Caffyns Regulatory News (CFYN)

Caffyns plc

Preliminary Results for the year ended 31 March 2016

Summary

Highlights

· Like for like new car unit sales up 6.2% against 3.3% in our market sector

· Like for like used car unit sales up 9.3%

· Revenue up by 10.6% to £232m

· Underlying profit before tax up 15.6% to £2,857,000 (2015: £2,472,000)

· Underlying earnings per share up 23.4% to 96.4p (2015: 78.1p)

· Recommended dividend per ordinary share for year increased by 7.4% to 21.75p

· Property portfolio revalued at 31 March 2016: £9.5m surplus (not included in accounts)

· Disposal of Land Rover business in Lewes, retaining the freehold premises, for cash consideration of £7.5m post year-end.

Commenting on the results, Simon Caffyn, Chief Executive said:

"I am delighted to announce that the underlying profit before tax for last year increased by 15.6% and we now have significant financial flexibility to take advantage of opportunities to expand."

Enquiries:

Operational and Business Review

Summary of results

I am pleased to report further profit improvement during the year under review and an underlying profit before tax for the year of £2.86m up 15.6% from £2.47m last year.

Profit before tax was £2.64m compared to £11.44m last year. The results for the year to 31 March 2016 include a cost for the redemption of 425,000 preference shares whilst the year to March 2015 included an £8.86m gain on the past service cost of the defined benefit pension liabilities. 

Revenue for the year was up 10.6% to £232.5m (2015: £210.3m).

Underlying earnings per share for the year were up 23.4% to 96.4p (2015: 78.1p).

New and used cars

Our new unit sales were up by 6.2% on a like for like basis in the twelve month period, while total UK new car registrations rose by 5.9%. Within this, the private and small business sector in which we operate rose by 3.3% so we again outperformed our specific sector. We experienced some pressure on new car margins, particularly in the first three months of 2016 but, despite this, new car gross profits were up on last year.

Used car unit sales were up 9.3% on a like for like basis building further on this key area of the business. Used car margins remained steady and gross profits improved.

Aftersales

Our strong new and used sales in recent years have helped to grow our potential aftersales market and we have placed great emphasis on our customer retention programmes. As a result we have seen our like for like service sales increase 6.5%. Overall aftersales were up 6.7% with parts sales growing at 6.9% like for like.

Operations and redevelopment

The improved profits were delivered despite ongoing disruption from redevelopment work at our Eastbourne Volkswagen site which was finally completed in April 2016. Our new 12 car showroom with increased used car display, together with the greater workshop capacity built in 2014, establishes this dealership as a major presence in the area. The work was completed on schedule and budget at a total cost of £2.7m.

After a very strong first half to the year, we began the second half just as the news broke of the Volkswagen emission test results in the United States. While this affected enquiry rates and sales, the recent announcements and customer loyalty support programmes from Volkswagen have helped confidence.

After the year-end, in April 2016, we sold our Land Rover business in Lewes to Harwoods for a cash consideration of £7.5m which included a payment for goodwill of £5.5m. We have also retained the freehold premises and let them to Harwoods at market value. The sale was fully outlined in a circular sent to shareholders on 17 March 2016 and approved by ordinary shareholders at a General Meeting on 21 April 2016.

The new car market continues to be driven by manufacturer offers which are having a positive impact on our retail sales. Personal contract plans are helping consumers to change into new vehicles at very competitive monthly payment rates, often combined with similarly competitive service plans helping consumers budget their vehicle costs more effectively. As a result, growth in new car sales has continued in the current year to date. Recent investment has also placed further emphasis on increasing our levels of used car sales and customer retention for aftersales business.

Groupwide projects

We remain focused on generating further improvements in the three key areas of used car sales, used car finance and aftersales. All of these contributed towards the increase in profits in the year under review, with strong growth in used car sales and labour sales. In addition, we continue to make very good progress utilising technology to enhance the customer-buying experiences from their first point of contact right through the showroom buying process, as well as improving aftersales retention.

Property

We operate primarily from freehold properties and our property portfolio provides additional stability to our business model. During the year, we incurred capital expenditure of £3.83m (2015: £3.03m). This included a significant upgrade to our Volkswagen dealership in Eastbourne (£2.56m spent in the year) and expenditure on a vacant freehold property in Goring-by-Sea of £0.4m.

We sold two freehold sites which were surplus to requirements. In July 2015, we completed on the sale of our vacant freehold site in Upperton Road, Eastbourne for £1.58m. In January 2016, we sold part of our vacant freehold site in Goring-by-Sea for £0.36m. The building on the rest of this site has been let to Sainsbury's at a rent of £80,000 p.a. with effect from 25 April 2016.

In April 2015, we received the £0.95m cash proceeds on the sale of an investment property in Uckfield, which had been sold and reported in the previous financial year.

As announced on 27 April 2016, we exercised options to acquire three parcels of land, approximately 3.7 acres in aggregate, in Angmering, West Sussex for a total consideration of £2.3m. Consideration of £1.5m is payable on 27 October 2016 and consideration of £0.8m is due between 27 July 2016 and 27 October 2016 at the option of the vendor. The Company has plans to develop the site and relocate an existing business.

The Company's portfolio of freehold premises was revalued as at 31 March 2016 by chartered surveyors CBRE Limited on the basis of existing use value. The excess of the valuation over net book value of freehold properties was £9.5m. In accordance with the Group's accounting policies (which reflect those generally utilised throughout the industry), this surplus has not been incorporated into the Company's accounts.

Bank facilities

The Company's banking facilities with HSBC Bank comprise a four year revolving credit facility of £7.5m entered into in September 2014 and overdraft facilities of £3.5m. In addition, we have an overdraft facility of £7.0m provided by Volkswagen Bank together with a 10 year Term Loan of £5.0m expiring in November 2023. Bank borrowings, net of cash balances, at 31 March 2016 were £11.16m (2015: £10.13m) and as a proportion of shareholders' funds at 31 March 2016 were 42% (2015: 41%).

Pension Scheme

The Company's defined benefit scheme was closed to future accrual in 2010. In common with many companies, the directors have little control over the key assumptions required by the accounting standards in the valuation calculations. The deficit as at 31 March 2016 reduced to £5.0m (31 March 2015: £5.4m). The deficit, net of deferred tax, at 31 March 2016 was £4.1m (31 March 2015: £4.3m).

The pension cost under IAS 19 continues to be charged as a non-underlying cost and in 2016 amounted to £215,000 (2015: £502,000).

In line with the Recovery Plan agreed with the trustees following the actuarial valuation as at 31 March 2014, a cash payment of £300,000 was made in the in the year to 31 March 2016 (2014-15: £358,000) and will increase by 2.25% per annum.

The Board continues to review options, together with the independent pension fund trustees, to reduce the cost of operating the scheme. Any additional actions that could further reduce the deficit over the medium and longer term will be considered.

People

During the second half of the year we responded to enquiries from Volkswagen customers regarding the emissions results and I am grateful to all our employees who have acted with professionalism and consideration to allay concerns. The rebuilding of our Eastbourne Volkswagen dealership caused significant disruption through the wet winter months but, despite this disruption, everyone on site continued to provide customers with excellent levels of service. I am delighted that we have been able to take this in our stride and continue to deliver improved results. As in previous years I am proud of and grateful for the loyalty, hard work and positive approach shown by all employees throughout the Company which of course is responsible for our ongoing success.

Mark Harrison, our Finance Director, will be retiring after the AGM on 21 July 2016. Mark has played a hugely significant role in the Company since joining in April 2000 and the Board and I would like to thank him for his outstanding contribution throughout this period and wish him well for the future.

We announced in February 2016 the appointment of Mike Warren to the Board from 31 May 2016 and he will assume the role of Finance Director upon the retirement of Mark Harrison at the AGM. Mike brings a wealth of experience having been Finance Director of HR Owen plc.

Apprenticeships

We have continued to increase the numbers on our apprenticeship programme and we have seen the benefits flow through the business as more complete their training and become fully qualified. The recruitment programme continues and we will be taking on another full complement this year to aid our growth.

Dividend

The Board has decided to recommend a final dividend of 14.50p per Ordinary Share (2015: 13.5p). If approved at the Annual General Meeting, this will be paid on 28 July 2016 to ordinary shareholders on the register at close of business on 1 July 2016.

Together with the interim dividend of 7.25p per Ordinary Share (2015: 6.75p) paid during the year, the total dividend for the year will be 21.75p per Ordinary Share (2015: 20.25p).

Strategy

Our strategy to focus on representing premium and premium-volume franchises is proving successful. The significant proceeds from the sale of our Land Rover business provides us with the further flexibility to expand upon this success and to evaluate and invest in the growth of the Company. We are assessing a number of opportunities.

Investment in additional land has enabled us to grow our existing businesses. Relocation of our Worthing Audi dealership to a larger site will allow it to expand its trading performance. We are concentrating on larger business opportunities in stronger markets to deliver higher returns on capital from fewer but bigger sites. We are also more effective in being able to deliver performance improvement, although we remain dependent on the key months of September and March.

The focus on improving operational processes has resulted in an encouraging increase in used car sales and in aftersales. Our success in increasing our new and used sales coupled with our improved aftersales retention programmes will enable us to further enhance profitability.

Our website is being significantly upgraded and will enable customers to continue the online search process leading to an easier car buying experience. We also continue to invest in new technology and systems to provide a more straightforward interaction for our aftersales customers.

Outlook

Economic growth in the UK has slowed but manufacturers continue to support our market with strong finance led offers, particularly on new car personal contract plans as well as, increasingly, on used car plans. We are well placed for organic growth having recently opened our refurbished Volkswagen dealership in Eastbourne and completed the upgrading of other key dealerships. The proceeds from the Land Rover sale further strengthens our balance sheet and provides the Company with significant financial flexibility to take advantage of opportunities to expand.

S G M Caffyn

Chief Executive

27 May 2016

Consolidated Income Statement

for the year ended 31 March 2016

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2016

Consolidated Statement of Financial Position

at 31 March 2016

Consolidated Statement of Changes in Equity

for the year ended 31 March 2016

for the year ended 31 March 2015

Consolidated Cash Flow Statement

for the year ended 31 March 2016

Notes

1. GENERAL INFORMATION

Caffyns plc is a Company domiciled in the United Kingdom. The address of the registered office is Saffrons Rooms, Meads Road, Eastbourne BN20 7DR. The registered number of the Company is 105664.

These consolidated financial statements were approved by the Directors on 27 May 2016.

2. ACCOUNTING POLICIES

The financial information has been prepared under International Financial Reporting Standards (IFRSs) issued by the IASB and as adopted by the European Commission (EC). This financial information has been prepared on the same basis as in 2015.

Whilst the financial information included in this announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.

This set of financial statements has been prepared in accordance with the accounting policies set out in the Annual Report for the year ended 31 March 2016.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2016 or 2015, but is derived from those accounts. Statutory accounts for the year ended 31 March 2015 have been delivered to the Registrar of Companies and those for the year to 31 March 2016 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

A copy of the annual report for the year ended 31 March 2016 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 28 June 2016.

Segmental reporting

Based upon the management information reported to the Group's chief operating decision maker, the Chief Executive, in the opinion of the directors, the Group only has one reportable segment. There are no major customers amounting to 10% or more of the Group's revenue. All revenue and non-current assets derive from, or are based in, the United Kingdom.

3. GOING CONCERN

The financial statements have been prepared on a going concern basis which the directors consider appropriate for the reasons set out below.

The Company and the Group meet their day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities. At the year-end the medium-term banking facilities included a revolving credit facility of up to £7.5m, renewable in September 2018, and short-term overdraft facilities of £10.5m of which £7.0m is renewed annually in July and is currently being renegotiated in the normal course of business. The directors have every expectation that it will be renewed based on the current discussions with the bank. The other overdraft facility of £3.5m is renewable in August 2016. The Group also has a 10 year Term Loan with a balance outstanding at 31 March 2016 of £3.875m. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed. The overdraft and revolving credit facilities include certain covenant tests. The failure of a covenant test would render these facilities repayable on demand at the option of the lenders.

The directors have undertaken a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of this Annual Report which projects that the expected facility limits are not exceeded over the duration of the forecasts. These forecasts have made assumptions in respect of future trading conditions, particularly volumes and margins of new and used car sales, aftersales and operational improvements together with the timing of capital expenditure. The forecasts take into account these factors to an extent which the directors consider to be reasonable, based on the information that is available to them at the time of approval of these financial statements. These forecasts indicate that the Group will be able to operate within the financing facilities that are expected to be available to it and meet the covenant tests with sufficient margin for reasonable adverse movements in expected trading conditions.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing the financial statements.

4. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2015, with the addition of the following:

Disposal of Land Rover

The directors have considered IFRS 5 in relation to the classification of the trading performance and subsequent disposal of the Group's Land Rover business which completed on 29 April 2016. The sale of the business was conditional upon shareholder approval on 21 April 2016 and as such, at the balance sheet date, the directors did not know the outcome of this vote. The directors were unable to determine that it was highly probable that the vote would approve the disposal of 31 March 2016 and accordingly continued to classify the dealership's results as continuing operations within their financial results. The financial impact of the disposal is summarised in note 11.

5. NON-UNDERLYING ITEMS

The following amounts have been presented as non-underlying items in these financial statements:

There were branch specific redundancy costs of £28,000 (2015: £39,000).

The Group sold most of its freehold property in Upperton Road, Eastbourne for £1,581,000 and land in Goring Road, Worthing for £360,000 generating net gains of £281,000 and £71,000 respectively. Other losses on disposal totalled £35,000.

On 8 February 2016, the Company purchased 218,268 First Preference Shares for 108 pence each and 206,664 New Preference Shares for 167 pence each pursuant to a Redemption Option offered to shareholders. Given the nature of the transaction, the associated legal and professional costs of this purchase have been treated as non-underlying together with the premium paid on redemption.

In 2015, the net financing return and service cost on pension obligations in respect of the defined benefit scheme closed to future accrual was presented as a non-underlying item due to the volatility of the amount. Agreement had been reached with the trustees of the Group's defined benefit pension scheme that the inflation measure used in payment increases for pensions in excess of GMP would change from RPI to CPI for members (or dependants of members) who were in service on or after 1 April 1991. Having considered the requirements of IAS 19 'Employee benefits', this change had been recorded as a plan amendment through the Income Statement. The change from RPI to CPI resulted in a gain in the Income Statement of £8,861,000 in the year ended 31 March 2015.

The interest on overdue taxation relates to the corporation tax due on a VAT repayment made to the Group in the year ended 31 March 2015. While the tax due had been the subject of dispute with HM Revenue and Customs, it had been provided for in the accounts, subsequently being paid in April 2015 with the associated interest paid in March 2016.

6. FINANCE EXPENSE

7. TAXATION

8. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Treasury shares are treated as cancelled for the purposes of this calculation.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post-tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

Reconciliations of earnings and weighted average number of shares used in the calculations are set out below:

The number of fully paid ordinary shares in circulation at the year-end was 2,879,298 (2015: 2,758,733). The weighted average shares in issue for the purposes of the earnings per share calculation were 2,759,371 (2015: 2,757,527). The shares granted under the Company's SAYE scheme are dilutive. The weighted average number of dilutive shares under option at fair value was 45,703 (2015: 41,169) giving a total diluted weighted average number of shares of 2,805,074 (2015: 2,798,696).

9. DIVIDENDS