Eddie Stobart books £11m loss after accounting errors
26 Feb 2020
Haulage firm Eddie Stobart Logistics has recognised a £169.2m impairment charge in its restated half-year results for the period to May 2019, which saw operating losses of £11.6m
26 Feb 2020
The half-year results were significantly delayed following the discovery of mistakes in the company’s 2018 accounts. It has now put a new management in place and is due to recommence trading on AIM, having seen its shares were suspended last August.
In its latest update, Eddie Stobart Logistics said the £169.2m charge reflected ‘current business performance and challenging trading conditions, an increased discount rate associated with higher gearing and a more prudent assessment of medium and long term forecast.
The company said ‘profits were significantly impacted by previously communicated accounting-related matters.’
Half year revenues for the six months to May 31, 2019, were £421.3m, compared with £334.5m, restated, in the same period in 2018.
Underlying earnings before interest and taxes was booked as a loss of £11.6m, compared to the restated figure of a £600,000 profit in 2018.
Adjusted loss before tax was £16.5m, compared to the restated 2018 loss of £1.9m in the period and statutory loss before tax was £199.8m (2018 restated: loss of £15.1m).
Adjustments to audited accounts for prior financial periods have also been required, reducing consolidated net assets at 30 November 2018 by £85.1m.
Eddie Stobart Logistics said there have been no direct cash outflows as a result of the prior year restatements or adjustments made to the HY19 results. In addition, future net cash flows will not be materially impacted by these adjustments.
The company said it expects to report a ‘small’ underlying operating loss for the full year but warned that the loss could yet be greater depending on the outcome of an audit of the issues.
In its update the haulage company also noted it has made changes to its accounting for property-related activities.
This stated the group has historically entered into combined lease and property consultancy transactions with third parties where they provide consultancy services and advice to companies with whom they also enter into long-term lease commitments.
At the conclusion of the consultancy services and the inception of the lease, the group typically receives a large payment.
Under the previously adopted policies, having demonstrated the on-going lease terms were considered to be at or below market value, the group attributed all the consideration received to property consultancy services.
Having reconsidered the accounting guidance, Eddie Stobart Logistics has noted the difficulty in benchmarking the revenue recognised on consultancy services provided with market transactions for similar services.
Conversely, the guidance for accounting for lease incentives received requires they are amortised over the life of the lease without reference to whether the resulting lease charge (net of incentives) represents a market rate.
Consequently, the group has determined that a more appropriate way to account for these combined lease and consultancy services transactions is to treat all the consideration as a lease incentive and allocate no revenue to consultancy services.
Approximately £17m and £33m derived from those activities for financial year 2017 and financial year 2018 (respectively) and approximately £13m prior to financial year 2017 has been reversed and restated, and the amount related to these activities recognised over the life of the lease.
This has resulted in a reduction in previously reported earnings before interest and taxes in those years and a net adjustment to Eddie Stobart Logistics’ net assets at 30 November 2018 of £60.6m, exclusive of any estimated tax reduction.
This also means that in future years, recognised lease costs will be lower by approximately £4m per annum, reflecting the benefit of the amortisation of lease incentives on unexpired leases entered into in the past.