Caffyns Regulatory News (CFYN)

Caffyns plc

Preliminary Results for the year ended 31 March 2012

Summary

·; Underlying performance reflects a major restructuring exercise to improve performance and efficiency as well as the continuing impact of the economic downturn on the motor trade.

·; Profit before tax (including non-underlying items) of £1.46m (2011: £0.27m).

·; Profit before tax (excluding non-underlying items) was £0.78m (2011: £1.44m).

·; Basic earnings per share (including non-underlying items) increased to 51.0p (2011: 7.7p).

·; 15.5% reduction in revenue reflects the closure of seven underperforming businesses in the prior year.

·; Like for like new car unit sales down 1.3% (compared to a fall of 7.2% in our market segment).

·; £2m redevelopment of new state of the art Land Rover showroom completed on time and budget.

·; Two businesses closed and a further three consolidated into adjoining sites to reduce costs and enhance profitability.

·; Freehold properties in Brighton and Sevenoaks successfully sold during the year.

Enquiries:

Operational and Business Review

Overview

Whilst trading conditions remained very difficult during the period under review, action has been and continues to be taken to improve our internal efficiencies and to position the Company for the next upturn.

During the year, we continued our strategy of improving performance and efficiency across the core businesses. Two underperforming sites were closed and three further dealerships were consolidated into adjoining operations to reduce costs and increase profitability of these sites. Central support service costs were further reduced by over £600,000.

In summary, the major restructuring exercise has produced a stronger core business with higher quality, more concentrated businesses and a strong balance sheet.

Summary of results

In the year ended 31 March 2012, revenue was £170.2m, down from £201.5m last year, following the closure of seven businesses during the prior year.

Profit before tax rose to £1.46m from £0.27m, while profit before tax and non-underlying items at £0.78m was down from £1.44m in the previous financial year. Basic earnings per share were 51.0p compared with 7.7p in 2011.

Net debt at 31 March 2012 was £8.7m with gearing of 43% (2011: £8.1m, 40%).

New and Used Cars

During the year we saw a relatively strong new car sales performance offset by a decline in used car sales and margin.

After a strong first three months of the 2011 calendar year, the private and small business sector in which we operate experienced a decline in activity from April 2011, the start of the year under review. Total UK new car registrations fell 1.6% in the 12 month period to March 2012 but were down 7.2% in the private and small business sector. Despite this, our like for like new car unit sales remained strong and were down only 1.3% on the prior year. Our premium and premium-volume franchises continue to perform relatively well and new car margins remained firm, with new car gross profits slightly ahead of our internal expectations.

Our used unit sales would have been down 4.5% were it not for the temporary and expected disruption caused by redevelopment at the Land Rover dealership in Lewes and the structural reorganisation in the Vauxhall businesses and the Volvo/Ford business in Brighton. The used car market has been more difficult than new car sales and like for like used car unit sales overall were down 10.8% on last year. We have responded by making organisational and other changes including further development of the Company's website which has recently been nominated for a 'Motor Trader' award.

Aftersales

With annual new car registrations again at levels well below pre-recession figures, we have seen a further reduction in the overall size of the 0 to 5 year old car servicing market resulting in a 4.2% decline in like for like aftersales revenues. To counter this we have further enhanced our aftersales marketing and retention procedures. Customer retention has been good but the reduction in our used car sales affected levels of reconditioning work put through our workshops.

Developments and Investments

In Lewes we have completed the building of a new state of the art showroom and ancillary facilities for the expanding Land Rover range which gives us greater new car space and a significantly enlarged used car display. This is complemented by our aftersales facility situated nearby which incorporates the latest technology. Being one of the first ever Land Rover franchises, this dealership is now one of the best facilities in the country.

We are in advanced negotiations, subject to planning consent, to buy a 1.85 acre site in Worthing in order to build a new Volkswagen dealership. This acquisition will allow us to relocate to a site with the potential for significant growth in both new and used car sales. Our other Volkswagen businesses are also undergoing refurbishment to meet the new Volkswagen corporate standards and allow us to grow in line with Volkswagen's aspirations for enhanced market share by 2013.

Our Audi and Skoda sites are performing well and we have an opportunity to grow market share substantially with their next generation of cars. In Eastbourne we are increasing the showroom space of our Audi Centre to meet new corporate standards and to provide a better customer experience. As mentioned below, we are moving our Ashford Skoda dealership to an existing site where we can provide improved facilities for this growing franchise.

Restructuring

We announced in July 2011 that we will be ceasing representation of Vauxhall for new car sales in Ashford and Tunbridge Wells when the current agreements terminate. Trading from the Vauxhall sites has been treated as non-underlying in the period from July 2011. Profits and closure costs from the sale of our freehold sites in Sevenoaks and Preston Road, Brighton, are also treated as non-underlying.

In April 2011, we announced the unconditional sale of our premises in Sevenoaks for a cash consideration of £1.75m. The franchise agreements with Peugeot and Citroen expired at the end of May 2011 and the attractive offer we received for the freehold complemented our overall strategy of focusing on premium and premium volume brands.

In October 2011 we relocated our Skoda business from Tonbridge to our Vauxhall site in Tunbridge Wells and we are planning to add a Seat dealership to this site. In February 2012, we closed our Vauxhall satellite operation in Folkestone and amalgamated it with our main Vauxhall dealership in Ashford.

In December 2011 we transferred our Ashford bodyshop business to a third party, which will allow us to relocate our Skoda business on this site thereby providing improved facilities for this growing franchise.

Our Jaguar used car and aftersales business has been relocated from Eastbourne to our newly refurbished Land Rover site in Lewes.

Revenues of the above sites included as underlying in the year under review were £8.50m.

In addition to these closures and disposals, we have further reduced central and branch administration costs. The funds generated by these actions will be invested in growing our remaining businesses and in acquiring further operations as and when appropriate opportunities arise.

Bank facilities

The group renewed its facilities with HSBC in March 2012, increasing its three year revolving credit facility from £5.0m to £7.5m. Overall facilities with HSBC remain at £11.0m with the balance of £3.5m available as an overdraft. We have also replaced our former facility of £7.0m at Royal Bank of Scotland with an overdraft facility of £7.0m provided by Volkswagen Bank.

Property

We operate primarily from freehold properties (although we retain a number of leasehold premises) and our property portfolio provides additional strategic flexibility to our business model.

As mentioned previously, we announced the sale of our Sevenoaks site in April 2011, for which we received £1.75m in May 2011.

In May 2011 we announced that we had exchanged contracts for the sale of our freehold property in Alton, Hampshire, for £1.81m, conditional upon a satisfactory planning approval for change of use. If the planning application is successful, completion is scheduled to take place in November 2012. The site trades as a Ford franchise and it is intended that the business will be transferred to alternative premises if the planning application is successful.  

On 25 November 2011, the Company submitted a planning appeal against the refusal for change of use of our Preston Road site in Brighton. The appeal was upheld and the agreement with Sainsbury's Supermarkets Limited to lease the site was completed. We sold this property in February 2012 to Shell Trust (UK Property) Limited for £2.7m, representing a net gain on sale of approximately £2.0m.

At the year-end we had four vacant freehold sites for potential sale, in Eastbourne, Hailsham, Goring-by-Sea and Folkestone. As indicated, the first two sites closed in March 2012 and are currently being marketed. Our site in Goring-by-Sea was leased to Tesco Stores Limited and was sold in May 2012 for £1.28m, giving rise to a gain on sale of approximately £0.8m. The other three sites are expected to at least realise book values.

In Tonbridge we have a vacant leasehold site which is currently subject to discussions regarding underletting to a third party at the current passing rent.

The Company valued its portfolio of freehold premises as at 31 March 2012, excluding the four sites which were either for sale or available for letting as at that date. The valuation was carried out by chartered surveyors CBRE Limited on the basis of existing use value. The excess of the valuation over net book value as at 31 March 2012 was £5.0m. In accordance with the Group's accounting policies (which reflect those utilised throughout the industry), this surplus has not been incorporated into the Company's accounts.

Pension Scheme

The pension scheme deficit increased to £6.26m at 31 March 2012 from last year's figure of £5.48m, mainly due to the reduction in the discount rate used to value the liabilities of the scheme. The directors have very little control over the key assumptions required by the accounting standards in the valuation calculations. Although the deficit increased from 31 March 2011, it reduced from the half year figure at 30 September 2011 of £6.9m. The Board continues to review options to reduce the cost of operating the scheme and any actions that could further reduce the deficit.

People

I should like to take this opportunity, on behalf of the Board, to thank our current Chairman, Brian Birkenhead, for helping us to negotiate a period of intense change in a very difficult economic environment. As previously announced, Richard Wright, currently an independent non-executive director, is scheduled to take over as Chairman following the AGM on 26 July 2012.

I am particularly pleased that our apprentice program has been so successful and we were delighted to be awarded the 'Employer of the Year Award' by Northbrook College, who supply training for many of our apprentices.

Despite the challenging conditions we face, our employees have been very positive in their approach during a time of change. This has been a difficult period and I should like to thank them personally for their dedication under trying circumstances.

Dividend

The Board has decided to recommend a final dividend of 7.0p per Ordinary Share (2011: 7.0p). If approved at the Annual General Meeting, this will be paid on 26 July 2012 to shareholders at close of business on 27 June 2012.

Together with the interim dividend of 5.0p per Ordinary Share (2011: 5.0p) paid during the year, the total dividend for the year will be 12.0p per Ordinary Share (2011: 12.0p).

Strategy

Our strategy is to maintain a focus on representing premium and premium-volume franchises. They are more resilient than the wider market and have delivered stronger sales, profits and returns, despite the general economic difficulties.

We continue to invest the proceeds from the sale of properties and closed operations into larger business opportunities in stronger markets. We believe these have the potential to develop higher rates of return on capital.

The closure of loss-making and subscale businesses has freed up capital and management time to concentrate on performance improvements at sites with greater future profit potential.

Our concentration on improving operational processes has helped to offset the decline in used car profitability and aftersales turnover.

Outlook

We have completed a large part of our restructuring and are now in a much stronger position. However, we have not yet seen signs of a sustainable improvement in consumer confidence. With difficult market conditions likely to be with us for some time to come, and continuing uncertainty over future events in Europe, we continue to take steps to improve operating performance. We are strategically well placed with resilient premium franchises to take advantage of any improvement in economic conditions.

Simon Caffyn

Chief Executive

1 June 2012

Consolidated Income Statement

for the year ended 31 March 2012

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2012

Consolidated Balance Sheet

at 31 March 2012

Consolidated Statement of Changes in Equity

for the year ended 31 March 2012

for the year ended 31 March 2011

Consolidated Cash Flow Statement

for the year ended 31 March 2012

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 1 June 2012.

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 2011.

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.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2012 or 2011, but is derived from those accounts. Statutory accounts for the year ended 31 March 2011 have been delivered to the Registrar of Companies and those for the year to 31 March 2012 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 2012 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 3 July 2012.

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 Group meets its day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities. 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 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 this financial information. These forecasts indicate that the Group will be able to operate within the financing facilities that are 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 Annual Report.

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.

Except as described below, 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 2011.

5. NON-UNDERLYING ITEMS

Non-underlying items are those items that are unusual because of their size, nature or incidence. The group's management considers that these items should be disclosed separately to enable a full understanding of the group's operating results. Trading results, including losses incurred and wind down expenses are included within non-underlying from the date of the announcement to close the branch or termination of the dealer agreement with the manufacturer. Trading results and associated expenses of those branches prior to that date (including those for comparative periods) are not reclassified to non-underlying retrospectively as, in the opinion of the directors, they become non-underlying only after the relevant announcement has been made to close or terminate the operations.

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

Property, plant and equipment have been reviewed for possible impairment in the light of economic conditions. As a result of thisreview the directors have decided to impair certain branch assets totalling £174,000 (2011: £nil).

Losses incurred in the closure of businesses amounted to £1,315,000 (2011: £1,172,000). These costs include wind down expenses, recognised from the date of the announcement to close or terminate the dealer agreement with the manufacturer, and also branch specific redundancy costs which amounted to £333,000 (2011: 699,000). Dealerships affected included the closure of Peugeot at Sevenoaks and Jaguar in Eastbourne together with the trading at Ashford, Folkestone and Tunbridge Wells following the termination notice with Vauxhall Motors in July 2011.

The Group undertook a programme of redundancies in its core business consequent to the current economic situation, resulting in non-underlying payments of £32,000 (2011: £152,000).

6. FINANCE EXPENSE

7. FINANCE INCOME ON PENSION SCHEME

8. TAXATION

9. 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: