Caffyns Regulatory News (CFYN)

Caffyns plc

Preliminary Results for the year ended 31 March 2019

Summary

Overview

· Like-for-like new car unit sales down 10.0% against a 2.8% fall in our market sector

· Like-for-like used car unit sales up 5.9% against 2018

· Aftersales revenue up 7.4% against 2018

· Revenue down 3.1% to £209.2 million

· Underlying profit before tax increased to £1.45 million (2018: £1.39 million)

· Recommended dividend per ordinary share for the year maintained at 22.5 pence (2018: 22.5 pence)

· Property portfolio revaluation as at 31 March 2019 showing an £11.2 million (2018: £10.3 million) surplus to net book value (not recognised in the accounts)

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

"Despite a challenging year, underlying profit before tax increased to £1.45 million from £1.39 million in the previous year."

Enquiries:

Operational and Business Review

The year under review produced a 4% headline increase in underlying profit before tax to £1.45 million (2018: £1.39 million) although the story for the year was more nuanced. At our half-year stage, I highlighted the adverse impact on our brands that arose from the new emissions-testing regime, the Worldwide Harmonised Light Vehicle Test Procedure, commonly referred to as WLTP, which created a scarcity of supply of new cars for most of our brands. This was quickly rectified for some brands but, for others, the impact lingered well into the second half of the year and was a significant drag on both turnover and profits. As a result, our full year turnover fell by 3.1% to £209.2 million (2018: £215.9 million). However, in areas of the business that were not impacted by these external issues, we continued to achieve good growth with used car sales up by 5.9%, and service and parts revenues up by 7.7% and 7.3% respectively. Underlying earnings were also boosted by a compensation receipt, net of costs, of £0.3 million. This arose from an agreed settlement of a claim for trading losses caused by disruption from alterations and repairs required to one of our freehold premises. This credit appears in Other Income in these preliminary financial statements.

The statutory result before tax for the year was also heavily affected by several non-underlying items, the most significant of which was a £0.9 million charge for equalising the Guaranteed Minimum Pensions for the male and female members of our closed defined-benefit pension scheme, required following a legal precedent set in November 2018. The non-underlying items for the year are detailed in Note 5 to these preliminary financial statements.

Our statutory result before tax for the year was a loss of £0.4 million (2018: profit of £1.2 million). Basic deficit per share was 21.0 pence (2018: earnings of 38.2 pence).

Underlying earnings per share for the year were 35.3 pence (2018: 45.6 pence).

New and used car sales

Our new unit sales fell by 10.0% on a like-for-like basis as one of our principal manufacturers implemented an agency sales arrangement for certain classes of new car sales from April 2018 and also from the negative impact of WLTP. Excluding this one manufacturer, our new car sales would have shown growth of 2.2% against the prior year. In the year total UK new car registrations reported a 3.7% reduction whilst, within this total, new car registrations in the private and small business sector in which we principally operate fell by 2.8%. Although we experienced pressure on new car margins, our achievement of manufacturer bonus targets was pleasing with the result that an increase in unit new car gross profit partially helped to mitigate the fall in sales volumes in the year.

For used cars, unit sales volumes improved by 5.9% on a like-for-like basis, and with an improvement in unit used car margins. Over the last five-year period, the Company has recorded a 42% like-for-like growth in the number of used cars sold and we continue to see this element of our business providing a major opportunity for further growth. The number of used cars sold again exceeded the number of new cars sold in the year.

Throughout the year under review, we continued to upgrade our website with multiple enhancements to our customers' online searching capabilities, leading to an easier, more enjoyable car-buying experience.

Despite the falls in the UK new car market in the financial year under review, the number of one to three-year old cars in circulation remains historically at very high levels. Our three-year car parc has grown over the last five years and we are encouraged that our service revenues in the year have continued to rise, by 7.7% on a like-for-like basis. We continue to place great emphasis on our customer retention programmes and in growing sales of service plans. Our parts business also reported sales growth, up by 7.3% on a like-for- like basis over the previous year.

The financial results from our Volkswagen businesses improved markedly in the year as operational performance issues experienced in the previous year were overcome and the division returned to profitable trading. Although new car sales volumes declined from last year's levels, this was more than mitigated by an increase in used car sales. Aftersales revenues, and profits, also improved against the prior year. We remain confident that the strength of the brand, the excellent model range and exciting new products will lead to further improvements in its future trading performance.

Our Volvo business in Eastbourne enjoyed an excellent year with the XC40 and V60 models being very positively received by customers. Our Volvo aftersales business also reported strong growth in profitability for the year. We continue to assess plans to expand our showroom facility to better accommodate these extra models and expect to commence the redevelopment in the current financial year.

Our Audi businesses experienced a very difficult year with the brand being particularly impacted upon by the introduction of WLTP, from 1 September 2018. New car supply was significantly constrained, and the brand reported a national 34% fall in registrations over the following seven months to our year-end at 31 March 2019. This was significantly worse than the 8% experienced by the overall UK market. This scarcity in supply adversely impacted profitability which fell by more than half against the previous year. New car supply has now largely returned to more normal levels and we look forward to improvements to profitability in this business.

In Tunbridge Wells, our SEAT business continued to perform well and, in conjunction with the adjacent Skoda business, continues to deliver healthy levels of profitability. Our Skoda business in Ashford also performed satisfactorily.

Our Vauxhall business in Ashford continued to experience challenging trading conditions in the year. However, Vauxhall's national new car registrations in the year were down by only 3% which was less than the decline in the overall UK market. Losses from the business were significantly less than experienced in the prior financial year.

Trading at Caffyns Motorstore, our used car business in Ashford, slowed in the year as the business suffered from growing pains although the concept has been very well received by our customers who particularly value the reassurance of the Caffyns brand. Management changes have been made since the year-end and we expect performance to improve.

We remain focused on generating further improvements in used car sales, used car finance and aftersales. These three key areas helped to achieve the increase in profitability in the year under review, with very pleasing growth continuing to be recorded in service 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.

We operate primarily from freehold sites and our property portfolio provides additional stability to our business model. As in previous years, our freehold premises were revalued at the balance sheet date by chartered surveyors CBRE Limited based on an existing use valuation. The excess of the valuation over net book value of our freehold properties at 31 March 2019 was £11.2 million (2018: £10.3 million). This is after property impairments on two separate properties of £0.54 million and £0.40 million. In accordance with our accounting policies (which reflect those generally utilised throughout the motor retail industry), this surplus has not been incorporated into our accounts.

During the year, we incurred capital expenditure of £2.8 million (2018: £5.6 million). This included the completion of our new Audi "Terminal" facility at Angmering which opened in July 2018. This facility comprises two state-of-the-art new car configurator areas in addition to a ten-car showroom as well as extended used car display areas. The aftersales facility comprises a fourteen-bay workshop and innovative drive-through service reception area. The facility will enable the Worthing business to grow considerably and benefit from the development of new housing in the area. The business' previous base at Broadwater Road in Worthing was leased to a third party on a 15-year lease that commenced in February 2019.

Our freehold premises in Lewes remain leased until April 2020 to the purchaser of our former Land Rover business, which was sold in April 2016. The Board continues to evaluate future opportunities for the site.

Bank facilities

The Company's banking facilities with HSBC Bank comprise a term loan, originally of £7.5 million, repayable by instalments over a twenty- year period to 2038 and a revolving-credit facility of £7.5 million, both of which will next become renewable in March 2023. HSBC Bank also provides an overdraft facility of £3.5 million, renewable annually. In addition, the Company has an overdraft facility of £7.0 million provided by Volkswagen Bank, renewable annually, together with a term loan, originally of £5.0 million, which is repayable by instalments over the ten years to November 2023.

Bank borrowings, net of cash balances, at 31 March 2019 were £13.6 million (31 March 2018: £14.0 million) and as a proportion of shareholders' funds at 31 March 2019 were 49% (2018: 50%). The reduction in gearing in the year was primarily the result of cash generated from operating activities in the year.

Taxation

The year ended 31 March 2019 produced a tax charge of £0.1 million (2018: £0.1 million). The current year effective tax rate was significantly lower than the standard rate of corporation tax in force for the year of 19%, mainly due to movements in the tax liability on unrealised gains arising from the sale of properties and goodwill in prior accounting periods. The lower effective tax rate in the previous financial year was the result of an adjustment for an over-provision of tax of £0.14 million in the previous financial year.

The Company has no current outstanding trading or capital losses awaiting relief. Capital gains which remain unrealised, where potentially taxable gains arising from the sale of properties and goodwill have been rolled over into replacement assets, amount to £7.9 million (2018: restated as £9.0 million) which could equate to a future potential tax liability of £1.3 million (2018: restated as £1.5 million). The Company also has an amount of £1.1 million (2018: £1.1 million) of recoverable Advanced Corporation Tax ("ACT") and £0.7 million (2018: £0.8 million) of Shadow ACT. The Board remains confident in the recoverability of the ACT although the Shadow ACT must first be fully absorbed before the ACT balance itself can become available to be utilised. However, given the inherent uncertainty in recovering this ACT, a partial impairment has been made to reduce the net deferred tax position to zero and we have not recognised a deferred tax asset at 31 March 2019.

As noted above, the Company identified an error in both its calculation and methodology of its potential deferred tax liability on held-over gains from property disposals and from accelerated capital allowances in prior accounting periods which had resulted in an overstatement of its deferred tax liability by £790,000 as at 1 April 2017. A prior year adjustment to the previously stated values has been made in these Financial Statements to correct this error.

Pension Scheme

The Company's defined benefit scheme was closed to future accrual in 2010. In common with many companies, the Board has little control over the key assumptions in the valuation calculations as required by accounting standards and the unprecedented low yields of gilts and bonds continues to have a significant impact on the net funding position of the scheme. In addition, the results for the year reflect the expected financial impact of equalising the Guaranteed Minimum Pensions of Scheme members. Therefore, it was very pleasing to note a narrowing of the deficit at 31 March 2019 to £8.6 million (2018: £9.5 million). The deficit, net of deferred tax, was £7.1 million (2018: £7.9 million).

In the previous financial year, the trustees appointed a fiduciary manager to the Scheme and the Board, together with the independent pension fund trustees, continues to review options to reduce the cost of operating the Scheme and reducing its deficit. Actions that could further reduce the risk profile of the assets and more closely match the nature of the Scheme's assets to its liabilities continue to be sought.

The pension cost under IAS 19 continues to be charged as a non-underlying cost and amounted to £249,000 in the year (2018: £236,000). In addition, the Income Statement has been charged with a non-underlying cost of £851,000 which is our best estimate of the financial impact of equalising Guaranteed Minimum Pensions between our male and female scheme members. This follows the legal guidance provided by the High Court in November 2018. The full process of equalisation will need to occur over a considerable period of time, but the estimated cost has been arrived at following advice from the Scheme's actuary.

A formal triennial valuation of the Scheme was last carried out as at 31 March 2017 and was submitted to the Pension Regulator prior to the 30 June 2018 deadline. A recovery plan to deal with the Scheme deficit identified from this triennial valuation was agreed with the trustees and, as a result, the Company made deficit-reduction contributions into the Scheme in the year of £480,000 (2018: £314,000). This annual recovery plan payment for the coming and each subsequent year will increase by the greater of either 2.25% or the growth in shareholder dividend payments until superseded by a new recovery plan to be agreed between the Company and the trustees. The next triennial valuation of the Scheme will take place with effect from 31 March 2020.

I am very grateful for the dedication of our employees and the effort they apply to provide our customers with a first-class experience. Across the Company the hard work and professional application of our employees has helped to minimise the fall in car sales volumes and to continue to grow our aftersales operations.

Nick Hollingworth will be retiring from the Board in July 2019, having served eleven years as a non-executive director. I, and other members of the Board, would like to thank him for his valuable contribution over that period. The search process for Nick's successor is well advanced and we expect to make an appointment by July.

Apprenticeships

The Company has a long tradition of investing in apprenticeship programmes and this continued alongside the new Government apprenticeship levy that was implemented from the start of our previous financial year in April 2017. Despite early teething problems experienced with the registration and accreditation processes of the new levy regime, our own apprenticeship numbers have increased year-on-year and we continue to see the benefits flow through the business as more apprentices complete their training and become fully qualified. Due to our apprentice numbers, we currently anticipate that we will be able to fully utilise our levy payments within the stipulated time limits.

We remain firmly committed to the long-term benefits of apprenticeships and our recruitment programme continues with the aim of taking on an increasing complement in the coming year to assist the Company to grow.

Dividend

The Board remains confident in the future prospects of the Company and has therefore declared an unchanged final dividend of 15.0 pence per ordinary share. If approved at the Annual General Meeting, this will be paid on 2 August 2019 to ordinary shareholders on the register at close of business on 5 July 2019.

Together with the interim dividend of 7.5 pence per Ordinary share (2018: 7.5 pence) paid during the year, the total dividend for the year will be 22.5 pence per ordinary share (2018: 22.5 pence).

Strategy

Our continuing strategy is to focus on representing premium and premium-volume franchises as well as maximising opportunities for used cars. We recognise that we operate in a rapidly changing environment and continue to carefully monitor the appropriateness of this strategy. We continue to seek opportunities to invest in the future growth of our businesses.

We are concentrating on larger business opportunities in stronger markets to deliver higher returns on capital from fewer but bigger sites. We continue to deliver performance improvement, in particular in our used car and aftersales operations.

We closed the year with a strong performance in the registration-plate change month of March. The current consensus for the 2019 calendar year is for a further single-digit fall in the UK new car market so we are cautious about the outlook and remain dependent on the key months of September and March. The vehicles emissions regime will undergo further change in September with the implementation of Real-Driving Emissions although we are hopeful that any constraint on new car supply will be considerably less than that caused by the implementation of WLTP in September 2018.

Our balance sheet is appropriately funded and our freehold property portfolio is a source of stability. We remain confident in the longer-term prospects of the Company and are ready to exploit future business opportunities.

S G M Caffyn 

Chief Executive

31 May 2019

Group Income Statement

for the year ended 31 March 2019

The Revenue and Cost of sales for the Group for the prior year has been restated. This restatement arose as a result of commissions received from finance companies, which previously were incorrectly treated as a reduction to Cost of sales. These commissions are now reported as revenue and the prior year amounts have been reclassified accordingly. The reclassification had no impact on Gross profit.

Group Statement of Comprehensive Income

for the year ended 31 March 2019

Group Statement of Financial Position

at 31 March 2019

Group Statement of Changes in Equity

for the year ended 31 March 2019

The correction to the opening deferred tax liability is detailed in Note 13 Deferred Tax.

The application of IFRS 15 led to an adjustment to the opening retained earnings of a reduction of £75,000.

for the year ended 31 March 2018

Group Cash Flow Statement

for the year ended 31 March 2019

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.

This financial information has been extracted from the consolidated financial statements which were approved by the Directors on 31 May 2019.

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 2018 with the exception of the implementation of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, both of which were implemented with effect from 1 April 2018 and the reassessment of the basis of assessing cash generating units ("CGUs"). The impact of these new standards on the financial statements for the year ended 31 March 2019 is detailed below.

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 2019 or 2018, but is derived from those accounts. Statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies and those for the year to 31 March 2019 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 2019 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 25 June 2019.

New accounting standards

The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 1 April 2018.

IFRS 9 Financial Instruments introduced extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduced a new 'expected credit loss' model for the impairment of financial assets. IFRS 9 also provided new guidance on the application of hedge accounting. The impairment model required recognition for any expected credit losses rather than being restricted to only those that have been incurred. The impact of applying IFRS 9 was not significant and did not result in a change to the Company's previously stated results and the measurement requirements of IFRS 9 did not result in a change to the carrying amounts of any financial assets or liabilities as previously stated.

IFRS 15 Revenue from Contracts with Customers presented new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related interpretations. The new standard established a control-based revenue recognition model and provided additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangement with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. The Company chose to implement the new standard through the recognition of the cumulative effect of the retrospective application of the new standard as at the beginning of the period of initial application on 1 April 2018, with no restatement of comparative periods.

The core principle of IFRS 15 is that an entity should recognise its revenue at the point in which the transfer of promised goods or services to customers is passed in exchange for consideration that the entity expects to receive in exchange for those goods and services. A full impact assessment of the standard was undertaken, and it was determined that revenue recognition remained consistent with the previous accounting policy with the exception of the income generated through commissions earned through the sale of finance agreements to purchase vehicles. The Company recognises finance commission income upon the sale of finance policies sold to customers to facilitate their vehicle purchase. In this instance, the Company is acting as an agent for various finance houses and the income is recognised when the customer receives the product. An adjustment is made to the transaction price to constrain the variable amount of consideration associated with finance commissions, in order to ensure that revenue is recognised only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This adjustment to constrain variable consideration represents a difference in the Group's accounting policy under IFRS 15 as compared to its previous revenue recognition policy under IAS 18. The impact of adopting and implementing IFRS 15 did not have a material effect on the Company's revenue recognition but led to an adjustment to the opening retained earnings of a reduction of £75,000.

Reassessment of the basis of assessing cash-generating units

In the prior year, the Group incorrectly based its impairment tests on cash generating units at a more aggregated level. This was based on an inappropriate interpretation of the requirements set out in IAS 36 'Impairment of assets', specifically in respect of the requirements to aggregate individual assets into CGUs at the lowest level at which cash inflows can be generated independently, where individual assets cannot generate cash inflows. In correcting their approach in the current period, the directors revisited the impairment tests undertaken in the prior year to assess whether an impairment charge would have arisen, had the correct basis of CGU assessment been applied in preparing the financial statements for the year ended 31 March 2018. The result of this exercise was that no impairment charge had arisen at 31 March 2018. The methodology applied and the key assumptions used in the impairment test as at 31 March 2018 are consistent with those disclosed in note 10, note 11 and note 12 in relation to Goodwill, Property, plant and equipment, and Investment properties, respectively.

Segmental reporting

Based upon the management information reported to the chief operating decision maker, the Chief Executive, in the opinion of the directors, the Company has one reportable segment. The Company physically operates and is managed from individual dealership sites although strategic and investment decisions are made based on dealership groupings or market territories. The Company's individual dealerships represent a range of manufacturers but are considered to have similar economic characteristics, such as margin structures, and offer similar products and services to a similar customer base. As such, the results of each dealership have been aggregated to form one reportable segment. There are no major customers amounting to 10% or more of 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 meets its day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities and term loans. At the year-end, the medium-term banking facilities included a term loan of £7.5 million, of which £7.1 million was outstanding, and a revolving credit facility of £7.5 million, of which £4.0 million was utilised, from HSBC, its primary bankers. Both of these facilities are renewable in March 2023. HSBC also supply a short-term overdraft facility of £3.5 million, increased to £6.0 million for the months of March, April, September and October, which is renewed annually in August. The Company also has a 10-year term loan from VW Bank with a balance outstanding at 31 March 2019 of £2.4 million which is renewable in 2024 and a short-term overdraft facility of £7.0 million which is renewed annually in August, of which £4.0 million was utilised at 31 March 2019. The Company held cash balances of £3.9 million at year-end so net bank borrowings at 31 March 2019 were £13.6 million against available facilities at that date of £30.0 million. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed at their scheduled expiry dates. The overdraft and revolving credit facilities include certain covenant tests which were passed at 31 March 2019. 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 these financial statements. These forecasts indicate that the Company 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 Company 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 2019 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.

These judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Certain critical accounting estimates in applying the Company's accounting policies are listed below.

Retirement benefits obligation

The Company has a defined benefit pension plan. The obligations under this plan are recognised in the balance sheet and represent the present value of the obligation calculated by independent actuaries, with input from management. These actuarial valuations include assumptions such as discount rates, return on assets and mortality rates. These assumptions vary from time to time according to prevailing economic conditions. Details of assumptions used are provided in note 20 of the financial statements.

 At 31 March 2019, the net liability included in the statement of financial position was £8.6 million (2018: £9.5 million).

Impairment

The carrying value of property, plant and equipment and goodwill are tested annually for impairment as described in notes 10, 11 and 12 below. For the purposes of the annual impairment testing, the directors recognise CGUs to be those assets attributable to an individual dealership, which represents the smallest group of assets which generate cash inflows that are independent from other assets or CGUs. The recoverable amount of each CGU is based on the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell of each CGU is based upon the market value of any property contained within it and is determined by discounting future cash inflows (as described in detail in note 10). As a result of this review the directors considered it appropriate to impair the carrying value of property assets by £0.95 million (2018: £Nil) (see notes 10, 11 and 12).

Surplus ACT recoverable

The Company carries a balance of surplus unrelieved advanced corporation tax ("ACT") which can be utilised to reduce corporation tax payable subject to a restriction to 19% of taxable profits less shadow ACT calculated at 25% of dividends. Shadow ACT has no effect on the corporation tax payable itself but any surplus shadow ACT on dividends must be fully absorbed before surplus unrelieved ACT can be utilised. During the year, the Company partially impaired the value of the ACT by £301,000 in order to avoid recognising an overall deferred tax asset. Therefore, at 31 March 2019, the carrying value of surplus ACT is £835,000 (2018: £1,136,000) and shadow ACT is £672,000 (2018: £781,000). Uncertainty arises due to the estimation of future levels of profitability, levels of dividends payable and the reversal of deferred tax liabilities in respect of accelerated capital allowances and on unrealised capital gains. For example, a reduction in the Company's profitability could result in a delay in the utilisation of surplus unrelieved ACT. However, based on the Company's current projections, the directors have a reasonable expectation that the surplus ACT will be fully relieved against future corporation tax liabilities by 31 March 2027.

Support arrangements

On occasion, the Company can be assisted in the relocation, development and support of certain of its businesses. On receipt of these payments the Company forms a judgement whether the payment is capital in nature, in which case the payment is deducted from the capital cost of the development in question, or revenue in nature, in which the payment is amortised over a two-year period from the date of relocation.

During the year the Group received a contribution of £255,000 from a brand partner toward the cost of developing the Angmering dealership. The contribution agreement was not specific as to whether the amount contributed was in respect of the capital expenditure incurred by the Group, or in respect of other operating activities (such as marketing) which the Group was required to undertake as part of the relocation.

Consequently, the Directors needed to apply judgement in determining the appropriate accounting treatment. Having considered all information available, including the contribution agreement and past correspondence with the brand partner, the Directors determined it appropriate to account for the contribution as capital in nature, and deducted the amount received from the carrying amount of the property, plant equipment assets associated with the Angmering dealership.

5. NON-UNDERLYING ITEMS

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

6. FINANCE EXPENSE

7. TAXATION