SWOT and PESTEL Analysis of Caffyns Plc

10734 words (43 pages) Report

3rd Nov 2020 Report Reference this

Tags: SWOT AnalysisPESTEL AnalysisSWOTPESTELFinanceInternal AnalysisExternal Analysis

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Case A:

Executive Summary

The report explores the broader financial aspects for the Lookers using the principal financial appraisal methods and relevant comparisons to Caffyns plc and other comparators. In the last three years these have seen a decrease in profits, and customer service and strategic analysis, i.e., PESTEL and SWOT. The results can be found in the appendices. Analysis suggests that Looker’s current business model needs to be revamped and the feasibility to bid a new contact in the light of financial appraisal method taught during the module and critical evaluation. Analysis of the financial performance of the companies was collected from the annual report of the two companies.

  • Lookers annual results as on 31 December 2018 and 31 December 2017.
  • Caffyns Plc annual results for the year ended 31 March 2019 and 31 March 2019 with an overlap of three months.

The Lookers is currently using the “Omini” channel model. Lookers have grown but is now facing complications due to a stimulating trading atmosphere and internal productivity issues. There are difficult choices to be made about how best to develop the brand, make investment choices and balance growth with profitability and sustainability in a challenging environment. It plans to perpetuate investment in its dealerships to refresh the portfolio over the next few years. Currently, the company faces much uncertainty in the retail market, particularly in the UK. They need to address the following key challenges to sustain the business in the retail market:

  • Customer demand
  • Political uncertainty
  • Currency weakness
  • Inflations cost price
  • Technology showroom vs. online competitions
  • The company should keep less vehicle in-store and provide all the stocks on a digital platform, which in turn reduces space occupancy and operating cost.

Lookers could have a great time in 2019 with an opportunity to improve the existing control based on FCA final report and core business concentration. However, profits cannot sustain growth if the digital platform growth strategy fails to deliver. In this scenario Looker’s position in the market will go downhill.

Internal – Operating Factors

Lookers is a car dealership chain in the UK and Ireland. The company core business model is selling new and used cars and providing aftersales service. Lookers is now putting effort into expanding the car operations and swift up more business. The used car market turnover increased by 14% in 2018 with rapid growth in recent years and aftersales service increased by 6% in 2018. The company is currently undergoing a shift in strategy in 2019:

  • Investments in next-generation dealerships and develop world best customer experience model with the help of technology.
  • Lookers is dependent on technology and is perpetually investing heavily to update their systems to ameliorate service, increase profit and passenger’s safety.
  • Focusing more on user car market and aftersales service segment to increase business volume and profit.
  • Planning to get cheaper financing to reduce interest cost option instead of banking loan because of the high rate of interest.
  • Acquisition of the Jennings group to expand its presence in the North East.

Lookers’ strategy refocuses around the right brands in the right locations by ensuring operational excellence across all the business segments. The new strategy is a combination of people and formula for success. Although Lookers sales continue to grow, its share price has slumped .and invested in the freehold and long leasehold property in the UK as on 31-December-2018 value is £302.7mio.

External Factors

Lookers strategy is typical of the type of transformation automotive dealership underway in the UK market. The PESTEL analysis below offers a valuable understanding of the operating tasks for Lookers in the industry appears to face.

Political Factors:

  • The current level of political stability that the UK i.e. Brexit
  • A high level of taxation would discourage a company from maximum profit.
  • Trade regulations and complaint handling related to consumer services

Economic Factors

  • Skill level of workforce in the retail industry
  • Economic growth rate and interest rates
  • Labour costs and productivity in the economy
  • Margin ‘cost price’ and an increase in business rates
  • Diminishing factual income as inflation rises
  • Raising the capital at a fair price; keeping in mind the demand and supply

Social Factors

  • Culture (gender roles and social conventions.)
  • Attitudes (health and environmental consciousness.)
  • Class structure and hierarchy structure in society.

Technological Factors

  • Recent technological developments in the car dealer’s industry.
  • Technology's impact on product offering to the customer
  • Rate of technological diffusion
  • Increasing hybrid and electric car penetration and social media usage to shopping online.

Environmental Factors

  • Climate change
  • Changes in the environment laws and its regulation
  • Pollution regulations in the retail industry
  • Increased pressure on companies to reduce their impact on the environment and reduce emissions.

Legal Factors:

  • The UK has no intellectual property policy protection and this would mean that the new investor finds it too hazardous to invest in car dealership i.e., Lookers Plc.
  • Health & Safety for employees and Data Protection (GDPR)
  • Consumer rights and e-commerce

SWOT Analysis

Overview: Lookers

Income statements of Lookers analysed for the last five years (2014 – 2018) showed that net turnover consistently increased from 2014 to 2018.  However, operating and financial cost also increased, which resulted in a decline in the net profit. However, it is noticeable that even though sales have increased but net profit did not increment that much, even in 2018 the profit percentage rate was lower compared with 2017. Lookers generated a substantial revenue of £ 4,879.5m in 2018, a 4% rise compared with the previous year 2017(£4,696.30). Comparatively Caffyns plc’s revenue was down by 3.1% in 2019. Gross profit margins slight reduced to 10.6% in 2018 compared with previous year 10.7% in 2017 because of new car sales went down by 2% in 2018 and same time aftersales service segment increased by 7% in 2018 to support the gross profit. Profit before interest and tax (PBIT) declined by 9% between 2017 and 2018 reflecting, severe retail market conditions.

Ratios:

This section will compare key ratios analysis for Lookers. Ratios calculations are the appendix. The ratios are the comparison between Lookers and Caffyns last three years, along with the industry average for context.

Profitability Ratio Analysis:

Item Lookers(£m) Caffyns plc(£m) Industry Average
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17  
Return of Equity 11.09 13.18 22.41 -2.04 3.68 4.65 17.0
Net Profit margin 0.89 1.02 1.75 -0.27 0.48 0.60 3.62
Asset Turnover 2.57 2.61 2.48 2.25 2.48 2.59 1.64
Return on Assets 2.29 2.66 4.35 -0.61 1.18 1.56 5.40
Leverage (Assets to Equity) 4.83 4.96 5.15 3.33 3.11 2.99  

Return on Equity: The return on equity ratio of Lookers has decreased to 11.09% in comparison with the previous year’s 13.18% because the company re-invested in future growth and has maintained an excellent return above double-digit during the last three years. Caffyns plc is negative -2.04% in 2019 compared with previous years’ 3.68% in 2018, which shows that the company has not earned a good return on investor’s money. Net Profit margin: The net profit before tax has reduced to £ 53.1m in 2018 in comparison with the previous year of £58.4m in 2017. It reduced by 9% because of investment to improve dealership model, customer service, upgraded technology segment, staff salaries, pension contribution and other overhead expenditure. It affected the net profit margin of 0.89% in 2018 in comparison with previous year 1.02% in 2017. Caffyns plc net profit margin was negative at -0.27% in 2018. And since 2015, even though sales have increased, the net profit has decreased due to administration and other overhead expenses. Asset Turnover: Lookers asset turnover is 2.29% in 2018; a faster rate than Caffyns’ ratio of 2.24% in 2019. Both companies’ ratios are above the industry average. Return on Assets: Due to the increasing popularity of online sales and car industry shifting from traditional platform to a more conventional platform, there has been a hit in the level of profits. Lookers have invested in assets generates 2.29% in 2018 of net income and better at converting its investment into profits, compared with Caffyns plc -0.61% in 2019. Leverage (Assets to Equity): Lookers operated with more financial leverage 4.83% in 2018 and this indicates that the company relies more on financial from the banking loan and other funding. Caffyns had less leverage ratio of 3.34% in 2019 compared with Lookers.

Item Lookers(£m) Caffyns plc(£m) Industry Average
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17  
Return of Capital Employed (ROCE) 15.19 17.22 23.13 2.34 5.86 7.36  
EBIT Margin 1.51 1.65 2.48 0.47 1.07 1.29 7.97
Net Operating Asset Turnover 10.07 10.45 9.34 5.01 5.50 5.69  

ROCE: Lookers ROCE is stable performance and reduced to 15.19% in 2018 compared with previous year 17.22% in 2017(drop 2.03%) last three years ROCE decreasing trend, and it means that company is not employing its capital effectively. Compare with Caffyns plc ROCE rate is 2.34% in 2019 below industry average and company currently underperforming. Lookers’ current liabilities are things i.e. trade and other payables, bank loan and overdraft like that need to be paid. A high level of current liabilities makes Lookers look as though it has less capital employed. Caffyns has a medium level of current liabilities £47m in line with total assets. EBIT Margin (Operating Margin): Lookers’ margin declined by 0.14% between 2018(1.51%) and 2017(1.65%). An increase in payback in acquired intangible assets, management bonuses, share scheme and LIBOR interest rate changed on the facility. Caffyns plc margin reduced to 0.47% in 2019 compared with previous year 1.08% in 2018 due to company premium car sales and decline in diesel car marker. Net Operating Asset Turnover: Lookers ratio is stable and high return compare with Caffyns plc.

Item Lookers(£m) Caffyns plc(£m)
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17
Days of Receivables 13.72 16.09 19.33 16.42 15.07 13.96
Days of Inventory 84.13 79.38 79.99 63.83 57.03 61.16
Days of Receivables 24.29 24.63 25.75 34.50 27.85 25.91
Net Working Capital Days 73.57 70.84 73.57 45.74 44.26 49.20
PPE  Turnover 14.08 14.21 13.58 5.29 5.68 5.76

Receivable days are decreasing to 13.72 in 2018 from 16.09 in 2017 for Lookers due to increasing payment volume received from customers and banks through online instead of a traditional method. The days of inventory of Lookers is showing an increasing trend over the last three years to 84.13 in 2018 from 79.99 in 2016. This may part be due to the need to hold high stock inventory requirement for used car segment to improve sales in the future. Caffyns during the three years this shows that the company is not retaining the inventory with it and selling it effectively whereas the inventory turnover ratio is less than Lookers. Lookers payable days are less than Caffyns plc, although, they have a slight decrease on  year on year basis. This reflects good trading terms with suppliers and service providers. Lookers working capital days have increased by 2.34 days in 2018 versus 1.48 days increased at Caffyns plc. Whole ratios key driver of Lookers currently manageable for a short time and company should find out an alternative way to address this concern to avoid future occurrences. Commensurably Caffyns plc has visually perceived growing inventory and receivables, driving up the working capital days and constraining capital availability. Lookers capital expenditure on Property, Plant & Equipment increased to £351m in 2018 compared with £319m in 2016 reflecting the strategic move to investing in more freehold property to strengthen the business network for the future. Caffyns plc PPE average ratio is 5% in the last three years. Currently, the company is focusing on reviewing the existing property to revamp dealership model.

Liquidity Ratio Analysis:

Item Lookers(£m) Caffyns plc(£m)
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17
Current Ratio 1.06 1.05 1.05 1.07 1.12 1.14
Net Debt to Equity 0.24 0.24 0.37 0.49 0.40 0.36

Looker’s current ratio was .06% in 2018. Current ratio increased by 0.01% as it stood at 1.06:1. Since the current ratio remained above 1% throughout the last three years, the company has not faced any hitches meeting short time liabilities. Caffyns plc has a marginal decrease in the current ratio of 0.05% in 2019 versus the previous year. Looker’s current ratio looks conventional when compared to the industry average.

Cash flow analysis

Item Lookers(£m) Caffyns plc(£m)
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17
Net changes in cash 4.40 6.70 92.30          -0.47 -1.95 2.10

Net cash flow from operations was a healthy £54.90m in 2018 up strongly from £37.80m in 2017.

Investment ratio analysis

Item Lookers(£m) Caffyns plc(£m)
  31.12.18 31.12.17 31.12.16 31.03.19 31.03.18 31.03.17
EPS (earnings per share) 11.07p 12.06p 20.51p 35.3p 45.6p 58.0p

Lookers basic EPS declined to 8% from 11.07% in 2018 and from 12.06% in 2017. The sliding of the rate from 2016 during turbulent market impacted company EPS ratio for the last three years. Caffyns plc EPS has also declined since 2016.

Evaluation:

Lookers and Caffyns are both operating in challenging market conditions and facing macro winds, i.e., customer demand declined and the greater use of the digital platform instead of the showroom. The companies have been facing immense pressure to reduce the cost. Lookers is investing heavily to expand the dealership network and revamping the digital platform to improve sales and customer experience- digital platform less investment and attract more customers through a seamless process. The company transformation in existing strategy, it is not unforeseen that profits on the ventures made have not quickly been figured it out, be that as it may, lookers' image will stay the same level until it can exhibit efficiencies of strategy based on future financial results. Both companies net profit margins are declining and this indicates that both companies are not efficient at converting sales into actual profit. Although steady growth looker’s annual sales turnover. Lookers ROCE rate is the almost same level in line with the industry average rate. If this rate continues an average rate of 15% into the future capital will be able to compound over the period. EBIT ratio is very low for both companies compared with the industry average. EBIT margin reflects the efficiency in managing the cost. However, declining EBIT margin over a period, Lookers should rethink the business model. Caffyns plc receivables are considerably less than Lookers reflecting managing the account receivables in a competently. The strategy is to drive more sales through the online platform and to ameliorate the inventory management methods. There is scope for improvement, and it was affecting the current ratio. Equipping the business would be a suitable choice to drive quicker development by quickening the rollout of the strategy. Lookers should invest in improving inventory in order to efficiently manage the demand and supply, although working capital will manage adequately and increase rate of returns. Currently, company sales, service and complaint handling are very low compared with other competitors. Lookers should create new customer complaint policy and handle the complaints in line with motor ombudsman expectations. Customer retention program is critical in competitive markets for aftersales service: As the retention of a customer is critical to maintaining the sales, service and customer service, Lookers should look at ways to increase retention benefits and for customers to remain with the garage in the challenging market and provide better customer service. Lookers value of the share in the market fluctuating from January 2016 to till date because of current political uncertainty and recently Financial Conduct Authority (FCA) carrying out a review of the motor finance in Lookers and it is affecting company market share and reputational risk.

Conclusion:

In general, the retail sector has had a difficult twelve months, and while some trends are short-lived, there has been an incremental change in consumer behaviour. Lookers performance in recent years has been overall healthy despite having a slight setback last year because of retail and global market conditions. These days business transformation in the company provides a picture of a positive sign of growth and sustainability in the next five years. The current strategy and operational efficiencies changes by the company and regulators have created a few challenges in the automobile industry with plenty of opportunities for Lookers to grow its business. Lookers has branches across the nation and a sizable customer base in different segments. They can increase the business in terms of sales and aftersales service and increase the revenue stream in the next five years. Lookers sales are expected to increase the new and used car segments, and with the help of digital platform customers can check out the model and see its value and quality before deciding to buy the product. This model change will be a vital opportunity to increase customer footprint for Lookers. On the other hand, Caffyns plc gives off an impression of being stagnating to some degree and could hazard decay if another strategy is not implemented. Winning bids can be an excellent opportunity for us, and partnerships are chances to increase our book size and profitability with reasonable inherent risk.

Case B:

Starting a new business in the right location is very vital in every sector.  Location and financial stability are the backbones of business for investors. Time is an essential factor in the making of investment decisions. It measures the cash inflows and outflows of the business for two locations i.e., the UK and Hong Kong. In the given case, Scarman plc is considering undertaking two different locations for new production to set up. The two locations will be evaluated using the discounted cash flow methods to decide on, which location is to be selected. This report provides insight for Scarman plc is considering which option to use based comparison both options and estimates of the most likely discounted cash flow summary given below and details analysis available in the (annexure b)

  Option 1 £ (m) Option 2 £(m)
Location UK Hong Kong
Outflow 2,000,000.00 1,800,000.00
Inflow 3,109,635.00 2,836,560.00
NPV 1,109,635.00 1,036,560.00
Cost of Capital                                       11%
IRR 28.36% 29.71%
Pay Back period 3 years 3 years
Profit Index               1.55               1.57

The elements to which the NPV appears to be most sensitive is the selling price followed by the volume and cost. If the sales by mistake reduce by 5% or 10%, then option 1 and option 2 is having negative impact Scarman NPV of ‘Option 1’ is much higher than that of ‘Option 2’. So, Option 1 is preferable. IRR another discounted cash flow method analysis.

  • At 10% discount rate, NPV of option 1 is £2,375,004.35
  • At 20% discount rate, NPV of option 1 is £366,015.00
  • At 10% discount rate, NPV of option 2 is £2,150,004.35
  • At 20% discount rate, NPV of option 2 is £369,590.00
  • IRR for option 1: 28.36%
  • IRR for option 2: 29.71%

Based on above analysis IRR is more than cost of capital for option 1 and option 2

Profit Index

Option 1

Initial investment = £2m NPV = £1.109m Total present value of future net cash flows = NPV + Initial investment = £3.109 Profitability index = £3.109m ÷£2m = 1.55

Option 2

Initial investment = £1.8mio NPV = £1.036 Total present value of future net cash flows = NPV + Initial investment = £2.836m Profitability index = £2.836m ÷£1.8m = 1.57 In the given case, the profitability index of ‘Option 1’ is less than ‘Option 2’, and so ‘Option 2’ should be selected. The two criteria, IRR and profit index are higher for Option 1. Based on the NPV calculation of both options clearly, that option 1 and 2 have gained value, which states both locations have good viability. The trend of NPV first three years go upward and sudden drop in the fourth year because of sensitivity changes in the sales volume for option 1 and option 2. Calculation method may lead reasonably since, due to some unknown factors concerning in the future i.e., country profile, quality of the product, economic condition, and sector future in the international location. I would recommend the Scarman should start Local UK production facility instead of Hong Kong.

References

  • 2019. Caffyns plc. [Online] Available at: http://www.caffynsplc.co.uk/ [Accessed August 2019].
  • 2019. Caffyns plc annual reports 2019, 2018 and 2017. [Online] Available at: http://www.caffynsplc.co.uk/investors-relations/annual-reports/ [Accessed August 2019].
  • 2019. FT.com. [Online] Available at: https://markets.ft.com/data/equities/tearsheet/financials?s=LOOK:LSE [Accessed August 2019].
  •  2019. FT.com. [Online] Available at: https://markets.ft.com/data/equities/tearsheet/financials?s=CFYN:LSE [Accessed August 2019].
  • 2019. Marketline.com. [Online] Available at: https://0-advantage-marketline com.pugwash.lib.warwick.ac.uk/Company/Financials/caffyns-plc#financialratios
  • [Accessed August 2019].
  • 2019. Marketline.com. [Online] Available at: https://0-advantage-marketline-com.pugwash.lib.warwick.ac.uk/Company/Financials/lookers-plc#financialratios
  • [Accessed August 2019].
  •  2019. Investpedia. [Online] Available at: https://www.investopedia.com/ask/answers/070815/what-average-return-equity-company-automotive-sector.asp [Accessed August 2019].
  •  2019. Lookers. [Online] Available at: https://www.lookers.co.uk/ [Accessed August 2019].
  • 2019. Lookers Annual report 2018, 2017 and 2016. [Online] Available at: http://www.lookersplc.com/news/press-releases/2019/annual-results-2018 [Accessed August 2019].
  • 2019. Reuters. [Online] Available at: https://www.reuters.com/finance/stocks/financial-highlights/LOOK.L [Accessed August 2019].

   

Appendix A Return on Assets, Leverage, Net Profit margin, Asset Turnover    
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Net Income 43.5 47.9 71.7 40.9 -0.57 1.03 1.28 1.17
Total Assets 1,895.50 1,895.60 1,707.80 1,585.10 94.85 91.38 82.96 81.26
Average total Assets 1895.55 1801.7 1646.45   93.115 87.17 82.11  
Return on Assets 2.29 2.66 4.35   -0.61 1.18 1.56  
Average total assets 1895.55 1801.7 1646.45   93.115 87.17 82.11  
Average Equity 392.15 363.5 320   28 28 27.5  
Leverage (Assets to Equity) 4.83 4.96 5.15   3.33 3.11 2.99  
Net Income 43.5 47.9 71.7 40.9 -0.57 1.03 1.28 1.17
Sales 4,879.50 4,696.30 4,088.20 3,430.30 209.25 215.87 212.58 186.4
Net Profit margin 0.89 1.02 1.75 1.19 -0.27 0.48 0.60 0.63
Sales 4,879.50 4,696.30 4,088.20 3,430.30 209.25 215.87 212.58 186.4
Average Total Assets 1895.55 1801.7 1646.45   93.115 87.17 82.11  
Asset Turnover 2.57 2.61 2.48   2.25 2.48 2.59  
                 
Return of Equity
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Net Income 43.5 47.9 71.7 40.9 -0.57 1.03 1.28 1.17
Equity 399.3 385 342 298 28 28 28 27
Average Equity 392.15 363.5 320   28 28 27.5  
Return of Equity 11.09 13.18 22.41   -2.04 3.68 4.65  
                 
EBIT Margin and Net Operating Asset Turnover
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
EBIT(Operating Profit+ Profit from JVs) 73.60 77.40 101.3 68.6 0.98 2.3 2.75 2.5
Sales 4,879.50 4,696.30 4,088.20 3,430.30 209.25 215.87 212.58 186.4
EBIT Margin 1.51 1.65 2.48 2.00 0.47 1.07 1.29 1.34
Sales 4,879.50 4,696.30 4,088.20 3,430.30 209.25 215.87 212.58 186.4
Average Net Operating Assets (= Average Capital Employed) 484.5 449.45 437.9   41.795 39.275 37.35  
Net Operating Asset Turnover 10.07 10.45 9.34   5.01 5.50 5.69  
                 
Return of Capital Employed
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
EBIT(Operating Profit+ Profit from JVs) 73.60 77.40 101.3 68.6 0.98 2.3 2.75 2.5
Equity 399.3 385 342 298 28 28 28 27
Minority Interest 0 0 0 0 0 0 0 0
Net Debt 86.90 97.80 74.1 161.7 13.59 14 8.55 11.15
Total Capital Employed 486.20 482.80 416.10 459.70 41.59 42.00 36.55 38.15
Average Capital Employed 484.5 449.45 437.9   41.80 39.28 37.35  
Return of Capital Employed 15.19 17.22 23.13   2.34 5.86 7.36  
                 
PPE Turnover
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Sales 4,880.00 4,696.00 4,088.00 3,430.00 209.00 216.00 213.00 186.00
PPE 351.00 342.00 319.00 283.00 39.00 40.00 36.00 38.00
Average PPE 346.5 330.5 301   39.5 38 37  
PPE  Turnover 14.08 14.21 13.58   5.29 5.68 5.76  
                 
Net Debt to Equity
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Net Debt 86.90 97.80 74.1 161.7 13.59 14 8.55 11.15
Average Net Debt 92.35 85.95 117.9   13.80 11.28 9.85  
Shareholders Equity 399 385 342 298 28 28 28 27
Average Shareholders Equity 392 363.5 320   28 28 27.5  
Net Debt to Equity 0.24 0.24 0.37   0.49 0.40 0.36  
                 
Current Ratio  
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Current Assets 1314 1332 1171 1144 47 44 40 42
Average Current Assets 1323 1251.5 1157.5   45.5 42 41  
Current Liabilities 1239 1248 1130 1085 45 40 35 37
Average Current Liabilities 1243.5 1189 1107.5   42.5 37.5 36  
Current Ratio 1.06 1.05 1.05   1.07 1.12 1.14  
                 
    Net Working Capital Days    
  Lookers(£m) Caffyns plc(£m)    
Item 31.12.2018 31.12.2017 31.12.2016 31.03.2019 31.03.2018 31.03.2017    
Days of Receivables 13.72 16.09 19.33 16.42 15.07 13.96    
Days of Inventory 84.13 79.38 79.99 63.83 57.03 61.16    
Days of Payables 24.29 24.63 25.75 34.50 27.85 25.91    
Net Working Capital Days 73.57 70.84 73.57 45.74 44.26 49.20    
                 
Days of Inventory    
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Inventory 1,027.70 984.10 839.40 816.00 34.00 30.00 30.00 33.00
Average Inventory 1,005.90 911.75 827.70   32.00 30.00 31.5  
Cost of Sales 4,364.00 4,192.20 3,777.00 3,040.00 183.00 192.00 188.00 164.00
Average Daily cost of sales 11.96 11.49 10.35 8.33 0.50 0.53 0.52 0.45
Days of Inventory 84.13 79.38 79.99   63.83 57.03 61.16  
                 
Days of Receivables as per FT.com    
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Trade Receivables 152.00 215.00 199.00 234.00 8.80 10.00 7.84 8.45
Average trade receivables 183.50 207.00 216.50   9.40 8.92 8.15  
Sales 4,880.00 4,696.00 4,088.00 3,430.00 209.00 216.00 213.00 186.00
Average Daily Sales 13.37 12.87 11.20 9.40 0.57 0.59 0.58 0.51
Days of Receivables 13.72 16.09 19.33   16.42 15.07 13.96  
                 
    Days of payables as per FT.com for Lookers and Annual report for Caffyns    
  Lookers(£m) Caffyns plc(£m)
Item 31.12.2018 31.12.2017 31.12.2016 31.12.2015 31.03.2019 31.03.2018 31.03.2017 31.03.2016
Trade payables 282.00 299.00 267.00 266.00 17.20 17.30 11.66 14.77
Average trade payables 290.50 283.00 266.50   17.25 14.48 13.22  
Average Daily Cost of Sales 11.96 11.49 10.35 8.33 0.50 0.52 0.51 0.45
Days of Receivables 24.29 24.63 25.75 0.00 34.50 27.85 25.91 0.00
                 
Cash flow statement    
  Lookers(£m) Caffyns plc(£m)    
  31.12.2018 31.12.2017 31.12.2016 31.03.2019 31.03.2018 31.03.2017    
Cash flow from operating activities 54.90 37.80 99.40 3.76 0.66 1.74    
Cash flow Investing Activities -12.20 -47.50 2.30 -2.75 -5.50 2.07    
Cash flow financing activities -38.30 16.40 -9.40 -1.48 2.89 -1.71    
Net changes in cash 4.40 6.70 92.30 -0.47 -1.95 2.10    
Cash Opening Balance 1st 38.90 32.20 -63.50 0.38 2.32 0.22    
Closing Balance 31st 43.30 38.90 28.80 -0.09 0.37 2.32    

            Appendix B Case B

Scarman plc            
Case B Relevant Cash Flows and Calculation of NPV          
Option 1 Local UK production facility          
  £          
Selling price 250          
Variable Cost 120          
  0 1 2 3 4 5
Number of Units   10000 12000 13500 13500 13500
Selling price   250 250 250 250 250
Revenue     2,500,000.00  3,000,000.00  3,375,000.00  3,375,000.00  3,375,000.00
Variable cost per unit   120 120 120 120 120
Total variable cost     1,200,000.00  1,440,000.00  1,620,000.00  1,620,000.00  1,620,000.00
Machinery Cost (Outflow) -2,000,000.00             250,000.00
Sales Revenue     2,500,000.00  3,000,000.00  3,375,000.00  3,375,000.00  3,375,000.00
Variable cost   - 1,200,000.00 -1,440,000.00 -1,620,000.00 -1,620,000.00 -1,620,000.00
Factory Rent   -   350,000.00 -   350,000.00 -   350,000.00 -   350,000.00 -   350,000.00
Fixed cost   -   450,000.00 -   450,000.00 -   450,000.00 -   450,000.00 -   450,000.00
Net cash flow       500,000.00     760,000.00     955,000.00     955,000.00  1,205,000.00
PV factor 1               0.90               0.81               0.73               0.66               0.59
NPV -2,000,000.00     450,500.00     617,120.00     698,105.00     629,345.00     714,565.00
Pay back period 3 years          
Outflow  2,000,000.00          
Inflow  3,109,635.00          
Overall NPV  1,109,635.00          
IRR 28.36%          
  IRR Calculation
Year   PVF 10% PV PVF 20% PV  
0 -2,000,000.00 0.909 -1,999,999.09               0.83 -1,666,000.00  
1     500,000.00 0.826     500,000.83               0.69     347,000.00  
2     760,000.00 0.751     760,000.75               0.58     439,280.00  
3     955,000.00 0.683     955,000.68               0.48     460,310.00  
4     955,000.00 0.62     955,000.62               0.40     382,955.00  
5  1,205,000.00 0.564  1,205,000.56               0.33     402,470.00  
Total      2,375,004.35       366,015.00  
IRR = Lower rate + NPV AT LR/(NPV AT HR- NPV AT LR) *(HR-LR)      
             

       

Case B Relevant Cash Flows and Calculation of NPV          
Option 2 License production in HK          
  £          
Selling price 250          
Variable Cost 120          
  0 1 2 3 4 5
Number of Units   10000 12000 13500 13500 13500
Selling price   250 250 250 250 250
Machinery Cost (Outflow) -1,800,000.00             200,000.00
Sales Revenue    2,500,000.00  3,000,000.00  3,375,000.00  3,375,000.00  3,375,000.00
Variable cost   -1,700,000.00 -2,040,000.00 -2,295,000.00 -2,295,000.00 -2,295,000.00
fixed cost   -   250,000.00 -   250,000.00 -   250,000.00 -   250,000.00 -   250,000.00
Profit -1,800,000.00     550,000.00     710,000.00     830,000.00     830,000.00  1,030,000.00
PV factor               1.00               0.90               0.81               0.73               0.66               0.59
NPV       495,550.00     576,520.00     606,730.00     546,970.00     610,790.00
Pay back period  3 years          
Outflow  1,800,000.00          
Inflow  2,836,560.00          
Overall NPV  1,036,560.00          
IRR 29.71%          
  IRR Calculation  
Year   PVF 10% PV PVF 20% PV  
0 -1,800,000.00               0.91 -1,799,999.09               0.83 -1,499,400.00  
1     550,000.00               0.83     550,000.83               0.69     381,700.00  
2     710,000.00               0.75     710,000.75               0.58     410,380.00  
3     830,000.00               0.68     830,000.68               0.48     400,060.00  
4     830,000.00               0.62     830,000.62               0.40     332,830.00  
5  1,030,000.00               0.56  1,030,000.56               0.33     344,020.00  
Total      2,150,004.35       369,590.00  
IRR = Lower rate + NPV AT LR/(NPV AT HR- NPV AT LR) *(HR-LR)            

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