June 29, 2020 / 7:38 AM / 14 days ago

UPDATE 1-Lookers warns of 19 mln pound hit to correct profit overstatements

(Adds shares, details on report, results, background)

June 29 (Reuters) - Car dealership network Lookers disclosed on Monday it would need to incur about 19 million pounds ($23.5 million) in non-cash adjustments to correct overstatements in profitability over several years.

The company’s shares rose about 6% in light early trading. They have plunged 67% since the company flagged in March of the potentially fraudulent transactions.

About half of the draft adjustments impact 2019 results with the remainder accumulated in prior years, the company said pdf.reuters.com/htmlnews/htmlnews.asp?i=43059c3bf0e37541&u=urn:n ewsml:reuters.com:20200629:nRSc2952Ra, but added the year will remain profitable at an underlying pretax level.

Lookers had earlier said it expected to take a 4 million pound charge in 2019, after an initial investigation found misstatement in debtor balances and “a number” of fraudulent expenses claims at one of its divisions.

The company said on Monday it is analysing the report to determine the historical impact of the draft adjustments before 2019, but it is not currently possible to determine if the historical elements of the adjustments would be material in any year.

The report from Grant Thornton also highlighted several areas where some financial controls and behavioural aspects require strengthening, the company said.

The 15 remaining million pounds pertain to the incorrect or inconsistent application of policies, processes and accounting standards, the company said.

The company, which earlier this month warned of a possible share suspension amid the investigation, said it had started putting in place measures to address points raised by the report and had established an independent board committee to ensure the recommendations are implemented. ($1 = 0.8078 pounds) (Reporting by Tanishaa Nadkar in Bengaluru; Editing by Sriraj Kalluvila)

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