following his cessation as a Director of the Company, Andy
received the following payments in respect of the period from
1 November 2019 to 31 December 2019 during which he
remained in employment with the Company:
• Salary payments of £75,000
• Pension contributions of £15,000
• Salary payments of £46,875
• Pension contributions of £9,375.
The treatment of awards under the Company’s incentive
schemes for Andy Bruce and Nigel McMinn was as follows:
• 2019 Annual Bonus - Andy and Nigel were not eligible to be
considered for a bonus in respect of 2019.
• 2017, 2018 and 2019 LTIP - awards under the Company’s
Long-Term Incentive Plan in 2017, 2018 and 2019 will
lapse in full.
• 2015 and 2016 LTIP - awards which have vested under the
Company’s Long-Term Incentive Plan in 2015 and 2016 but
have not been exercised remain exercisable for six months
after leaving the Company.
• 2011 and 2014 Employee Share Option Scheme - awards
which have vested under the Company’s Employee Share
Option Scheme in 2011 and 2014 but have not been
exercised remain exercisable for six months after leaving
the Company.
In response to the Company’s circumstances and the ongoing
investigations, the Committee considered it appropriate to
suspend the notice payments. In light of the investigations,
the Committee is also reviewing all subsisting LTIP and ESOS
awards and therefore has not at the time of writing signed
these off as exercisable.
Payments to past Directors (audited)
There were no payments to past Directors during the year.
99
Lookers plc Annual Report & Accounts 2019 LTIP awards granted during the year (audited)
The LTIP awards are nil-cost rights to acquire shares and
vest based on performance over a three-year period. Awards
over 150% of salary were made to Andy Bruce and awards
over 100% of salary were made to Robin Gregson and Nigel
McMinn in 2019 as follows:
Director
Date of grant
Performance period
Number of shares
subject to award
Share price
at grant(1)
Face value
of award
Andy Bruce
30 April 2019
Robin Gregson
30 April 2019
Nigel McMinn
30 April 2019
1 January 2019 to
31 December 2021
1 January 2019 to
31 December 2021
1 January 2019 to
31 December 2021
741,758
£0.910
£675,000
309,065
£0.910
£281,250
309,065
£0.910
£281,250
Notes:
1. Based on the closing share price on the day prior to grant.
Performance under the awards will be based on Adjusted EPS
(75% weighting) and Net Debt: EBITDA (25% weighting), as
set out below:
Measure
Weighting
Threshold
(20% of max)
Maximum
(100% of max)
Adjusted EPS
75%
14.2p
15.5p
Measure
Weighting
Threshold
(50% of max)
Mid-point
(75% of max)
Maximum
(100% of max)
Average Net
Debt: EBITDA
25%
Less than 2.0 but more
than 1.5
Less than 1.5 but
more than 1.0
Equal to or less
than 1.0
As noted in this report, awards granted to Andy Bruce and Nigel McMinn lapsed on termination.
100
Governance Outstanding awards under share schemes (audited)
Prior to 2015, long term incentive awards were made under
The Lookers Executive Share Option Scheme (ESOS). The
Lookers plc Long Term Incentive Plan (LTIP) was introduced
in 2015, under which the Company now makes long term
incentive awards. Details of long-term incentive awards, as
well as awards under the Company’s all-employee Save-As-
You-Earn (SAYE) scheme, held by Executive Directors are
as follows:
Scheme
Date
of grant
Vesting
date
Expiry
date
Exercise
price
(pence)
Number at
1 January
2019
Granted
in year
Lapsed
in year
Exercised
in year
Number at
31 December
2019
Andy Bruce
ESOS
5.1.2011
5.1.2014
5.1.2021
ESOS
30.6.2014
30.6.2017
30.6.2024
LTIP
LTIP
LTIP
LTIP
LTIP
25.6.2015
25.6.2018
25.6.2025
12.4.2016
12.4.2019
12.4.2026
13.6.2017
13.6.2020
13.6.2027
18.4.2018
18.4.2021
18.4.2028
30.4.2019
30.4.2022
30.4.2029
Nil
Nil (1)
Nil (1)
Nil (1)
Nil
Nil
Nil
269,836
289,256
274,615
196,810
450,612
601,307
-
-
-
-
450,612
601,307
-
741,758
741,758
SAYE
6.10.2015
1.12.2018
1.6.2019
144.91
6,210
SAYE
4.10.2016
1.12.2019
1.6.2020
107.47
8,384
6,210
8,384
-
-
-
-
-
-
-
-
-
Robin Gregson
ESOS
5.1.2011
5.1.2014
5.1.2021
ESOS
30.6.2014
30.6.2017
30.6.2024
LTIP
LTIP
LTIP
LTIP
LTIP
25.6.2015
25.6.2018
25.6.2025
12.4.2016
12.4.2019
12.4.2026
13.6.2017
13.6.2020
13.6.2027
18.4.2018
18.4.2021
18.4.2028
30.4.2019
30.4.2022
30.4.2029
Nil
Nil (1)
Nil (1)
Nil (1)
Nil
Nil
Nil
269,836
221,074
209,884
150,436
229,591
306,372
-
309,065
SAYE
6.10.2015
1.12.2018
1.6.2019
144.91
6,210
SAYE
4.10.2016
1.12.2019
1.6.2020
107.47
8,374
Nigel McMinn
ESOS
30.6.2014
30.6.2017
30.6.2024
25.6.2015
25.6.2018
25.6.2025
12.4.2016
12.4.2019
12.4.2026
13.6.2017
13.6.2020
13.6.2027
18.4.2018 18.04.2021
8.4.2028
30.4.2019
30.4.2022
30.4.2029
LTIP
LTIP
LTIP
LTIP
LTIP
Notes:
1. The exercise price of the 2014 ESOS awards, and the 2015
and 2016 LTIP awards was reduced to £1 in aggregate for each
grant due to performance achieved to 31 December 2016.
Nil (1)
Nil (1)
Nil (1)
Nil
Nil
Nil
221,074
209,884
150,436
229,591
306,372
-
-
-
-
-
-
-
6,210
8,374
-
-
-
229,591
306,372
269,836
221,074
209,884
150,436
-
-
-
-
-
-
-
-
-
-
-
-
309,065 309,065
101
269,836
289,256
274,615
196,810
-
-
-
-
-
-
-
-
-
229,591
306,372
309,065
-
-
221,074
209,884
150,436
-
-
-
Lookers plc Annual Report & Accounts 2019 Statement of Directors' shareholdings (audited)
The table below summarises the Directors' shareholdings as at
31 December 2019, or the date they stepped down from the
Board if earlier. The shareholding as a percentage of salary is
determined by reference to the share price on 31 December
2019 of £0.550.
Shareholding
requirement
(% of salary)
Number of shares
held (including
by connected
persons)
Vested but
unexercised
share
options(1)
Unvested
share
interests not
subject to
performance(1)
Overall shareholding
Number
of shares
%
of salary
Unvested
share interests
subject to
performance
Executive Directors
Mark Raban
200%
50,000
Interim Executive Directors
Richard Walker
Phil White
-
-
Former Executive Directors
Andy Bruce
Robin Gregson
Nigel McMinn
200%
200%
100%
Non-Executive Directors
Tony Bramall
Sally Cabrini
Stuart Counsell
Heather Jackson
Victoria Mitchell
-
-
-
-
-
-
-
-
-
53,716
849,426
832,578
546,174
0
360,000
308,139
75,658,051
-
226,559
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
9%
-
53,716
N/A
N/A
1,395,600
171%
-
-
-
0
832,578
163%
845,028
668,139
131%
75,658,051
-
226,559
-
-
N/A
N/A
N/A
N/A
N/A
0
-
-
-
-
-
Notes:
1. Calculated on a net of tax basis assuming an overall tax rate of 47%.
There were no changes in these shareholdings between that date and the date of approval of this report.
102
Governance Performance graph and table
The chart below shows the Company’s ten-year annual Total
Shareholder Return (TSR) performance against the FTSE
All-Share Total Return Index, which is considered to be an
appropriate comparison to other public companies of a
similar size.
The table below the chart sets out the total single figure of
remuneration for the Chief Executive over each of the last
ten years.
500
400
300
200
100
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
)
9
0
0
2
/
2
1
/
1
3
t
a
0
0
1
o
t
d
e
s
a
b
-
e
r
(
0
Dec 09
Dec 10
Dec 11
Dec12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Lookers
FTSE All-Share
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chief Executive
Officer
Peter
Jones
Peter
Jones
Peter
Jones
Peter
Jones(1)
Andy
Bruce
Andy
Bruce
Andy
Bruce
Andy
Bruce
Andy
Bruce
Andy
Bruce (1)
Richard
Walker (1)
Total single
figure (£’000)
Annual bonus
(% of max)
LTIP vesting
(% of max)
692
583
739
1,436
806
894
1,628
553
633
463
75
100% 63% 100% 100% 100% 87%
67%
20% 34%
-
-
-
100%
-
-
100%
-
-
-
-
-
-
Notes:
1. Peter Jones retired on 31 December 2013.
2. Andy Bruce was appointed on 1 January 2014 and stepped down on 1 November 2019.
3. Phil White became interim Executive Chairman on 1 November 2019.
103
Lookers plc Annual Report & Accounts 2019
The remuneration figures for the employee at each quartile
were determined with reference to the financial year ending 31
December 2019.
Option B, as prescribed under the reporting regulations, was
used to calculate these figures. The Committee is comfortable
that this approach provides a fair representation of the Chief
Executive Officer to employee pay ratios and is appropriate in
comparison to alternative methods.
Under this option, the latest available gender pay gap data
(i.e. from April 2019) is used to identify the best equivalent
for three Group UK employees whose hourly rates of pay are
at the 25th, 50th and 75th percentiles for the Group. A total
pay and benefits figure for 2019 is then calculated for each of
those employees. This is also sense checked against a sample
of employees with hourly pay rates either side of the identified
individuals to ensure that the appropriate representative
employee is selected. The pay ratios outlined above are then
calculated using the total pay and benefits of the selected
employee for each quartile point.
As explained above, a small group of UK employees either side
of the quartile points identified from the gender pay gap data
were also considered to ensure that the identified employees
reflect the best equivalents for each quartile.
No elements of pay were estimated or excluded in the
calculations, and all pay and benefits were valued in line with
the single figure methodology. Full-time equivalent total pay
and benefits was determined by up-rating elements of pay
based on average full-time equivalent hours for the financial
year, where appropriate. All of the identified employees were
employed for the full financial year.
Percentage change in remuneration of interim
Executive Director
Richard Walker stepped into the interim Executive Director
role during the year following the departure of Andy Bruce.
Given there is no prior year salary/fee for the interim Executive
Director role, the percentage increase in respect of salary/fee
below is nil. The interim Executive Director does not receive
any benefits or annual bonus, and therefore percentage
increases are also nil.
% increase from 2018 to 2019
Salary
Benefits
Annual Bonus
Interim
Executive
Director
Employee
average
Nil
Nil
Nil
2%
9%
-8%
Chief Executive Officer pay ratio
The table below compares the 2019 single total figure of
remuneration for the Chief Executive Officer with the Group's
employees paid at the 25th percentile (lower quartile), 50th
percentile (median) and 75th percentile (upper quartile) of its
UK employee population:
Year Method
25th
percentile
pay ratio
Median
pay ratio
75th
percentile
pay ratio
2019 Option B
26:1
20:1
13:1
As required by the regulations, the CEO single figure used
to determine the 2019 pay ratios is based on the sum of the
total single figures of remuneration for Andy Bruce prior to
1 November 2019 and (as acting CEO) Richard Walker, but
with remuneration in respect of Richard's service as a Non-
Executive Director prior to 1 November 2019 excluded. This
gives a total of £526,000.
104
Governance
The table below sets out the salary and total pay
and benefits for the three quartile point employees:
Statement of implementation of Directors'
Remuneration Policy in 2020
25th
percentile
(P25)
Median
(P50)
75th
percentile
(P75)
Salary
£16,939
£17,170
£34,680
Total pay
and benefits
£20,895
£27,398
£40,442
The Committee considers that the median pay ratio is
consistent with the relative roles and responsibilities of the
Chief Executive Officer role and the identified employee.
Base salaries of all employees, including our Executive
Directors, are set with reference to a range of factors including
market practice, experience and performance in role. The
remuneration package of our Executive Directors is weighted
towards variable pay (including the annual bonus and LTIP) due
to the nature of their roles, and this means the CEO pay ratio
is likely to fluctuate depending on the outcomes of incentive
plans in each year.
Relative importance of spend on pay
The table below sets out the total spend on pay in 2018 and
2019 compared with distributions to Shareholders and which
was the most significant outgoing for the Company in the last
financial year.
The salaries and fees to be paid to Directors in 2020 are set
out in the table below, together with any increases expressed
as a percentage.
On 5 February 2020, Mark Raban was promoted to Chief
Executive Officer. Phil White and Richard Walker remained in
their interim Executive Chairman and Executive Director roles
until 31 March 2020 and 29 February 2020 respectively to
support the handover process, after which they returned to
their non-Executive roles.
The Non-Executive Director base fee was reviewed during
2019. An increase in the fee from £42,500 to £65,000 was
agreed with effect from 1 November 2019 to recognise the
additional level of responsibility given regulated requirements
and time commitment required of the role. This fee is payable
in place of additional fees for chairing a subcommittee or for
undertaking the role of Senior Independent Director.
As noted in the Chairman’s statement, in order to support
the Group following cash constraints and disruption to the
business caused by the ongoing outbreak of the coronavirus,
the Directors volunteered to accept reductions in remuneration
as follows for the five month period between 1 April 2020 and
31 August 2020:
• Non-Executive Directors: Annual fee of £50,000 p.a.
(reduced from £65,000 p.a.);
2019
2018 % increase
• The Non-Executive Chairman: Annual fee of £97,500 p.a.
(reduced from £130,000 p.a.);
£300.2m £287.8m
4.3%
£15.9m
£15.6m
1.9%
• Mark Raban: Salary of £315,000 (reduced from £450,000).
Spend on staff pay
(including Directors)
Profit distributed by
way of dividend and
share buy-back(1)
Notes:
1. No share buy-backs have occurred in the year ending 31 December 2019.
105
Lookers plc Annual Report & Accounts 2019 The ongoing level of salary/fees prior to the reductions are set out in the following table.
£ pa
Executive Directors
Mark Raban (1)
Non-Executive Directors
Non-Executive Chairman (3)
2020 Salary/Fees
From 5
February 2020
From 1
January 2020
2019 Salary/
Fees
% change
£450,000
£300,000
£300,000
0% (2)
£130,000
£130,000
£130,000
Non-Executive Director base fee (4)
£65,000
£65,000
£42,500 (5)
Additional fees for:
Senior Independent Director
Audit and Risk Committee Chairman
Remuneration Committee Chairman
n/a
n/a
n/a
n/a
n/a
n/a
£6,500 (5)
£6,500 (5)
£6,500 (5)
0%
53%
0%
0%
0%
Notes:
1. Mark Raban’s salary was reduced to £315,000 for the period from 1 April 2020
to 31 August 2020.
2. Mark Raban received no salary increase prior to his appointment to the role
of Chief Executive Officer on 5 February 2020, at which point he received a
promotional salary increase of 50%.
3. Phil White’s fee was reduced to £97,500 for the period from 1 April 2020 to 31
August 2020. With effect from 1 September 2020, Phil White took on the Interim
Executive Chairman role and receives an annual fee of £350,000.
Benefits and pension
No changes are intended to be made to the benefits available
to the Directors during 2020.
Consistent with the proposed Directors' Remuneration Policy,
Mark Raban receives a pension contribution in line with the
wider workforce, currently 5% of salary.
The interim Executive Directors will not receive pension
contributions. Non-Executive Directors are not eligible to
receive pension contributions.
4. Non-Executive Directors’ fees were reduced to £50,000 for the period from 1
April 2020 to 31 August 2020. With effect from 1 September 2020, the annual
fee for Heather Jackson and Vicky Mitchell were increased to £85,000.
5. Payable until 1 November 2019, from which date the additional fees were
removed and a flat fee of £65,000 was payable for all Non-Executives (excluding
the Chairman).
Incentives for 2020
It was agreed that there would not be an annual bonus or LTIP
award for 2020 given the disruption caused by COVID-19 and
the challenges faced by the business.
106
Governance Consideration by the Directors of matters relating to
Directors remuneration
The Committee
The Committee is responsible for reviewing and
recommending the framework and policy for remuneration
of the Executive Directors and of senior management.
The Committee’s terms of reference are available from the
Company Secretary.
The members of the Committee during 2019 were:
• Sally Cabrini (Chairman of the Remuneration Committee);
The primary role of the Committee is to:
• set the Directors remuneration policy applying to
Executive Directors;
• approve the quantum and structure of the remuneration
packages for the Executive Directors, and from 2019, for
other senior Executives;
• determine the balance between base pay and performance
related elements of the package to align senior Executives’
interests with those of Shareholders; and
• Stuart Counsell;
• approve annual and long-term incentive payments for
senior Executives.
• Richard Walker, until his appointment as interim
Executive Director;
• Phil White, until his appointment as Executive
Chairman; and
• Heather Jackson, from 25 November 2019.
The Committee met 7 times during 2019. The attendance at
meetings by each member of the Committee is set out in the
table below:
Director
Meetings attended during the year
Sally Cabrini (Chair)
Stuart Counsell
Heather Jackson(1)
Richard Walker(2)
Phil White(2)
Notes:
7 out of 7
7 out of 7
3 out of 3
5 out of 5
4 out of 5
1. Heather Jackson became a member of the Remuneration Committee on her
appointment to the Board on 25 November 2019.
2. Richard Walker and Phil White were members of the Remuneration Committee
until their appointments as interim Executive Director and Executive Chairman
respectively from 1 November 2019. They reverted to committee membership on
their return to their former office.
107
Lookers plc Annual Report & Accounts 2019 Summary of activity during 2019
The Committee carried out the following during 2019:
• Reviewed and determined:
– salary levels for the Executive Directors and fees for the Chairman;
– the outcome of targets under the annual bonus plan;
– targets for the annual bonus and LTIP plan;
• Approved the grant of LTIP awards to Executive Directors;
The Committee previously appointed PwC LLP and received
advice over the year on all aspects of remuneration, including
the review of the Directors' Remuneration Policy and its
operation. PwC is a member of the Remuneration Consultants’
Group and complies with its Code of Conduct which includes
guidelines to ensure that advice is independent and free
of undue influence. During the year, PwC was paid fees of
£170,800 in respect of advice to the Committee relating to
Directors pay, based on a time-spent basis.
• Considered developments in Executive pay and
implemented changes required to comply with the 2018 UK
Corporate Governance Code;
PwC has no other connection with the Company or with
individual Directors.
• Performed a review of the Directors' Remuneration Policy
and consulted with Shareholders on this;
• Approved remuneration arrangements for appointments to
and departures from the Board and for interim Executive
Director appointments;
• Reviewed the 2018 Remuneration Report; and
• Reviewed the 2019 gender pay gap report.
Members of the Senior Management Team, including the
Acting Head of HR, the Interim General Counsel and Company
Secretary, the Interim Executive Chairman and the Executive
Directors have provided input to the Committee in determining
the remuneration of the Directors. None of the individuals were
present when their own remuneration was being discussed
Statement of voting
The latest votes in respect of remuneration matters were cast
at the 2017 AGM for the Directors' Remuneration Policy and
the 2019 AGM for the 2018 Annual Report on Remuneration
as follows:
To approve the Directors
Remuneration Policy
(2017 AGM)
To approve the 2018 Annual Report
on Remuneration
(2019 AGM)
Votes for
Votes against
Abstentions
Number
%
Number
%
Number
247,261,973
95.2%
12,214,314
4.7%
56,312
206,812,484
67.0%
101,727,675
33.0%
-
The Committee took note of that a number of Shareholders
voted against last year’s Annual Report on Remuneration. The
Board understands that the reason for the number of votes
cast against was connected with an adjustment to the base
salary of our Chief Executive Officer. We consulted with a large
proportion of our Shareholder base in advance of the 2019
AGM, and many investors were supportive of the rationale for
the adjustment to return the Chief Executive Officer’s salary
to a more market competitive position. Following the AGM,
we began the process of reviewing the remuneration policy
for tabling during 2020. We wrote to our major Shareholders,
have had a number of conversations during 2019 in relation to
the review of policy, and have used the Shareholder feedback
received into the current remuneration policy proposals. We
will continue a dialogue with Shareholders, and welcome
feedback in the future.
By Order of the Board
Phil White
Executive Chairman
25 November 2020
108
Governance Directors' report
Content of the Report
The Directors present their report for the year ending 31
December 2019. Our Strategic Review on pages 6 to 45
contains the information, prescribed by the Companies Act
2006, required to present a fair review of the Company’s
business, a description of the principal risks and uncertainties
it faces, and certain of the information on which reports and
statements are required by the UK Corporate Governance
Code. The Board approved the Strategic Review set out on
pages 6 to 45 and the Viability Statement set out on page 44.
Additional information on which the Directors are required by
law to report is set out below and in the following sub-sections
of the Governance Section:
• Board of Directors
• Chairman’s statement on Corporate Governance
At the AGM in May 2019, pursuant to section 570 of the
Companies Act 2006 Shareholders approved the issue of
shares for cash up to 5% of the existing issued share capital
and an additional 5% (only to be used in connection with
an acquisition or specified capital investment) in each case
without the application of pre-emption rights. That authority
expired at the conclusion of the 2020 AGM, at which a
resolution was proposed and passed for its renewal.
Materiality
The Group’s Annual Report and Accounts aim to provide a
fair, balanced and understandable assessment of the Group’s
business model, strategy, performance prospects and position
in relation to material financial, economic, social, environmental
and governance issues. The material focus areas have been
determined considering the following criteria:
• Report from the Chairman of the Nomination Committee
• Specific quantitative and qualitative criteria
• Report from the Chairman of the Audit and Risk Committee
• Matters critical in relation to achieving strategic objectives
• Corporate Social Responsibility Review
• Directors' Remuneration Report
• Directors' Report
• Directors' Responsibility Statement
In the interests of increasing the relevance of the Report and
reducing the environmental impact of producing voluminous
reports, we have placed on our website certain background
information on the Company the disclosure of which, in this
Report, is not mandatory. Further details with regards to
additional disclosures are made in the following notes to the
financial statements:
Disclosure
Dividends
Risks surrounding financial
instruments and capital structure
Share buy-back and share capital
Share classification
Note Reference
7
21
23
23
Share Buy-back and Share Capital
The issued share capital of the Company, together with the
details of shares issued during the year is shown in Note 24 of
the Annual Report and Accounts.
The powers of the Directors to issue or buy back shares are
restricted to those approved at the Company’s Annual General
Meeting (AGM).
• Principal risks identified in the risk management process
• Feedback from key stakeholders during the course of
the year
Disclosures made within the Group’s Annual Report and
Accounts have therefore been based applying this concept
of materiality.
Activities
The main activities of the Group are the sale, hire and
maintenance of motor vehicles and motorcycles, including the
sale of tyres, oil, parts and accessories, and the FCA-regulated
activities of credit broking and insurance distribution.
Corporate Social Responsibility
The Group has a long-standing Corporate and Social
Responsibility agenda and further details of this are included
on pages 76 to 78 of the Annual Report and Accounts.
Diversity
The UK Corporate Governance Code includes a
recommendation that boards should consider the benefits of
diversity, including gender when making board appointments.
The Board recognises the importance of gender balance
and considers this issue among the wider issues of diversity
where the most important requirement is to ensure that there
is an appropriate range of experience, balance of skills and
background on the Board. We continue to make changes to the
composition of the Board based on merit irrespective of any
form of discrimination so that the best candidate is appointed.
The percentage of women on the Board is currently 33% (with
a high between December 2019 and June 2020 of 37.5%), an
increase from 12.5% in 2018.
109
Lookers plc Annual Report & Accounts 2019
As at the balance sheet date the Group has the following
average gender splits:
2019
2018
Male
Female Male
Female
Board Members
Senior Management*
7
25
1
3
7
26
1
2
All staff
6,636
1,988
6,390
1,932
*as defined in The ‘Code’
Directors and their interests in shares
The following were Directors of the Company at the end of
the financial year and thereafter*. Their interests in the issued
ordinary share capital of the Company were as follows:
31.12.19
31.12.18
D. C. A. Bramall
75,658,051
63,487,636
A. C. Bruce**
S. R. Counsell
R. A. Gregson*
849,426
657,426
226,559
832,578
-
381,427
N. J. McMinn**
360,000
160,000
R. S. Walker****
-
-
P. M. White
53,716
53,716
S. J. Cabrini****
M. D. Raban***
H.L. Jackson
V.G. Mitchell
-
50,000
-
-
-
-
-
-
• *R.A. Gregson resigned as Director on 5 July 2019 and **N.J. McMinn
and **A.C. Bruce resigned as Directors on 29 November 2019.
***M.D. Raban was appointed Director on 15 July 2019. **** R. S.
Walker and S. J Cabrini left the board on 29 June 2020.
• Details of Directors share options are shown in the Directors'
Remuneration Report.
• All holdings are beneficial.
• There was no change in the interests of the Directors in shares or
share options of the Company between 31 December 2019 and 25
November 2020.
Share price information
The mid-market price of the ordinary shares at 31 December
2019 was 56.5p and the range during the year was 33.7p and
113.0p.
Directors' rotation
As permitted by the Company’s articles of association, the
Board decided that all Directors would retire from office at the
2020 Annual General Meeting and were to seek election, in
the case of M.D. Raban, H.L. Jackson and V.G. Mitchell, and re-
election in the case of S.J. Cabrini, S.R. Counsell, R.S. Walker,
T. Bramall and P.M. White by the Shareholders. R. S. Walker
and S. J. Cabrini initially were tabled for re-election however
they both opted to leave the board at the conclusion of the
2020 Annual General Meeting.
Biographical details of all the Directors are included on pages
52 to 55. The Chairman confirms that each of the Directors
which stood for election and re-election are effective and
demonstrates commitment to the role.
Directors' indemnity provisions
The Company (and its subsidiaries) has made qualifying third-
party indemnity provisions for the benefit of all the Directors.
Such indemnity provisions were in force during the year and
remain in force at the date of this report.
Approval of the Directors' Remuneration Report
Our Annual General Meeting was held on 29 June 2020.
Given that the Grant Thornton investigation was still ongoing
immediately before convening the AGM, to ensure that we
gave our advisors as much time as possible to finalise their
conclusions, the standard shareholder resolutions relating
to receiving these audited financial statements and the
auditors’ and Directors' reports, approving the Directors'
Remuneration Report and the appointment and remuneration
of our auditors, were not be tabled at the AGM but will be at a
separate “accounts meeting” of Shareholders likely to be held
in December 2020. The vote on the Directors' Remuneration
Report is advisory in nature and the Directors' entitlement to
remuneration is not conditional on it being passed.
The Company will also propose at the “accounts meeting”
an ordinary resolution to seek shareholder approval of the
Directors' Remuneration Policy set out on pages 84 to 108
of the Directors' Remuneration Report for the financial year
ended 31 December 2019. The Remuneration Policy sets out
how the Company proposes to pay the Directors and includes
details of the Company’s approach to recruitment (including
diversity), remuneration and loss of office payments.
The resolution this year follows extensive consultation
with Shareholders and further details are included in the
110
Governance
Directors' Remuneration Report. The vote on this resolution
is binding and, if passed, will mean that the Directors can
only make remuneration payments in accordance with the
approved policy unless such payments have been approved
by a separate shareholder resolution. Until such time as the
Directors' Remuneration Policy is voted on at the “accounts
meeting” the existing Remuneration Policy shall continue
to apply.
Ethical employment and diversity
The Group values diversity. Employment within the Group is
offered on merit and objective criteria reflecting the skills,
knowledge and experience needed for the role. Diversity in
Lookers embraces knowledge and understanding of relevant
diverse geographies, peoples and their backgrounds and
includes, educational and professional background, disability,
gender, sexual orientation, religion, belief, age, culture,
personality, workstyle and cognitive or personal strengths.
It is the Group’s policy to offer equal opportunities to disabled
persons applying for vacancies and provide them with
the same opportunities for employment, training, career
development and promotion as are available to all employees,
within the limitations of their aptitude and abilities. In the event
of members of staff becoming disabled, every effort is made
to ensure that their employment with the Group continues and
appropriate arrangements are made.
Donations
Charitable donations amounted to £623k paid in the year
however this sum was committed to be paid in 2018 (2018:
£15k). No political donations were made in the current or prior
financial year.
Research and development
As part of the Group’s ongoing commitment to the
development of its IT infrastructure and estate the Group
engages in various research and development activities.
Amounts are expensed or capitalised in accordance with the
Group’s accounting policy on intangible assets.
Auditor
In the case of each of the persons who are Directors of the
Company at the date when this report was approved:
• So far as each is aware, there is no relevant audit
information (as defined by the Companies Act 2006) of
which the Company’s auditor is unaware; and
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies
Act 2006.
The Company has received notice from Deloitte LLP of their
intention to resign as auditors following the approval of these
financial statements.
Substantial shareholdings
On 30 October 2020 the following shareholders, so far as
the Directors are aware, had an interest in 3% or more of the
issued ordinary share capital of the Company:
At 30 October
2020
At 31 December
2019
D. C. A. Bramall
and Family
75, 658, 051 shares
(19.39%)
75, 658, 051 shares
(19.39%)
JO Hambro Capital
Management
31,007,377 shares
(7.95%)
25,489,688 shares
(6.53%)
Artemis Investment
Management
30,291,362 shares
(7.76%)
26,735,153 shares
(6.85%)
Tweedy Browne
20,999,774 shares
(5.38%)
21,984,382 shares
(5.64%)
Legal &
General Investment
12,568,870 shares
(3.22%)
13,093,742 shares
(3.36%)
Aberforth Partners
27,697,333 shares
(7.10%)
26,636,081 shares
(6.83%)
Russell Investments
8,797,392 shares
(2.25%)
12,062,336 shares
(3.09%)
BlackRock
6,094,676 shares
(1.56%)
12,000,047 shares
(3.08%)
The Directors have not been notified of any other holders
of 3% or more of the issued ordinary share capital.
• Each of the Directors has taken all the steps that he/she
ought to have taken as a Director to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Subsequent events
Details of events occurring subsequent to the balance sheet
date are made within Note 27 to the financial statements.
111
Lookers plc Annual Report & Accounts 2019 Statutory, regulatory and other information
This section contains the remaining matters on which the
Directors are required to report each year, which do not appear
elsewhere in this Directors' report. Certain other matters which
are required to be reported on appear in other sections of this
Annual Report and Accounts, as detailed below:
Matter
Page(s) in the Annual
Report and Accounts
47
142
44
80 to 108
80 to 108
76 to 77
170
143
179 to 186
188
113
77
46
An indication of likely future developments in the business of the Company and its
subsidiaries appears in the Strategic Review
The Group’s (loss)/profit before taxation and the (loss)/profit after taxation appear in
the Statement of Total Comprehensive Income
The Viability Statement
The Directors' Remuneration Report
Details of long-term incentive schemes as required by LR 9.4.3 R are set out in the
Directors' Remuneration Report
The reporting on the Company’s carbon footprint
A list of the subsidiary undertakings principally affecting the profits or net assets of
the Group in the year
Changes in asset values are set out in the Statements of Financial Position
A detailed statement of the Group’s treasury management and funding
including information on the exposure of the Company in relation to the use of
financial instruments
Details of an arrangement under which a shareholder has waived or agreed to waive
any dividends, and where a shareholder has agreed to waive future dividends, details
of such waiver together with those relating to dividends which are payable during the
period under review
A statement that this Annual Report and Accounts meets the requirements of Section
4, Principle N, Provision 27 of the UK Corporate Governance Code 2018 (the Code)
(formerly Provision C.1.1 prior to the July 2018 updating of the Code)
Employee engagement
Fostering the company’s business relationships with suppliers, customers and others
All information required to be reported by Listing Rule 9.8.4
R and applicable to the Company or Group for this reporting
period is set out in the table above.
This report was approved by the Board of Directors and is
signed on its behalf by:
Phillip Kenny
Company Secretary
25 November 2020
112
Governance Directors' responsibilities statement
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply
with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole;
the strategic report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
• The Annual Report & Accounts, taken as a whole, are fair,
balanced and understandable and provide the information
necessary for Shareholders to assess the Company’s
position and performance, business model and strategy
This responsibility statement was approved by the Board of
Directors and is signed on its behalf by:
M. D. Raban
Chief Executive Officer
25 November 2020
The Directors are responsible for preparing the Annual
Report and Accounts in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law
the Directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union
and Article 4 of the IAS Regulation and have elected to prepare
the parent Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law),
including FRS 101. “Reduced Disclosure Framework”. Under
company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of
the Company for that period.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
In preparing the parent Company financial statements, the
Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgments and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
113
Lookers plc Annual Report & Accounts 2019
114
Financial Statements FinancialStatements Auditor’s report
Independent Auditor’s Report
To The Members Of Lookers Plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
•
•
•
•
the financial statements of Lookers plc (the ‘parent
company’) and its subsidiaries (the ‘group’) give a true
and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2019 and of the
group’s loss for the year then ended;
the group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, including
Financial Reporting Standard 101 “Reduced Disclosure
Framework”; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the
IAS Regulation.
We have audited the financial statements which comprise:
•
the consolidated statement of total comprehensive income;
•
•
the consolidated and parent company statements of
financial position;
the consolidated and parent company statements of
changes in equity;
•
the consolidated statement of cash flows;
•
the principal accounting policies; and
•
•
the related notes 1 to 30 for the group financial
statements; and
the related notes 1 to 30 for the parent company
financial statements.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law
and United Kingdom Accounting Standards, including FRS
101 “Reduced Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to
the group or the parent company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Material uncertainty relating to going concern
We draw attention to section 2 of the principal accounting
policies in the financial statements, which indicates that
the Board have concluded that the going concern basis of
accounting is appropriate but that there are factors which in
aggregate give rise to a material uncertainty which may cast
significant doubt over the group’s and parent company’s ability
to continue as a going concern.
The group has secured facilities that contain covenants
requiring the group to maintain specified financial ratios and
certain other financial covenants. Following the event of
Covid-19 and general economic uncertainty, these covenants
were successfully renegotiated with the lenders and now
include an assessment of net bank debt on a monthly basis
up to 30 June 2021 and minimum cumulative EBITDA
requirement tested quarterly up to 30 June 2021. Following
this period, the covenants will revert to original conditions in
place prior to the event of Covid-19.
In performing their assessment of going concern, the Directors
have considered forecast cash flows to December 2021.
Given the ongoing uncertainty of Covid-19, the risks in respect
of Brexit and the uncertainty of resolution of the ongoing
regulatory investigations, management have performed
additional possible downside forecast sensitivity scenarios.
These focused on the risk over further potential falls in future
revenue volumes, the removal of future property disposals
116
Financial Statements and a significant regulatory fine from the FCA. The scenarios
considered show that in aggregate to these downside impacts
and without mitigating actions, increasing the reduction in
new and used sales volumes to 2019 revenue to 25% would
result in a covenant breach in December 2021. 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. Therefore, in such circumstances the group
and parent company may be unable to realise assets and
discharge liabilities in the normal course of business.
as a going concern. Our opinion is not modified in respect of
this matter.
4. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current
year were:
• going concern (see section 3: Material uncertainty relating
In response to this, we:
to going concern)
• obtained an understanding of the relevant controls
•
impact of accounting irregularities;
relating to management’s basis of preparation for the
forecasts and key assumptions underpinning the going
concern assumption;
• evaluated the future forecast projections including the
mathematical accuracy of the underlying calculations;
• challenged the underlying assumptions behind the
forecasts (including reasonably possible downside
scenarios identified), by reference to third party industry
and economic reports to assess whether the forecasts
prepared by management are reasonable;
• completeness of Financial Conduct Authority provisions;
• valuation of goodwill and intangible assets;
• valuation of commercial income receivable;
•
inventory valuation and provisioning for used vehicles; and
• presentation of non-underlying items.
Within this report, key audit matters are identified as follows:
•
inspected key debt documentation to understand the
principal terms and related financial covenants, including
correspondence in relation to covenant waivers and
amendments, and assessed whether the terms and
conditions therein were consistent with those applied
by management in their base case and downside
scenario forecasts;
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
• assessed management’s forecast projections in relation
to their ability to pass the covenant tests in place during
the next 12 months, as well as considering the sensitised
scenarios in which the covenants may be breached;
• assessed the mitigating factors available to management in
respect of the ability to restrict discretionary expenditure,
close further parts of the business and sell surplus
assets; and
• evaluated the appropriateness of the disclosure made in the
Annual Report and Accounts.
As stated in section 2 of the principal accounting policies,
these events or conditions, along with the other matters as set
forth in section 2 of the principal accounting policies, indicate
that a material uncertainty exists that may cast significant
doubt on the group’s and parent company’s ability to continue
Materiality
The materiality that we used for the group financial
statements was £2.4m which was determined on the basis
of 3% of earnings before interest, taxation, depreciation and
amortisation (EBITDA).
Scoping
Based on our scoping assessment, our audit work covered
96% (2018: 83%) of the group’s revenue and 96% (2018:
87%) of the group’s net assets.
Significant changes in our approach
We initially included three new key audit matters in the
current year, being going concern (given the macroeconomic
uncertainties arising from the Covid-19 pandemic, risks in
respect of the impact of Brexit and the ongoing regulatory
investigations) as disclosed in section 3, along with the
completeness of Financial Conduct Authority provisions
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(due to the ongoing investigations) and the presentation of
non-underlying items (given the change in prominence and
definitions of non-underlying items) as disclosed in section 6.
Viability means the ability of the group to continue
over the time horizon considered appropriate by
the Directors.
As a result of the accounting irregularities noted on page 152,
we considered the causal factors and the risk of misstatement
in each of the group’s components, and also considered
the findings of the group’s own investigations, led by an
Independent Board Committee. This resulted in us refining
our audit approach with the inclusion of a new key audit matter
focused on the accounting irregularities as disclosed in section
6 of our report. We also revisited our assessment of materiality
as noted in section 7 of our report and the scope of our audit as
noted in section 8 of our report.
5. Conclusions relating to principal risks and
viability statement
Based solely on reading the Directors’ statements and
considering whether they were consistent with the knowledge
we obtained in the course of the audit, including the knowledge
obtained in the evaluation of the Directors’ assessment of
the group’s and the company’s ability to continue as a going
concern, we are required to state whether we have anything
material to add or draw attention to in relation to:
•
•
•
the disclosures on page 37-43 that describe the principal
risks, procedures to identify emerging risks, and an
explanation of how these are being managed or mitigated;
the Directors' confirmation on page 44 that they have
carried out a robust assessment of the principal and
emerging risks facing the group, including those that would
threaten its business model, future performance, solvency
or liquidity; or
the Directors’ explanation on page 44 as to how they have
assessed the prospects of the group, over what period
they have done so and why they consider that period to
be appropriate, and their statement as to whether they
have a reasonable expectation that the group will be able
to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the Directors’
statement relating to going concern and the prospects of
the group required by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
Aside from the impact of the matters disclosed in section 3
regarding the material uncertainty relating to going concern,
we confirm that we have nothing material to add or draw
attention to in respect of these matters.
6. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters. In addition to the matter described in the
material uncertainty relating to going concern section, we have
determined the matters described below to be the key audit
matters to be communicated in our report.
6.1. Impact of accounting irregularities
Key audit matter description
In March 2020, the Group identified a number of fraudulent
transactions in one of the operating divisions. In conjunction
with independent forensic accountants, the Board conducted
an investigation (The "Investigation") into the issues arising,
initially looking into the operating division affected but then
subsequently extending this to the wider Group. The results
of the investigation identified total adjustments of £21.6m for
which £8.3m related to the 2019 financial year and £13.5m to
prior years.
In preparing the financial statements, the Directors
aggregated the adjustments arising based on the nature
and cause of the issues. These are summarised as follows,
including quantification of the cumulative profit & loss impact
of the adjustments across as included in the Financial Review
on page 32:
• Correction of fictitious transactions – this concerned the
recognition of manufacturer bonuses for which there was
no evidence to support the income and asset recognised.
These transactions were identified in both 2018 and 2019.
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Financial Statements • Correction of errors arising from inappropriate or
iv. Divisional finance function (charge of £3.6m) – similar
inconsistent accounting standards application over a
number of years – this group of adjustments was attributed
to four key areas:
to the Central finance function point above, a number of
adjustments were identified primarily attributed to the
understatement of liabilities and inappropriate deferral
of expenses.
i. Cash and bank (charge of £0.6m) – the key adjustment
to cash concerned the incorrect offsetting of cash and
overdraft balances that needed to be disclosed on a gross
basis in line with IAS 32. The profit & loss impact relates to
correction of treatment of issue costs and the recognition
of previously omitted bank accounts that were held for the
purposes of managing ring-fenced funds.
ii. Leasing companies (charge of £0.7m) – the Group
incorrectly accounted for transactions relating to the vehicle
leasing division, derecognising vehicle assets where the
Group was an agent to a lease contract despite retaining
control of the assets.
iii. Staff car schemes (charge of £1.5m) – for one of the
Group’s schemes, the Group incorrectly derecognised
vehicles that had been transferred to a third party provider
despite retaining control of the vehicles, continually
marketing them for sale and them being available for
immediate sale at all times.
iv. Consignment stock – in 2017, the Group omitted to align
the accounting policy for consignment stock for one of the
recently acquired divisions resulting in the understatement
of both inventory and creditors for that particular year.
There was no profit & loss impact associated with
this adjustment.
In addition to the matters reported above, the Group
has adjusted the tax charge associated with the
adjustments arising.
As reported in the Financial Review on page 31-35 and
the Audit and Risk Committee Report on page 72, the
Investigation performed was extensive. In addition to the
initial forensic work, the Group was supported by another
independent firm of accountants for the extended internal
review instructed by the Board. In addition, a sub-committee of
the Board, led by non-executives, was set-up to investigate the
matters arising and to consider areas of conduct. Due to the
extent of areas affected and the historical nature of the issues
arising this led to a prolonged process to rectify and finalise the
financial statements.
Whilst a number of adjustments were made as a result of these
matters, they are indicative of ongoing control deficiencies
as highlighted in section 8.2. Therefore this is an area of
increased risk of fraud and error and therefore our risk has
been focused on the accuracy and completeness of the
adjustments recognised.
Further details of the financial impact of the adjustments are
disclosed in Note 1e to the financial statements.
• Correction of errors arising from weaknesses in controls
How the scope of our audit responded to the key
audit matter
grouped by nature – this group of adjustments was grouped
into four key areas:
We have:
i. Property, plant & equipment and intangible assets (charge
of £9.9m) – these adjustments concerned a number of
historical issues where assets were either incorrectly
capitalised, depreciated at rates inappropriate to the asset’s
useful economic life or not derecognised when projects and
assets were abandoned or disposed.
ii. Manufacturer bonuses (charge of £2.2m) – the
adjustments to manufacturer bonuses were primarily
attributed to inappropriate cut-off and provisioning for
manufacturer bonuses.
iii. Central finance function (charge of £4.0m) – due to
weaknesses in the controls within central finance, a
number of adjustments to working capital balances were
identified primarily due to the failure to control and reconcile
recharges and transactions with the operating divisions.
• assessed the scope of the review carried out by
management and the forensic accountants and reviewed
the results of their investigation;
• engaged internal forensic specialists to support the
audit team in evaluating the scope and findings of the
Investigation. This included obtaining an engagement letter
setting out the scope of the Investigation, reading the final
report and findings, assessing the evidence pertaining to
the adjustments identified and the conduct elements of the
review, in particular the email searches completed as part of
the Investigation, and supporting the audit team in tailoring
the audit response to those findings;
• assessed the competence, capabilities and objectivity of
the forensic accountants used by the Directors;
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• evaluated the outcome of the conduct review performed
by a sub-committee of the Board, tailoring procedures to
consider the risks arising. This included re-evaluation of
audit evidence provided in certain areas and extension of
testing across a number of areas including consideration of
the risk of management override;
• challenged management on the adequacy of their response
to the matters identified by the forensic accountants for
further investigation and performed procedures to test the
additional work performed by management to investigate
risk areas identified;
• performed additional substantive procedures across those
areas in which adjustments were identified. These primarily
included manufacturer bonuses, vehicle leasing, staff car
schemes, central finance working capital balances, head
office recharges, inter-company, consolidation and used
inventory provisioning;
• performed additional detailed journal entry testing in
response to the risks arising from the fictitious transactions
in manufacturer bonuses;
• challenged the accuracy of the allocation of adjustments
to individual financial years and the completeness of
those adjustments. This included substantively testing
management’s workings, agreeing transactions to third
party documentation and checking the adjustments against
the original transactions recorded in the general ledger
within the different financial years. To test completeness
we performed substantive testing of balances within each
individual year affected, performed analytical reviews of
balances between 2017 and 2019 and challenged the
reconciliations performed by management for 2017, 2018
and 2019 in the key areas affected by the Investigation;
As referred to above, whilst the adjustments required were
subsequently corrected, they are indicative of ongoing control
deficiencies as highlighted in section 8.2. The Chairman’s
Statement on Corporate Governance on page 56 and the
Financial Review on page 31 and 35 highlights that there
remains a number of control areas to be remediated but that
there is a plan in place to be completed during 2020 and 2021.
6.2. Completeness of Financial Conduct
Authority provisions
Key audit matter description
The group is currently in discussion with the Financial Conduct
Authority (“FCA”) on a number of matters. These relate
primarily to:
1. Embedding changes to the group’s governance
arrangements and systems & controls to address findings
arising from two Section 166 Skilled Persons Reviews,
commissioned by the FCA. This programme of work
included the design and implementation of revised sales
and oversight practices, the development of a robust
risk management framework, and a number of senior
appointments, including a Chief Risk Officer and two Non-
Executive Directors with experience in financial services
and regulated businesses;
2. Assisting the FCA with an ongoing investigation by the
FCA’s Enforcement and Market Oversight team into the
Group’s sales processes for the period from 1 January
2016 to 13 June 2019, specifically whether these
breached certain FCA’s principles and rules; and
3. Providing details to the FCA in relation to the events that led
to the delay in publishing the Annual Report and Accounts
and the suspension of shares on 1 July 2020.
• challenged the appropriateness of the policies applied
in respect of the leasing companies and the staff car
schemes, ensuring that the revised policies were tailored
to the specific process flows of the different leasing
arrangements. This included challenging the accuracy and
completeness of the models prepared in response to the
historical errors identified; and
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 recorded a provision at 31
December 2019 of £10.4 million in this regard. In determining
this estimate, the Board have taken advice from external FCA
regulation specialists.
• challenged the appropriateness of the disclosures included
in the financial statements concerning the restatements.
Key observations
Based on the work performed, we concluded that the
adjustments made are appropriate for the financial periods
impacted and the restatements of 31 December 2018 and 31
December 2017 are appropriate.
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 accordingly, this matter is noted
as a key source of estimation uncertainty on page 132. In view
of this, we also considered this a key audit matter.
See the Chairman’s Statement on page 6 , the Audit and Risk
Committee Report on page 70 and 73, the critical accounting
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Financial Statements judgements and key sources of estimation uncertainty
disclosures on page 132 and disclosure on page 178 for
further details.
How the scope of our audit responded to the key
audit matter
We have:
• observed the changes to the group’s governance
arrangements initiated by the Board in response to the
Section 166 Skilled Persons Reviews;
• obtained an understanding of relevant controls in relation
to the determination of requirement for a provision, its
quantification and the associated disclosures;
• discussed the status of each of these matters with
management and read the reports to the Board from
management on these topics;
• enquired directly with the FCA with regards to the status of
each of these matters;
• read the latest correspondence between the FCA and
the group;
• read information prepared for management by
external specialists as part of their consideration of
whether a provision should be recognised and the
measurement thereof;
6.3. Valuation of goodwill and intangible assets
Key audit matter description
The group has goodwill and intangible assets with an indefinite
useful economic life of £182.4 million (2018: £212.8 million, as
restated) which have arisen from a number of acquisitions over
several years. Where there are low contribution dealerships
then there is a risk that goodwill and intangible assets for the
cash generating unit (“CGU”) including these dealerships may
be impaired. In the current year, impairments were recognised
to goodwill amounting to £29.8 million and to intangible assets
amounting to £0.6 million.
The group’s assessment of impairment in accordance with
IAS 36 “Impairment of Assets” is a judgemental process which
requires estimates concerning the estimated cash flows,
discount rates and growth rates based on management’s view
of future business prospects.
Given the continued uncertainty in the UK economy,
management’s impairment model acknowledged that when
reasonably possible downside scenarios are put to the model,
this has the potential to lead to further impairment within the
BMW, JLR and Ford CGUs. The conclusions reached with
regards to reasonable possible change scenarios and the
potential impairment to these CGUs are disclosed in Note 10.
See critical accounting judgements and key sources of
estimation uncertainty on page 132, disclosure on page
162-163 and the Audit and Risk Committee Report on page
72 - 73.
• assessed the competence, independence and objectivity of
the external specialists used by management to determine
their provision;
How the scope of our audit responded to the key
audit matter
• assessed the current facts and circumstances against
the requirements of IAS 37 to evaluate whether a
contingent liability or a provision is the appropriate
accounting treatment;
• engaged internal FCA regulation specialists to challenge
the estimate determined by management through
considering the FCA’s rules and similar cases; and
• assessed the appropriateness of the disclosures in the
Annual Report & Accounts in this regard.
Key observations
We have:
• obtained an understanding of relevant controls in relation
to the impairment review and analysis carried out for
the group;
• assessed the appropriateness of the CGUs identified
including the allocation changes made during the
current year;
• assessed management’s considerations on which specific
assets/groups of assets give rise to the most concern in
relation to impairment;
Whilst noting the estimation uncertainty, based on
the work performed, we concluded that the provision
appears reasonable.
• assessed the rationale for key inputs made by management
in the cash flow forecasts, including assessing the impact
as a result of the accounting irregularities;
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• considered the IAS 36 requirements in respect of the
assumptions related to growth and discount rates to
pinpoint areas of estimation uncertainty;
• assessed the completeness of commercial income through
assessing changes to the year end balance;
• performed a retrospective review of the recoverability of
• engaged our internal valuation specialists to review the
prior year commercial income receivable;
discount rates adopted;
• reviewed post year end payments/credit notes to assess
• obtained third party market data to assess the cash flow
subsequent recovery;
forecasts and growth rates;
• considered sensitivity analyses on key inputs into
management’s impairment model;
• evaluated the integrity of the recorded data, through
recalculating a sample of commercial income receivable
at the year end with reference to the terms and volumes of
vehicles sold in the manufacturer agreements; and
• assessed the clerical accuracy and the mechanics behind
management’s impairment model; and
• assessed the suppliers’ financial stability and therefore
their ability to settle the commercial income receivable.
• challenged the adequacy and appropriateness of the
disclosures included within the financial statements.
Key observations
Key observations
Based on the work performed, we concluded that the
assumptions applied in the impairment model, the impairments
recognised in the current year and the disclosures with regards
to reasonable possible change scenarios are appropriate.
6.4. Valuation of commercial income receivable
Key audit matter description
Commercial income arising from volume related and vehicle
specific rebates derived from the group’s manufacturer
partners is significant to the overall result.
The risk has been focused to the valuation of commercial
income receivable held on the balance sheet at the year end.
This is a result of the large number of differing agreements in
place which can lead to a level of interpretation being required
to assess whether recognition criteria has been met at the year
end. The amount of commercial income receivable at the year
end was £49.2 million (2018: £37.4 million, as restated).
See on Note 1e and the Audit and Risk Committee Report on
page 72.
How the scope of our audit responded to the key
audit matter
We have:
Based on the work performed, we concluded that the valuation
of commercial income receivable at year end is appropriate.
6.5. Inventory valuation and provisioning for used vehicles
Key audit matter description
The used inventory balance, included within good for resale,
totalled £221.6 million (2018: 278.9 million) at the year end.
The key audit matter identified was the assessment of net
realisable value of used vehicles inventory, which can fluctuate
as a result of market factors and the condition of vehicles.
There is an inherent judgement in the provision requirements
for inventory as a result of this. These factors lead to difficulty
in estimating the likely sale price of a vehicle and thus the level
of provisioning required.
See critical accounting judgements and key sources of
estimation uncertainty on page 132, disclosure on page 171
and the Audit and Risk Committee Report on page 73.
How the scope of our audit responded to the key
audit matter
We have:
• obtained an understanding of the relevant controls in
place around the valuation of used vehicle inventory and
identification of provisioning requirements;
• attended stock counts to assess identification of
obsolete stock;
• obtained an understanding of the relevant controls in
place over both the documentation of manufacturer bonus
arrangements and the related accounting treatment;
• reviewed the ageing of the inventory across the divisions
to assess whether the ageing profiles which feed into the
provision calculations are accurate;
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Financial Statements • assessed the risk around net realisable value of used
vehicles by comparing the carrying value on a sample of
vehicles to third party data, and also by reference to a
selection of post year-end sales;
• assessed the historical accuracy of management’s estimate
of provisions held by way of review of utilisation of the prior
year provision; and
whether the items are outside the ordinary course of
business and as such may distort comparability;
• considered the consistency of treatment for non-underlying
items between debit and credit items; and
• assessed the extent to which non-underlying items relate
to previous underlying business performance to evaluate
whether they are comparable.
• challenged the inventory provisioning policy by comparing it
to the output of management’s retrospective review.
Key observations
Key observations
Based on the work performed, we concluded that the valuation
and provisioning for used vehicles at year end are appropriate.
Based on the work performed, we concur that those
items disclosed as non-underlying on the face of the
statement of total comprehensive income have been
appropriately classified.
6.6. Presentation of non-underlying items
7. Our application of materiality
7.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning
the scope of our audit work and in evaluating the results of
our work.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Key audit matter description
In the statement of total consolidated comprehensive income,
the group present both non-underlying and underlying
operating profit and profit before tax. This is both a change in
the definitions used and the prominence in the year.
During the current year a net £49.7m expense (2018: charge
of £0.9m) has been presented as non-underlying items. Refer
to Note 30 for management’s reconciliation of non-underlying
items to the group’s statutory profit measure.
Management judgement is required when applying their
accounting policy and determining the classification of items
as non-underlying within the group’s statement of total
consolidated comprehensive income. We have determined
that there is a potential for possible manipulation of the group’s
income statement presentation due to the level of judgement
involved and the importance of underlying profit to readers of
the financial statements. See the Audit and Risk Committee
Report on page 73.
How the scope of our audit responded to the key
audit matter
We have:
• obtained an understanding of relevant controls which
address the risk of inappropriate presentation of the group’s
statement of total consolidated comprehensive income;
• understood those items disclosed as non-underlying by
the group and challenged the appropriateness of these,
with particular consideration to ESMA guidance, to assess
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Materiality
£2.4 million (2018: £2.4 million)
£1.9 million (2018: £1.9 million)
Group Financial Statements
Parent Company Financial Statements
Parent company materiality was based on
3% of net assets, which is capped at 80%
of group materiality. This is consistent with
the approach in the previous year.
Net assets have been used as the most
reflective measure of value within the
measure of value within the entity when
determining materiality
Basis for determining materiality
3% of EBITDA.
Rationale for benchmark applied
Materiality in the prior year was based
on 5% of adjusted profit before tax
which was adjusted by removing
the effect of one off items in the year.
In assessing materiality in the current
year, we considered the impact of the
accounting irregularities identified and
resulting decline in earnings. At present,
we do not consider that this decline is
likely to reflect a long-term reduction in
the size and scale of the business.
We have therefore determined
materiality by considering a range of
possible benchmarks and the figures
derived from those, with a particular
focus on selecting a materiality within the
range that we considered appropriate.
This included EBITDA, underlying
adjusted loss after tax, as well as the
scale of the balance sheet and the overall
size of the business.
We determined materiality as 3% of
EBITDA which is considered to be a key
performance measure for the group
and receives significant focus from
shareholders and analysts.
7.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for
the financial statements as a whole. Group performance
materiality was set at 60% of group materiality for the 2019
audit (2018: 70%). In determining performance materiality, we
considered the following factors:
a. the identification of accounting irregularities, the quality
of the control environment and that we were not able take
controls reliance (see section 8.2);
b. high turnover of management or key accounting personnel,
including the departure of members of its Board;
c. ongoing Financial Conduct Authority investigations;
d. the nature and number of corrected and uncorrected
misstatements in the previous audit; and
e. prior period errors found in the current year.
7.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would
report to the Committee all audit differences in excess of £0.1
million (2018: £0.1 million), as well as differences below that
threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit and Risk Committee
on disclosure matters that we identified when assessing the
overall presentation of the financial statements.
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Financial Statements
8. An overview of the scope of our audit
9. Other information
8.1. Identification and scoping of components
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls
and assessing the risks of material misstatement at the
group level.
Based on that assessment and as a result of the factors set
out in section 7.2 in determining performance materiality,
in particularly the identification of accounting irregularities,
we increased our scope coverage from the prior year by
performing full scope audit procedures on the majority of the
group’s trading legal entities. Overall our audit procedures
accounted for 96% (2018: 83%) of the group’s revenue and
96% (2018: 87%) of the group’s total net assets.
Our audit work was executed at materiality applicable to each
individual entity which were lower than group materiality and
ranged from £0.3 million to £1.9 million (2018: £0.1 million to
£1.9 million). All entities in scope were audited directly by the
group audit team.
At the parent entity we also tested the consolidation process
and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining entities not subject to audit.
8.2. Our consideration of the control environment
As a result of control findings we noted as part of the prior
year audit and as part of our risk assessment procedures,
we did not plan to take a controls reliance approach, with
the exception of existence over inventory, from the outset of
our audit. These considerations were in part the reason for
decreasing our performance materiality to 60% (2018: 70%)
as discussed in section 7.2 and increasing our scoping of
components as discussed in section 8.1.
As noted on page 70 of the Audit and Risk Committee Report,
following the receipt of a report indicating administrative
control findings of the business subject to FCA regulation, the
Board commissioned an independent review of the group’s
internal control, risk assurance systems and internal audit.
This review, coupled with the observations we have previously
reported, has highlighted that improvements are required
to the underlying control environment. These deficiencies
in controls have also led to the accounting irregularities,
non-compliance with the group’s accounting policies and
accounting errors, as discussed in section 6.1 above.
The Directors are responsible for the other information. The
other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the
other information include where we conclude that:
• Fair, balanced and understandable – the statement given
by the Directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the group’s position and
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting – the section
describing the work of the Audit and Risk Committee does
not appropriately address matters communicated by us to
the Audit and Risk Committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the Directors’ statement
required under the Listing Rules relating to the company’s
compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK
Corporate Governance Code.
We have nothing to report in respect of these matters.
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10. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
11. Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Details of the extent to which the audit was considered
capable of detecting irregularities, including fraud and non-
compliance with laws and regulations are set out below.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.
frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
12. Extent to which the audit was considered capable of
detecting irregularities, including fraud
We identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those
risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
12.1. Identifying and assessing potential risks related
to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
•
the nature of the industry and sector, control environment
and business performance including the design of the
group’s remuneration policies, key drivers for Directors’
remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit,
management’s experts, and the Audit and Risk Committee
about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed
the group’s documentation of their policies and procedures
relating to:
• identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances
of non-compliance, in particular in relation to the FCA and
fraud investigations as disclosed on page 71 of the Audit
and Risk Committee;
• detecting and responding to the risks of fraud and
whether they have knowledge of any actual, suspected or
alleged fraud;
the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations; and
the matters discussed among the audit engagement team
and involving relevant internal specialists, including tax,
valuations, pensions, IT, forensic and industry specialists
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
•
•
As a result of these procedures, we considered the
opportunities and incentives that may exist within the
organisation for fraud and identified the greatest potential for
fraud in the following areas: impact of accounting irregularities,
valuation of commercial income receivable and presentation
of non-underlying items within the financial statements. In
common with all audits under ISAs (UK), we are also required
to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory
framework that the group operates in, focusing on provisions
126
Financial Statements
of those laws and regulations that had a direct effect on
the determination of material amounts and disclosures in
the financial statements. The key laws and regulations we
considered in this context included the UK Companies Act,
Listing Rules, pensions legislation and tax legislation.
We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement team
members including internal specialists and remained alert
to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental
to the group’s ability to operate or to avoid a material penalty.
These included the group’s FCA regulatory requirements.
Report on other legal and regulatory requirements
13. Opinions on other matters prescribed by the
Companies Act 2006
12.2. Audit response to risks identified
As a result of performing the above, we identified the impact
of accounting irregularities, valuation of commercial income
receivable, and presentation of non-underlying items within
the financial statements as key audit matters related to
the potential risk of fraud or non-compliance with laws and
regulations. The key audit matters section of our report
explains the matters in more detail and also describes the
specific procedures we performed in response to those key
audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
• reviewing the financial statement disclosures and testing
to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as
having a direct effect on the financial statements;
• enquiring of management, the Audit and Risk Committee,
along with internal and external legal counsel concerning
actual and potential litigation and claims;
In our opinion the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion based on the work undertaken in the course of
the audit:
•
the information given in the strategic report and the
Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
•
the strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group
and the parent company and their environment obtained in
the course of the audit, we have not identified any material
misstatements in the strategic report or the Directors’ report.
14. Matters on which we are required to report
by exception
14.1. Adequacy of explanations received and
accounting records
• performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• reading minutes of meetings of those charged with
• we have not received all the information and explanations
governance, reviewing internal audit reports and reviewing
correspondence with the FCA; and
we require for our audit; or
•
in addressing the risk of fraud through management
override of controls, testing the appropriateness of journal
entries and other adjustments; assessing whether the
judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or
outside the normal course of business.
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
•
the parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
127
Lookers plc Annual Report & Accounts 2019
Auditor’s report
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’ remuneration
report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
15. Other matters
15.1. Auditor tenure
Following the recommendation of the Audit and Risk
Committee, we were appointed by the members at the
annual general meeting on 31 May 2019 to audit the financial
statements for the year ending 31 December 2019. The period
of total uninterrupted engagement including previous renewals
and reappointments of the firm is 14 years, covering the years
ending 31 December 2006 to 31 December 2019. Following
the completion of our audit and as disclosed on page 75, we do
not intend to seek reappointment as auditor.
15.2. Consistency of the audit report with the additional
report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to
the Audit and Risk Committee we are required to provide in
accordance with ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Christopher Robertson (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Manchester, UK
25 November 2020
128
Financial Statements Principal accounting policies
The principal accounting policies adopted in the preparation
of these financial statements are set out below. These policies
have been consistently applied to all years presented, unless
stated otherwise.
General information
Lookers plc is a public limited company incorporated in
the United Kingdom under the Companies Act 2006, with
registered number 111876 in England and Wales. The address
of the registered office is given in Note 15 to the Financial
Statements. The nature of the Group’s operations and its
principal activities are set out in the Directors' Report. The
main activities of the Group are the sale, hire and maintenance
of motor vehicles and motorcycles, including the sale of tyres,
oil, parts and accessories, and the FCA-regulated activities of
credit broking and insurance distribution.
1. Basis of preparation
The financial statements of the Group have been prepared
in accordance with International Financial Reporting
Standards (IFRS) adopted by the European Union. Therefore,
the Group financial statements comply with article 4 of EU
IAS Regulation.
The financial statements have been prepared on the historical
cost basis. The Company has elected to take exemption under
section 408 of the Companies Act 2006 not to present the
Company profit and loss account. The loss for the Company for
the year was £7.1m (2018: profit £4.8m).
The Company has applied FRS 101 ‘Reduced Disclosure
Framework’ in the year ended 31 December 2019.
The following exemptions from the requirements of IFRS have
been applied in the preparation of the Company’s financial
statements and, where relevant, equivalent disclosures have
been made in the Group financial statements of the ultimate
controlling party, in accordance with FRS 101:
• Presentation of a Statement of Cash Flows and
related Notes;
• Disclosure of the objectives, policies and processes for
managing capital;
• Disclosure of key management personnel compensation;
• The requirements in IAS 24 (Related Party Disclosures) to
disclose related party transactions entered into between
two or more members of a group;
• Disclosure of the categories of financial instrument
and the nature and extent of risks arising on these
financial instruments;
• The effect of financial instruments on the Statement of
Comprehensive Income;
•
Information about financial instruments that have been
reclassified or derecognised, transfers of financial assets,
credit losses recorded in a separate account, netting
arrangements, loan defaults or breaches and collateral;
• Comparative period reconciliations for the number of
shares outstanding
• Disclosure of the future impact of new International
Financial Reporting Standards in issue but not yet effective
at the reporting date;
• Comparative narrative information
Adoption of new and revised standards
Impact
The Group has applied IFRS
16 for the first time in the
current year.
Details of the changes to the
Group’s accounting policies
following adoption of IFRS 16
are made within the Leases
accounting policy.
The application of this
standard has had a material
impact on the Group’s
consolidated financial
statements and is explained
on page 140.
The Group has applied all of
these for the first time in the
current year.
The application of these
standards and amendments
has had no material impact
on the Group’s consolidated
financial statements.
Standard
IFRS 16 Leases
Annual Improvements to
IFRSs 2015-2017 Cycle
IAS 19 (amendments) Plan
Amendment, Curtailment
or Settlement
IAS 28 (amendments) Long-
term Interests in Associates
and Joint Ventures
IFRIC 22 Foreign
Currency Transactions and
Advance Consideration
IFRIC 23 Uncertainty over
Income Tax Treatments
IFRS 9 (amendments)
Prepayment Features with
Negative Compensation
129
Lookers plc Annual Report & Accounts 2019 Principal accounting policies
New and revised IFRSs in issue but not yet effective
At the date of authorisation of these financial statements,
The Group has not applied the following new and revised
IFRSs that have been issued but are not yet effective and,
in some cases, have not yet been adopted by the EU:
• Amendments to References to the Conceptual
Framework in IFRS Standards
• Amendment to IFRS 3 - Business Combinations
• Amendments to IAS 1 and IAS 8: Definition of Material
•
Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39 and IFRS 7)
The Directors do not expect that the adoption of the
Standards listed above will have a material impact on the
financial statements of the Group in future periods.
2. Going concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position
are set out in the Strategic Review section of the Annual
Report and Accounts. In addition, Note 22 to the Annual
Report & Accounts includes the Group’s objectives, policies
and processes for managing its capital, its financial risk
management objectives, details of its financial instruments and
its exposures to credit risk and liquidity risk.
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.
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.
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
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..
130
Financial Statements 3. Judgements and estimates
Accounting judgements
The Group applies judgement in how it applies its accounting
policies, which do not involve estimation, but could materially
affect the numbers disclosed in these financial statements.
The key accounting judgements, without estimation, that have
been applied in these financial statements are as follows:
Judgement
Effect on Financial Statements
Intangible assets
– capitalisation of
development costs
Allocation of business units to CGU’s
to allow preparation of impairment
testing of intangible assets and
goodwill: CGU’s are considered
primarily by their franchise, apart
from Charles Hurst Limited which is a
multi-brand site in Northern Ireland.
Recognition and
measurement of provisions
and contingencies
Capitalisation of development expenditure is completed
only if development costs meet certain criteria. Such
criteria are defined in the accounting policy for Intangible
Assets and require judgement to be exercised in assessing
whether the criteria are met. The most judgmental criteria is
assessing how future economic benefit will be generated.
Goodwill and non-amortised intangible assets are
allocated to specific CGU’s in-line with how the Group
organises and compares its franchises in assessing their
comparative financial performance. Numerical disclosure
regarding CGU allocations are made in Note 9.
Consideration of whether the Group has a legal or
constructive obligation arising from a past event and the
likelihood of such an obligation crystallising in an outflow
of economic benefit requires significant judgement in
the financial statements. Further details are provided in
Note 20.
Alternative accounting
judgement that could
have been applied
Effect of that
alternative
accounting judgement
Items meeting the criteria
would be expensed to
the statement of total
comprehensive income.
Amounts totalling
£7.7m would not have
been capitalised in
the year ending 31
December 2019.
Goodwill and non-
amortised intangible
assets are allocated to
different CGU’s across the
Group. For example on a
geographic basis.
A contingent liability rather
than a provision would
be recognised.
Potential for impairment
depending on allocation
to CGU and resulting
estimates for CGU
cash flows.
Liabilities and
net operating
expenses would
decrease, increasing
net assets and
Shareholders’ funds.
131
Lookers plc Annual Report & Accounts 2019 Accounting estimates
The preparation of financial statements in conformity with
IFRSs requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although
these estimates are based on management’s best knowledge
of the amount, events or actions, actual results ultimately may
differ from those estimates.
The estimates and underlying assumptions are reviewed on
an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors
Key estimate area
Key assumption
that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods. The Directors
consider the following to be the key estimates applicable to the
financial statements, which have a significant risk of resulting
in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year or in the long term:
Potential impact
within the next
financial year?
Potential
impact in the
longer term?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Goodwill and
intangible assets
Recognition of
commercial income
Retirement
benefit obligations
Provisions- liabilities
arising from
FCA Enforcement
Investigation
We undertake an exercise to estimate future cash flows from each CGU
when we conduct our annual impairment review. We have key assumptions
over the growth rates of revenue and operating margin which impacts the
profit assumed and hence cash flow generation in each CGU. The key area
for estimation uncertainty surrounds the growth rates applied to revenue.
Numerical disclosure regarding key assumptions used and sensitivities are
made in Note 9.
The Group is party to a number of commercial arrangements with its brand
partners that results in manufacturer bonus credits being earned. The key
area for estimation uncertainty in relation to these arrangements surrounds
the interpretation of whether the commercial income bonus targets have
been met and are therefore appropriate to be recognised as income and
accruals at the balance sheet date. The total amount accrued at the balance
sheet date amounts to £49.2m (2018: £37.4m).
The main assumptions in determining the group’s retirement benefit
obligations are: discount rate, mortality rate and rate of inflation. Disclosure
of these assumptions are made within Note 25. Due to the relative sizes
of the pension schemes it is only considered to be the Lookers Pension
Plan that could be materially affected by key estimates. The key area for
estimation uncertainty surrounds the discount rate applied of 2.1% (2018:
2.9%).
The Group is currently in discussion with the FCA on a number of matters
including the FCA past business review, ongoing enforcement review and
the events that led to the delay in publishing the ARA 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 (2018 - £nil).
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 £10.4m.
It is reasonably possible, on the basis of existing knowledge, that outcomes
within the next financial year that are different from the estimated
provision made may require a material adjustment to the carrying value of
the provision.
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Financial Statements Principal accounting policies
4. Basis of consolidation
The consolidated financial statements comprise the accounts of
the Company and its subsidiary undertakings. An undertaking
is regarded as a subsidiary if the Group has control over its
operating and financial policies. Control is achieved when the
Company has the power over the investee; is exposed, or has
rights, to variable returns from its involvement with the investee;
and has the ability to use its power to affects its returns. The
profits and losses of subsidiary undertakings are consolidated
as from the effective date of acquisition or to the effective date
of disposal.
The Group uses the purchase method of accounting to account
for the acquisition of subsidiaries. The cost of an acquisition
is measured as the fair value of the assets acquired, equity
instruments issued, and liabilities incurred or assumed at
the date of completion, plus costs directly attributable to
the acquisition. Identifiable assets acquired, liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Group’s share of
the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognised directly
in the Income Statement.
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Accounting policies of acquired subsidiaries are changed where
necessary to ensure consistency with the policies adopted by
the Group.
5. Foreign currencies
Items included in the financial statements of all Group
undertakings are measured using that entity’s functional
currency, which is the currency of the primary economic
environment in which the entity operates. The consolidated
financial statements are presented in Sterling, which is the
parent company’s functional and presentation currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised
in the consolidated income statement, except when deferred
in equity as qualifying cash flow hedges and qualifying net
investment hedges.
that have a functional currency different from the presentation
currency are translated into the presentation currency with: (i)
assets and liabilities for each balance sheet translated at the
closing rate at the date of that balance sheet; (ii) income and
expenses for each income statement translated at average
exchange rates for the period; and (iii) all resulting exchange
differences recognised as a component of other comprehensive
income. In the case of subsidiaries acquired during a financial
period, the average exchange rate takes into account the period
of ownership only.
Exchange differences arising from the translation of the
net investment in foreign entities, and of borrowings and
other currency instruments designated as hedges of such
investments, are recognised in the retained earnings reserve
within other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
The principal exchange rates applied in the preparation of the
financial statements were as follows:
GBP: EUR at the end of the year
GBP: EUR average for the year
2019
1.18
1.14
2018
1.11
1.13
6. Revenue
Revenue is measured based on the consideration specified in a
contract with a customer. Amounts collected on behalf of third-
parties are excluded. Revenue is recognised by the Group when
it transfers control over a product or service to a customer.
Revenue is measured at invoice price, excluding value added
taxes, and principally comprises external vehicle sales, parts,
servicing and bodyshop sales. Vehicle and parts sales are
recognised when control over the vehicles or parts have been
transferred to the customer. This is generally at the time of
delivery to the customer. Service and bodyshop sales are
recognised in-line with the work performed.
Revenue also comprises commissions receivable for arranging
vehicle financing and related insurance products. Commissions
are based on agreed rates and income is recognised at the time
of approval of the vehicle finance by the finance provider.
Where the Group is acting as agent on behalf of a principal, the
commission earned is also recorded at an agreed rate when
the transaction has occurred. The income received in respect
of warranty policies sold and administered by the Group is
recognised over the period of the policy on a straight-line basis.
The unrecognised income is held within deferred income.
The results and financial position of all Group undertakings
In terms of its leasing operations the Group maintains the ability
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Lookers plc Annual Report & Accounts 2019
Principal accounting policies
to direct the use of and obtain substantially all of the remaining
benefits from the vehicle assets it leases to customers.
As a result, the accounting for the arrangement reflects the
Group’s retention of the asset to generate future rentals and, in
accordance with IFRS 16 Leases, the Group is considered to be
acting as an operating lease lessor for all arrangements in place.
The initial amounts received in consideration from the leasing
operations are held as deferred income or as financial
instruments. A finance charge is accrued against the present
value of the repurchase commitment and recorded as a finance
expense in the income statement.
The remaining deferred revenue, which effectively represents
rentals received in advance, is taken to the income statement on
a straight-line basis over the related lease term.
These vehicles are held either within non-current or within
current assets at their cost to the Group dependant on the
nature of the leasing arrangement and are depreciated to their
residual values over the terms of the leases. These assets are
transferred into inventory at their carrying amount when their
lease terms cease, and they become available for sale as part of
the Group’s ordinary course of business.
Rental income from property is recognised in profit or loss on a
straight-line basis over the term of the lease. Lease incentives
granted are recognised as an integral part of the total rental
income, over the term of the lease. Rental income from property
is recognised as rents received in net operating expenses.
All company income is from recharges within the group.
7. Commercial income
Commercial income, including manufacturer bonuses, is
credited to cost of sales. Volume related and vehicle specific
rebates from suppliers are credited to the carrying value of
inventory to which they relate. Once the inventory is sold, the
rebate amount is then recognised in the income statement.
8. Non-underlying items
In preparing the current year financial statements the Board
have taken the view to present the statutory 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.
This is a departure from the previous presentations whereby
no distinct disclosure of non-underlying items was made, and
several items have historically been implied as non-underlying
(e.g. amortisation, debt issue costs, share based payments)
when disclosing the basis for calculating key performance
indicators (KPIs) and alternative performance measures. The
Board have therefore concluded that for the year ending 31
December 2019 within the income statement, 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. This view has
been driven from the Board wishing to re-evaluate the income
statement presentation to result in reliable and more relevant
information on the financial performance.
9. Net interest
Interest expense comprises interest payable on borrowings,
consignment, repurchase liabilities, stocking loans, lease
liabilities, interest on pension scheme obligations and debt
issue costs. Interest income relates to returns on funds
invested and interest on pension scheme assets. Interest
income is recognised in the Consolidated Statement of Total
Comprehensive Income as it accrues using the effective
interest method.
10. Taxation
The tax expense represents the sum of the tax currently
payable and deferred tax. The tax currently payable is based
on taxable profit for the year. Taxable profit differs from net
profit as reported in the Income Statement because it excludes
items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable
or deductible. The Group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is provided in full, using the liability method, on
taxable temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, if the deferred
tax arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss, it is not accounted for. Deferred tax is determined using tax
rates (and laws) that have been enacted or substantively enacted
by the balance sheet date and are expected to apply when the
related deferred tax asset is realised, or the deferred tax liability
is settled. Deferred tax assets are recognised to the extent that
it is probable that future taxable profit will be available against
which the temporary differences can be utilised. Deferred tax is
not provided on temporary differences arising on investments in
subsidiaries, as the Group controls the timing of the reversal of
the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
134
Financial Statements 11. Dividends
Final dividends proposed by the Board and unpaid at the end of
the year are not recognised in the financial statements until they
have been approved by the shareholders at the Annual General
Meeting. Interim dividends are recognised when they are paid.
12. Segmental reporting
A business segment is a component that engages in business
activities from which it may earn revenues and incur expenses;
whose operating results are regularly reviewed by the entity’s
chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance; and for which discrete financial information
is available.
As set out in Note 1 to the financial statements, the Directors
have elected to amend the presentation of the segmental
information to better reflect the Group's revenue streams,
gross profit contributions and the single-segment nature of
the business' operations. The "unallocated" segment that had
been reported in previous annual financial statements has
been combined with the motor division for the year ending 31
December 2019. Given that this segmental split is equivalent
to the Group's Statement of Total Comprehensive Income, no
further presentation has been made. In addition, the disclosure
has been updated to reflect the revenue contributions from
Leasing/Other sales which were previously subsumed within
Aftersales in comparative reporting periods.
13. Goodwill and impairment
All business combinations are accounted for by applying the
purchase method. Goodwill represents the excess of the cost
of an acquisition over the fair value of the Group’s share of
the net identifiable assets of the acquired entity at the date of
the acquisition. Goodwill is allocated to cash generating units
(CGUs), which are franchise groups and other business units.
An impairment test is performed annually as detailed below.
Goodwill and intangible licences are then held in the balance
sheet at cost less any accumulated impairment losses.
For the purposes of impairment testing of goodwill, indefinite life
intangible assets, property, plant and equipment and right of use
assets are allocated to their respective cash generating units
based on their manufacturer profile and the Directors assess
the value in use for each cash generating unit. Value in use is
calculated by applying the Board approved budget for the next
financial year and projecting this budget for a further four years
and then applying a suitable cost of capital to discount cash
flows to perpetuity.
14. Intangible assets
IT development assets are stated at cost less accumulated
amortisation and any impairment losses. Any subsequent
expenditure on capitalised intangible assets is capitalised only
when it increases the future economic benefits embodied in
the specific asset to which it relates. This category of asset
includes purchased computer software licences, computer
software and internally generated intangible assets. These
assets are amortised by equal instalments over the specific
software licence period (typically 12 months) or over their useful
economic life (typically up to five years) as appropriate. All
amortisation charges are made within net operating expenses.
Internally generated intangible assets relate to activities that
involve the development of computer systems designed to
enhance the selling process so to achieve increased orders for
both vehicles and aftersales work. Expenditure arising from the
Group’s development is recognised only if all of the following
conditions are met:
• An asset is created that can be identified;
•
It is probable that the asset created will generate future
economic benefits;
• The development cost of the asset can be measured reliably;
• The Group has the intention to complete the asset and the
ability and intention to use or sell it;
• The product or process is technically and commercially
feasible; and
• Sufficient resources are available to complete the
development and to either sell or use the asset.
Where these criteria have not been achieved, development
expenditure is recognised in profit or loss in the year in which it
is incurred.
Intangible licences relate to the values ascribed following
the advice of third-party consultants to franchise operating
licences in connection with historic business combinations.
The Directors have considered that as a result of the high
barriers to entry in the marketplace and the historic length of the
respective franchise operating licences that these assets have
no foreseeable limit to the period over which they are expected
to generate net cash inflows and as such have been classified as
having an indefinite useful economic life.
The brand intangible asset of £1.0m (2018: £1.0m) arose on
the acquisition of a subsidiary undertaking and is deemed by
the Directors to have an indefinite useful economic life. The
trading activities under this brand name generate a substantial
part of the Group’s revenue and operating profit. The Group is
continually investing in this brand through promotional activity
and advertising and as such, this brand is considered to have an
indefinite useful economic life and is not amortised.
As both intangible licenses and brands have an indefinite
useful economic life, they are subjected to the Group’s annual
impairment review
135
Lookers plc Annual Report & Accounts 2019 Principal accounting policies
15. Property, plant and equipment
Freehold land is not depreciated. Depreciation is provided to
write off the cost less the estimated residual value of other
assets by equal instalments over their estimated useful
economic lives. On transition to IFRS as at 1 January 2004,
all land and buildings were restated to fair value as permitted
by IFRS 1, which is then treated as the deemed cost. All other
assets are initially measured at cost.
for impairment in accordance with IAS 36 Impairment of Assets.
This replaces the previous requirement to recognise a provision
for onerous lease contracts. For short-term leases (lease term
of 12 months or less) and leases of low value assets (such as
personal computers and office furniture), the Group has opted to
recognise a lease expense on a straight-line basis as permitted
by IFRS 16. This expense is presented within net operating
expenses in the Statement of Total Comprehensive Income.
Freehold buildings and long leasehold properties are
depreciated over 50 years on a straight-line basis to their
estimated residual values. Short leasehold properties are
amortised by equal instalments over the periods of the
respective leases.
Other property, plant and equipment disclosed in Note 11
include plant and machinery, motor vehicles, fixtures, fittings,
tools and equipment (including computer equipment and
terminals) and assets in the course of construction. These assets
(excluding assets un the course of construction) are depreciated
on a straight-line basis at rates varying between 10% and
33% per annum over their estimated useful lives. Assets in the
course of construction are initially measured at cost and are
depreciated when they are brought into economic use.
The residual value of all assets, depreciation methods and
useful economic lives, if significant, are reassessed annually.
The depreciation charge in respect of property, plant and
equipment is recognised within net operating expenses within
the income statement.
Motor vehicles hired to customers under rental agreements
over one year are included within property, plant and equipment.
These vehicles are depreciated to their residual value over the
period of their lease. Vehicle residual values are based on the
industry standard CAP values and are regularly reviewed.
All costs in relation to the maintenance of property, plant and
equipment are recognised in the income statement as an
expense as incurred.
16. Leases (as a lessee)
The Group has applied IFRS 16 for the first time in the year. IFRS
16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to the lessee
accounting by removing the distinction between operating and
finance leases, except for short-term leases and leases of low
value assets.
Lease incentives (e.g. free rent period) are recognised as part of
the measurement of the right of use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease
incentive liability, amortised as a reduction of rental expense on a
straight-line basis. Under IFRS 16, right of use assets are tested
The Group assesses whether a contract is or contains a lease,
at inception of a contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all
lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on
a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate. The weighted average incremental borrowing
rate applied to lease liabilities is 4.5% (2018: 4.5%).
Lease payments included in the measurement of the lease
liability comprise:
• Fixed lease payments (including in-substance fixed
payments), less any lease incentives;
• Variable lease payments that depend on an index or
rate, initially measured using the index or rate at the
commencement date;
• The amount expected to be payable by the lessee under
residual value guarantees;
• The exercise price of purchase options, if the lessee is
reasonably certain to exercise the options;
• And payments of penalties for terminating the lease, if the
lease term reflects the exercise of an option to terminate
the lease.
The lease liability is presented as a separate line in the
Statement of Financial Position. The lease liability is
subsequently measured by increasing the carrying amount to
reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the
lease payments made. Payments of lease liabilities are disclosed
within financing activities and the associated interest cost is
disclosed within operating activities within the Statement of
Cash Flows.
The Group remeasures the lease liability (and makes a
136
Financial Statements corresponding adjustment to the related right-of-use
asset) whenever:
• The lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised
lease payments using a revised discount rate;
• The lease payments change due to changes in an index or
rate or a change in expected payment under a guaranteed
residual value, in which cases the lease liability is remeasured
by discounting the revised lease payments using the initial
discount rate (unless the lease payments change is due to
a change in a floating interest rate, in which case a revised
discount rate is used);
• A lease contract is modified, and the lease modification is
not accounted for as a separate lease, in which case the
lease liability is remeasured by discounting the revised lease
payments using a revised discount rate.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation
and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised
and measured under IAS 37. The costs are included in the
related right-of-use asset, unless those costs are incurred to
produce inventories.
Right-of-use assets are depreciated over the shorter period
of lease term and useful life of the underlying asset. If a lease
transfers ownership of the underlying asset or the cost of the
right-of-use asset reflects that the Group expects to exercise a
purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease. The right-of-
use assets are presented as a separate line in the Statement
of Financial Position. The Group applies IAS 36 Impairment of
Assets to determine whether a right-of-use asset is impaired
and accounts for any identified impairment loss.
is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated. Goodwill
and intangible assets with indefinite lives are tested annually
for impairment.
For impairment testing, assets are grouped together into
the smallest group of assets that generate cash inflows from
continuing use that are largely independent of the cash inflows
of other assets or CGUs. Goodwill arising from a business
combination is allocated to CGUs or groups of CGUs that are
expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of
its value in use and its fair value less costs to sell. Value in use is
based on the estimated future cash flows, discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset or CGU. An impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an
asset’s fair value less disposal costs, and value in use.
Impairment losses are recognised in profit or loss. They are
allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts
of the other assets in the CGU on a pro rata basis. An impairment
loss in respect of goodwill is not reversed. For other assets,
an impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
19. Inventories
Motor vehicle inventories are stated at the lower of net purchase
price and net realisable value. A review of the net realisable
values of inventories is conducted on a regular basis and values
are adjusted back to the prevailing market value. The market
value is assessed with reference to external benchmarking
publications and applying historical industry knowledge on
the pricing of those vehicles by reference to make and specific
models. We also ensure inventories that exist at the year-end
are valued correctly by sampling against further post year end
actual sales data. Whilst this data is deemed representative of
current values it is possible that ultimate sales values can vary
from those applied.
17. Investments in subsidiaries
Investments in subsidiaries held on the statement of financial
position are stated at cost less provision for impairment.
Parts inventories are valued on a first-in, first-out basis and
are written down to net realisable value by providing for
obsolescence on a time in stock-based formula approach.
18. Impairment of assets
At each reporting date, the Group reviews the carrying amounts
of its non-financial assets (other than inventories, contract
assets and deferred tax assets) to determine whether there
Consignment vehicle inventories are regarded as being
effectively under the control of the Group and are included
within inventories on the balance sheet as the Group has the
ability to direct the use of, and obtain substantially all of the
137
Lookers plc Annual Report & Accounts 2019
Principal accounting policies
remaining benefits from, the asset. Control includes the ability
to prevent other entities from directing the use of, and obtaining
the benefits from, an asset even though legal title has not yet
passed. The corresponding liability is included in trade payables.
Motor vehicles are transferred from contract hire activities at the
end of their lease term to inventory at their book value. No cash
flow arises from these transfers.
20. Rental fleet vehicles
Motor vehicles hired to customers under short term rental
agreements less than one year are included within Current
Assets and are depreciated on a straight-line basis over the
course of the rental agreement to their estimated residual value
on termination of that agreement. Income from such rentals are
recognised on a straight- line basis over the period of the rental
agreement. Motor vehicles hired to customers over longer-term
rental agreements are capitalised within other property, plant
and equipment.
21. Vehicle financing
Consistent with industry practices, repurchase commitments
are treated as financial liabilities where the liability only
crystallises at the point where the related vehicle is sold by the
Group to a customer. The cash inflow received from a sale is then
used to settle the financial liability attached to the vehicle.
Hewitt Limited and has been updated to 31 December 2019
by a qualified independent actuary. The last triennial valuation
of the Benfield Group Pension Plan was carried out at 31
March 2016 by Deloitte Total Reward and Benefits Limited
and has been updated to 31 December 2019 by a qualified
independent actuary.
Under IAS 19 (Revised), the defined benefit deficits are included
on the Group’s balance sheet. Liabilities are calculated based on
the current yields on high quality corporate bonds and on market
conditions. Surpluses are only included to the extent that they
are recoverable through reduced contributions in the future or
through refunds from the schemes.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or credited,
net of deferred tax, each year to reserves and shown in the
Statement of Comprehensive Income. Interest expense or
income is calculated on the net defined benefit liability or asset
respectively by applying the discount rate to the net defined
benefit liability or asset.
The Group also provides pension arrangements for employees
and certain Directors under defined contribution schemes.
Contributions for these schemes are charged to the Income
Statement in the year in which they are payable.
Where a vehicle is subject to buy back as part of a leasing
transaction then the financing is treated as disclosed in Note 20.
23. Share based payments
The Group issues equity-settled options to certain employees.
Stocking loans are finance arrangements to fund new and used
vehicles before sale with repayment periods set by the finance
house. Consistent with industry practices balances relating to
consignment stock and stocking loans are treated as financial
liabilities where the liability crystallises when the related vehicle
is adopted by the Group. Adoption usually occurs at the point
where the related vehicle is sold by the Group to a customer.
The cash inflow received from a sale is then used to settle the
financial liability attached to the vehicle.
22. Pensions
The Group operates the “Lookers Pension Plan”, the “Dutton
Forshaw Group Pension Plan” and the “Benfield Group Pension
Plan” which are defined benefit pension schemes providing
benefits based on final pensionable salary. The defined
benefit schemes define the amount of pension benefit that an
employee will receive on retirement, dependent on one or more
factors including age, years of service and salary. All schemes
are closed to new members and to future accrual. The last
triennial valuation of the “Lookers Pension Plan” was carried
out at 31 March 2019 by Aon Hewitt Limited and has been
updated to 31 December 2019 by a qualified independent
actuary. The last triennial valuation of the “Dutton Forshaw
Group Pension Plan” was carried out at 31 March 2016 by Aon
These are measured at fair value (excluding the effect of non-
market-based vesting conditions) at the date of grant. The fair
value determined at the grant date of the options is expensed
on a straight-line basis over the vesting period, based on the
Group’s estimate of shares that will eventually vest and adjusted
for the effect of non-market-based vesting conditions.
Fair value is measured by use of a Black Scholes
model. The expected life used in the model has been
adjusted, based on management’s best estimate, for the
effects of non-transferability, exercise restrictions, and
behavioural considerations.
24. Financial instruments
Recognition of financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes party to the contractual provisions of
the instrument.
Initial and subsequent measurement of financial assets
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand
138
Financial Statements
and other short-term deposits held by the Group with maturities
of less than three months. In common with sector practice,
vehicle stocking loans are included within trade creditors rather
than cash and cash equivalents.
Trade, Group and other receivables
Trade receivables, Group and other receivables are initially
measured at their transaction price. Trade receivables, other
receivables and contract assets (other receivables) are held to
collect the contractual cash flows which are solely payments
of principal and interest. Therefore, these receivables are
subsequently measured at amortised cost using the effective
interest rate method. Group receivables have no credit terms.
Amortised cost is the amount initially recognised less
repayments of principal, plus or minus the ‘effective interest’
which amortises any difference between the amount initially
recognised and the maturity amount over the expected life of
the instrument.
Effective interest rate method
The ‘effective interest’ is calculated using the rate that exactly
discounts estimated future cash payments or receipts
(considering all contractual terms) through the expected life
of the financial asset or financial liability to its carrying amount
before any loss allowance.
The ‘effective interest rate’ is applied to the carrying amount of
a financial asset before any loss allowance, unless the financial
assets becomes credit-impaired, (i.e. an event has occurred
which has a detrimental impact on the estimated future cash
flows), in which case the ‘effective interest rate’ is applied
to the carrying amount of the financial asset net of any loss
allowance. If a financial asset is no longer credit-impaired due
to an improvement in credit risk that objectively relates to a
subsequent event, the ‘effective interest rate’ reverts to being
applied to the carrying amount before any loss allowance.
Impairment of financial assets
An impairment loss is recognised for the expected credit losses
on financial assets when there is an increased probability
that the counterparty will be unable to settle the instrument's
contractual cash flows on the contractual due dates, a reduction
in the amounts expected to be recovered, or both.
The probability of default and expected amounts recoverable
are assessed using reasonable and supportable past and
forward-looking information that is available without undue cost
or effort. The expected credit loss is a probability- weighted
amount determined from a range of outcomes (including
assessments made using forward looking information) and
takes into account the time value of money. Credit losses are
measured on a collective basis and all instalments have been
grouped based on their similar collective characteristics.
Some financial assets which have been written off because
there is no reasonable expectation of recovery (e.g. where the
counterparty enters formal administration proceedings) or are
subject to enforcement activity. For trade receivables, expected
credit losses are measured by applying an expected loss rate to
the gross carrying amount. The expected loss rate comprises
the risk of a default occurring and the expected cash flows on
default based on the aging of the receivable. The risk of a default
occurring always takes into consideration all possible default
events over the expected life of those receivables (“the lifetime
expected credit losses”).
Expected credit losses are considered over the maximum
contractual period during which the entity is exposed to credit
risk by extrapolating expectations beyond periods covered by
reasonable and supportable forecasts.
For trade receivables and contract assets, differences between
the contractual and expected cash flows are discounted
at the original effective interest rate used in the amortised
cost measurement.
Impairment losses and subsequent reversals of impairment
losses are adjusted against the carrying amount of the
receivable and recognised in profit or loss.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences
a residual interest in the assets of the group after deducting all
of its liabilities.
Initial and subsequent measurement of financial liabilities
Trade, Group and other payables
Trade, Group and other payables (which include repurchase
commitments, stocking loans and consignment creditors)
are initially recognised at fair value, net of transaction costs
and subsequently at amortised cost using the effective
interest method.
Equity instruments
Equity instruments issued by the Company are recorded at fair
value on initial recognition net of transaction costs.
25. Share capital
Ordinary shares are classified as equity. All ordinary shares rank
equally and have the same rights attached. Incremental costs
directly attributable to the issue of new shares are shown in
share premium as a deduction from the proceeds.
26. Assets held for sale
Non-current assets are classified as held for sale when their
carrying amount is to be recovered principally through a sale
transaction rather than continuing use. In order to be classified
139
Lookers plc Annual Report & Accounts 2019 Principal accounting policies
as held for sale, the asset must be available for immediate sale
in its present condition subject only to terms that are usual and
customary, and the sale must be highly probable. Non-current
assets held for sale are measured at the lower of carrying
amount and fair value less cost to sell.
27. 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 defined
on page 134.
less than one year and movements in accruals of £0.7m
for onerous leases previously recognised increase current
liabilities by £15.1m. Non-current liabilities have increased
by £85.2m after the recognition of long-term lease liabilities
totalling £89.3m and deferred tax of £4.1m. Previously reported
Shareholders’ funds have decreased by £19.4m.
Profit for the year ending 31 December 2018 has been
affected by an increase in depreciation of £13m, an increase
in interest costs of £5.5m offset by a decrease in operating
lease rental costs of £19.7m. In addition, right of use asset
remeasurements for sale and leaseback transactions totalling
£5.2m has been recognised. The effect of these adjustments
has resulted in adjustment to profit for the year from £37.1m to
£32.6m.
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 ending 31 December 2019 the Group 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 sheets 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 on pages 146 to 155.
IFRS 16
The fully retrospective adoption of IFRS 16 has resulted in the
recognition of right of use assets totalling £84.2m at 1 January
2018. Lease premiums with a net book value totalling £3.3m
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 £80.9m. Lease liabilities
At 31 December 2018, right of use assets total £103.3m. Lease
premiums with a net book value totalling £3.2m 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 £0.7m for onerous leases
previously recognised increase current liabilities by £17.9m.
Non-current liabilities have increased by £106.1m after the
recognition of long-term lease liabilities totalling £109.8m and
deferred tax of £3.7m. Previously reported Shareholders’ funds
have decreased by £23.9m.
In respect of Lookers plc company, right of use assets totalling
£1.3m at 1 January 2018 (£1.2m at 31 December 2018), short
term lease liabilities totalling £0.5m at 1 January 2018 (£0.6m
at 31 December 2018) and long term lease liabilities totalling
£0.8m at 1 January 2018 (£0.6m 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 reconciliations on pages 146 to 154 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.
140
Financial Statements
Financial
Statements
Statement of Total Consolidated Comprehensive Income
For the year ended 31 December 2019 and 31 December 2018
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating (loss)/profit
Underlying operating profit
Non-underlying items
Net interest
(Loss)/profit before taxation
Underlying profit before taxation
Non-underlying items
Tax credit/(charge)
(Loss)/profit for the year
Actuarial gains/(losses) on pension scheme obligations
(not recycled to profit and loss)
Deferred tax on pension scheme obligations (not recycled to profit and loss)
Total other comprehensive income/(expense) for the year
Total comprehensive (expense)/income for the year
Attributable to:
Shareholders of the company
(Loss)/earnings per share:
Basic (loss)/earnings per share (p)
Diluted (loss)/earnings per share (p)**
Note
2
2019
£m
2018
(restated*)
£m
4,787.2
(4,274.1)
513.1
(526.3)
(13.2)
4,828.3
(4,315.2)
513.1
(442.3)
70.8
4
6
3
4
7
26
7
9
9
36.5
(49.7)
(32.3)
(45.5)
4.2
(49.7)
3.9
(41.6)
7.1
(1.2)
5.9
71.7
(0.9)
(28.9)
41.9
42.8
(0.9)
(9.3)
32.6
(7.2)
1.2
(6.0)
(35.7)
26.6
(35.7)
(10.69)
(10.69)
26.6
8.26
7.94
*Details of the restatements due to presentational changes, correction of errors and adoption of IFRS 16 are made in Note 1e on page 152.
**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.
142
Financial Statements Consolidated and Company Statements of Financial Position
As at 1 January 2018, 31 December 2018 and 31 December 2019
Non-current assets
Note
Group
2019
£m
Restated*
2018
£m
Restated*
1 Jan 2018
£m
Company
2019
£m
Restated*
2018
£m
Restated*
1 Jan 2018
£m
Goodwill
Intangible assets
Property, plant and equipment
Right of use assets
Investment in subsidiaries
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax receivable
Rental fleet vehicles
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Current tax payable
10
11
12
13
15
23
16
17
18
19
14
22
20
22
81.9
114.2
429.2
107.7
-
-
733.0
956.5
140.2
9.8
59.4
150.3
10.0
1,326.2
111.7
113.4
416.8
103.3
-
-
745.2
972.9
160.8
-
54.2
152.8
8.0
1,348.7
104.7
111.3
410.3
84.2
-
-
710.5
941.8
233.5
-
60.9
135.6
-
1,371.8
-
13.5
0.8
1.1
126.8
9.5
151.7
-
356.1
11.7
-
17.4
-
385.2
-
12.0
0.9
1.2
126.8
12.2
153.1
-
399.3
8.8
-
19.2
-
427.3
-
10.3
1.8
1.3
57.8
4.7
75.9
-
459.2
0.5
-
33.3
-
493.0
2,059.2
2,093.9
2,082.3
536.9
580.4
568.9
119.4
1,261.5
18.5
-
1,399.4
110.0
1,220.4
18.6
3.3
1,352.3
108.8
1,250.8
15.8
1.9
1,377.3
40.6
136.3
0.7
-
177.6
25.9
128.4
0.6
-
154.9
51.4
78.5
0.5
-
130.4
Net current (liabilities)/assets
(73.2)
(3.6)
(5.5)
207.6
272.4
362.6
Non-current liabilities
Bank loans
Trade and other payables
Lease liabilities
Provisions
Pension scheme obligations
Deferred tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Ordinary share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
22
20
22
21
26
23
24
24
90.4
42.3
115.6
10.4
55.7
34.0
348.4
128.7
39.3
109.8
-
68.9
33.0
379.7
122.8
39.0
89.3
-
63.8
31.6
346.5
81.4
-
0.4
-
56.6
-
138.4
118.7
-
0.6
-
69.4
-
188.7
111.5
-
0.8
-
65.6
-
177.9
1,747.8
1,732.0
1,723.8
316.0
343.6
308.3
311.4
361.9
358.5
220.9
236.8
260.6
19.5
78.4
15.1
198.4
311.4
19.4
78.4
15.1
249.0
361.9
19.9
78.4
14.6
245.6
358.5
19.5
78.4
15.1
107.9
220.9
19.4
78.4
15.1
123.9
236.8
19.9
78.4
14.6
147.7
260.6
*Details of the restatements due to presentational changes, correction of errors and adoption of IFRS 16 are made in Note 1e on page 152.
The loss after tax for the Company was £7.1m (2018: profit of £4.8m). The financial statements of Lookers plc registered no. 111876 were approved by the Directors on
25 November 2020.
Signed on behalf of the Board of Directors
M. D. Raban (Director)
143
Lookers plc Annual Report & Accounts 2019
Consolidated Statement of Changes in Equity
As at 1 January 2018, 31 December 2018 and 31 December 2019
Year ended 31 December 2018 (restated*)
As at 1 January 2018
Correction of errors
Effects of new accounting standards
As at 1 January 2018 (restated*)
Profit for the year
Total other comprehensive expense for the year
Total comprehensive income for the year
New shares issued
Share based compensation
Share buy-back
Foreign exchange translation differences
Dividends paid
As at 31 December 2018 (restated*)
Year ended 31 December 2019
As at 1 January 2019
Loss for the year
Total other comprehensive income for the year
Total comprehensive expense for the year
New shares issued
Share based compensation
Foreign exchange translation differences
Dividends paid
As at 31 December 2019
Note
1
24
25
24
8
24
25
8
Share
capital
£m
19.9
-
-
19.9
-
-
-
0.0
-
(0.5)
-
-
19.4
19.4
-
-
-
0.1
-
-
-
19.5
Share
premium
£
78.4
-
-
78.4
-
-
-
0.0
-
-
-
-
78.4
Capital
redemption
reserve
£m
14.6
-
-
14.6
-
-
-
-
-
0.5
-
-
15.1
78.4
-
-
-
0.0
-
-
-
78.4
15.1
-
-
-
-
-
-
-
15.1
Retained
earnings
£m
272.1
(7.1)
(19.4)
245.6
32.6
(6.0)
26.6
-
1.7
(9.3)
0.0
(15.6)
249.0
249.0
(41.6)
5.9
(35.7)
-
1.4
(0.4)
(15.9)
198.4
Total
equity
£m
385.0
(7.1)
(19.4)
358.5
32.6
(6.0)
26.6
0.0
1.7
(9.3)
0.0
(15.6)
361.9
361.9
(41.6)
5.9
(35.7)
0.1
1.4
(0.4)
(15.9)
311.4
*Details of the restatements due to presentational changes, correction of errors and adoption of IFRS 16 are made in Note 1e on page 152.
Retained earnings include £16.5m (2018: £16.8m) of non-distributable reserves relating to properties which had been revalued under UK GAAP, but treated as deemed
cost under IFRS.
Company Statement of Changes in Equity
As at 1 January 2018, 31 December 2018 and 31 December 2019
Year ended 31 December 2018
As at 1 January 2018
Correction of errors
Effects of new accounting standards
As at 1 January 2018 (restated)
Profit for the year
Total other comprehensive expense for the year
Total comprehensive income for the year
New shares issued
Share based compensation
Share buy-back
Dividends paid
As at 31 December 2018 (restated)
Year ended 31 December 2019
As at 1 January 2019
Loss for the year
Total other comprehensive income for the year
Total comprehensive income for the year
New shares issued
Share based compensation
Dividends paid
As at 31 December 2019
Note
1
25
24
8
24
25
8
Share
capital
£m
19.9
-
-
19.9
-
-
-
0.0
-
(0.5)
-
19.4
19.4
-
-
-
0.1
-
-
19.5
Share
premium
£
78.4
-
-
78.4
-
-
-
0.0
-
-
-
78.4
Capital
redemption
reserve
£m
14.6
-
-
14.6
-
-
-
-
-
0.5
-
15.1
78.4
-
-
-
0.0
-
-
78.4
15.1
-
-
-
-
-
-
15.1
Retained
earnings
£m
143.5
4.2
0.0
147.7
4.8
(5.4)
(0.6)
-
1.7
(9.3)
(15.6)
123.9
123.9
(7.1)
5.6
(1.5)
-
1.4
(15.9)
107.9
Total
equity
£m
256.4
4.2
0.0
260.6
4.8
(5.4)
(0.6)
0.0
1.7
(9.3)
(15.6)
236.8
236.8
(7.1)
5.6
(1.5)
0.1
1.4
(15.9)
220.9
144
Financial Statements Consolidated Statement of Cash Flows
For the year ended 31 December 2019 and 31 December 2018
Cash flows from operating activities
(Loss)/profit for the year
Tax (credit)/charge
Depreciation of property, plant and equipment, rental fleet and right of use assets
Profit on disposal of property, plant and equipment
Gain on lease surrenders
Amortisation of intangible assets
Share based compensation
Impairment of property, plant and equipment
Impairment of right of use assets
Impairment of intangible assets (underlying)
Impairment of goodwill and intangible assets (non-underlying)
Interest income excluding pension related interest
Interest payable excluding pension related interest and debt issue costs
Debt issue costs
Difference between pension charge and cash contributions
Proceeds from sale of vehicles for long term leasing
Proceeds from sale of rental fleet vehicles
Creation of provisions
Changes in inventories
Changes in receivables
Changes in payables
Cash generated from operations
Interest paid
Interest paid - finance leases
Interest received
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of vehicles for long term leasing
Purchase of rental fleet vehicles
Purchase of intangibles
Purchase of subsidiaries net of cash received
Proceeds from disposal of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Redemption of ordinary shares
Receipt of funding advanced for vehicle leasing arrangements
Repayment of funding advanced for vehicle leasing arrangements
Repayment of loans
Draw down on RCF
Repayment on RCF
Repayment of lease liabilities
Receipt of lease incentives
Dividends paid
Net cash outflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Analysis of cash and cash equivalents
Cash and cash equivalents
Bank overdraft
Cash and cash equivalents at 31 December
Group
2019
£m
Restated*
2018
£m
Note
(41.6)
(3.9)
54.1
(5.2)
(0.4)
6.1
1.4
4.3
1.8
0.4
30.4
0.0
30.0
0.4
(6.1)
11.3
58.7
10.4
23.1
20.6
25.3
221.1
(24.3)
(5.7)
-
(9.3)
181.8
(45.8)
(35.5)
(61.7)
(7.9)
-
17.6
(133.3)
0.1
-
76.5
(69.0)
(1.4)
186.9
(224.2)
(15.6)
1.2
(15.9)
(61.4)
(12.9)
44.3
31.4
150.3
(118.9)
31.4
32.6
9.3
46.1
(3.6)
-
5.6
1.7
-
-
0.5
-
(0.3)
26.4
1.1
(2.1)
12.8
72.2
-
(28.2)
49.6
(32.9)
190.8
(20.9)
(5.5)
0.3
(7.1)
157.6
(21.5)
(26.1)
(60.1)
(7.9)
(13.7)
35.1
(94.2)
-
(9.3)
72.7
(79.3)
(14.6)
135.3
(134.1)
(14.2)
-
(15.6)
(59.1)
4.3
40.0
44.3
152.8
(108.5)
44.3
3
3,4
13
3
25
12
4
3
4
6
6
22
22
22
22
22
19
*Details of the restatements due to presentational changes, correction of errors and adoption of IFRS 16 are made in Note 1e on page 152.
145
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2018
1a. Statement of Total Consolidated Comprehensive Income (restated)
As
previously
reported 31
December
2018
£m
Presentational
adjustments
£m
Correction
of errors -
ficticious
transactions
£m
Correction
of errors -
accounting
policy
misapplication
£m
Group
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Share based compensation
Net operating expenses
Gain on property, plant and equipment
Operating profit
Underlying operating profit
Non-underlying items below operating profit
Net interest
Net interest on pension scheme obligations
Debt issue costs
Profit before taxation
Underlying profit before taxation
Non-underlying items
Tax charge
Profit for the year
Actuarial losses on pension scheme obligations
Deferred tax on pension scheme obligations
Total other comprehensive expense for the year
4,879.5
(4,364.0)
515.5
(294.6)
(153.3)
(1.7)
-
7.7
73.6
73.6
-
(18.3)
(1.7)
(0.5)
53.1
53.1
-
(9.6)
43.5
(7.2)
1.2
(6.0)
Total comprehensive income/(expense) for the year
37.5
(Loss)/earnings per share:
Basic (loss)/earnings per share (p)
Diluted (loss)/earnings per share (p)
Non-underlying items at operating profit
Gain on property, plant and equipment
Past service cost on pension scheme obligations
Non-underlying items at profit before tax
11.02
10.60
-
-
-
-
-
-
294.6
153.3
1.7
(441.9)
(7.7)
-
(4.3)
4.3
(2.2)
1.7
0.5
-
(4.3)
4.3
-
-
-
-
-
-
-
-
7.7
(3.4)
4.3
(1.6)
-
(1.6)
-
-
-
-
-
(1.6)
(1.6)
-
-
-
-
(1.6)
(1.6)
-
-
(1.6)
-
-
-
(1.6)
(0.41)
(0.39)
-
-
-
(45.7)
48.7
3.0
-
-
-
(0.1)
-
2.9
2.9
-
(2.9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Details of the presentational adjustments, corrections of errors and impact of adoption of IFRS16 are made in Note 1e on page 152.
146
Financial Statements Group
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Share based compensation
Net operating expenses
Gain on property, plant and equipment
Operating profit
Underlying operating profit
Non-underlying items below operating profit
Net interest
Net interest on pension scheme obligations
Debt issue costs
Profit before taxation
Underlying profit before taxation
Non-underlying items
Tax charge
Profit for the year
Actuarial losses on pension scheme obligations
Deferred tax on pension scheme obligations
Total other comprehensive expense for the year
Total comprehensive income/(expense) for the year
(Loss)/earnings per share:
Basic (loss)/earnings per share (p)
Diluted (loss)/earnings per share (p)
Non-underlying items at operating profit
Gain on property, plant and equipment
Past service cost on pension scheme obligations
Non-underlying items at profit before tax
Correction
of errors –
control
weaknesses
Subtotal -
£m
Impact of
IFRS 16
£m
As restated
31 December
2018
£m
(3.9)
0.1
(3.8)
-
-
-
(1.8)
-
(5.6)
(5.6)
-
-
-
-
(5.6)
(5.6)
-
0.8
(4.8)
-
-
-
(4.8)
(1.22)
(1.17)
-
-
-
4,828.3
(4,315.2)
513.1
-
-
-
(443.8)
-
69.3
65.0
4.3
(23.4)
-
-
45.9
41.6
4.3
(8.8)
37.1
(7.2)
1.2
(6.0)
-
-
-
-
-
-
1.5
-
1.5
6.7
(5.2)
(5.5)
-
-
(4.0)
1.2
(5.2)
(0.5)
(4.5)
-
-
-
4,828.3
(4,315.2)
513.1
-
-
-
(442.3)
-
70.8
71.7
(0.9)
(28.9)
-
-
41.9
42.8
(0.9)
(9.3)
32.6
(7.2)
1.2
(6.0)
31.1
(4.5)
26.6
9.40
9.04
7.7
(3.4)
4.3
(1.14)
(1.10)
(5.2)
-
(5.2)
8.26
7.94
2.5
(3.4)
(0.9)
Details of the presentational adjustments, corrections of errors and impact of adoption of IFRS16 are made in Note 1e on page 152.
147
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
As at 1 January 2018 and 31 December 2018
1b Statement of Financial Position (restated)
Group
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Right of use assets
Current assets
Inventories
Trade and other receivables
Rental fleet vehicles
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Current tax payable
As previously
reported
31 December
2018
£m
Correction
of errors -
ficticious
transactions
£m
Correction
of errors -
accounting
policy
misapplication
£m
Correction
of errors -
control
weaknesses
£m
At 31
December
2018
(restated)
£m
Impact of
IFRS 16
£m
116.2
114.6
350.9
-
581.7
1,027.7
179.5
54.2
44.4
8.0
1,313.8
1,895.5
2.6
1,235.7
-
0.9
1,239.2
-
-
-
-
-
-
(1.6)
-
-
-
(1.6)
(1.6)
-
-
-
-
-
-
-
67.7
-
67.7
(54.8)
(1.2)
-
108.4
-
52.4
(4.5)
(1.2)
1.4
-
(4.3)
-
(15.9)
-
-
-
(15.9)
-
-
(3.2)
103.3
100.1
-
-
-
-
-
-
111.7
113.4
416.8
103.3
745.2
972.9
160.8
54.2
152.8
8.0
1,348.7
120.1
(20.2)
100.1
2,093.9
107.4
(5.5)
-
-
101.9
-
(9.1)
-
2.4
(6.7)
-
(0.7)
18.6
-
17.9
110.0
1,220.4
18.6
3.3
1,352.3
Net current assets
74.6
(1.6)
(49.5)
(9.2)
(17.9)
(3.6)
Non-current liabilities
Bank loans
Trade and other payables
Lease liabilities
Pension scheme obligations
Deferred tax liabilities
128.7
19.4
-
68.9
40.0
257.0
Total liabilities
1,496.2
-
-
-
-
-
-
-
-
19.9
-
-
-
19.9
-
-
-
-
(3.3)
(3.3)
-
-
109.8
-
(3.7)
106.1
128.7
39.3
109.8
68.9
33.0
379.7
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
Share premium
Capital redemption reserve
Retained earnings
Total equity
19.4
78.4
15.1
286.4
399.3
-
-
-
(1.6)
(1.6)
-
-
-
(1.7)
(1.7)
-
-
-
(10.2)
(10.2)
-
-
-
(23.9)
(23.9)
19.4
78.4
15.1
249.0
361.9
Details of the corrections of errors and impact of adoption of IFRS16 are made in Note 1e on page 152.
148
Financial Statements As previously
reported
1 January
2018
£m
Correction
of errors -
ficticious
transactions
£m
Correction
of errors -
accounting
policy
misapplication
£m
Correction
of errors -
control
weaknesses
£m
At 1
January
2018
(restated)
£m
Impact of
IFRS 16
£m
108.9
112.3
342.0
-
563.2
984.1
241.1
1.0
60.9
45.3
1,332.4
1,895.6
19.6
1,228.1
-
-
1,247.7
84.7
123.5
36.8
-
63.8
38.8
262.9
1,510.6
385.0
19.9
78.4
14.6
272.1
385.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
69.1
-
69.1
(42.3)
(1.6)
-
-
90.3
46.4
115.5
89.2
26.5
-
-
115.7
(4.2)
(1.0)
2.5
-
(2.7)
-
(6.0)
(1.0)
-
-
(7.0)
(9.7)
-
(3.1)
-
1.9
(1.2)
-
-
(3.3)
84.2
80.9
-
-
-
-
-
-
104.7
111.3
410.3
84.2
710.5
941.8
233.5
-
60.9
135.6
1,371.8
80.9
2,082.3
-
(0.7)
15.8
-
15.1
108.8
1,250.8
15.8
1.9
1,377.3
(69.3)
(5.8)
(15.1)
(5.5)
(0.7)
2.2
-
-
-
1.5
117.2
(1.7)
-
-
-
(1.7)
(1.7)
-
-
-
-
(3.1)
(3.1)
(4.3)
(5.4)
-
-
-
(5.4)
(5.4)
-
-
89.3
-
(4.1)
85.2
122.8
39.0
89.3
63.8
31.6
346.5
100.3
1,723.8
(19.4)
358.5
-
-
-
(19.4)
(19.4)
19.9
78.4
14.6
245.6
358.5
Group
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Right of use assets
Current assets
Inventories
Trade and other receivables
Current tax receivable
Rental fleet vehicles
Cash and cash equivalents
Total assets
Current liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Current tax payable
Net current assets
Non-current liabilities
Bank loans
Trade and other payables
Lease liabilities
Pension scheme obligations
Deferred tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Ordinary share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
Details of the corrections of errors and impact of adoption of IFRS16 are made in Note 1e on page 152.
149
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2018
1c Statement of Cash Flows (restated)
Cash flows from operating activities
Profit for the year
Tax charge
Depreciation of property, plant and equipment,
rental fleet and right of use assets
Profit on disposal of property, plant and equipment
Amortisation of intangible assets
Impairment of right of use assets
Impairment of goodwill
Impairment of intangible assets
Share based compensation
Interest income
Interest payable
Debt issue costs
Difference between pension charge and cash contributions
Purchase of rental fleet vehicles
Proceeds from sale of vehicles for long term leasing
Proceeds from sale of rental fleet vehicles
Changes in inventories
Changes in receivables
Changes in payables
Cash generated from operations
Interest paid
Interest paid - finance leases
Interest received
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of vehicles for long term leasing
Purchase of rental fleet vehicles
Purchase of intangibles
Purchase of subsidiaries net of cash received
Proceeds from disposal of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Redemption of ordinary shares
Increase in leasing finance liabilities
Repayment of leasing finance liabilities
Repayment of loans
Draw down on RCF
Repayment on RCF
Repayment of lease liabilities
Dividends paid
Net cash outflow from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Analysis of cash and cash equivalents
Cash and cash equivalents
Bank overdraft
Cash and cash equivalents at 31 December
As previously
reported 31
December
2018
£m
43.5
9.6
Correction
of errors
£m
(6.7)
(0.8)
Correction
of errors -
leasing
£m
0.3
-
Impact
of IFRS
16
£m
(4.5)
0.5
At 31
December
2018
(restated)
£m
32.6
9.3
20.6
(8.2)
5.6
-
-
-
1.7
(0.3)
18.6
0.5
(2.1)
(89.4)
-
90.3
1.4
48.9
(60.4)
80.3
(18.6)
-
0.3
(7.1)
54.9
(25.7)
-
-
(7.9)
(13.7)
35.1
(12.2)
-
(9.3)
-
-
(14.6)
135.3
(134.1)
-
(15.6)
(38.3)
4.4
38.9
43.3
(3.6)
-
-
-
0.3
0.2
-
-
-
0.6
-
89.4
(90.3)
(32.5)
0.7
38.4
(4.3)
-
-
-
-
(4.3)
4.2
-
-
-
-
-
4.2
-
-
-
-
-
-
-
-
-
-
(0.1)
1.1
1.0
44.4
(1.1)
43.3
108.4
(107.4)
1.0
16.1
(0.6)
-
-
-
-
-
-
2.3
-
-
-
12.8
72.2
2.9
(10.9)
95.1
(2.3)
-
-
-
92.8
-
(26.1)
(60.1)
-
-
-
(86.2)
-
-
72.7
(79.3)
-
-
-
-
-
(6.6)
-
-
-
-
-
-
13.0
5.2
-
-
-
-
-
-
5.5
-
-
-
-
-
-
-
-
19.7
-
(5.5)
-
-
14.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14.2)
-
(14.2)
-
-
-
-
-
-
46.1
(3.6)
5.6
-
0.3
0.2
1.7
(0.3)
26.4
1.1
(2.1)
-
12.8
72.2
(28.2)
49.6
(32.9)
190.8
(20.9)
(5.5)
0.3
(7.1)
157.6
(21.5)
(26.1)
(60.1)
(7.9)
(13.7)
35.1
(94.2)
0.0
(9.3)
72.7
(79.3)
(14.6)
135.3
(134.1)
(14.2)
(15.6)
(59.1)
4.3
40.0
44.3
152.8
(108.5)
44.3
Details of the corrections of errors and impact of adoption of IFRS 16 are made in note 1e on page 152.
150
Financial Statements Notes to the financial statements
As at 1 January 2018 and 31 December 2018
1d Statement of Financial Position (restated)
As
previously
reported 31
December
2018
£m
Correction
of errors -
control
weaknesses
£m
Impact of
IFRS 16
£m
At 31
December
2018
(restated)
£m
As
previously
reported
1 January
2018
£m
Correction
of errors -
control
weaknesses
£m
At
1 January
2018
(restated)
£m
Impact of
IFRS 16
£m
13.2
0.7
-
126.8
12.2
152.9
389.3
9.1
19.1
417.5
(1.2)
0.2
-
-
-
(1.0)
10.0
(0.3)
0.1
9.8
-
-
1.2
-
-
1.2
-
-
-
-
12.0
0.9
1.2
126.8
12.2
153.1
399.3
8.8
19.2
427.3
11.3
0.4
-
57.8
4.1
73.6
461.3
1.0
11.8
474.1
(1.0)
1.4
-
-
0.6
1.0
(2.1)
(0.5)
21.5
18.9
-
-
1.3
-
1.3
-
-
-
-
10.3
1.8
1.3
57.8
4.7
75.9
459.2
0.5
33.3
493.0
Company
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Investment in subsidiaries
Deferred tax assets
Current assets
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Total assets
570.4
8.8
1.2
580.4
547.7
19.9
1.3
568.9
Current liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
25.9
118.9
-
144.8
-
9.5
-
9.5
-
-
0.6
0.6
25.9
128.4
0.6
154.9
30.7
83.5
-
114.2
20.7
(5.0)
-
15.7
-
-
0.5
0.5
51.4
78.5
0.5
130.4
Net current assets
272.7
0.3
(0.6)
272.4
359.9
3.2
(0.5)
362.6
Non-current liabilities
Bank loans
Lease liabilities
Pension scheme obligations
118.7
-
69.4
188.1
-
-
-
-
-
0.6
-
0.6
118.7
0.6
69.4
188.7
111.5
-
65.6
177.1
-
-
-
-
-
0.8
-
0.8
111.5
0.8
65.6
177.9
Total liabilities
332.9
9.5
1.2
343.6
291.3
15.7
1.3
308.3
Net assets
237.5
(0.7)
Shareholders’ equity
Ordinary share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
19.4
78.4
15.1
124.6
237.5
-
-
-
(0.7)
(0.7)
-
-
-
-
-
-
236.8
256.4
4.2
19.4
78.4
15.1
123.9
236.8
19.9
78.4
14.6
143.5
256.4
-
-
-
4.2
4.2
-
-
-
-
-
-
260.6
19.9
78.4
14.6
147.7
260.6
Details of the corrections of errors and impact of adoption of IFRS 16 are made in Note 1e on page 152.
151
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
As at 1 January 2018 and 31 December 2018
1e Notes of restatements
As detailed on page 27 of 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 on pages 32
to 35. 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’.
Further details concerning the adoption of IFRS 16 are included on page 136.
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 £1.6m 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.
These reductions in revenue and cost of sales are to reverse the previous treatment of these as sales which was incorrect
because control was retained. 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. These reductions in revenue and cost of sales are to
reverse the previous treatment of these as sales which was incorrect because control was retained.
Year ending 31 December 2018/Adjustment
Impact on profit before tax - £m
Opening reserves impact - £m
1
(0.7)
0.2
2
0.3
(1.2)
3
0.4
(0.7)
Total
-
(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 affects 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
2018 Impact on profit before tax - £m
Opening reserves impact - £m
4
2.2
(6.2)
5
(0.6)
(1.2)
6
(8.1)
2.5
7
0.9
(0.5)
Total
(5.6)
(5.4)
152
Financial Statements 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 £1.6m 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. These
reductions in revenue and cost of sales are to reverse the previous treatment of these as sales which was incorrect because
control was retained. 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. These reductions in revenue and cost of sales are to
reverse the previous treatment of these as sales which was incorrect because control was retained.
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
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
1 January 2018/Adjustment
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
1
-
107.8
108.3
-
1
-
88.8
89.3
(0.7)
2
67.7
(57.1)
(8.4)
19.9
2
69.1
(55.8)
12.3
2.2
3
-
1.7
2.0
-
3
-
(6.2)
(5.5)
-
8
-
-
-
-
8
-
19.6
19.6
-
Total
67.7
52.4
101.9
19.9
Total
69.1
46.4
115.7
1.5
153
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
As at 1 January 2018 and 31 December 2018
1e Notes of restatements (continued)
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
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
1 January 2018/Adjustment
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
4
(4.3)
(5.1)
(5.4)
-
4
(2.7)
(4.3)
(0.8)
-
5
-
(1.8)
-
-
5
-
(1.2)
-
-
6
-
(7.6)
(2.0)
-
6
-
(2.6)
(5.1)
-
7
-
(1.4)
0.7
(3.3)
7
-
1.1
4.7
(3.1)
Total
(4.3)
(15.9)
(6.7)
(3.3)
Total
(2.7)
(7.0)
(1.2)
(3.1)
Impact of IFRS 16
Adjustments in relation to the fully retrospective adoption of IFRS 16, see page 140 for details.
Company statement of financial position
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:
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
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
1 January 2018/Adjustment
Impact on non-current assets
Impact on current assets
Impact on current liabilities
Impact on non-current liabilities
9
(1.0)
-
-
-
9
1.0
-
-
-
10
-
9.8
9.5
-
10
-
18.9
15.7
-
Total
(1.0)
9.8
9.5
-
Total
1.0
18.9
15.7
-
Impact of IFRS 16
Adjustments in relation to the fully retrospective adoption of IFRS 16, see page 140 for details.
154
Financial Statements Notes to the financial statements
As at 1 January 2018 and 31 December 2018
1e Notes of restatements (continued)
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 140 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 £86.2m rental fleet assets; and
- an increase in financing inflows of £72.7m and outflows of £79.3m to reflect the financial liabilities arising in connection with the
financing of the vehicle lease arrangements
2. Segmental reporting
As noted in Accounting policy 12 on page 135 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.
Motor distribution
New cars
Used cars
Aftersales
Leasing and other
Less: intercompany
Revenue
2019
£m
2,226.4
2,326.3
495.3
134.0
(394.8)
4,787.2
2018
(restated)**
£m
2,364.7
2,215.7
464.0
115.3
(331.4)
4,828.3
Mix*
43.0%
44.9%
9.6%
2.6%
-
100%
Mix*
45.8%
43.0%
9.0%
2.2%
-
100%
*Mix calculation excludes the effect of intercompany revenues.
**Previously New car revenue was disclosed as £2,384.8m, Used car revenue was disclosed as £1,939.4m and Aftersales was
disclosed as £545.3m. No disclosures were made with regards to Leasing and other, intercompany eliminations.
155
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
3. (Loss)/profit before taxation
The following have been included before arriving at (loss)/profit before taxation:
Staff costs
Depreciation of property, plant and equipment and right of use assets
Depreciation of rental fleet assets
Amortisation of intangible assets
Impairment of intangible assets (underlying element)
Loss/(gain) on disposal of rental fleet vehicles
Gain on disposal of leased vehicles
Cost of inventories recognised as an expense
Non-underlying items
Restructure of regulated activities (underlying element)
Low value leased assets
Utilities
Other expenses
Total cost of sales and operating expenses
Note
5
12,13
18
11
11
4
2019
£m
301.6
48.3
5.8
6.1
0.4
0.2
(0.5)
3,751.0
49.7
2.1
0.4
33.8
601.5
4,800.4
2018
(restated)
£m
286.2
39.8
6.3
5.6
0.5
(0.5)
(0.6)
3,807.0
0.9
-
0.4
31.7
580.2
4,757.5
In the year ending 31 December 2019 staff costs have been restated to include share-based compensation charges and
exclude the effect of additional past service costs as these are disclosed within non-underlying items. In addition costs of
inventories recognised as an expense have been represented following the identification of prior period adjustments.
Services provided by the group's auditor
The analysis of auditor's remuneration is as follows:
Group
Audit of the Company
Audit of the Group and Company's subsidiaries
Total audit fees
Other non-audit fees - review of financial information
Total non-audit fees
2019
£000
20.0
1,422.6
1,442.6
-
-
2018
£000
20.0
660.0
680.0
20.0
20.0
Fees payable to Deloitte LLP and their associates for non-audit services to the company are not required to be disclosed
because the consolidated financial statements are required to disclose such fees on a consolidated basis and therefore
included above.
Details of the Company’s policy on the use of auditors for non-audit services, the reasons why the auditor was used rather
than another supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Report from the
Chairman of the Audit and Risk Committee.
Non-audit fees were £20,000 in 2018 and related to review procedures undertaken in respect of the Group's interim results.
No non-audit fees were incurred in 2019.
156
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
4. 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.
Non-underlying items at operating profit
1 - Gain on property disposals
2 - Impairment of property, plant and equipment
2 - Impairment of right of use assets
2 - Restructuring costs
3 - Impairment of goodwill and intangible assets
4 - Value added tax (VAT)
5 - Restructure of regulated activities
5 - FCA provision
6 - Additional pension past service costs
7 - Accrual for potential tax penalties
Non-underlying items at operating profit
Note
12,14
12
13
10,11
21
26
2019
£m
(4.9)
3.7
1.8
8.8
30.4
(6.2)
4.7
10.4
-
1.0
49.7
2018
£m
(2.5)
-
-
-
-
-
-
-
3.4
-
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 £0.6m 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
Group's 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 £5.6m in respect of prior periods. In addition a one-
off VAT charge totalling £2.0m 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 £2.6m in year ending 31 December 2019.
5 - Costs totalling £4.7m 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 £10.4m has been recorded in respect of FCA matters.
See Note 21 for further details.
6 - In the year ending 31 December 2018, £3.4m 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 £1.0m 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.
157
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
5. Information regarding employees
Group
Employee costs:
Wages and salaries
Social security costs
Other pension costs
Share based compensation
2019
£m
270.7
24.7
4.8
1.4
301.6
2018
(restated)
£m
255.8
25.6
3.1
1.7
286.2
Other pension costs in respect of the year ending 31 December 2018 have been re-presented and £3.4m is now disclosed
within non-underlying items in Note 4.
Average number employed during the year:
Aftersales
Sales
Administration
The average number employed by the Company during the year was 310 (2018: 281).
Key management compensation:
Short-term employee benefits
Post-employment benefits
Termination benefits
Share options
2019
No.
2,091
2,194
4,376
8,661
2019
No.
6.0
0.2
0.8
0.3
7.3
2018
No.
1,836
2,200
4,287
8,323
2018
No.
7.0
0.2
-
0.4
7.6
The key management compensation given above includes Executive Directors and key operational staff. During the year
the aggregate gains made on the exercise of share options by Directors was £nil (2018: £nil). Further details of Directors'
remuneration is included in the Directors' Remuneration Report.
158
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
6. Net interest
Interest expense:
Interest payable on bank borrowings
Interest on consignment, repurchase vehicle liabilities and stocking loans
Interest on vehicle rental finance liabilities
Interest on lease liabilities
Interest cost on defined benefit pension obligation
Debt issue costs
Interest income:
Interest income on bank balances
Interest income on pension scheme assets
Net interest
2019
£m
(10.0)
(12.1)
(2.2)
(5.7)
(8.1)
(0.4)
(38.5)
-
6.2
6.2
(32.3)
2018
(restated)
£m
(5.6)
(13.1)
(2.2)
(5.5)
(7.4)
(1.1)
(34.9)
0.3
5.7
6.0
(28.9)
Refer to Note 1e on page 152 for discussions of the nature and origin of prior period adjustments affecting net interest.
159
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
7. Taxation
Current tax (credit)/charge:
Current year
Adjustment in respect of prior years
Deferred tax (credit)/charge:
Deferred tax - origination and reversal of temporary differences
Adjustment in respect of prior years
Total tax (credit)/charge
Tax on items charged to other comprehensive income:
Tax on pension scheme obligations
Reconciliation of total tax
(Loss)/profit before tax
Standard rate of corporation tax at 19% (2019: 19%)
Disallowable items
Share based compensation
Adjustment in respect of prior years
Difference on overseas tax rate
Total tax
2019
£m
(1.2)
(2.5)
(3.7)
0.2
(0.4)
(0.2)
(3.9)
2018
(restated)
£m
11.1
(1.8)
9.3
-
-
-
9.3
1.2
(1.2)
(45.5)
(8.6)
6.4
0.7
(2.9)
0.5
(3.9)
41.9
7.9
2.8
0.5
(1.8)
(0.1)
9.3
Refer to Note 1e on page 152 for discussions of the nature and origin of prior period adjustments affecting tax.
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 £4.0m.
8. Dividends
Group
Interim dividend for the years ended 31 December 2019 and 2018 1.48p (2018: 1.48p)
Final dividend for the years ended 31 December 2018 and 2017 2.60p (2017: 2.48p)
The Directors do not propose a final dividend in respect of the financial year ended 31 December 2019
(2018: final dividend 2.60p).
2019
£m
5.8
10.1
15.9
2018
£m
5.8
9.8
15.6
160
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
9. (Loss)/earnings per share
(Loss)/earnings attributable to ordinary shareholders (£m)
Weighted average number of shares in issue
Basic (loss)/earnings per share (p)
(Loss)/earnings attributable to ordinary shareholders (£m)
Dilutive effect of share based payment options and
weighted average number of shares in issue
Diluted (loss)/earnings per share (p)
(Loss)/profit before tax (£m)
Add: Non-underlying items (£m)
Underlying profit before tax (£m)
Tax rate
Underlying tax (£m)
Underlying earnings attributable to ordinary shareholders (£m)
Weighted average number of shares in issue
Underlying basic earnings per share (p)
2019
2018
(restated)
(41.6)
32.6
389,182,654 394,662,632
8.26
(10.69)
(41.6)
32.6
389,182,654 410,404,570
(10.69)
7.94
(45.5)
49.7
4.2
19.0%
(0.8)
3.4
41.9
0.9
42.8
19.0%
(8.1)
34.7
389,182,654 394,662,632
8.78
0.87
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.
161
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
10. Goodwill
Group
Cost
At 1 January
Correction of errors
At 1 January (restated)
Additions
As at 31 December
Aggregate impairment
At 1 January
Charge for the year
As at 31 December
Carrying amount at 31 December
2019
£m
122.4
-
122.4
-
122.4
10.7
29.8
40.5
81.9
2018
(restated)
£m
2017
(restated)
£m
115.1
-
115.1
7.3
122.4
10.4
0.3
10.7
119.3
(4.2)
115.1
-
115.1
10.4
-
10.4
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 £29.8m has been recognised during the year (2018: £0.3m).
The following table summarises goodwill and intangibles with an indefinite useful economic life allocated by CGU:
2019
Goodwill
£m
CGU
2019
Licences
and
brands
£m
2019
Total
£m
2018
Goodwill
£m
2018
Licences
and
brands
£m
2018
Total
£m
2017
Goodwill
£m
2017
Licences
and
brands
£m
JLR
Audi
Charles Hurst
Renault Nissan Dacia
Mercedes-Benz
Volkswagen
Ford
BMW
Vauxhall
Fleet & Leasing
9.0
22.1
9.4
2.6
15.2
6.9
7.4
-
0.2
9.1
81.9
-
28.9
-
2.9
28.2
15.9
2.9
21.7
-
-
100.5
9.0
51.0
9.4
5.5
43.4
22.8
10.3
21.7
0.2
9.1
182.4
11.8
22.1
9.4
2.6
15.2
6.9
24.8
9.6
0.2
9.1
111.7
-
28.9
-
2.9
28.2
15.9
2.9
22.3
-
-
101.1
11.8
51.0
9.4
5.5
43.4
22.8
27.7
31.9
0.2
9.1
212.8
11.8
22.1
9.4
2.6
15.2
7.2
17.5
9.6
0.2
9.1
104.7
-
28.9
-
2.9
28.2
15.9
2.9
22.3
-
-
101.1
2017
Total
£m
11.8
51.0
9.4
5.5
43.4
23.1
20.4
31.9
0.2
9.1
205.8
Figures included in the 2017 and 2018 goodwill allocations by CGU have been re-presented following the recognition of prior
period adjustments. Refer to Note 1e on page 152 for further information.
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
One to five year revenue growth
One to five year operating expenses growth
Post year five growth rate
Discount rate
2019
0.0% to 1.0%
0.0% to 2.0%
0%
8.51%
2018
0.0% to 1.4%
0.0% to 1.1%
0%
8.70%
2017
0.0% to 1.6%
0.0% to 1.1%
0%
9.70%
162
Financial Statements 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 £29.8m 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
CGUs, 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 £0.9m and for the three CGUs that show
additional impairment, the additional impairment that would arise is as follows:
CGU
JLR
Ford
BMW
Total
Additional impairment – £m
15.9
11.9
5.9
33.7
Details with regard to subsequent events effecting the carrying value of goodwill and non amortised intangible assets are
considered in Note 27.
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.
163
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
11. Intangible assets
Group
Cost
At 1 January 2018
Additions
At 31 December 2018
At 1 January 2019
Additions
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2018
Correction of errors
At 1 January 2018 (restated)
Charge for the year
Correction of errors
At 31 December 2018 (restated)
At 1 January 2019
Charge for the year
Impairment charge
At 31 December 2019
Carrying amount
As at 1 January 2018 (restated)
As at 31 December 2018 and 1 January 2019 (restated)
As at 31 December 2019
Licences
and brands
£m
IT
development
£m
102.6
-
102.6
102.6
-
102.6
1.5
-
1.5
-
-
1.5
1.5
-
0.6
2.1
101.1
101.1
100.5
23.8
7.9
31.7
31.7
7.9
39.6
12.6
1.0
13.6
5.6
0.2
19.4
19.4
6.1
0.4
25.9
10.2
12.3
13.7
Total
£m
126.4
7.9
134.3
134.3
7.9
142.2
14.1
1.0
15.1
5.6
0.2
20.9
20.9
6.1
1.0
28.0
111.3
113.4
114.2
Refer to Note 1e on page 152 for discussions of the nature and origin of prior period adjustments affecting intangible assets.
The impairment charge of £0.6m relating to licences and brands incurred in the year is included in non-underlying items
following the Group's annual impairment review. The impairment charge of £0.4m 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 £nil (2018: £nil) committed for future capital expenditure.
Included within intangible assets is the capitalised development of the Group's website which is being amortised over four years.
Refer to Note 1e on page 152 for details of the accounting policy on amortisation of intangible assets.
164
Financial Statements Cost
At 1 January 2018
Additions
At 31 December 2018
At 1 January 2019
Additions
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2018
Correction of errors
At 1 January 2018 (restated)
Charge for the year
Correction of errors
At 31 December 2018 (restated)
At 1 January 2019
Charge for the year
Impairment charge
At 31 December 2019
Carrying amount
As at 1 January 2018 (restated)
As at 31 December 2018 and 1 January 2019 (restated)
As at 31 December 2019
Licences
and brands
development
£m
102.6
102.6
102.6
102.6
-
-
-
-
-
1.5
1.5
1.5
1.5
-
0.6
2.1
101.1
101.1
100.5
IT
£m
23.8
7.9
31.7
31.7
7.9
39.6
12.6
1.0
13.6
5.6
0.2
19.4
19.4
6.1
0.4
25.9
10.2
12.3
13.7
Total
£m
126.4
7.9
134.3
134.3
7.9
142.2
14.1
1.0
15.1
5.6
0.2
20.9
20.9
6.1
1.0
28.0
111.3
113.4
114.2
Group
Cost
At 1 January 2018
Additions
At 31 December 2018
At 1 January 2019
Additions
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2018
Correction of errors
At 1 January 2018 (restated)
Charge for the year
Correction of errors
At 31 December 2018 (restated)
At 1 January 2019
Charge for the year
Impairment charge
At 31 December 2019
Carrying amount
As at 1 January 2018 (restated)
As at 31 December 2018 and 1 January 2019 (restated)
As at 31 December 2019
IT
development
£m
23.3
7.4
30.7
30.7
7.9
38.6
12.0
1.0
13.0
5.5
0.2
18.7
18.7
6.0
0.4
25.1
10.3
12.0
13.5
Refer to Note 1e on page 152 for discussions of the nature and origin of prior period adjustments affecting intangible assets.
The impairment charge of £0.4m 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 £nil (2018: £nil) committed for future capital expenditure.
Included within intangible assets is the capitalised development of the Group's website which is being amortised over four years.
Refer to Note 14 on page 135 for details of the accounting policy on amortisation of intangible assets.
165
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
12. Property, plant and equipment
Group
Cost
Freehold
property
£m
Leasehold
property
£m
Motor
vehicles
for rental
£m
At 1 January 2018 (as stated)
Corrections of errors - policy misapplication
Corrections of errors - control weakness
Effect of IFRS 16
At 1 January 2018 (restated)
Additions
Additions from business combinations
Disposals
Transfers to inventories
Transfers to assets held for sale
Corrections of errors - control weakness
At 31 December 2018 (restated)
At 1 January 2019
Movements in foreign exchange
Additions
Disposals
Transfers
Transfers to inventories
Transfers to assets held for sale
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018 (as stated)
Corrections of errors - policy misapplication
Corrections of errors - control weakness
Effect of IFRS 16
At 1 January 2018 (restated)
Charge for the year
Disposals
Transfers to inventories
Transfers to assets held for sale
At 31 December 2018 (restated)
At 1 January 2019
Movements in foreign exchange
Charge for the year
Impairment loss
Disposals
Transfers to inventories
Transfers to assets held for sale
At 31 December 2019
Carrying amount
As at 1 January 2018 (restated)
As at 31 December 2018 and 1 January
2019 (restated)
As at 31 December 2019
-
98.9
-
-
98.9
26.1
-
(1.0)
(25.5)
-
-
98.5
98.5
-
35.5
(0.4)
-
(32.5)
-
101.1
-
29.8
-
-
29.8
16.1
(0.7)
(14.3)
-
30.9
30.9
-
19.0
-
(0.4)
(17.6)
-
31.9
69.1
67.6
69.2
77.7
-
4.2
(5.8)
76.1
0.9
0.5
(0.1)
-
-
-
77.4
77.4
-
10.5
(1.6)
6.6
-
-
92.9
17.1
-
(0.4)
(2.5)
14.2
2.4
-
-
-
16.6
16.6
-
3.0
-
(1.3)
-
-
18.3
61.9
60.8
74.6
267.8
-
1.4
-
269.2
12.8
11.4
(13.2)
-
(11.7)
-
268.5
268.5
(1.0)
3.7
(9.7)
15.3
-
(6.6)
270.2
18.6
-
1.5
-
20.1
2.0
(1.1)
-
(1.2)
19.8
19.8
-
2.5
3.1
(0.6)
-
(1.5)
23.3
249.1
248.7
246.9
166
Other
£m
77.3
-
(4.9)
-
72.4
7.8
0.6
(3.3)
-
-
7.4
84.9
84.9
(0.1)
31.6
(10.2)
(21.9)
-
-
84.3
45.1
-
(2.9)
-
42.2
6.3
(3.3)
-
-
45.2
45.2
(0.1)
9.5
1.2
(10.0)
-
-
45.8
30.2
39.7
38.5
Total
£m
422.8
98.9
0.7
(5.8)
516.6
47.6
12.5
(17.6)
(25.5)
(11.7)
7.4
529.3
529.3
(1.1)
81.3
(21.9)
-
(32.5)
(6.6)
548.5
80.8
29.8
(1.8)
(2.5)
106.3
26.8
(5.1)
(14.3)
(1.2)
112.5
112.5
(0.1)
34.0
4.3
(12.3)
(17.6)
(1.5)
119.3
410.3
416.8
429.2
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
12. Property, plant and equipment (continued)
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 £3.6m (2018: £8.9m). 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 £7.5m (2018: £6.5m) which is not depreciated. At 31 December
2019 there is an amount of £7.2m (2018: £nil) 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. Refer to Note 1e on page 152 for further information.
During the year ending 31 December 2019 the total net book value of disposals from property amounted to £9.6m. Total
proceeds received were £14.7m resulting in a gain on disposals of £5.1m.
Following the Group's restructuring program, an impairment charge of £3.1m has been recorded representing an adjustment
to the expected recoverable values of assets subsequently transferred into assets held for sale. A further £1.3m 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 £5.2m of properties have been reclassified into to assets held for sale.
See Note 14 for further details.
Other
£m
2.8
1.4
4.2
0.6
(1.2)
3.6
3.6
0.2
3.8
2.4
0.3
2.7
2.7
0.3
3.0
1.8
0.9
0.8
Company
Cost
At 1 January 2018
Corrections of errors - control weakness
At 1 January 2018 (restated)
Additions
Corrections of errors - control weakness
At 31 December 2018 (restated)
At 1 January 2019
Additions
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
At 31 December 2018
At 1 January 2019
Charge for the year
At 31 December 2019
Carrying amount
As at 1 January 2018
As at 31 December 2018 and 1 January 2019
As at 31 December 2019
There are several other reclassifications as a result of the prior period adjustments. Refer to Note 1e on page 152
for further information.
At 31 December 2019 there is an amount of £nil (2018: £nil) committed for future capital expenditure.
167
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
13. Right of use assets
Group
Cost
At 1 January 2018
Additions
Additions from business combinations
Retirements and surrenders
At 31 December 2018
Cost
At 1 January 2019
Additions
Retirements and surrenders
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
Sale and leaseback remeasurement
Retirements and surrenders
At 31 December 2018
At 1 January 2019
Charge for the year
Impairment charge
Retirements and surrenders
At 31 December 2019
Carrying amount
As at 1 January 2018
As at 31 December 2018 and 1 January 2019
As at 31 December 2019
Property
£m
Other
£m
205.3
30.7
4.5
(0.4)
240.1
240.1
19.5
(5.3)
254.3
123.4
10.4
5.2
(0.1)
138.9
138.9
11.5
1.8
(3.4)
148.8
81.9
101.2
105.5
3.6
2.4
-
-
6.0
6.0
2.9
(2.6)
6.3
1.3
2.6
-
-
3.9
3.9
2.8
-
(2.6)
4.1
2.3
2.1
2.2
Included within the Other category are leases for motor vehicles and IT equipment.
The impairment charge of £1.8m has been treated as a non-underlying item (see Note 4).
Disclosure of lease costs of low value assets
Gains on property disposals
Lease interest costs
Movements in lease liabilities
Total
£m
208.9
33.1
4.5
(0.4)
246.1
246.1
22.4
(7.9)
260.6
124.7
13.0
5.2
(0.1)
142.8
142.8
14.3
1.8
(6.0)
152.9
84.2
103.3
107.7
Note
3
4
6
22
168
Financial Statements Cost
At 1 January 2018
Additions
Additions from business combinations
Retirements and surrenders
At 31 December 2018
Cost
At 1 January 2019
Additions
Retirements and surrenders
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
Sale and leaseback remeasurement
Retirements and surrenders
At 31 December 2018
At 1 January 2019
Charge for the year
Impairment charge
Retirements and surrenders
At 31 December 2019
Carrying amount
As at 1 January 2018
As at 31 December 2018 and 1 January 2019
As at 31 December 2019
Property
Other
£m
205.3
30.7
4.5
(0.4)
240.1
240.1
19.5
(5.3)
254.3
123.4
10.4
5.2
(0.1)
138.9
138.9
11.5
1.8
(3.4)
148.8
81.9
101.2
105.5
£m
3.6
2.4
-
-
6.0
6.0
2.9
(2.6)
6.3
1.3
2.6
-
-
3.9
3.9
2.8
-
(2.6)
4.1
2.3
2.1
2.2
Total
£m
208.9
33.1
4.5
(0.4)
246.1
246.1
22.4
(7.9)
260.6
124.7
13.0
5.2
(0.1)
142.8
142.8
14.3
1.8
(6.0)
152.9
84.2
103.3
107.7
Notes to the financial statements
For the year ended 31 December 2019
13. Right of use assets (continued)
Company
Cost
At 1 January 2018
Additions
At 31 December 2018
Cost
At 1 January 2019
Additions
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
At 31 December 2018
At 1 January 2019
Charge for the year
At 31 December 2019
Carrying amount
As at 1 January 2018
As at 31 December 2018 and 1 January 2019
As at 31 December 2019
Included within the Other category are leases for IT equipment.
14. Assets held for sale
Other
£m
1.7
0.6
2.3
2.3
0.6
2.9
0.4
0.7
1.1
1.1
0.7
1.8
1.3
1.2
1.1
Lower of carrying amount and
fair value less cost to sell
At 1 January
Net transfers from property, plant and
equipment and financial liabilities
Disposals
At 31 December
Group
2019
£m
8.0
5.1
(3.1)
10.0
Group
2018
£m
Group
2017
£m
Company
2019
£m
Company
2018
£m
Company
2017
£m
-
8.0
-
8.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
During the year the total carrying amount disposed from held for sale amounted to £3.1m. Total proceeds received was £2.9m
resulting in a loss on property disposals of £0.2m. 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.
169
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
15. Investments in subsidiary undertakings
Cost
At 1 January
Transfers from related undertakings
At 31 December
2019
£m
126.8
-
126.8
2018
£m
57.8
69.0
126.8
2017
£m
57.8
-
57.8
Details of the subsidiary undertakings of Lookers plc (Registered Office: Lookers House, 3 Etchells Road, West Timperley,
Altrincham, WA14 5XS, England) are as follows:
Registered Office: Lookers House,
3 Etchells Road, West Timperley,
Altrincham, WA14 5XS, England
Addison Motors Limited
Addison TPS Limited
Aston Green Limited
Benfield Motor Group Limited
Benfield Pension Trustees Limited
Billingham Motors Limited
Bluebell (Crewe) Limited
Bolling Investments Limited
Bramall & Jones VW Limited
Bristol Trade Centre Limited
Burton Trade Centre Limited
Castle Bromwich Motors Limited
Chipperfield Garage Limited
Chipperfield Holdings Limited
Colborne (HGG) 2012 Limited
Colbornes Trade Parts Limited
Colebrook & Burgess
(Teesside) Limited
Colebrook & Burgess
Holdings Limited
Colebrook & Burgess Limited
Cox & Co (Lookers) Limited
Drayton Group Limited
Dutton-Forshaw Holdings Limited
Dutton-Forshaw Limited
*Get Motoring UK Limited
Harpers Carlisle Limited
Howdens of Harrogate Limited
Jackson & Edwards Limited
Kings Langley Land Rover Limited
Knights North West Limited
Look 4 Car Credit Limited
Lookers (J & S Leaver) Limited
Lookers (St. Helens) Limited
Lookers Bedale Garage Limited
Lookers Birmingham Limited
Lookers Colborne Limited
Lookers Directors Limited
Lookers GB & E Limited
Lookers JV Limited
Lookers Leasing Limited
*Lookers Motor Group Limited
*Lookers Motor Holdings Limited
*Lookers Motors Limited
*Lookers North West Limited
*Lookers Norwich Limited
*Lookers of Barnsley Limited
*Lookers of Bradford Limited
*Lookers of Burton Limited
*Lookers of Colwyn Bay Limited
*Lookers of Dewsbury Limited
*Lookers of Macclesfield Limited
*Lookers of Manchester Limited
*Lookers of Northwich Limited
*Lookers of Rochdale Limited
*Lookers Pension Plan
Trustee Limited
*Lookers Secretaries Limited
Lookers South East Limited
Lookers Southern Limited
Lookers Thornton
Engineering Limited
Martins (Middlesbrough) Limited
Martins (Stockton) Limited
Martins (Sunderland) Limited
Martins-Wellington Limited
MB South Limited
Meteor Group Limited
NNK Holdings Limited
Picking (Liverpool) Limited
Platts Harris Limited
PLP Motors Limited
Pollendine Motors (Frinton) Limited
Radford (Bavarian) Limited
Roadshow Limited
Rosedale Finance & Leasing Limited
S. Jennings Group Limited
S. Jennings Limited
The Dovercourt Motor
Company Limited
The Dutton-Forshaw Group Limited
The Dutton-Forshaw Motor
Company Limited
*The Dutton-Forshaw Trustee
Company Limited
Truc-Bodies Limited
Vehicle Rental Services Limited
Vikings Canterbury Limited
Warwick Holdings Limited
Incorporated and registered in
Northern Ireland
Registered Office: 62 Boucher
Road, Antrim, Belfast, BT12 6LR,
Northern Ireland
Adelaide Finance Limited
Bairds Cars Limited
Balmoral Motors Limited
Charles Hurst Holdings Limited
Charles Hurst JV Limited
Charles Hurst Limited
Charles Hurst Motors Limited
Fleet Financial Limited
Guthrie & Anderson Limited
Hurstco Limited
Savilles Auto Village Limited
*The Charles Hurst
Corporation Limited
Thompson-Reid Tractors Limited
Town & Country Fuels Limited
Ulster Garages Limited
Incorporated and registered
in Scotland
**Arran Oils Limited
**Ballcop (No.1) Limited
**Ballcop (No.2) Limited
**Ballcop (No.3) Limited
**Ballcop (No.4) Limited
**Ballcop (No.5) Limited
**Ballcop (No.7) Limited
**Ballcop (No.8) Limited
**Ballcop (No.9) Limited
**Ballcop (No.10) Limited
**Ballcop (No.11) Limited
**Hurst Energy Services Limited
**Hurst Fuels (Caledonia) Limited
**Inverclyde Sales & Service Limited
***J M Sloan & Company (Car
Hire) Limited
***J M Sloan & Company Limited
**JN Holdings Limited
****Lomond Motors (East) Limited
****Lomond Motors Limited
****Lomond TPS Limited
***Shields Automotive Limited
***Taggarts Motor Group Limited
Incorporated and registered in
Republic of Ireland
Registered Office: 6th Floor,
South Bank House, Barrow Street,
Dublin 4, Ireland
Charles Hurst (Dublin) Limited
All subsidiary companies are wholly owned through ownership of ordinary share capital.
*These subsidiaries are directly owned by Lookers plc whilst the remaining are indirectly owned.
**Registered Office: 528/540 Windmill Hill Street, Motherwell, ML1 2AQ
***Registered Office: 1 Brasswell Park, Annan Road, Dumfries, DG1 3JA
****Registered Office: 520 Hillington Road, Braehead, Glasgow, G52 4UB
170
Financial Statements Cost
At 1 January
Transfers from related undertakings
At 31 December
2019
£m
126.8
-
126.8
2018
£m
57.8
69.0
126.8
2017
£m
57.8
-
57.8
Notes to the financial statements
For the year ended 31 December 2019
16. Inventories
Group
Goods for resale
Vehicle spare parts for resale
Consignment vehicles
2019
£m
398.7
24.1
533.7
956.5
2018
(restated)
£m
464.9
28.0
480.0
972.9
2017
(restated)
£m
443.2
34.6
464.0
941.8
Total write-offs of £0.0m (2018: £0.1m, 2017: £0.0m) 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 £33.0m (2018: £26.1m, 2017 £21.3m).
At 31 December 2019 the Group had entered into a number of future purchase commitments amounting to £11.6m (2018:
£8.1m, 2017: £3.2m) which are not recognised in the financial statements.
Details of the restatement in respect of the years ending 31 December 2018 and 31 December 2017 are explained in Note 1e
on page 152 and in the tables below:
Group
Goods for resale
Vehicle spare parts for resale
Consignment vehicles
Group
Goods for resale
Vehicle spare parts for resale
Consignment vehicles
2018
(as stated)
£m
547.7
-
480.0
1,027.7
2017
(as stated)
£m
542.1
-
442.0
984.1
Adjustments
£m
(82.8)
28.0
-
(54.8)
Adjustments
£m
(98.9)
34.6
22.0
(42.3)
2018
(restated)
£m
464.9
28.0
480.0
972.9
2017
(restated)
£m
443.2
34.6
464.0
941.8
Vehicle spare parts have been disclosed separately from goods for resale for the first time in the year ending 31 December
2019 . Therefore prior period comparatives have been restated accordingly along with the other prior period adjustments as
noted in Note 1e on page 152.
171
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
17. Trade and other receivables
Trade receivables
Group receivables
Other receivables
Prepayments
Group
2019
£m
111.6
-
8.0
20.6
140.2
2018
(restated)
£m
119.8
-
17.3
23.7
160.8
2017
(restated)
£m
138.6
-
70.3
24.6
233.5
Company
2019
£m
1.1
343.5
7.7
3.8
356.1
2018
(restated)
£m
0.4
389.4
7.4
2.1
399.3
2017
(restated)
£m
0.4
427.9
28.4
2.5
459.2
Balances held within Group receivables relate to balances due from subsidiary undertakings of the Company. All amounts are
unsecured, interest free and repayable on demand.
Details of the restatements in respect of the years ending 31 December 2018 and 31 December 2017 are explained in Note 1e
on page 152 and in the tables below:
Trade receivables
Group receivables
Other receivables
Prepayments
Trade receivables
Group receivables
Other receivables
Prepayments
Group 2018
(as stated)
£m
121.6
-
30.5
27.4
179.5
Adjustments
£m
(1.8)
-
(13.2)
(3.7)
(18.7)
Group 2018
(restated)
£m
119.8
-
17.3
23.7
160.8
Group 2017
(as stated)
£m
139.8
-
73.9
27.4
241.1
Adjustments
£m
(1.2)
-
(3.6)
(2.8)
(7.6)
Group 2017
(restated)
£m
138.6
-
70.3
24.6
233.5
Company
2018
(as stated)
£m
-
378.8
9.2
1.3
389.3
Company
2017
(as stated)
£m
0.4
427.9
30.6
2.4
461.3
Adjustments
£m
0.4
10.6
(1.8)
0.8
10.0
Adjustments
£m
-
-
(2.2)
0.1
(2.1)
Company
2018
(restated)
£m
0.4
389.4
7.4
2.1
399.3
Company
2017
(restated)
£m
0.4
427.9
28.4
2.5
459.2
172
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
18. Rental fleet vehicles
Cost
At 1 January
Transfer from group inventories
Additions
Disposals
Transfer to group inventories
At 31 December
Accumulated depreciation
At 1 January
Charge for the year
Disposals
Transfer to group inventories
At 31 December
Group
2019
£m
57.1
31.3
61.7
(63.3)
(24.7)
62.1
2.9
5.8
(4.4)
(1.6)
2.7
2018
£m
63.6
29.3
60.1
(76.5)
(19.4)
57.1
2.7
6.3
(4.8)
(1.3)
2.9
2017
£m
69.9
20.6
66.5
(82.3)
(11.1)
63.6
2.8
6.2
(5.0)
(1.3)
2.7
Carrying amount at 31 December
59.4
54.2
60.9
The reconciliation of movements above has been re-presented for the years ending 31 December 2017 and 31 December 2018
to split out transfers from and to group inventories from additions and disposals respectively. The transfer of vehicles to group
inventories represents vehicles that have been transferred to other members of the Group for sale to third party customers.
Rental vehicles included in current assets reflect those vehicles which are purchased for the purpose of short-term rentals and
which are expected to be disposed of in less than one year.
173
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
19. Cash and cash equivalents
Cash at bank and in hand
Bank overdraft
Cash and cash equivalents per statement
of cash flows
Group
2019
£m
150.3
(118.9)
2018
(restated)
£m
152.8
(108.5)
2017
(restated)
£m
135.6
(95.6)
Company
2019
£m
17.4
(40.6)
2018
(restated)
£m
19.2
(25.5)
2017
(restated)
£m
33.3
(41.4)
31.4
44.3
40.0
(23.2)
(6.3)
(8.1)
Total restricted cash for the Group at 31 December 2019 is £0.3m (2018: £0.3m, 2017: £1.1m) and for the Company is £0.2m
(2018: £0.1m, 2017: £0.1m).
Cash at bank and in hand
Bank overdraft
Cash at bank and in hand
Bank overdraft
Group 2018
(as stated)
£m
44.4
(1.1)
43.3
Adjustments
£m
108.4
(107.4)
1.0
Group 2018
(restated)
£m
152.8
(108.5)
44.3
Group 2017
(as stated)
£m
45.3
(6.4)
38.9
Adjustments
£m
90.3
(89.2)
1.1
Group 2017
(restated)
£m
135.6
(95.6)
40.0
Company
2018
(as stated)
£m
19.1
(25.5)
(6.4)
Company
2017
(as stated)
£m
11.8
(20.7)
(8.9)
Adjustments
£m
0.1
-
0.1
Adjustments
£m
21.5
(20.7)
0.8
Company
2018
(restated)
£m
19.2
(25.5)
(6.3)
Company
2017
(restated)
£m
33.3
(41.4)
(8.1)
Refer to Note 1e on page 152 for details of the nature and origin of prior period adjustments affecting cash and cash equivalents.
174
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
20. Trade and other payables
Current
Trade payables
Repurchase commitments
Stocking loans
Consignment vehicle creditors
Group payables
Other tax and social security payable
Other creditors
Deferred income
Vehicle Rental finance liabilities
Accruals
Non-current
Deferred income greater than one year
Vehicle Rental finance liabilities
Group
2019
£m
206.9
47.6
337.1
533.7
-
0.8
16.3
6.4
62.2
50.5
1,261.5
2018
(restated)
£m
283.3
23.2
282.5
480.0
-
9.6
35.4
8.2
57.5
40.7
1,220.4
2017
(restated)
£m
290.8
25.7
290.6
464.0
-
18.3
35.8
6.7
66.4
52.5
1,250.8
Company
2019
£m
8.9
-
-
-
112.6
-
1.5
-
-
13.3
136.3
2018
(restated)
£m
4.4
-
-
-
116.7
-
0.2
-
-
7.1
128.4
2017
(restated)
£m
7.3
-
-
-
50.7
5.7
6.6
-
-
8.2
78.5
Group
2019
£m
7.3
35.0
42.3
2018
(restated)
£m
7.1
32.2
39.3
2017
(restated)
£m
9.1
29.9
39.0
Company
2019
£m
-
-
-
2018
(restated)
£m
-
-
-
2017
(restated)
£m
-
-
-
Balances within Group payables relate to balances due to subsidiary undertakings of the Company. All amounts are unsecured,
interest free and repayable on demand. Included within the £35.8m of other creditors at 31 December 2017 is a derivative
financial instrument of £0.6m.
Details of the restatements in respect of the years ending 31 December 2018 and 31 December 2017 are explained in Note 1e
on page 152 and in the tables overleaf.
175
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
20. Trade and other payables (continued)
Details of the restatements in respect of the years ending 31 December 2018 and 31 December 2017 are explained in
Note 1e on page 152 and in the tables below:
Current
Trade payables
Repurchase commitments
Stocking loans
Consignment
vehicle creditors
Group payables
Rental fleet vehicle finance
Other tax and social
security payable
Other creditors
Deferred income
Vehicle rental
finance liabilities
Accruals
Group
2018
(as stated)
£m
282.3
-
336.5
Adjustments
£m
1.0
23.2
(54.0)
Group 2018
(restated)
£m
283.3
23.2
282.5
480.0
-
480.0
-
40.0
9.4
39.3
-
-
48.2
1,235.7
-
(40.0)
0.2
(3.9)
8.2
57.5
(7.5)
(15.3)
-
-
9.6
35.4
8.2
57.5
Company
2018
(as stated)
£m
4.4
-
-
-
106.0
-
-
-
-
-
Adjustments
£m
-
-
-
-
10.7
-
-
0.2
-
-
(1.4)
9.5
Company
2018
(restated)
£m
4.4
-
-
-
116.7
-
-
0.2
-
-
7.1
128.4
40.7
1,220.4
8.5
118.9
Non-current
Repurchase commitments
Rental fleet vehicle finance
Deferred income
Vehicle Rental income
Group
2018
(as stated)
£m
11.9
7.5
-
-
19.4
Adjustments
£m
(11.9)
(7.5)
7.1
32.2
19.9
Group 2018
(restated)
£m
-
-
7.1
32.2
39.3
Company
2018
(as stated)
£m
-
-
-
-
-
Adjustments
£m
-
-
-
-
-
Company
2018
(restated)
£m
-
-
-
-
-
176
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
20. Trade and other payables (continued)
Details of the restatements in respect of the years ending 31 December 2018 and 31 December 2017 are explained in
Note 1e on page 152 and in the tables below:
Trade payables
Repurchase commitments
Stocking loans
Consignment
vehicle creditors
Group payables
Rental fleet vehicle finance
Other tax and social
security payable
Other creditors
Deferred income
Vehicle rental
finance liabilities
Accruals
Group 2017
(as stated)
£m
299.3
-
326.4
442.0
-
46.4
18.2
37.2
-
-
58.6
1,228.1
Adjustments
£m
(8.5)
25.7
(35.8)
22.0
-
(46.4)
0.1
(1.4)
6.7
66.4
(6.1)
22.7
Group 2017
(restated)
£m
290.8
25.7
290.6
464.0
-
-
18.3
35.8
6.7
66.4
52.5
1,250.8
Company
2017
(as stated)
£m
6.8
-
-
Adjustments
£m
0.5
-
-
Company
2017
(restated)
£m
7.3
-
-
-
50.7
-
5.6
8.6
-
-
11.8
83.5
-
-
-
0.1
(2.0)
-
-
(3.6)
(5.0)
-
50.7
-
5.7
6.6
-
-
8.2
78.5
Non-current
Repurchase commitments
Rental fleet vehicle finance
Deferred income
Vehicle Rental liabilities
Group
2017
(as stated)
£m
31.1
5.7
-
-
36.8
Adjustments
£m
(31.1)
(5.7)
9.1
29.9
2.2
Group 2017
(restated)
£m
-
-
9.1
29.9
39.0
Company
2017
(as stated)
£m
-
-
-
-
-
Adjustments
£m
-
-
-
-
-
Company
2017
(restated)
£m
-
-
-
-
-
Amounts relating to repurchase commitments and deferred income have been shown separately from stocking loans and accruals
respectively for the years ending 31 December 2018 and 31 December 2017.
177
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
21. Provisions
For the year ended 31 December 2019
Provision in respect of regulatory matters
At 31 December
Group
At 1 January 2019
Created in the year
At 31 December 2019
Group
2019
£m
10.4
10.4
Provision
for other
charges
-
10.4
10.4
2018
£m
-
-
2017
£m
-
-
Company
2019
£m
-
-
2018
£m
-
-
2017
£m
-
-
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 £10.4m.
178
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments
Carrying amount of financial assets
The carrying amounts of financial assets by category were:
Financial assets measured at amortised cost:
Cash at bank and in hand
Trade receivables
Other receivables
Group
2019
£m
150.3
111.6
8.0
269.9
2018
£m
152.8
119.8
17.3
289.9
2017
£m
135.6
138.6
70.3
344.5
None of the assets are materially credit-impaired and there has been no significant increase in credit risk since initial
recognition. The amounts disclosed above also represent the maximum exposure to credit risk ignoring cash flows from
realisation of the assets and impairment losses.
The gross carrying amounts of trade receivables is as follows:
Current (not past due)
Past due up to three months
Past due from three months up to six months
Past due over six months
Total gross amount at 31 December
Less: Total loss allowance at 31 December
Trade receivables
Group
2019
£m
86.9
23.9
1.6
1.6
114.0
(2.4)
111.6
2018
£m
101.9
15.8
2.0
2.2
121.9
(2.1)
119.8
2017
£m
125.1
14.7
0.9
0.4
141.1
(2.5)
138.6
179
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
The loss allowance based on the simplified approach for lifetime expected credit losses is as follows:
Current (not past due)
Past due up to three months
Past due from three months up to six months
Past due over six months
Total loss allowance at 31 December
Weighted
average loss
rate
1.0%
2.0%
4.0%
8.0%
Group
2019
£m
1.4
0.8
0.1
0.1
2.4
2018
£m
1.4
0.4
0.2
0.1
2.1
2017
£m
2.0
0.4
0.1
-
2.5
The Group has not disaggregated out customer risk profiles to account for variation in credit risk grades as the majority of the
debt is held with a number of manufacturer brand partners with similar risk profiles.
A reconciliation of the changes in the loss allowance is set out below:
As at 1 January
Derecognition including write-off's
Charge/(credit) for the year
As at 31 December
Carrying amount of financial liabilities
The carrying amounts of financial liabilities by category were:
Financial liabilities measured at amortised cost:
Bank overdrafts
Secured bank loans (current and non-current)
Trade and other payables
Total lease liabilities
Current
Bank overdraft
Secured bank loans
Non-current
Secured bank loans
Total borrowings
Group
2019
£m
2.1
(0.1)
0.4
2.4
Group
2019
£m
118.9
90.9
1,289.3
134.1
1,633.2
118.9
0.5
119.4
90.4
209.8
2018
£m
2.5
(0.3)
(0.1)
2.1
2017
£m
2.2
(0.4)
0.7
2.5
2018
£m
108.5
130.2
1,234.8
128.4
1,601.9
108.5
1.5
110.0
128.7
238.7
2017
£m
95.6
136.0
1,264.8
105.1
1,601.5
95.6
13.2
108.8
122.8
231.6
180
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
The loss allowance based on the simplified approach for lifetime expected credit losses is as follows:
Bank loans and overdraft repayable:
Less than one year
More than one year and not more than two years
More than two years and not more than five years
More than five years
Total lease liabilities
Current
Non-current
Lease liabilities repayable:
Less than one year
More than one year and not more than two years
More than two years and not more than five years
More than five years
(Less): interest allocated to future years
Group
2019
£m
119.4
1.1
84.7
4.6
209.8
Group
2019
£m
18.5
115.6
134.1
Group
2019
£m
18.5
17.0
43.7
115.9
(61.0)
134.1
2018
£m
110.0
-
122.9
5.8
238.7
2018
£m
18.6
109.8
128.4
2018
£m
18.6
16.6
43.9
104.6
(55.3)
128.4
2017
£m
108.8
57.9
57.7
7.2
231.6
2017
£m
15.8
89.3
105.1
2017
£m
15.8
14.5
37.2
85.5
(47.9)
105.1
The Group is party to a number of lease arrangements as a lessee and are primarily long leasehold property leases for
a number of dealerships, workshops and office space across the Group. The Group also holds a number of lower value
leases for motor vehicles and IT equipment used to support the Group’s operations. The Group is not materially exposed to
variable lease payments however a number of the property leases have contractual clauses including rent reviews, contract
extension and contract termination options which, dependent upon any significant business reorganisation activities, may
affect the future cashflows of the Group.
During the financial year ending 31 December 2018 the Group successfully completed, two sale and leaseback transactions
from its property portfolio. One transaction resulted in gains being recognised immediately in the income statement as
a result of the previous property carrying amount being less than the sale price (established at fair value) at the point of
leaseback. The other property transaction resulted in a nominal loss being recognised immediately in the income statement.
The effect of these transactions gave rise to an inflow in the consolidated cash flow statement. As a result of the adoption of
IFRS 16, the gain recorded in 2018 has been restricted by a remeasurement of £5.2m in relation to the corresponding right
of use assets that were recognised at the point of leaseback.
Trade and other payables
Current
Non-current
Group
2019
£m
1,254.3
35.0
1,289.3
2018
£m
1,202.6
32.2
1,234.8
2017
£m
1,225.8
29.9
1,255.7
181
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
Trade and other payables repayable:
Less than one year
More than one year and not more than two years
Group
2019
£m
1,254.3
35.0
1,289.3
2018
£m
1,202.6
32.2
1,234.8
2017
£m
1,225.8
29.9
1,255.7
Movement in
financial liabilities
Other loans
RCF
Lease liabilities
Vehicle rental
finance liabilities
At 1 Jan
2019
£m
Net RCF
movement
£m
Loan
repayment
£m
Lease
incentives
£m
Lease
repayment
£m
Lease
receipt
£m
Non-cash
movement
£m
At 31
Dec 2019
£m
11.5
118.7
128.4
89.7
-
(37.3)
-
-
348.3
(37.3)
(1.4)
-
-
-
(1.4)
-
`
1.2
-
1.2
-
`
(15.6)
-
-
-
-
(0.6)
20.1
10.1
80.8
134.1
(69.0)
76.5
-
97.2
(84.6)
76.5
19.5
322.2
Cash and cash
equivalents
Bank overdraft
Net debt excluding
lease and vehicle
rental liabilities
Net debt excluding
lease and vehicle
rental liabilities
(152.8)
108.5
85.9
304.0
(150.3)
118.9
59.5
290.8
Non-cash movements in relation to IFRS 16 relate to the recognition and de-recognition of lease liabilities.
Movement in
financial liabilities
Term loans
Other loans
RCF
Lease liabilities
Vehicle rental
finance liabilities
Cash and cash
equivalents
Bank overdraft
Net debt excluding
lease and vehicle
rental liabilities
Net debt including
lease and vehicle
rental liabilities
At 1 Jan
2018
£m
75.0
15.2
45.8
105.1
96.3
337.4
(135.6)
95.6
96.0
297.4
Net RCF
movement
£m
-
-
1.2
-
Debt
arising on
acquisition
£m
-
5.9
-
-
-
1.2
-
5.9
Loan
repayment
£m
(5.0)
(9.6)
-
-
Lease
repayment
£m
-
-
-
(14.2)
Lease
receipt
£m
-
-
-
-
Non-cash
movement
£m
(70.0)
-
71.7
37.5
At 31
Dec 2018
£m
0.0
11.5
118.7
128.4
-
(79.3)
72.7
-
89.7
(14.6)
(93.5)
72.7
39.2
348.3
(152.8)
108.5
85.9
304.0
A non-cash movement of £1.7m 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.
At 31 December 2019 the Group has a revolving facility of £250.0m with a further of £50.0m available for future acquisitions. This
facility was renegotiated on 21 December 2018 with the syndicated providers who had provided the previous term loan and previous
revolving facility. These previous facilities were settled in the year ending 31 December 2018 using the new revolving credit facility.
182
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
The remaining balance of £70.0m on the term loan was rolled into the new revolving credit facility. The Group will continue to evaluate
the Interest Rate Benchmark Reform amendments to IFRS 9, IAS 39 and IFRS 7 (Sep 2019) as part of the Group's next refinancing
arrangement. As noted in the Accounting Policy around Going Concern, in February 2020 the Group successfully renegotiated a
relaxation to the interest cover covenant attached to the revolving credit facility.
The new revolving credit facility expires on 31 March 2022 and has an option for a further one year extension subject to syndicate
approval. The facility is secured via a debenture over certain assets (predominantly property) of the Group.
An analysis of the Group’s fixed and floating rate borrowings and lease liabilities is as follows:
Floating rate
Fixed rate
Weighted
average
effective
interest
rate
%
2.2
2.1
-
4.3
£m
10.1
80.8
-
90.9
Weighted
average
effective
interest
rate
%
-
-
4.5
4.5
£m
-
-
134.1
134.1
Floating rate
Fixed rate
Weighted
average
effective
interest
rate
%
2.1
1.9
-
4.0
£m
11.5
118.7
-
130.2
Weighted
average
effective
interest
rate
%
-
-
4.5
4.5
£m
-
-
128.4
128.4
Total
interest
bearing
£m
10.1
80.8
134.1
225.0
On which
no interest
is paid
£m
-
-
-
-
Total
interest
bearing
£m
11.5
118.7
128.4
258.6
On which
no interest
is paid
£m
-
-
-
-
2019
Total
£m
10.1
80.8
134.1
225.0
2018
Total
£m
11.5
118.7
128.4
258.6
2019
Other loans
RCF
Lease liabilities
Total borrowings
2018
Other loans
RCF
Lease liabilities
Total borrowings
A maturity analysis of the Group’s undiscounted inflows from lease receivables is as follows:
Year ending
31 December 2017
31 December 2018
31 December 2019
Within
1 year
£m
Within
1-2 years
£m
Within
2-3 years
£m
Within
3-4 years
£m
Within
4-5 years
£m
After
5 years
£m
0.5
1.1
1.5
-
-
0.3
-
-
0.1
-
-
-
-
-
-
-
-
-
Total £m
0.5
1.1
1.9
Financial risk management objectives
The Board manages the financial risks relating to the operations of the Group through internal risk reports which analyse
exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk
and price risk), credit risk, liquidity risk and capital risk. The Group does not enter into or trade financial instruments (including
derivative financial instruments) for speculative purposes.
Market risk
The Group has exposures to the following risks inherent in its financial instruments:
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations
arise. Foreign exchange risk arises as a result of having monetary assets and liabilities denominated in non-Sterling balances.
Exchange rate exposures are managed within approved policy parameters utilising natural hedges where appropriate.
183
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting
date is as follows:
Euro
Assets
Liabilities
Group 2019
£m
2.2
2018
£m
2.4
2017
£m
1.1
Group 2019
£m
8.8
2018
£m
11.1
2017
£m
12.7
The majority of the Group’s business is carried out in sterling. However for the limited number of transactions in foreign
currency the Group is mainly exposed to Euros. The following table details the Group’s sensitivity on financial assets and
liabilities to a 10% change in pounds sterling against the respective foreign currency. 10% is the rate used when reporting
foreign currency risk internally to key management personnel and represents management’s assessment of the possible
change in foreign exchange rates. The sensitivity analysis of the Group’s exposure to foreign currency risk at the reporting date
has been determined based on the change taking place at the beginning of the financial year and held constant throughout the
reporting period.
Group
Financial assets
Financial liabilities
2019
£m
+10%
change
(0.2)
(0.8)
2019
£m
-10%
change
0.2
1.0
2018
£m
+10%
change
(0.2)
(1.0)
2018
£m
-10%
change
0.3
1.3
2017
£m
+10%
change
(0.1)
(1.2)
2018
£m
-10%
change
0.1
1.4
Interest rate risk management
The sensitivity analyses below have been determined based on the exposure to changes in interest rates at the reporting
date and stipulated change taking place at the beginning of the financial year and held constant throughout the reporting
period. Based on historical experience, a 50 basis point change is used when reporting interest risk internally to the Board and
represents the Board’s assessment of the possible change in interest rates. Interest rate risk is the financial impact by which
the Group is exposed in respect of the financial liabilities attracting an interest charge. The Group manages interest rate risk by
ensuring a mix of fixed and floating rate borrowings and ensuring an optimum level of draw-down on each facility.
Group
Profit or loss and equity
+50 Basis Points
Group 2019
£m
0.7
2018
£m
0.6
2017
£m
0.7
A decrease of 50 basis points has an equal and opposite effect to that disclosed above.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral
where appropriate, as a means of mitigating the risk of financial loss from defaults. Default is defined by the Group as any
financial asset subject to non-payment and is assessed as irrecoverable in relation to the circumstances of the counterparty.
The Group’s exposure and the credit ratings of its counterparties are controlled by counterparty limits that are reviewed and
approved by management.
Trade receivables are spread across a large number of counterparties across the UK and Ireland. The Group does not have any
significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The
credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the
Group’s maximum exposure to credit risk.
184
Financial Statements Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Ultimate responsibility
for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
At the year end the Group is in a net current liabilities position of £73.2m (2018: £3.6m) however has more than sufficient
headroom available on the Group's working capital facility to draw down long-term repayable funds into available cash to
ensure that all current liabilities can be met in-line with their contractual maturities.
The following table details the Group’s and the Company’s remaining contractual maturity for its non-derivative financial
liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities
including interest that will accrue to those liabilities except where the Group is entitled and intends to repay the liability before
its maturity.
2019 Financial liabilities
2018 Financial liabilities
2017 Financial liabilities
An analysis of the Company’s borrowings is as follows:
Current:
Bank overdrafts
Secured bank loans
Non-current
Secured bank loans
Bank loans and overdrafts repayable
Less than one year
More than one year and not more than two years
More than two years and not more than five years
More than five years
Less than
1 year
£m
1,392.2
1,331.2
1,359.5
Over 1 year
£m
241.0
270.7
242.0
Total
£m
1,633.2
1,601.9
1,601.5
Company
2019
£m
40.6
-
40.6
81.4
122.0
40.6
-
81.4
-
122.0
2018
£m
25.5
0.4
25.9
118.7
144.6
25.9
-
118.7
-
144.6
2017
£m
41.4
10.0
51.4
111.5
162.9
51.4
-
111.5
-
162.9
Details of the Company’s RCF borrowings are as per the analysis for the Group position.
185
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
22. Financial instruments (continued)
Details of the Company’s lease liabilities are as follows:
Company
Total lease liabilities:
Current
Non-current
Lease liabilities repayable
Less than one year
More than one year and not more than two years
More than two years and not more than five years
(Less): interest allocated to future years
Company
2019
£m
0.7
0.4
1.1
0.7
0.4
0.1
(0.1)
1.1
2018
£m
0.6
0.6
1.2
0.6
0.6
0.1
(0.1)
1.2
2017
£m
0.5
0.8
1.3
0.5
0.8
0.1
(0.1)
1.3
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains
unchanged since the prior year.
The capital structure of the Group consists of cash and cash equivalents, debt and borrowings, and equity holders of the
parent, comprising issued share capital, share premium, a capital redemption reserve and retained earnings. The Group is not
subject to any externally imposed capital requirements.
The Board reviews the capital structure on a semi-annual basis. As part of this review, the Board considers the cost of capital
and the risks associated with each class of capital.
Gearing ratio
The gearing ratio at the year end is as follows:
Total borrowings excluding lease and vehicle rental liabilities
Cash at bank and in hand
Net debt
Total equity
Net debt to equity ratio
Group
2019
£m
209.8
(150.3)
59.5
311.4
19.1%
2018
£m
238.7
(152.8)
85.9
361.9
23.7%
2017
£m
231.6
(135.6)
96.0
358.5
26.8%
Debt is defined as long-term and short-term borrowings as detailed above. In accordance with sector practice and the Group’s
accounting policy, stocking loans are included as trade creditors. Equity includes all capital and reserves of the Group that are
managed as capital.
The gearing ratio inclusive of lease liabilities is as follows:
Net debt (including lease and vehicle rental liabilities)
Total equity
Net debt (including lease and vehicle rental liabilities) to equity ratio
Group
2019
£m
290.8
311.4
93.4%
2018
£m
304.0
361.9
84.0%
2017
£m
297.4
358.5
83.0%
186
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
23. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2018: 17%) and
movements in the year are as follows:
As at 1 January
Arising on business combinations
(Credited)/charged to the Income Statement
Charged/(credited) to Other Comprehensive Income
Transfers
As at 31 December
Group
Deferred tax liabilities:
As at 1 January 2019
Reclassifications
Movement in year
As at 31 December 2019
Deferred tax assets:
As at 1 January 2019
Movement in year
As at 31 December 2019
Net deferred tax liability:
As at 1 January 2019
As at 31 December 2019
Company
Deferred tax assets:
As at 1 January 2019
Reclassifications
Movement in year
As at 31 December 2019
Group
2019
£m
33.0
-
(0.2)
1.2
-
34.0
2018
(restated)
£m
31.6
1.8
-
(1.2)
0.8
33.0
Company
2019
£m
(12.2)
-
1.5
1.2
-
(9.5)
Intangible
assets
£m
18.4
(0.4)
-
18.0
Accelerated
tax
depreciation
£m
28.1
0.4
(1.2)
27.3
Capital
gains
£m
4.1
-
-
4.1
Leases
£m
(4.9)
0.6
(4.3)
Share
options
£m
(0.5)
0.3
(0.2)
Employee
benefits
£m
(11.9)
2.2
(9.7)
Provisions
£m
(0.3)
(0.9)
(1.2)
Accelerated
tax
depreciation
£m
(0.3)
0.6
0.2
0.5
Share
options
£m
-
(0.6)
0.3
(0.3)
Employee
benefits
£m
(11.8)
-
2.2
(9.6)
Provisions
£m
(0.1)
-
-
(0.1)
2018
£m
(4.7)
-
-
(1.1)
(6.4)
(12.2)
Total
£m
50.6
-
(1.2)
49.4
Total
£m
(17.6)
2.2
(15.4)
33.0
34.0
Total
£m
(12.2)
-
2.7
(9.5)
The Directors are satisfied with the recognition of a deferred tax asset in the Company due to the probability of future taxable
profits becoming available.
187
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
24. Share capital
Group and Company
2019
Shares
2018
Shares
(restated)
£m
2017
Shares
(restated)
£m
£m
Authorised:
Ordinary shares of 5p each 480,000,000
24.0 480,000,000
24.0 480,000,000
24.0
Allotted, called up and
fully paid:
As at 1 January
Allotted under share
option schemes
Redeemed in the year
As at 31 December
-
-
389,038,358
19.4 398,036,155
19.9 396,878,720
1,100,016
0.1
569,710
0.0
1,157,435
-
390,138,374
-
(9,567,507)
19.5 389,038,358
(0.5)
-
19.4 398,036,155
19.8
0.1
-
19.9
In the year ending 31 December 2018 shares repurchased under the share buy-back programme have been restated by 557,746
shares to account for all such buy-backs and shares alloted under share option schemes have been restated by 85,058 shares. Total
shares at 1 January 2017 have also been restated by 336,412 shares.
An equivalent amount was transferred to the non-distributable capital redemption reserve which has existed since 2003
following the redemption of preference shares then in issue. All ordinary shares rank equally and have the same rights attached.
25. Share-based compensation
The Company has a number of share option schemes for all employees of the Group and an Executive share option scheme
(ESOS).
Employee ShareSave Scheme
The Employee ShareSave scheme was available to all eligible employees and was based on Save As You Earn (SAYE) savings
contracts with options exercisable within a period from the conclusion of a three year term as appropriate from the date of
grant. Under the terms and conditions of this scheme, for every month (up to no more than six months) an employee fails to
contribute the agreed monthly amount determined under the rules of the scheme, the last date exercisable will be delayed by
one month.
Details of the Employee ShareSave Scheme options outstanding during the year are as follows:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Cancelled during the year
Forfeited during the year
Lapsed during the year
Outstanding at the end of the year
2019
Number of
share
options
11,265,412
-
(2,080)
(8,024,206)
(154,161)
(417,744)
2,667,221
2018
Weighted
Number of
average
share
exercise
options
price (in £)
12,485,875
0.91
3,839,382
-
(56,416)
0.86
(2,855,424)
0.89
(167,563)
0.89
1.32
(1,980,442)
0.90 11,265,412
Weighted
average
exercise
price (in £)
0.97
0.84
1.01
0.91
0.91
0.91
0.91
188
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
25. Share-based compensation (continued)
No options were granted in 2019. The options outstanding at 31 December 2019 have an exercise price in the range of 84
pence to £1.07 and a weighted average contractual life of 24 months (2018: range of 84 pence to £1.45 and a weighted
average contractual life of 24 months). All share options are settled via equity.
Executive Share Option Scheme (ESOS LTIPs)
The Executive Share option scheme was available to all eligible senior management of the Group. Options are exercisable at the
nominal share value and the vesting period is three years. If the options remain unexercised after a period of ten years from the
date of grant the options expire.
Details of the Executive Share option Scheme options outstanding during the year are as follows:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Cancelled during the year
Forfeited during the year
Lapsed during the year
Outstanding at the end of the year
2019
Number of
share
options
6,376,480
2,216,058
(1,012,419)
-
(3,707,677)
-
3,872,442
Weighted
average
exercise
price (in £)
-
-
-
-
-
-
-
2018
Number of
share
options
5,011,836
2,068,826
(704,182)
-
-
-
6,376,480
Weighted
average
exercise
price (in £)
-
-
-
-
-
-
-
The weighted average option price at the date of exercise for share options exercised during the period was £nil (2018: £nil).
The options outstanding at 31 December 2019 and 31 December 2018 had a weighted average exercise price of £nil, and a
weighted average contractual life of 11 months.
The estimate of the fair value of the services received in respect of share option schemes is measured using the Black- Scholes
option pricing model. The inputs into the Black-Scholes model are as follows:
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
2019
36%
3 years
0.02%
4.00%
2018
36%
3 years
0.02%
4.00%
Volatility was measured by reference to the changes in the Company’s share price between 1 January 2015 and 31
December 2019.
The total share based payment charge recorded in the year ending 31 December 2019 was £1.4m (2018: charge of £1.7m).
189
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
26. 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 on
Page 39 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.
Defined benefit obligation
Scheme assets
(Deficit)/surplus
Amounts recognised in the income statement
Actuarial gains/(losses) recognised in the statement of
comprehensive income
Cumulative fair value losses on plan assets
Defined benefit obligation
Scheme assets
(Deficit)/surplus
Amounts recognised in the income statement
Actuarial losses recognised in the statement of
comprehensive income
Cumulative fair value losses on plan assets
The Lookers
Pension Plan
2019
£m
(283.1)
226.4
(56.7)
2.8
6.8
(10.5)
The Dutton
Forshaw
Pension Plan
2019
£m
(2.7)
4.4
1.7
0.1
The Benfield
Group
Pension Plan
2019
£m
(14.2)
13.5
(0.7)
-
0.1
-
0.2
(1.0)
The Lookers
Pension Plan
2018
£m
(271.2)
201.8
(69.4)
5.8
The Dutton
Forshaw
Pension Plan
2018
£m
(2.8)
4.5
1.7
0.3
The Benfield
Group
Pension Plan
2018
£m
(12.6)
11.4
(1.2)
0.2
(6.5)
(17.3)
(0.1)
(0.1)
(0.6)
(1.2)
Total
2019
£m
(300.0)
244.3
(55.7)
2.9
7.1
(11.5)
Total
2018
£m
(286.6)
217.7
(68.9)
6.3
(7.2)
(18.6)
The Lookers Pension Plan - Group and Company
The Lookers Pension Plan provides benefits based on final pensionable salary and is administered by Aon Hewitt Limited.
The scheme has been registered with the Registrar of Pensions. The assets of the scheme are held separately from those of the
Group, being held in separate funds by the Trustees of the Lookers Pension Plan.
A valuation update was made as at 31 December 2019 by a qualified independent actuary, using the projected unit credit
method to take account of the IAS 19 (Revised) requirements. Scheme liabilities have been calculated using a consistent
projected unit valuation method and compared to the scheme’s assets at their 31 December market value.
190
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
Fair value and major categories of assets:
Equities
Target return funds
Corporate bonds
Cash
Total fair value of assets
Market
value
2019
£m
36.7
84.4
56.6
48.7
226.4
Market
value
2018
£m
67.2
68.6
61.5
4.5
201.8
Plan %
2019
16.2
37.3
25.0
21.5
100.0
Plan %
2018
33.3
34.0
30.5
2.2
100.0
£7.26m (19.8%) of the equity assets of the scheme are quoted investments. For those assets that are not quoted, excluding
cash, the investments are valued on a daily basis by the investment managers.
Amounts recognised in the income statement:
Amounts recognised in the income statement:
Non investment expenses
Interest on obligation
Interest income
Past service cost
Total defined benefit expense
Changes in the present value of the defined benefit obligation:
Opening defined benefit obligation
Interest cost
Actuarial losses/(gains)
Past service cost
Benefits paid
Total defined benefit expense
2019
£m
0.9
7.7
(5.8)
-
2.8
2019
£m
271.2
7.7
15.0
-
(10.8)
283.1
2018
£m
0.9
7.4
(5.7)
3.2
5.8
2018
£m
283.5
7.4
(10.8)
3.2
(12.1)
271.2
Demographic changes was a gain of £3.1m (2018: £0.8m), other actuarial experience from financial assumptions was a loss of
£29.0m (2018: gain of £10.0m) with an experience gain of £10.9m (2018: £nil).
Changes in the fair value of scheme assets:
Opening fair value of scheme assets
Interest income
Actuarial gains/(losses)
Contributions
Benefits paid
Non investment expenses
Closing fair value of scheme assets
2019
£m
201.8
5.8
21.8
8.7
(10.8)
(0.9)
226.4
2018
£m
218.0
5.7
(17.3)
8.4
(12.1)
(0.9)
201.8
191
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
None of the scheme’s assets were invested in Lookers plc or property occupied by Lookers plc. The Group contributed
an additional £8.7m in 2019 (2018: £8.4m) to fund accruing pensions and expects to maintain a similar level of pension
contributions in the future to fund current service costs and deficit repayments. As a result of a high court ruling to guarantee
minimum pensions between male and female participants, a one-off charge of £3.2m has been recorded as a past service cost
in the financial year ending 31 December 2018.
Since the defined benefit scheme is closed to future accrual there is no funding required for future service, the funding required
will be in relation to any current deficit and highly dependent on the future performance of the fund. Any agreed contributions will
be reconsidered at each triennial valuation.
The most recent actuarial valuation of the Lookers Pension Plan was carried out as at 31 March 2019. The valuation remains
subject to agreement between the between the trustees and the Group. Total deficit contributions during the 12 months to
31 December 2019 were £8.7m, plus administration expenses of £0.9m. By funding the defined benefit pension scheme,
the Group is exposed to the risk that the cost of meeting its obligations is higher than anticipated. This could occur for several
reasons, for example:
• Investment returns on the scheme's assets may be lower than anticipated, especially if falls in asset values are not matched by
similar falls in the value of the scheme's liabilities;
• The level of price inflation may be higher than that assumed, resulting in higher payments from the scheme;
• Scheme members may live longer than assumed, for example due to advances in healthcare. Members may also exercise
(or not exercise) options in a way that leads to increases in the scheme's liabilities, for example through early retirement or
commutation of pension for cash, and;
• Legislative changes could also lead to an increase in the scheme's liabilities.
The trustee investment objectives and the processes undertaken to measure and manage the risks inherent in the scheme
investment strategy are documented in the scheme’s Statement of Investment Principles. The trustee and the Group review
the investment strategy at the time of each funding valuation, with informal reviews carried out during the period between
valuations. The trustees review the investment strategy based on professional advice from their investment advisors. The
strategy determines the proportion of assets which are growth or matching assets and what policy is to be followed to hedge
against increases in interest rates and inflation. It also considers the funding level of the scheme and the point at which a
de-risking strategy might be appropriate. The risks that may be applicable to the investment strategy are primarily that
investment returns on the scheme’s assets may be lower than anticipated, especially if falls in asset values are not matched by
similar falls in the value of the scheme's liabilities. The average duration of the defined benefit obligation at 31 December 2019 is
17 years (2018: 17.1 years).
192
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
Actuarial assumptions
Discount rate
Future pension increases
Life expectancy at age 65 for:
current pensioners - males
current pensioners - females
future pensioners - males
future pensioners - females
2019
£m
2.10%
1.90%-2.90%
2018
£m
2.90%
2.10%-3.10%
86.7
88.7
87.2
89.5
86.8
89.1
87.5
90.0
The table below gives a broad indication of the impact on the scheme valuation for changes in the key assumptions:
Change in assumption
Reduce discount rate by 0.1% p.a.
Increase inflation assumptions by 0.1% p.a.
Change mortality assumptions to SAPS SINA (-1 year) CMI 2011 (1%)
Approximate impact on current deficit
+£4.8m
+£3.7m
+£11.3m
(2018 + £4.6m)
(2018 + £2.7m)
(2018 + £8.5m)
A change in more than one of these assumptions in the same direction would clearly have a more significant and potentially
materially adverse impact on the deficit of the scheme.
193
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
The Dutton Forshaw Group Pension Plan - Group
The Dutton Forshaw Group Pension Plan provides benefits based on final pensionable salary and is administered by Aon
Hewitt Limited. The scheme has been registered with the Registrar of Pensions. The assets of the scheme are held separately
from those of the Group, being held in separate funds by the Trustees of the Dutton Forshaw Group Pension Plan.
A valuation update was made as at 31 December 2019 by a qualified independent actuary, using a projected unit credit method
to take account of the IAS 19 (Revised) requirements. Scheme liabilities have been calculated using a consistent projected unit
valuation method and compared to the scheme’s assets at their 31 December market value.
Fair value and major categories of assets of the scheme:
Market
value
2019
£m
2.5
1.9
4.4
Market
value
2018
£m
4.4
0.1
4.5
Plan %
2019
57.1
42.9
100.0
Plan %
2018
98.4
1.6
100.0
2019
£m
0.1
0.1
(0.1)
0.1
2019
£m
2.8
0.1
0.1
(0.3)
2.7
2019
£m
4.5
0.1
0.2
(0.3)
(0.1)
4.4
2018
£m
0.3
0.1
(0.1)
0.3
2018
£m
4.4
0.1
-
(1.7)
2.8
2018
£m
6.5
0.1
(0.1)
(1.7)
(0.3)
4.5
Corporate bonds
Cash
Total fair value of assets
All assets excluding cash are unquoted investments.
Amounts recognised in the income statement:
Non investment expenses
Interest cost
Interest income
Total defined benefit expenses
Changes in the present value of the defined benefit obligation:
Opening defined benefit obligation
Interest cost
Actuarial losses
Benefits paid
Closing defined benefit obligation
Financial changes was a loss of £0.1m (2018: £nil).
Changes in the fair value of scheme assets:
Opening fair value of scheme assets
Interest income
Actuarial gains/(losses)
Benefits paid
Non investment expenses
Closing fair value of scheme assets
194
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
The Group contributed an additional £nil in 2019 (2018: £nil) to fund accruing pensions and expects to make no pension
contributions in 2020 following the transfer of assets and liabilities to the Lookers Pension Plan. Administrative expenses of
£0.1m were paid in 2019.
Since the defined benefit scheme is closed to future accrual there is no funding required for future service, the funding required
will be in relation to any current deficit and highly dependent on the future performance of the fund. Any agreed contributions
will be reconsidered at each triennial valuation.
The most recent actuarial valuation of the Dutton Forshaw Pension Plan was carried out as at 31 March 2016. The
contributions are now paid into the Lookers Pension Plan following the transfer into that scheme. By funding the defined
benefit pension scheme, the Group is exposed to the risk that the cost of meeting its obligations is higher than anticipated. This
could occur for several reasons, for example:
• Investment returns on the scheme’s assets may be lower than anticipated, especially if falls in asset values are not matched by
similar falls in the value of the scheme's liabilities;
• The level of price inflation may be higher than that assumed, resulting in higher payments from the scheme;
• Scheme members may live longer than assumed, for example due to advances in healthcare. Members may also exercise
(or not exercise) options in a way that leads to increases in the scheme's liabilities, for example through early retirement or
commutation of pension for cash, and;
• Legislative changes could also lead to an increase in the scheme’s liabilities.
The trustee investment objectives and the processes undertaken to measure and manage the risks inherent in the scheme
investment strategy are documented in the scheme’s Statement of Investment Principles. The trustee and the Group review
the investment strategy at the time of each funding valuation, with informal reviews carried out during the period between
valuations. The trustees review the investment strategy based on professional advice from their investment advisors. The
strategy determines the proportion of assets which are growth or matching assets and what policy is to be followed to hedge
against increases in interest rates and inflation. It also considers the funding level of the scheme and the point at which a de-
risking strategy might be appropriate. The risks that may be applicable to the investment strategy are primarily that investment
returns on the scheme’s assets may be lower than anticipated, especially if falls in asset values are not matched by similar falls
in the value of the scheme's liabilities. The average duration of the defined benefit obligation at 31 December 2019 is 10 years
(2018: 10.1 years).
Actuarial assumptions
Discount rate
Future pension increases
Life expectancy at age 65 for:
current pensioners - males
current pensioners - females
future pensioners - males
future pensioners - females
2019
£m
2.10%
1.90%-2.90%
2018
£m
2.90%
2.10%-3.10%
86.7
88.7
87.3
89.4
86.8
89.1
87.6
90.0
The table below gives a broad indication of the impact on the scheme valuation for changes in the key assumptions:
Change in assumption
Reduce discount rate by 0.1% p.a.
Increase inflation assumptions by 0.1% p.a.
Change mortality assumptions to SAPS SINA (-1 year) CMI 2011 (1%)
Approximate impact on current surplus
£negligible
£negligible
+ £0.1m
(2018 + £negligible)
(2018 + £negligible)
(2018 + £0.1m)
A change in more than one of these assumptions in the same direction would clearly have a more significant and potentially
materially adverse impact on the deficit of the scheme.
195
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
The Benfield Group Pension Plan - Group
The Benfield Motor Group Pension Plan provides benefits based on final pensionable salary. The Plan, which is a funded
scheme, is administered by Deloitte. The scheme has been registered with the Registrar of Pensions. The assets of the
scheme are held separately from those of the Group, being held in separate funds by the Trustees of the Benfield Motor Group
Pension Plan.
A valuation update was made as at 31 December 2018 by a qualified independent actuary to take account of the IAS 19
requirements. Scheme liabilities have been calculated using a consistent projected unit valuation method and compared to the
scheme’s assets at their 31 December market value.
Fair value and major categories of assets of the scheme:
Equities
Corporate bonds
Cash
Total fair value of assets
All assets excluding cash are unquoted investments.
Amounts recognised in the income statement:
Non investment expenses
Interest cost
Interest income
Past service cost
Total defined benefit expenses
Changes in the present value of the defined benefit obligation:
Opening defined benefit obligation
Interest cost
Actuarial losses/(gains)
Past service cost
Benefits paid
Closing defined benefit obligation
Market
value
2019
£m
9.1
4.2
0.2
13.5
Plan %
2019
67.6
31.2
1.2
100.0
Market
value
2018
£m
7.9
3.4
0.1
11.4
2019
£m
-
0.3
(0.3)
-
0.0
2019
£m
12.6
0.3
2.0
-
(0.7)
14.2
Plan %
2018
69.4
29.9
0.7
100.0
2018
£m
-
0.3
(0.3)
0.2
0.2
2018
£m
13.3
0.3
(0.5)
0.2
(0.7)
12.6
Demographic changes was a gain of £0.2m (2018: £0.1m), other actuarial experience from financial assumptions was a loss of
£1.5m (2018: gain of £0.4m) with an experience loss of £0.7m (2018: £nil).
Changes in the fair value of scheme assets:
Opening fair value of scheme assets
Interest income
Actuarial gains/(losses)
Contributions by employer
Benefits paid
Closing fair value of scheme assets
2019
£m
11.4
0.3
2.2
0.3
(0.7)
13.5
2018
£m
12.8
0.3
(1.2)
0.2
(0.7)
11.4
196
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
26. Pensions (continued)
The Group made contributions of £0.3m (2018: £0.2m) during the year and expect to make a similar level of contributions in the
future to fund current service costs and deficit repayments. As a result of a high court ruling to guarantee minimum pensions
between male and female participants a one-off charge of £0.2m has been recorded as a past service cost in the financial year
ending 31 December 2018.
Since the defined benefit scheme is closed to future accrual there is no funding required for future service, the funding required
will be in relation to any current deficit and highly dependent on the future performance of the fund. Any agreed contributions
will be reconsidered at each triennial valuation.
The most recent actuarial valuation of the Benfield Group Pension Plan was carried out as at 31 March 2016. This was agreed
between the trustees and the Group. Contributions of £0.3m were made to the plan in 2019. No administrative expenses are
currently required to be made to the Plan. By funding the defined benefit pension scheme, the Group is exposed to the risk that
the cost of meeting its obligations is higher than anticipated. This could occur for several reasons, for example:
• Investment returns on the scheme's assets may be lower than anticipated, especially if falls in asset values are not matched by
similar falls in the value of the scheme's liabilities;
• The level of price inflation may be higher than that assumed, resulting in higher payments from the scheme;
• Scheme members may live longer than assumed, for example due to advances in healthcare. Members may also exercise
(or not exercise) options in a way that leads to increases in the scheme's liabilities, for example through early retirement or
commutation of pension for cash, and;
• Legislative changes could also lead to an increase in the scheme’s liabilities.
The trustee investment objectives and the processes undertaken to measure and manage the risks inherent in the scheme
investment strategy are documented in the scheme’s Statement of Investment Principles. The trustee and the Group review
the investment strategy at the time of each funding valuation, with informal reviews carried out during the period between
valuations. The trustees review the investment strategy based on professional advice from their investment advisors. The
strategy determines the proportion of assets which are growth or matching assets and what policy is to be followed to hedge
against increases in interest rates and inflation. It also considers the funding level of the scheme and the point at which a de-
risking strategy might be appropriate. The risks that may be applicable to the investment strategy are primarily that investment
returns on the scheme’s assets may be lower than anticipated, especially if falls in asset values are not matched by similar falls
in the value of the scheme's liabilities. The average duration of the defined benefit obligation at 31 December 2019 is 15 years
(2018: 14.9 years).
Actuarial assumptions
Discount rate
Future pension increases
Life expectancy at age 65 for:
current pensioners - males
current pensioners - females
future pensioners - males
future pensioners - females
2019
£m
2.10%
1.90%-2.90%
2018
£m
2.90%
2.10%-3.10%
86.7
88.7
87.9
89.9
86.8
89.1
88.1
90.6
The table below gives a broad indication of the impact on the scheme valuation for changes in the key assumptions:
Change in assumption
Reduce discount rate by 0.1% p.a.
Increase inflation assumptions by 0.1% p.a.
Change mortality assumptions to SAPS SINA (-1 year) CMI 2011 (1%)
Approximate impact on current deficit
+£0.2m
+£0.1m
+£0.6m
(2018 + £0.2m)
(2018 + £0.1m)
(2018 + £0.4m)
A change in more than one of these assumptions in the same direction would clearly have a more significant and potentially
materially adverse impact on the deficit of the scheme.
Defined contribution scheme
The Group and Company provide pension arrangements for certain Directors and employees under defined contribution
schemes and have a defined contribution Stakeholder Pension Scheme for employees. The Income Statement account charge
for the year in respect of defined contribution schemes was £4.8m (2018: £3.1m).
197
Lookers plc Annual Report & Accounts 2019
Notes to the financial statements
For the year ended 31 December 2019
27. 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 £69.7m 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
£9.0m 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 as at the
date of approval of these financial statements
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 £12m plus expenses over a similar time profile for
the Lookers Pension Plan. This is above the limit of £9m 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 these financial statements.
198
Financial Statements
Notes to the financial statements
For the year ended 31 December 2019
27. Subsequent events (continued)
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 has taken the difficult decision to commence
redundancy consultations across all areas of the Group 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.
In addition and having worked closely with our brand partners, the Group has 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.
28. 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:
Key management personnel of the Group:
Other directors interests: 2019
2018
Sales to
related
parties
£m
Purchases
from related
parties
£m
Amounts
owed
by related
parties
£m
Amounts
owed
to related
parties
£m
0.9
-
0.4
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.
29. Ultimate controlling party
There is no controlling party of the Company’s share capital.
199
Lookers plc Annual Report & Accounts 2019 Notes to the financial statements
For the year ended 31 December 2019
30. 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 the APMs 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 APMs 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 APMs are made
within the Glossary on page 202. The table below shows restated comparative figures to show the impact of the adjustments
identified in Note 1e on page 152. A reconciliation of the statutory measures to the Alternative Performance Measures is set
out below:
Like-for-like revenue
Revenue (£m)
Less: Non like-for-like revenue
Like-for-like revenue (£m)
Gross profit margin
Revenue (£m)
Gross profit (£m)
Gross profit margin (%)
Underlying operating profit (£m)
Operating (loss)/profit (£m)
Add: Non-underlying items (£m) - Note 4
Underlying operating profit (£m)
Underlying profit before tax and underlying basic EPS
(Loss)/profit before tax (£m)
Add: Non-underlying items (£m) - Note 4
Underlying profit before tax (£m)
Tax rate (%)
Underlying tax (£m) - Note 9
Underlying profit after tax (£m)
Weighted average number of shares in issue - Note 9
Underlying basic EPS (p)
Property portfolio and property portfolio by share
Property, plant and equipment (£m)
Less: Other property, plant and equipment (£m) - Note 12
Less: Motor vehicles (£m) - Note 12
Property portfolio (£m)
Share capital at 31 December - Note 24
Property portfolio per share (p)
Net debt excluding lease liabilities
Bank loans and overdrafts (£m)
Less: Cash and cash equivalents (£m)
Net debt (£m)
2019
4,787.2
(228.4)
4,558.8
4,787.2
513.1
10.7%
(13.2)
49.7
36.5
(45.5)
49.7
4.2
19.0%
(0.8)
3.4
389,182,654
0.87
429.2
(36.6)
(73.7)
318.9
390,138,374
81.7
209.8
(150.3)
59.5
2018 - restated*
4,828.3
(244.3)
4,584.0
4,828.3
513.1
10.6%
70.8
0.9
71.7
41.9
0.9
42.8
19.0%
(8.1)
34.7
394,662,632
8.78
416.8
(37.8)
(72.1)
306.9
389,038,358
78.9
238.7
(152.8)
85.9
*Details of the restatements due to presentational changes, correction of errors and adoption of IFRS 16 on Note 1e on page 152.
200
Financial Statements Notes
201
Lookers plc Annual Report & Accounts 2019 Trading outlets
Franchises
Aston Martin
Belfast
Audi
Ayr
Basingstoke
Farnborough
Dublin
Edinburgh
Glasgow
Guildford
Hamilton
Newcastle
Stirling
Teesside
Tyneside
Wearside
Bentley
Belfast
BMW
Crewe
Stafford
Stoke-on-Trent
Citroen
Belfast
Dacia
Belfast
Carlisle
Chester
Newcastle
Newtownabbey
Newtownards
Stockport
DS
Belfast
Ferrari
Belfast
Ford
Braintree
Chelmsford
Colchester
Frinton
Gateshead
Harrogate
Leeds
Middlesbrough
Sheffield
South Shields
South
Woodham Ferrers
Sudbury
Sunderland
Honda
Orpington
Hyundai
Dundonald
Jaguar
Aston Clinton
Belfast
Glasgow
West London
Jeep
Belfast
Kia
Belfast
Newcastle
Stockport
Land Rover
Belfast
Bishop Stortford
Chelmsford
Aston Clinton
Colchester
Glasgow - North
Glasgow - South
London - Battersea
Motherwell
West London
Lexus
Belfast
Maserati
Belfast
Mercedes-Benz
Ashford
Brighton
Canterbury
Eastbourne
Gatwick
Maidstone
Shrewsbury
Stafford
Stoke-on-Trent
Stourbridge
Tonbridge
Walsall
Wolverhampton
Worcester
Mini
Crewe
Stafford
Stoke-on-Trent
Nissan
Belfast
Carlisle
Chester
Gateshead
Leeds
Newcastle
Newtownabbey
Newtownards
Peugeot
Belfast
Renault
Belfast
Carlisle
Chester
Newcastle
Newtownabbey
Newtownards
Stockport
Seat
Manchester
Stockport
Skoda
Guildford
Manchester
Newcastle
Stockport
West London
202
Volvo
Colchester
Glasgow
Stockport
Used Car
Supermarkets
Belfast
Dublin
Motorcycles
BMW - Belfast
Honda - Belfast
Yamaha - Belfast
TPS
Edinburgh
Glasgow
Newcastle
Teesside
Tyres
Belfast -
Boucher Road
Belfast -
Sydenham Road
Coleraine
Omagh
Portadown
Service Centres
Jaguar - Chelmsford
VW - Wimbledon
Lookers Leasing
Harrogate
Fleet Financial
Belfast
Vehicle
Rental Services
Beaconsfield
Agricultural Division
Darley Dale
Tuxford
Smart
Brighton
Gatwick
Maidstone
Shrewsbury
Stoke-on-Trent
Tonbridge
Wolverhampton
Worcester
Toyota
Belfast
Dundonald
Newtownabbey
Vauxhall
Belfast
Birkenhead
Birmingham
Chester
Ellesmere Port
Lisburn
Liverpool
Newtownabbey
Portadown
Selly Oak
Speke
St Helens
Volkswagen
Blackburn
Blackpool
Carlisle
Darlington
Guildford
London - Battersea
Newcastle
Northallerton
Preston
Silverlink
Teesside
Walton-on-Thames
Volkswagen -
Commercial Vehicles
Glasgow
Guildford
Newcastle
Teesside
Financial Statements 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
non-recurring or uncontrollable 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 on the basis that dealerships have contributed twelve
months of revenue and profit contribution in both the current and comparative
periods presented.
To provide a consistent overview of comparative
trading performance
Gross profit margin
Gross profit as a percentage of revenue.
Non-underlying 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 the
assessment of financial performance in order to reflect management’s view of
the core-trading performance of the Group.
Underlying
operating profit
Operating profit before the impact of non-underlying items as defined above.
Profit after tax
Profit after tax before the impact of non-underlying items as defined above.
A measure of the significant revenue channels’
operational performance
A key metric of the Group’s non-underlying
business performance.
A key metric of the Group’s underlying
business performance.
A key metric of the Group’s underlying
business performance
Underlying earnings
per share (EPS)
Net debt
Earnings per share before the impact of non-underlying items as defined above. A key metric of the Group’s underlying
Bank loans and overdrafts less cash and cash equivalents. Lease liabilities and
stocking loans are not included in net debt.
business performance
A measure of the Group’s net indebtedness
that provides an indicator of the overall balance
sheet strength
Property portfolio
The net book value of freehold and leasehold properties as at the balance
sheet date.
A key metric of the Group’s statement of
financial position
New car unit sale
A new vehicle sale which has generated revenue for the Group.
Used car unit sale
Any vehicle sold that isn’t a new car unit sale.
Car parc
The approximate number of vehicles on the UK road network.
A measure of statistical volumes and indicator of
operational performance
A measure of statistical volumes and indicator of
operational performance
A measure of the UK market size and indicator for
growth opportunities
New car market
Total number of annual new vehicle unit registrations made in the UK as defined
by the Society of Motor Manufacturers and Traders (“SMMT”).
A measure of the UK market size and indicator for
growth opportunities
New car market share
The Group’s annual share of the new car market calculated as a percentage of
the Group’s new car unit sales to the new car market size.
Our relative performance against the UK market
Details of the reconciliations of APMs to statutory measures are made on page 26.
The 'Code'
The UK Corporate Governance Code is a part of UK company law with a set of principles of good corporate governance aimed at companies listed on the London Stock
Exchange. It is overseen by the Financial Reporting Council. A copy is available at www.frc.org.uk
203
Lookers plc Annual Report & Accounts 2019 Notes
Notes
Notes
www.lookers.co.uk