TIDMLOOK
RNS Number : 7093S
Lookers PLC
13 March 2019
LOOKERS plc
Annual Results for the year ended 31 December 2018
Resilient performance in a challenging market and increased
dividend
Lookers plc, ("Lookers", "the Company" or "the Group"), one of
the leading UK motor retail and aftersales service groups,
announces its annual results for the year ended 31 December
2018.
Key financials:
2018 2017 Change
Turnover GBP4,880m GBP4,696m 4%
---------- ---------- -------
Profit before tax GBP53.1m GBP58.4m (9%)
---------- ---------- -------
*Adjusted profit before tax GBP67.3m GBP68.4m (2%)
---------- ---------- -------
*Adjusted profit before tax excluding
property sales GBP59.6m GBP65.9m (9.5%)
---------- ---------- -------
*Adjusted earnings per share 14.68p 14.57p 0.8%
---------- ---------- -------
*Adjusted earnings per share excluding
property sales 12.72p 13.94p (8.7%)
---------- ---------- -------
Earnings per share 11.07p 12.06p (8%)
---------- ---------- -------
Final dividend per share 2.60p 2.48p 5%
---------- ---------- -------
Total dividend per share 4.08p 3.89p 5%
---------- ---------- -------
*Adjusted profit before tax is profit before amortisation of
intangible assets, debt issue costs, defined benefit scheme pension
costs, fair value of derivatives and share based payments. Adjusted
earnings per share is earnings per share before amortisation of
intangible assets, debt issue costs, defined benefit scheme pension
costs, fair value of derivatives and share based payments.
Operational highlights:
-- Total new car turnover down 3.3% and 3.0% on a like-for-like
basis, with gross profit per unit increasing
-- Total used car turnover up 14% and the same on a
like-for-like basis as we continue to grow our presence in this
market
-- Aftersales turnover up 6% on an absolute basis and 7% on a
like-for-like basis, with increased profitability
-- Cost inflation in property, salaries and IT
-- Continued investment to improve dealerships and develop our
multi-channel customer experience
-- Acquisition of Jennings Group in September, expanding our
partnership with Ford in the North East
Outlook:
-- Good start to 2019 with order book for the delivery of new
cars in March continuing to build in line with our expectations
-- Used car volumes continue to show growth and further opportunities in aftersales
Andy Bruce, Chief Executive of Lookers, said:
"We have produced a resilient set of results against a backdrop
of more challenging conditions in the motor sector, increasing
sales and maintaining profitability. In particular, growth in our
used car and aftersales divisions has helped to offset the impact
of a more muted new car market, demonstrating the resilience of our
business model.
"We remain focused on our strategy of having the right brands in
the right locations, underpinned by ensuring operational excellence
across our portfolio of dealerships. This focus, combined with the
quality of our people, is our formula for success and is helping us
to increase market share. At the same time, we continue to explore
opportunities to grow the Lookers estate and in September we
expanded our presence in the North East with the acquisition of the
Jennings Group.
"The order book for new cars in the important month of March is
in line with our expectations and we expect to make further
progress in used cars and aftersales. We remain mindful of a
prolonged period of political and economic uncertainty, but we
believe we are well positioned to strengthen our position to
deliver growth and enhance shareholder value over the medium to
long term."
There will be an analyst presentation today at 10.30am taking
place at Numis Securities, The London Stock Exchange Building, 10
Paternoster Square, London, EC4M 7LT. The presentation will also be
accessible via a live conference call for registered participants.
To register for the call please contact MHP Communications on +44
(0)20 3128 8742, or by email on lookers@MHPC.com.
Enquiries
Lookers Tel: 0161 291 0043
Andy Bruce, Chief Executive
Robin Gregson, Chief Financial Officer
MHP Communications Tel: 020 3128 8742 / 07551 170 451
Tim Rowntree Email: Lookers@mhpc.com
Simon Hockridge
Alistair de Kare-Silver
FINANCIAL INFORMATION
The following table sets out the financial information that is
referred to in this report and reconciles this to statutory
financial metrics.
2018 2017
Operating profit GBP73.6m GBP77.4m
---------- ----------
Amortisation of intangible assets GBP5.6m GBP5.6m
---------- ----------
Share based payments GBP1.7m GBP1.7m
---------- ----------
Defined benefit pension costs GBP4.7m -
---------- ----------
Adjusted operating profit GBP85.6m GBP84.7m
---------- ----------
Profit on sale of properties (GBP7.7m) (GBP2.5m)
---------- ----------
Adjusted operating profit excluding property GBP77.9m GBP82.2m
sales
---------- ----------
Profit before tax GBP53.1m GBP58.4m
---------- ----------
Amortisation of intangible assets GBP5.6m GBP5.6m
---------- ----------
Share based payments GBP1.7m GBP1.7m
---------- ----------
Net interest on pension scheme obligations GBP1.7m GBP4.2m
---------- ----------
Defined benefit pension costs GBP4.7m -
---------- ----------
Fair value on derivative instrument - (GBP1.9m)
---------- ----------
Debt issue costs GBP0.5m GBP0.4m
---------- ----------
Adjusted profit before tax GBP67.3m GBP68.4m
---------- ----------
Profit on sale of properties (GBP7.7m) (GBP2.5m)
---------- ----------
Adjusted profit before tax excluding GBP59.6m GBP65.9m
property sales
---------- ----------
Defined benefit pension costs include a one off charge of GBP3.4
million in 2018 following a High Court ruling against Lloyds Bank
in November 2018 to equalise guaranteed minimum pensions between
male and female participants, a decision that is likely to affect
most defined benefit pension schemes in the UK. The defined benefit
pension cost has been separated in 2018 between net interest on
pension scheme obligations of GBP1.7 million and other defined
benefit costs of GBP4.7 million. Should the prior year numbers be
recognised with the same split, this would have led to GBP2.4
million recognised in net interest on pension scheme obligations
and GBP1.8 million in other defined benefits costs, however due to
the immaterial nature, the balances have not been restated.
Alternative performance measures (APMs)
Lookers use several APMs, in addition to those reported under
IFRS, as management believe these measures enable users of the
financial statements to assess the underlying trading performance
of the business. The APMs used include adjusted operating profit,
adjusted profit before tax excluding property sale, adjusted
earnings per share and net debt to EBITDA. These measures reflect
the underlying trading performance of the business as they exclude
certain non-operational items and amortisation of acquired
intangible assets. The measures described above are also used in
the targeting process for executive and management annual bonuses
(adjusted profit before tax) and share schemes (adjusted profit
before tax and net debt to EBITDA).
STRATEGIC REVIEW
I am pleased to report a resilient set of results for the
Company against a backdrop of challenging trading conditions for
the motor sector, particularly in the second half of the year. We
saw a 4% increase in turnover compared to the prior year with only
a slightly lower level of adjusted profit before tax* of GBP67.3
million (2017: GBP68.4 million). This includes the profit of GBP7.7
million (2017: GBP2.5 million) from the sale of a property, which
is separately included in other operating income. During the year
we had several changes to our dealership portfolio where a number
of businesses were closed and we therefore incurred certain closure
and reorganisation costs as a result of these changes.
Profit before tax was GBP53.1 million (2017: GBP58.4 million).
This result has been achieved during a period in which volumes in
the UK new car market fell by 6.8% to 2.37 million cars, the second
successive year of reduced volumes, albeit the market remains
relatively high compared to historical levels. The new car market
was affected by a continuation of the anti-diesel theme and a
shortage of supply of new vehicles in the last four months of the
year which had to be tested to the more stringent Worldwide
Harmonised Light Vehicle Testing Procedure ("WLTP") emission
regulations. We had anticipated that these supply issues would have
cleared during the last three months of the year but unfortunately,
they remained an issue for the rest of the year. The continuing
political uncertainty resulting from the Brexit situation and the
negative impact this has had on both consumer and business
confidence, has also adversely affected the demand for new
cars.
The new car market has now reduced by 320,000 cars since the
peak of 2.69m in 2016, a decrease of 12%. With our share of just
over 6.2% of the total new car market, this represents a reduction
of 12,800 new cars to Lookers, which is equivalent to a loss in
gross profit in excess of GBP20m. We therefore believe that to have
substantially maintained our profitability despite the loss of this
significant level of profit on new cars, demonstrates the
effectiveness of our strategy and resilience of our business
model.
The key elements of our performance were:
-- Turnover and volumes of new cars reduced and gross profit per unit was increased;
-- Further growth in used car turnover and gross profit;
-- Improvement in both aftersales turnover and margin; and
-- Further inflationary costs in salaries, property and IT.
Whilst the new car market remains challenging, we believe there
are opportunities to grow the business in 2019 and beyond,
particularly in used cars and where Lookers, as a leading company
in the industry, benefits from economies of scale, the skills of
our people and our ability to invest in improved technology.
OPERATING REVIEW
SUMMARY OF KEY FINANCIAL AND NON-FINANCIAL KPIs:
Financial 2018 2017
Turnover GBP4,880m GBP4,696m
---------- ----------
Gross profit GBP515.5m GBP504.1m
---------- ----------
Gross margin 10.6% 10.7%
---------- ----------
*Adjusted operating profit GBP85.5m GBP84.7m
---------- ----------
Profit on sale of property (GBP7.7m) (GBP2.5m)
---------- ----------
*Adjusted operating profit excluding GBP77.8m GBP82.2m
property sales
---------- ----------
*Adjusted profit before tax GBP67.3m GBP68.4m
---------- ----------
*Adjusted profit before tax excluding GBP59.6m GBP65.9m
property sales
---------- ----------
* Adjusted earnings per share 14.68p 14.57p
---------- ----------
*Adjusted earnings per share excluding
property sales 12.72p 13.94p
---------- ----------
Profit before tax GBP53.1m GBP58.4m
---------- ----------
Earnings per share 11.07p 12.06p
---------- ----------
Net debt GBP86.9m GBP97.8m
---------- ----------
Net debt to Adjusted EBITDA 0.88 0.95
---------- ----------
Non-financial
---------- ----------
UK new car market 2.37m 2.54m
---------- ----------
Group new car sales 97,641 104,331
---------- ----------
Share of UK new car retail 6.2% 6.0%
---------- ----------
Group used car sales 97,709 92,105
---------- ----------
Average number of employees 8,323 8,175
---------- ----------
*Adjusted operating profit is operating profit before
amortisation of intangible assets, defined benefit scheme pension
costs and share based payments. Adjusted profit before tax is
profit before amortisation of intangible assets, debt issue costs,
defined benefit scheme pension costs, fair value of derivatives and
share based payments. Adjusted earnings per share is earnings per
share before amortisation of intangible assets, debt issue costs,
defined benefit scheme pension costs, fair value of derivatives and
share based payments. Net debt is loans and overdrafts less cash
and cash equivalents. Adjusted EBITDA is adjusted operating profit
adding back depreciation
Where like-for-like figures are included in this report, they
are calculated on the basis that acquired businesses have been part
of the Group from 1 January 2017 and closed or sold businesses have
been excluded from the Group from 1 January 2017.
Acquisitions and portfolio management
Our motor retail business has been through a period of
significant transformation in recent years and further developments
continued in 2018 to ensure that our dealerships are aligned with
our strategy of having a meaningful representation of the major
automotive brands in the main centres of population in the UK. As
part of this process we closed two Vauxhall dealerships at
Warrington and Yardley, near Birmingham in March. These were both
underperforming businesses and were closed with the agreement of
Vauxhall as part of the rationalisation of their UK dealer network.
In July we acquired a Ford dealership which complements our larger
representation of Ford in Essex and in October we closed our
Hyundai and Nissan business in Motherwell. As referred to earlier
in this report we therefore incurred certain closure and
reorganisation costs as a result of these changes.
In September the Group acquired the Jennings Group for a gross
payment of GBP10.1m. Jennings is a long-established motor retail
group in the North East of England with Ford being the key brand
partner, particularly in the Teesside area. The acquisition
complements and strengthens Lookers' position in the region and we
are delighted to expand our key partnership with Ford. Given the
timing of the acquisition, it has been earnings neutral this year
but has now been successfully integrated and we expect a modest
contribution to earnings in 2019.
Analysis of turnover and gross profit
2018 GBPm 2017 GBPm % change
Turnover
----------- ---------- ---------
New cars 2,395 2,477 (3.3%)
----------- ---------- ---------
Used cars 1,939 1,702 14%
----------- ---------- ---------
Aftersales 433 409 6%
----------- ---------- ---------
Leasing and other 112 108 4%
----------- ---------- ---------
Total 4,880 4,696 4%
----------- ---------- ---------
Gross profit
New cars 161 165 (2%)
---- ---- -----
Used cars 135 133 2%
---- ---- -----
Aftersales 203 189 7%
---- ---- -----
Leasing and other 17 17 -
---- ---- -----
Total 516 504 2%
---- ---- -----
New cars
The sale of new cars represents 31% of gross profit for the
Group and the new car market reduced by 6.8% in the year to 2.37
million. The retail new car market reduced by 6.4% to 1.05 million
and the fleet new car market reduced by 7.2% to 1.32 million. There
were significant fluctuations in the market during the year
including a significant decrease in the first quarter, given the
strong comparatives from 2017 resulting from increased demand in
advance of the changes in Vehicle Excise Duty that became effective
in April 2017. This was followed by some modest growth within
certain months in the second quarter. The final four months of the
year suffered from a shortage in the supply of new cars following
the introduction of the more stringent WLTP emissions regulations
from 1 September. The resulting impact on the timings of when
vehicles could be tested meant that certain brands and models were
not available for sale. The impact of this in the final quarter was
greater than we had originally anticipated in September.
Despite this challenging backdrop, we delivered a positive
performance and our retail volumes were slightly ahead of the
market, with a reduction of 4.6%, or 4.7% on a like-for-like basis.
Fleet volumes, including commercial vehicles, reduced by 8.2%, or
5% on a like-for-like basis, although a reasonable proportion of
the decrease was a result of our decision to exit some high volume
but very low margin fleet business. Total new car turnover reduced
by 3.3% year-on-year and decreased by 3% on a like-for-like basis.
This represents a strong performance compared to the wider market,
as we continue to take share in a competitive environment. Total
gross profit from new cars decreased by less than the reduction in
volume or turnover at 2.3%, compared to the prior year and by 2.4%
on a like-for-like basis. This reflected an increase in profit per
unit during the year where we were able to successfully increase
margins where vehicles were in short supply.
The new car market continues to be at historically high levels
and we have an encouraging level of orders for the important month
of March, albeit these are at a lower level than last year. The
Society of Motor Manufacturers and Traders ("SMMT") current
estimate is that new car volumes will be 2.3% lower for 2019
compared to 2018, at 2.31 million. This is still a relatively
healthy outlook compared to historical levels of new car volumes
and provides opportunities for us to continue to increase market
share, particularly as the brands where we have significant
representation tend to outperform the wider market. Our
relationship with our manufacturer partners remains a critical part
of our success and we continue to work closely with them to achieve
a mutually beneficial commercial relationship, underpinning the
potential to develop further with them in the future.
Used cars
Used cars now contribute 26% of our gross profit and the market
continues to be buoyant with values remaining stable and
predictable. Turnover of used cars increased by 14%, and 14% on a
like-for-like basis, compared to 2017 and volumes increased by 6%.
Gross profit increased by 1.5%, or 1.5% on a like-for-like basis.
This is a pleasing performance given that our used car volumes have
increased significantly over recent years. We continue to focus on
stock management and sourcing good quality vehicles, both of which
help to improve profitability.
In conjunction with recognising the importance of new cars to
our business model, the used car market continues to represent a
significant additional opportunity for the Group and we plan to
accelerate our growth in this market with the target of increasing
our ratio of used cars to new retail to 2:1. 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 website.
Further and extensive investment in technology continues to be
carried out and will lead to further increases in volumes and
profitability.
Aftersales
Our higher margin aftersales business, which represents 39% of
gross profit, has performed well in the period. Turnover (excluding
leasing) increased by 6% compared to 2017 and 7% on a like-for-like
basis and gross profit increased by 7% and 7% on a like-for-like
basis, with the margin being maintained. The increased
profitability has benefitted from the growth in the vehicle parc of
cars under three years old, a trend which has now begun to reduce
given the decreasing volume of new cars sold. However, we have
increased capacity when developing new dealership premises in
recent years which has provided an increase in the base
infrastructure to support these increased volumes.
The increased performance in aftersales is also due to the
initiatives we have made to develop our services, with an increased
emphasis on performance and improved customer retention through
enhanced technology and systems.
Developing a multichannel retail environment
We have continued to make a significant investment in our
multi-channel customer experience and our website plays a critical
and important role in the customer journey, influencing how our
customers research vehicles before they enter the showroom. Our
in-house digital marketing team now operate across all channels and
the latest version of a new, much improved and fully responsive
website, which continues to evolve and improve, has resulted in
further increases in our visitor and enquiry levels.
We are implementing further significant developments to our
website which will result in exciting improvements in functionality
and interaction with our customers. We are currently migrating to
the new and considerably improved website on a phased basis and
expect this to be fully operational across all dealerships 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.
We have previously commented on our commitment to developing and
improving the customer journey through a significant programme of
capital investment in new and improved dealership premises. There
is still further investment to make in this transformation of our
property portfolio, but we believe this will start to reduce after
2021. The programme is taking us longer than originally anticipated
due to delays in finding appropriate properties and planning
issues. However, this has resulted in the benefit of capital
expenditure being incurred over a longer period and at lower levels
than originally anticipated. This programme will ensure that our
entire dealership estate represents best in class modern motor
retailing.
Customer experience
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 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 continue to invest
in our people with further improvements and new initiatives to our
training and development programme and a formal management
development programme. We believe Lookers offer the most attractive
employment prospects in our sector and we aim to be the best place
to work in our industry. This should result in us being able to
attract and retain the best people, including those from outside
the sector, to achieve enhanced levels of customer satisfaction and
help us continue to be a leading company in the UK motor retail
sector. It was therefore a great achievement for our progress in
this important area to be recognised again as the only motor
retailer to be awarded the exclusive Top Employers United Kingdom
certification, which we have now achieved for a third successive
year. We have also, for the first time, achieved the recognition
for outstanding staff engagement by achieving a prominent position
in the Sunday Times list of top companies to work for. 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 meaningfully and noticeably different
experience for them and our customers.
FINANCIAL REVIEW
GROUP RESULTS
Turnover increased by 3.9% to GBP4,880 million compared to the
previous year (2017: GBP4,696 million), with growth from used cars
and aftersales. Gross profit increased by 2.4% to GBP516 million
(2017: GBP504 million). The gross margin of 10.6% was a similar
level to last year, despite higher levels of used car turnover
which tends to dilute the margin.
Adjusted profit before tax of GBP67.3 million reduced by 1.6%
(2017: GBP68.4 million). As referred to above, this includes the
profit of GBP7.7 million (2017: GBP2.5 million) from the sale of a
property, which is separately included in other operating income.
Whilst gross profit increased by GBP12.0 million, costs also
increased in the year by GBP20.4 million due to inflationary
pressures from payroll costs (cost of living, workplace pensions
and living wage) as well as higher property costs in relation to
rent, rates, depreciation and energy as well as an increase in IT
costs. Considering the challenging trading conditions, further cost
saving initiatives were carried out in the year to stabilise the
cost base although we will continue to experience the impact of
inflation on payroll costs.
Net interest costs increased by 13%, to GBP18.3 million (2017:
GBP16.3 million), due to higher levels of working capital and
increases in the bank base rate in November 2017 and August 2018.
Interest on group borrowings is based on floating interest rates
together with an historical interest rate hedge from 10 years ago.
This covered GBP20 million of debt at the relatively high rate of
interest of 4.99% and expired during the year.
Key financial highlights are summarised below:
-- *Adjusted profit before tax for the year, including the
profit on the sale of a property of GBP7.7 million, was maintained
at a similar level to the prior year at GBP67.3 million (2017:
GBP68.4 million);
-- Profit before tax was GBP53.1 million compared to a profit
before tax in the previous year of GBP58.4 million. This also
includes the cost of GBP3.4 million which relates to a back dated
pension adjustment for GMP equalisation and is explained in further
detail in the section on pensions;
-- Profit after tax was GBP43.5 million, a reduction of 9% (2017: GBP47.9 million); and
-- Earnings per share reduced to 11.07p compared to 12.06p in
the prior year and *Adjusted earnings per share was stable at
14.68p (2017:14.57p)
*Adjusted profit before tax is profit before amortisation of
intangible assets, debt issue costs, defined benefit scheme pension
costs, fair value of derivatives and share based payments. Adjusted
earnings per share is earnings per share before amortisation of
intangible assets, debt issue costs, defined benefit scheme pension
costs, fair value of derivatives and share based payments.
We have continued to consider that adjusted profit before tax is
before amortisation of intangible assets as this is consistent with
our previous financial reporting. However, we have reviewed this
and decided that in the future, it is more appropriate to report
adjusted profit before tax to include the amortisation of
intangible assets. This practice will be adopted in our interim
financial report for the six months ending 30 June 2019.
TAXATION
The tax charge for the year of GBP9.6 million (2017: GBP10.5
million) reflects a charge of 18% of profit before tax, which is
slightly lower than the standard rate of corporation tax for the
year of 19%. This is due to an over provision for corporation tax
in prior years as several tax issues relating to previous years
were agreed with HMRC.
CASH FLOW
Cash generated from operations for the year continued to be
strong at GBP79.4 million and represented a small reduction over
the prior year (2017: GBP79.7 million). Net working capital
increased by GBP10.1 million, an improvement of GBP7.7 million
(2017: increase of GBP17.8 million). Stock decreased by GBP1.4
million, debtors reduced by GBP48.9 million and creditors reduced
by GBP60.4 million, these movements representing the movement in
net working capital.
Capital expenditure was GBP25.7 million, a significant reduction
compared to last year (2017: GBP46.1 million), with proceeds from
the sale of properties and dealership businesses of GBP35.1 million
(2017: GBP8.0 million), resulting in a net capital receipt of
GBP9.4 million (2017: net expenditure of GBP38.1 million). The
majority of capital expenditure was on new or improved premises for
dealerships and reflects our ongoing commitment to improve our
retail environment, so they reflect modern and state of the art
facilities, as we have previously reported. The capital receipt of
GBP35.1 million reflects the sale of group properties that we had
previously developed which were sold as sale and leaseback
transactions and produced a profit of GBP7.7 million.
Cash flow in the year included loan repayments of GBP14.6
million compared to GBP12.5 million last year.
Net debt reduced by GBP10.9 million due to positive cash flow in
the year which resulted in net debt of GBP86.9 million at 31
December 2018 compared to GBP97.8 million at the start of the year.
Net debt is calculated as gross bank borrowings of GBP131.3 million
less cash balances of GBP44.4 million.
BANK FUNDING
Our bank facilities at the start of the year had a term until
March 2020 and consisted of a term loan of GBP75 million and a
revolving credit facility of GBP150 million. Whilst the facilities
had 15 months to run as at 31 December 2018, we considered it
prudent, given the uncertainty surrounding Brexit, to renew our
facilities at an earlier stage and a new facility was arranged in
December 2018. This consists of a revolving credit facility of
GBP250 million arranged with five banks, (Bank of Ireland,
Barclays, HSBC, Lloyds and NatWest), with a term to March 2022 and
an option to extend to March 2023. There is also the potential to
increase the facility up to an additional GBP50 million 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 covenant tests
are set at levels that should provide sufficient headroom and
flexibility for the Group until maturity of the facilities.
At 31 December 2018, total facilities were GBP250 million (2017:
GBP225 million) of which GBP86.9 million, net of cash balances, was
being utilised, leaving unutilised facilities of GBP145.1 million.
The bank facility, together with the Group's strong operational
cash flow, indicate that the Group has sufficient facilities
available to fund its operations and allow for future expansion. At
31 December 2018, net debt to EBITDA was 0.88 compared to 0.95 last
year. The Group's underlying profitability and strong cash flow
should result in further reductions in borrowing in the future and
help ensure that the level of borrowing remains under control and
is at a reasonable level in relation to net assets.
PROPERTY PORTFOLIO
The Group has a policy of investing in freehold and long
leasehold property as the preferred means of providing premises for
our car dealerships, where possible. As a result, we have a
significant and valuable portfolio of freehold and long leasehold
properties which is an important strength of our business. The net
book value at 31 December 2018 was GBP302.7 million compared to
GBP308.7 million last year. Short leasehold properties had a value
of GBP2.7 million (2017: GBP2.7 million).
From 1 January 2019 we will be retrospectively adopting the new
accounting standard, IFRS 16: Leases, which introduces a
comprehensive model for the identification of lease arrangements
and accounting treatments for both lessors and lessees. IFRS 16
will have a significant impact on the way our property leases are
included in the accounts, where we will include an asset and a
liability in the accounts in respect of each lease. The annual
operating lease rental will then be represented as depreciation and
interest in the income statement. Preliminary calculations indicate
that for the leases held at the year end the Group expects an
increase in gross assets of up to GBP100 million and an increase in
gross liabilities of up to GBP120 million. EBITDA is expected to
increase by up to GBP20 million and operating profit is expected to
increase by up to GBP7.5 million. However, these changes are not
expected to significantly impact on profit before tax.
DIVIDS
In our interim report, we indicated that due to the encouraging
results and strong financial position of the Group, the interim
dividend would be increased by 5% to 1.48p per ordinary share and
this was paid on 24 November 2018. We are now proposing a 5%
increase in the final dividend to 2.60p per share (2017: 2.48p),
giving a total dividend for the year ended 31 December 2018 of
4.08p per share (2017: 3.89p), representing an annual increase of
5%.
The dividend has now increased by over 127% compared to the
dividend payable for the year ended 31 December 2010, when the
Company re-commenced dividend payments, and continues our
progressive policy of increasing the dividend provided there is
satisfactory growth in profitability.
The increase in the total dividend this year recognises that the
dividend cover has risen significantly in recent years. The Board
maintains its view that the level of cover should reduce over the
medium term to a level of between 3.5 and 4.0 times. However, the
Board will continue to review the dividend policy in light of the
Company's trading performance whilst retaining sufficient cash flow
to fund future expansion in terms of both organic growth and
acquisitions.
The final dividend of 2.60p per share is subject to shareholder
approval at the Annual General Meeting and will be payable on 5
June 2019. The ex-dividend date will be 25 April 2019 and the
record date will be 26 April 2019. This will represent a cash
outflow of GBP10.1 million, which gives a total dividend for the
year of GBP15.9 million (2017: GBP15.4 million). Dividends paid in
cash during the year were GBP15.6 million, an increase of 4%
compared to the previous year.
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 decreased by GBP19.7 million during the year
due to the adverse movements in global investments during the year
and the valuation of the liabilities of the schemes reduced by
GBP14.6 million. The pension schemes also suffered a one-off charge
of GBP3.4 million following a High Court ruling against Lloyds Bank
in November 2018 to equalise guaranteed minimum pensions between
male and female participants, a decision that is likely to affect
most defined benefit pension schemes in the UK.
As a result, the net deficit included in the balance sheet
increased by GBP5.1 million in the year. However, it is important
to appreciate that the assessment of valuation of the pension
schemes is based on several key assumptions prescribed by
accounting standards. As a result, the calculation which estimates
the potential liabilities of the schemes can increase or decrease
the liabilities due to factors that have no relation or relevance
to the trading results of the Group.
The impact of these factors is that the combined value of the
deficits of the three schemes increased in the year and the total
deficit after deferred tax is now GBP57.1 million (2017: GBP52.9
million). 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. The Board continues to look at its options to reduce
both the annual cost of operating both schemes and what actions can
be taken to reduce the deficit on the schemes, thereby reducing
exposure to movements in these liabilities and reducing the deficit
over the medium and longer term.
SHARE BUY BACK PROGRAMME
In March 2018 we announced a share buyback programme of up to
GBP10 million of the Company's ordinary shares, given the sensible
returns it would provide based on the share price at that time.
This was based on the Board's consideration of the Group's capital
structure and capital allocation priorities in relation to the
previously stated target range of net debt to EBITDA of between 0.5
and 1.5. By 31 December 2018, the Company had purchased GBP9.3
million of the company's ordinary shares and this completed the
share buyback programme, representing 2.3% of the Company's share
capital at the start of the share buyback programme. The Board has
considered whether to operate a similar programme this year and has
decided that, given the uncertainty surrounding Brexit, it would be
prudent to retain flexibility and review the situation as we
progress through the year. A share buy back programme will not
therefore be implemented at the moment but will be kept under
review depending on trading conditions and economic
circumstances.
SUMMARY AND OUTLOOK
Our strategy of having the right brands in the right locations
combined with excellent operational execution leaves us well placed
to continue to make good progress against our goals. The Group has
produced a resilient performance in difficult market conditions
with underlying growth across the majority of the business, which
demonstrates the resilience of the Lookers business model.
Our new car business has performed well in a challenging market
and whilst volumes are expected to continue to reduce, the market
is forecast to remain at near historic high levels and we are well
positioned to continue to take market share. We have also
significantly increased our used car volumes and profit, growing
our share of this market and our high margin aftersales business
also continues to provide opportunities to increase both turnover
and profit.
We continue to make significant investments to upgrade our
facilities and enhance our multichannel customer experience. This,
together with the broad base of our franchise representation and
our strong relationship with our manufacturer partners, strengthens
our position as a leading UK automotive retail and aftersales
service group. This will enable us to achieve future growth over
the medium to long term.
The current political environment, Brexit and weaker exchange
rates create a degree of uncertainty in the UK economy, which is
unhelpful. We also remain conscious of consumer confidence levels
and the Pound-Euro exchange rate, both of which could have an
impact on our business. We therefore look forward with a degree of
caution and continue to plan prudently for the business, mindful of
these external factors.
However, we have a strong balance sheet which continues to be
strengthened by operational cash flow with both net debt and net
debt to EBITDA being at relatively low levels. We have recently
renewed our bank facilities to provide higher levels of facility
for an extended term as well as ensuring substantial headroom in
these facilities. This provides secure funding capacity and
financial security to grow the business through further strategic
acquisitions at a time when there continue to be significant
consolidation opportunities within the sector. Our record of
successfully integrating acquisitions and turning around
performance is a significant differentiator for Lookers.
The Group has made a good start to the current financial year
and our order book for the delivery of new cars in the important
month of March continues to build in line with our expectations.
Our used car volumes continue to show growth and further
opportunities in aftersales.
I would like to finish my review by thanking all my colleagues
at Lookers for their hard work, commitment and dedication to the
Company and without whom we would not have been able to yet again
deliver another resilient set of results.
Andy Bruce
Chief Executive
13 March 2019
Consolidated Income Statement
Total Total
2018 2017
GBPm GBPm
Note
Revenue 1 4,879.5 4,696.3
Cost of sales (4,364.0) (4,192.2)
-------------------------------------------- ----- ---------- ----------
Gross profit 515.5 504.1
-------------------------------------------- ----- ---------- ----------
Distribution costs (294.6) (292.5)
Administration expenses (153.3) (135.0)
Share based payments (1.7) (1.7)
Other operating income 7.7 2.5
Operating profit 73.6 77.4
-------------------------------------------- ----- ---------- ----------
Net interest 2 (18.3) (16.3)
Net interest on pension scheme obligation (1.7) (4.2)
Fair value on derivative instrument - 1.9
Debt issue costs (0.5) (0.4)
-------------------------------------------- ----- ---------- ----------
Profit before taxation 53.1 58.4
-------------------------------------------- ----- ---------- ----------
Tax charge (9.6) (10.5)
Profit for the year 43.5 47.9
-------------------------------------------- ----- ---------- ----------
Actuarial (losses)/gains on pension
scheme obligations (7.2) 10.6
Deferred tax on pension scheme obligations 1.2 (1.9)
Total other comprehensive income
for the year (6.0) 8.7
Total comprehensive income for the
year 37.5 56.6
Attributable to:
Shareholders of the company 37.5 56.6
Earnings per share
Basic earnings per share 3 11.07p 12.06p
-------------------------------------------- ----- ---------- ----------
Diluted earnings per share 3 10.59p 11.70p
-------------------------------------------- ----- ---------- ----------
Consolidated Statement of Financial Position
Restated
2018 2017
Note GBPm GBPm
------------------------------- ----- -------- ---------
Non-current assets
Goodwill 5 116.2 108.9
Intangible assets 114.6 112.3
Property, plant and equipment 350.9 342.0
581.7 563.2
------------------------------- ----- -------- ---------
Current assets
Inventories 1,027.7 984.1
Trade and other receivables 179.5 242.1
Rental fleet vehicles 54.2 60.9
Cash and cash equivalents 44.4 45.3
Assets held for sale 8.0 -
1,313.8 1,332.4
------------------------------- ----- -------- ---------
Total assets 1,895.5 1,895.6
-------------------------------- ----- -------- ---------
Current liabilities
Bank loans and overdrafts 2.6 19.6
Trade and other payables 1,236.6 1,228.1
1,239.2 1,247.7
------------------------------- ----- -------- ---------
Net current assets 74.6 84.7
Non-current liabilities
Bank loans 128.7 123.5
Trade and other payables 19.4 36.8
Pension scheme obligations 68.9 63.8
Deferred tax liabilities 40.0 38.8
-------------------------------- ----- -------- ---------
257.0 262.9
------------------------------- ----- -------- ---------
Total liabilities 1,496.2 1,510.6
-------------------------------- ----- -------- ---------
Net assets 399.3 385.0
-------------------------------- ----- -------- ---------
Shareholders' equity
Ordinary share capital 19.4 19.9
Share premium 78.4 78.4
Capital redemption reserve 15.1 14.6
Retained earnings 286.4 272.1
-------------------------------- ----- -------- ---------
Total equity 399.3 385.0
-------------------------------- ----- -------- ---------
Consolidated Cash Flow Statement
Restated
Note 2018 2017
GBPm GBPm
Cash flows from operating activities
Profit for the year 43.5 47.9
Tax charge 9.6 10.5
Depreciation of property, plant and equipment 20.6 20.7
Fair value on derivative instruments - (2.4)
(Profit)/loss on disposal of plant and
equipment (8.2) 0.4
Amortisation of intangible assets 5.6 5.6
Share based compensation 1.7 1.7
Interest income (0.3) (0.3)
Interest payable 18.6 16.6
Debt issue costs 0.5 0.4
Difference between pension charge and cash
contributions (2.1) (3.6)
Changes in inventories 1.4 (144.7)
Changes in receivables 48.9 (16.1)
Changes in payables (60.4) 143.0
Cash generated from operations 79.4 79.7
----------------------------------------------- ------- -------- ---------
Purchase of rental fleet vehicles (89.4) (87.1)
Proceeds from sale of rental fleet vehicles 90.3 87.0
Interest paid 2 (18.6) (16.6)
Interest received 2 0.3 0.3
Tax paid (7.1) (25.5)
----------------------------------------------- ------- -------- ---------
Net cash inflow from operating activities 54.9 37.8
----------------------------------------------- ------- -------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (25.7) (46.1)
Purchase of intangibles (7.9) (8.1)
Purchase of subsidiaries net of cash received (13.7) (1.3)
Proceeds from sale of property, plant and
equipment 35.1 8.0
Net cash outflow from investing activities (12.2) (47.5)
----------------------------------------------- ------- -------- ---------
Cash flows from financing activities
Proceeds from issue of ordinary shares - 0.8
Redemption of ordinary shares (9.3) -
Repayment of loans (14.6) (12.5)
Drawdown on RCF 135.3 282.8
Repayment of RCF (134.1) (239.7)
Dividends paid 4 (15.6) (15.0)
----------------------------------------------- ------- -------- ---------
Net cash outflow from financing activities (38.3) 16.4
----------------------------------------------- ------- -------- ---------
Increase in cash and cash equivalents 4.4 6.7
Cash and cash equivalents at 1 January 38.9 32.2
Cash and cash equivalents at 31 December 43.3 38.9
----------------------------------------------- ------- -------- ---------
Included within cash and cash equivalents is GBP44.4m (2017:
GBP45.3m) recognised as cash and GBP1.1m (2017: GBP6.4m) of
overdrafts recognised in short term liabilities on the balance
sheet.
Consolidated Statement of Changes in Equity
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ---------- ------------ ----------- ---------
As at 1 January 2017 19.8 77.7 14.6 229.6 341.7
Profit for the year - - - 47.9 47.9
Other comprehensive income
for the year - - - 8.7 8.7
Total comprehensive income
for the year 56.6 56.6
New shares issued 0.1 0.7 - - 0.8
Share based compensation - - - 1.7 1.7
Tax recognised in equity - - - (0.8) (0.8)
Dividends paid - - - (15.0) (15.0)
As at 31 December 2017 19.9 78.4 14.6 272.1 385.0
---------------------------- ---------- ---------- ------------ ----------- ---------
As at 1 January 2018 19.9 78.4 14.6 272.1 385.0
Profit for the year - - - 43.5 43.5
Other comprehensive income
for the year - - - (6.0) (6.0)
Total comprehensive income
for the year 37.5 37.5
New shares issued 0.0 0.0 - - 0.0
Share based compensation - - - 1.7 1.7
Share buy-back (0.5) - 0.5 (9.3) (9.3)
Dividends paid - - - (15.6) (15.6)
As at 31 December 2018 19.4 78.4 15.1 286.4 399.3
---------------------------- ---------- ---------- ------------ ----------- ---------
Retained earnings include GBP16.5m (2017: GBP16.8m) of
non-distributable reserves relating to properties which had been
revalued under UK GAAP, but treated as deemed cost under IFRS.
Notes to the Consolidated Financial Statements
Basis of preparation
The unaudited financial information for the year end 31 December
2018 has been based on the Company's financial statements which are
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted for use in the EU. Whilst the financial
information contained in this preliminary announcement has been
prepared in accordance with the recognition and measurement
criteria of IFRS, this announcement does not itself contain
sufficient information to comply with those standards. The Company
expects to publish full financial statements that comply with IFRS
in March 2019. The financial information presented herein has been
prepared in accordance with the accounting policies expected to be
used in preparing the Lookers Annual Report 2018, which are the
same as those used in preparing the Lookers Annual Report 2017,
with the exception of the implementation of IFRS 9 'Financial
Instruments' and IFRS 15 'Revenue with Contracts with Customers'
from 1 January 2018.The adoption of both of these new standards has
not had a material effect on the reported results for either
current or prior period.
Going concern
In determining the basis of preparation for the Annual Report
and the Group's viability statement, the directors have considered
the Group's business activities, together with the factors likely
to affect its future development, performance and position. This
includes an overview of the Group's financial position, cash flows,
liquidity position and borrowing facilities for the three year
period to 31 December 2021 as well as compliance with existing
banking covenants. These forecasts and projections have been
subject to sensitivity movements which involve modifying one or
more of the main assumptions underpinning the base forecast. Based
on the results of this exercise and the assessment of risks and
associated controls, the directors have an expectation that the
Group will be able to continue in operation, comply with facility
covenants and meet its liabilities as they fall due. The Directors
therefore
continue to adopt the going concern basis in preparing the
financial statements.
Prior period restatement
Following the refinancing that occurred during late 2018 the
Directors have reviewed the terms and conditions prevalent within
the previous revolving credit facility arrangement. As a result of
this review the Directors have considered it more appropriate to
reclassify the previous revolving credit facility balances that was
disclosed within overdrafts in cash and cash equivalents to be
shown as long-term financial liabilities.
This presentation is then consistent with the disclosure of the
new long-term revolving credit facility. The effect of this
restatement in the statement of financial position on the years
ending 31 December 2017 and 31 December 2016 are as follows:
2017 2016
GBPm GBPm
As previously reported:
Cash and cash equivalents at 1 January 45.3 39.8
Bank overdrafts (52.9) (11.0)
Cash and cash equivalents reported in the
cash flow statement (7.6) 28.8
-------------------------------------------- ------- -------
Current liabilities
Bank loans and overdrafts 66.1 25.1
Non-current liabilities
Long term borrowings 77.0 88.8
Total liabilities 143.1 113.9
-------------------------------------------- ------- -------
Net current assets/(liabilities) 38.2 41.0
-------------------------------------------- ------- -------
As restated:
Cash and cash equivalents at 1 January 45.3 39.8
Bank overdrafts (6.4) (7.6)
Cash and cash equivalents reported in the
cash flow statement 38.9 32.2
-------------------------------------------- ------- -------
Current liabilities
Bank loans and overdrafts 19.6 21.7
Non-current liabilities
Long term borrowings 123.5 92.2
Total liabilities 143.1 113.9
-------------------------------------------- ------- -------
Net current assets 84.7 44.4
-------------------------------------------- ------- -------
The effect of this on the consolidated cash flow statement is as
follows:
2017
GBPm
As previously reported:
Net cash outflow from financing activities -26.7
--------------------------------------------------- ------
(Decrease) / increase in cash and cash
equivalents -36.4
--------------------------------------------------- ------
As restated:
Net cash inflow/(outflow) from financing
activities 16.4
--------------------------------------------------- ------
Increase /(decrease) in cash and cash equivalents 6.7
--------------------------------------------------- ------
There is no effect on the reported profits for either financial
year as a result of this presentational adjustment.
1. Segmental reporting
At 31 December 2018 and 31 December 2017, being the group is
organised into one business segment, motor distribution. All
revenue and profits originate in the United Kingdom and the
Republic of Ireland.
Motor
Year ended distribution Unallocated Group
ended 31 December 2018 GBPm GBPm GBPm
------------------------------------- -------------- ------------ --------
New Cars 2,394.8 - 2,394.8
Used Cars 1,939.4 - 1,939.4
Aftersales 545.3 - 545.3
-------------------------------------- -------------- ------------ --------
Revenue 4,879.5 - 4,879.5
-------------------------------------- -------------- ------------ --------
Segmental operating profit / (loss) 87.2 (13.6) 73.6
Net interest (15.5) (2.8) (18.3)
Net interest on pension scheme
obligations - (1.7) (1.7)
Debt issue costs - (0.5) (0.5)
Profit / (loss) before taxation 71.7 (18.6) 53.1
Tax charge (9.6)
Profit for the year 43.5
-------------------------------------- -------------- ------------ --------
Total assets 1,895.5 - 1,895.5
-------------------------------------- -------------- ------------ --------
Total liabilities 1,364.9 131.3 1,496.2
-------------------------------------- -------------- ------------ --------
Motor
Year ended Distribution Unallocated Group
ended 31 December 2017 GBPm GBPm GBPm
------------------------------------- -------------- ------------ --------
New Cars 2,476.8 - 2,476.8
Used Cars 1,702.7 - 1,702.7
Aftersales 516.8 - 516.8
-------------------------------------- -------------- ------------ --------
Revenue 4,696.3 - 4,696.3
-------------------------------------- -------------- ------------ --------
Segmental operating profit / (loss) 84.7 (7.3) 77.4
Net interest (13.4) (2.9) (16.3)
Net interest on pension scheme
obligations - (4.2) (4.2)
Fair value on derivative instrument - 1.9 1.9
Debt issue costs - (0.4) (0.4)
-------------------------------------- -------------- ------------ --------
Profit / (loss) before taxation 71.3 (12.9) 58.4
Tax charge (10.5)
-------------------------------------- -------------- ------------ --------
Profit for the year 47.9
-------------------------------------- -------------- ------------ --------
Total assets 1,895.6 - 1,895.6
-------------------------------------- -------------- ------------ --------
Total liabilities 1,367.5 143.1 1,510.6
-------------------------------------- -------------- ------------ --------
Notes to the Consolidated Financial Statements
2. Finance costs - net
2018 2017
GBPm GBPm
-------------------------------------------------------- ------- -------
Interest expense
Interest payable on bank borrowings (5.6) (4.9)
Interest on consignment vehicle liabilities & stocking
loans (13.0) (11.7)
-------------------------------------------------------- ------- -------
Interest and similar charges payable (18.6) (16.6)
-------------------------------------------------------- ------- -------
Interest income
Bank interest 0.3 0.3
Total interest receivable 0.3 0.3
-------------------------------------------------------- ------- -------
Finance costs - net (18.3) (16.3)
-------------------------------------------------------- ------- -------
Notes to the Consolidated Financial Statements
3. Earnings per share
The calculation of earnings per ordinary share is based on the
profit on ordinary activities after taxation attributable to
shareholders amounting to GBP43.5m (2017: GBP47.9m) and a weighted
average number of ordinary shares in issue during the year of
393,422,446 (2017: 397,305,738).
The diluted earnings per share are based on the weighted average
number of shares, after taking account of the dilutive impact of
shares under option of 17,964,569 (2017: 12,030,902).
2018 2017
Earnings Earnings
Per share Per share
p p
------------------------------- ----------- -----------
Basic EPS 11.07 12.06
Effect of dilutive securities (0.48) (0.36)
Diluted EPS 10.59 11.70
------------------------------- ----------- -----------
Adjusted EPS 2018 GBPm 2018 EPSp 2017 GBPm 2017 EPSp
Earnings attributable to ordinary shareholders 43.5 11.07 47.9 12.06
Amortisation of intangible assets 5.6 1.42 5.6 1.40
Net interest and costs on pension scheme obligations 6.4 1.63 4.2 1.06
Share based payments 1.7 0.43 1.7 0.43
Debt issue costs 0.5 0.13 0.4 0.1
Fair value of derivative instrument - - (1.9) (0.48)
------------------------------------------------------ ---------- ---------- ---------- ----------
Adjusted EPS 57.7 14.68 57.9 14.57
------------------------------------------------------ ---------- ---------- ---------- ----------
Profit on sale of property (7.7) (1.96) (2.5) (0.63)
------------------------------------------------------ ---------- ---------- ---------- ----------
Adjusted EPS including property 65.4 12.72 55.4 13.94
------------------------------------------------------ ---------- ---------- ---------- ----------
4. Dividends
2018 2017
GBPm GBPm
------------------------------------------------- ------ ------
Interim dividend for the year ended 31 December
2018 1.48p (2017: 1.41p) 5.8 5.6
Final dividend for the year ended 31 December
2017 2.48p (2016:2.36p) 9.8 9.4
------------------------------------------------- ------ ------
The Directors propose a final dividend of 2.60p per share in
respect of the financial year ending 31 December 2018 (2017:
2.48p). The proposed final dividend is subject to approval by the
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements. The final
dividend will be payable on 5 June 2019 and the ex-dividend date
will be 25 April 2019 with the record date being 26 April 2019.
5 Goodwill
2018 2017
GBPm GBPm
=============================== ===== =====
Cost
=============================== ===== =====
As at 1 January 119.3 118.0
=============================== ===== =====
Additions 7.3 1.3
=============================== ===== =====
As at 31 December 126.6 119.3
=============================== ===== =====
Aggregate impairment
=============================== ===== =====
As at 1 January 10.4 10.4
=============================== ===== =====
Impairment - -
=============================== ===== =====
As at 31 December 10.4 10.4
=============================== ===== =====
Carrying amount at 31 December 116.2 108.9
=============================== ===== =====
During the year the Group has changed its approach for the
determination of cash generating units (CGU's). Previously this was
done on a subsidiary by subsidiary basis however the Directors have
elected to change this in the current year to better reflect the
markets served by the CGU's and the appropriate level at which CGUs
are monitored for impairment.
The following table summarises goodwill and intangibles with an
indefinite useful economic life allocated by CGU.
2018 2018 2017 2017
Goodwill Intangibles Goodwill Intangibles
GBP'm GBP'm GBP'm GBP'm
JLR 13.8 - 13.8 -
Audi 22.1 28.9 22.1 28.9
Charles Hurst 9.4 - 9.4 -
Renault Nissan 2.6 2.9 2.6 2.9
Mercedes 15.2 28.1 15.2 28.1
Volkswagen 7.5 15.9 7.5 15.9
Ford 26.7 2.9 19.4 2.9
BMW 9.6 22.3 9.6 22.3
Vauxhall 0.2 - 0.2 -
Fleet / Leasing 9.1 - 9.1 -
----------------- ------------- ---------- -------------
116.2 101.1 108.9 101.1
----------------- ------------- ---------- -------------
Each CGU's recoverable amounts have been derived from value in
use calculations using the most recent projections for each CGU.
The group prepares cash flow forecasts derived from the most recent
Board approved budgets for 2019 and uses growth assumptions to
extrapolate the cash flows into perpetuity based on estimated
growth rates.
There are a number of key assumptions within these forecasts and
these have been based on management's past experience, knowledge of
the market and given the significant uncertainty surrounding
Brexit, an assumption has been made that the UK will leave the UK
through an orderly exit. Set out below are the key assumptions that
have been used in determining the impairment model.
Assumption 2018 2017
Two to five year revenue
growth 1.4% 1.6%
----- -----
Two to five year operating
expenses growth 1.1% 1.0%
----- -----
Post five year growth rates 0.0% 0.0%
----- -----
Discount rate 8.7% 9.7%
----- -----
The pre-tax adjusted discount rate used has been calculated and
benchmarked against externally available data.
As a result of the impairment review, for all CGUs the value in
use estimation exceeds the associated carrying value. However,
acknowledging continued uncertainty in the UK economy, including
the outcome of Brexit negotiations, we have prepared a sensitivity
analysis, principally being a reduction in forecast revenue of 6%.
This shows that, with the exception of the BMW, Volkswagen and Ford
CGUs, no impairment arises in response to reasonable possible
change scenarios. For the three CGUs that do show material
impairment, the impairment that would arise is as follows:
CGU Impairment
(GBPm)
BMW 17.4
-----------
Volkswagen 7.3
-----------
Ford 5.5
-----------
Based on the review performed, the directors believe that the
value of the CGUs remains strong and will continue to monitor
performance during 2019. At 31 December 2018 we consider that the
carrying values in use of all CGUs included in the financial
statements are appropriate.
6. Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the group's performance, business
activities, financial condition, results of operations or the
company's share price could cause actual results to differ
materially from expected and historical results. The Board
maintains a policy of continuous identification and review of risks
and uncertainty and the principal risks identified are the adverse
impact of the global economy, manufacturers' financial stability,
adverse movements in exchange rates, , liquidity and financing
issues for the company, legislative changes in relation to vehicle
taxation and transport policy, failure of group information
systems, investment in people and the relative strength and
influence of the vehicle manufacturers on the UK market. The Board
has recently reviewed the risk factors and confirm that they should
remain valid for the rest of this year. These risks now include a
risk for the adverse impact of Brexit.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UOUVRKBAOARR
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