Manchester-headquartered car retailer Lookers (LOOK) says a draft report by Grant Thornton has identified £19 million of non-cash adjustments needed to ‘correct overstatements in profitability over several years’.
According to the troubled automotive dealer, the auditor’s report also highlighted several areas where ‘certain financial controls and some behavioural and cultural aspects require strengthening’.
However, the welcome news 2019 will ‘remain profitable at the underlying profit before tax level’ drove a relief rally on Monday, with Lookers’ unloved shares rising 6.8% to 21.2p.
This has been a turbulent time for Lookers. Back in March, the motor trader and aftersales provider delayed its 2019 results after identifying ‘potentially fraudulent transactions’ in one of its operating divisions.
Lookers, which recently announced a radical restructuring to ensure it survives the Covid-19 crisis, has reviewed Grant Thornton’s draft report and currently considers that roughly half of the adjustments will impact its 2019 results, with the remainder affecting the financials for prior years.
‘Analysis is ongoing to determine the historical impact of the draft adjustments prior to 2019, but at present it is not possible to determine if the historical elements of the draft adjustments would be material in any year,’ explained Lookers.
These adjustments relate to misrepresented and overstated debtor balances in respect of supplier bonuses receivable, together with ‘a number of fraudulent expense claims’, as well as to the incorrect or inconsistent application of Lookers’ policies, processes and accounting standards.
On the lookout for a new chairman to steer it through the next phase of its development, Lookers has ‘commenced implementing remedial measures to address these points and is continuing to invest in its systems and controls to further improve their robustness’.