Robin Gregson is CFO for major UK motor group, Lookers plc. With a penchant for numbers and a passion for cars, he is ideally placed to take the business to the next stage. But is the time right for growth?
Lookers plc is a nationwide motor retailer headquartered in Manchester, England. Founded in 1908 to sell bicycles and accessories, today it trades across the UK and Ireland, representing a number of volume and high-end automotive manufacturers including Mercedes-Benz, Audi, Lexus, VW, Jaguar and BMW. With almost 30 subsidiaries in the fold, Lookers’ 2016 revenues exceeded £4bn. It was listed on the London Stock Exchange in 1973.
As CFO at Lookers plc, a major UK motor dealer, Robin Gregson’s stock-in-trade is numbers. But he is equally at home casting a critical eye over liquidity and capital structures as he is weighing up the potential of the latest supercar at rest on one of the company’s many forecourts up and down the country. For Gregson, the CFO role is a pleasure in itself. But as CFO for a major motor industry player, it verges on a labour of love.
Gregson started his career as an accountant with Deloitte before finding his niche in the motor industry with CD Bramall, rising to Finance Director and occupying the role for six years. When the firm was acquired by Pendragon in 2004, Gregson took the opportunity to diversify his range of experience in the privately-owned ATM business.
By 2009, the auto industry came calling again. Gregson, in the right place at the right time, secured the position of FD for Lookers, alongside former CD Bramall Chief Executive Peter Jones and Chairman Phil White.
Right place right time
Arguably his ascent to the Lookers FD position was entirely at the wrong time, taking on a key role in a nervous industry at a point when the global financial crisis was beginning to take a firm grip of proceedings. But the unflappable Gregson seized the moment, tackling the banks and finance facilities when the banks were not best disposed towards lending. He admits that the banks’ reticence proved quite a challenge, many seemingly (and perhaps understandably) focused on “protecting their own interests”.
As the economy improved and the banking sector suddenly remembered what its role was and once more started looking forward, Gregson comments that although banks and banking have “changed for the better”, people have long memories and many will be wary of a repeat performance.
With control and response in mind, Lookers has made a conscious effort to avoid creating the kind of destructive hierarchies that can flourish in growing companies. It is, he states, a relatively non-political organisation “where people co-operate with one another”.
Keep it simple
He has been at pains to steer clear of over-complicating the finance function too, allowing each part freedom to breathe. The business is organised into divisions, predominantly by the franchise groups in which they operate (Mercedes, Audi, Jaguar and so on). Finance is delegated in line with the organisational structure of the business, each having a financial team and a financial controller reporting up to the Group Financial Controller, the FD and ultimately the office of CFO.
With the divisions selling different products from rival manufacturers, each necessarily operates on different lines, reflecting the needs of each franchise. However, although they are to a degree in competition with each other and communication is kept low key, in financial terms, a common management reporting system ensures aggregation of data all the way to the top.
Banks and banking have “changed for the better” but, people have long memories and many will be wary of a repeat performance.
Lookers is an acquisitive business, many of its 30 subsidiaries arriving by way of merger. This can be an issue for financial transparency for many treasurers and CFOs, especially with cross-border deals. Despite franchise differences requiring an individual touch, the retail motor industry’s tendency to use similar accounting systems at this level plays straight into Gregson’s hands, such that he describes the process each time as being “reasonably easy”.
His own involvement in the day-to-day running of the group tends to be as-needed, the management structure and the benefits of a harmonised reporting mechanism in finance clearly enabling devolvement on a trust basis. “That commonality of reporting is helpful on the operational side of the business too, because it allows them to manage on a consistent basis,” he says.
A growing concern
Since Gregson’s arrival, the business has changed. Not only is there a great contrast in relative economic positions between then and now, but Lookers has also grown a lot in the intervening years. The immediate aftermath of the global financial crisis was challenging for most businesses. But turnover since 2012 has more than doubled, from £2.05m to £4.08m in 2016, with pre-tax profits rising in the same period from £34.3m to £79.6m. In part, this is explained by some major UK dealer group acquisitions by Lookers, including Knights, Drayton and Benfield in 2015/2016. But the firm has also managed some impressive organic growth within its existing franchises as the new car market saw new life breathed into it.
Not that it is all plain sailing now. “I think the biggest concern for us now is all the political unrest and the uncertainty that goes with that,” says Gregson. The uncertainty created by elections, the referendum and Brexit in particular has impacted the automotive market. “Our business is very much dependent on consumer confidence. If that changes in a negative way – and all the noise around the economy right now seems to be negative – obviously our volumes will decrease: we are directly affected by the UK economy.”
With so much uncertainty, “see how it develops and then react accordingly” is about as good a response as can be offered by any business right now. But Gregson points out that automotive sales is a huge issue across many European countries. Lookers buys all cars in sterling. Although he feels that the pre-referendum pound was overvalued, the lower euro exchange rate impacts what manufacturers such as Audi and Mercedes-Benz receive when repatriating cash. This may hit prices and demand in the UK for imported cars. It could get worse. “The UK is the second biggest market for German cars. If tariffs are applied, it won’t be helpful. As an industry, we hope sense will prevail.”
On the money
For now, as the politicians begin thrashing out the details, Lookers’ Q117 was strong. It reported a “buoyant” quarter in which retail sales volumes were up 9.2% and fleet sales volumes up 5.1% both on a like-for-like basis. However, Gregson acknowledges that Vehicle Excise Duty rises scheduled for 1st April 2017 will have brought forward some sales in March as the first new registrations of the year were rolled out. A small reduction in Q2 sales seems to support this theory. Nonetheless, the current economic instability is at best unhelpful.
“The UK is the second biggest market for German cars. If tariffs are applied, it won’t be helpful. As an industry, we hope sense will prevail.”
The UK motor trade does have spikes (another is due as new September registrations are released). With two obvious sales peaks, Gregson says these make great demands on working capital. Two months of high new car volumes is compounded by commensurate numbers of part exchanges of customers’ old cars. Many of the older vehicles are committed to used-car stock, giving a working capital spike that slowly tails off as they are sold over the next couple of months. “In a stable market, used car values are fairly predictable. But if consumer confidence deteriorates then price movements will impact both new and used markets.”
The capacity to mitigate the risk is minimal, says Gregson; the only way is to liquidate car stocks but then the business can’t sell to customers at a profit and, as such, this would be deemed a “drastic action” that under normal conditions no motor trader would want to take.
Regs and regs
Notwithstanding the tax-informed partly cyclical nature of the motor trading in the UK, Gregson feels that the industry – and many others – is facing an increasing burden of regulation. The National Franchise Dealers Association does lobby the authorities, he notes. But ultimately it is the people on the ground that have to deal with the political output and unintended consequences of rulings from Brussels and Westminster.
The EU’s General Data Protection Regulation (GDPR), for example, is, he says, “pretty harsh” in terms of its commercial impact (it gives individuals new rights over data held and imposes new responsibilities on companies around storage and use of that data).
And whilst Financial Conduct Authority (FCA) rules on selling finance in the UK may have less administrative impact on large groups such as Lookers, he feels smaller operations may be less able to absorb the cost of compliance. He accepts the need for certain controls but suggests that “it does not help business operate in a free market when we have increased regulation coming in such as this”.
The nature of the business for Gregson is such that each day can be different. The normal monthly reporting cycles, for example, must be adhered to but plans can change rapidly if an acquisition is put on the table. “The variability keeps it interesting; much of the work needs planning and controlling but there are many things that can affect the day’s activities.”
Communication is the key
Lookers continues to make significant investment in technology; all research by customers is now carried out online before they even step into a showroom. Providing user-friendly and useful access to help that process is essential. The changing nature of the industry is reflected in the budget process and for Gregson it is vital that finance works with the operational and IT functions to understand, prioritise and plan ahead. Within Lookers he feels there is “very much a team mentality” that keeps the channels of communication open, enabling the timely sharing of information. Without this approach, he believes there would be a rather different story in terms of progress.
This openness extends to the relationship Lookers has with external partners, especially its panel of banks. “They are now very supportive and helpful,” he comments, adding that most are “generally proactive where they can be, even if they are still trying to sell you something”.
In terms of uptake of bank products, on the funding side at least (Lookers is a net debt business) matters have remained somewhat vanilla. The working capital cycle is managed via RCFs, Lookers’ banks being fully cognisant of the cyclical flows of the sector. A brief review of the bond market revealed finance that was “more expensive than what we pay the banks” (Gregson thus has little interest in securing a private credit rating, for now). And with current borrowings simply taking advantage of existing low rates, interest rate hedging has been pushed off the agenda.
It’s a reflex
The ebb and flow of trade within Lookers, to all intents and purposes, is managed in a calm and professional manner. This is precisely how it should be. The skills required to achieve this position are similar to those for any other senior management role, says Gregson. “A lot of the job is about interacting with people in the business,” he adds.
However, his early qualifications in accountancy and time spent working up through the profession, gaining a wide variety of experiences in different sectors, have proven an “invaluable” base for progress. Indeed, with this solid grounding, Gregson has been able to adapt to changing circumstances, the work he is doing now having morphed “into something very different from what it was eight years ago”.
One thing that remains unaltered though is his passion for motoring and motorsport. Although not having set out to join the automotive sector, the prospect of driving some of the more exotic specimens on the forecourt is pure temptation for any petrol-head. For Gregson, this is one test of his skill, judgement and reflexes that he is quite happy to indulge anytime.