Caffyns Regulatory News (CFYN)

Caffyns plc

Preliminary Results for the year ended 31 March 2015

Summary

Highlights

· Underlying profit before tax up 14% to £2,472,000 (2014: £2,166,000)

· Net non-underlying credit before tax of £8,966,000 (2014: charge of £600,000) principally due to change to defined benefit pension scheme

· Profit before tax up to £11,438,000 (2014: £1,566,000)

· Like for like new car unit sales up 6.6% against 4.9% in our market sector

· Like for like used car unit sales up 4.3% on top of a 17.5% increase last year

· Net cash generated by operating activities of £3.04m (2014: £5.37m)

· Underlying earnings per share of 78.1p (2014: 75.5p)

· Basic earnings per share increased to 335.5p (2014: 51.0p)

· Recommended dividend per ordinary share for year increased by 12.5% to 20.25p

· Shareholders' equity at 31 March 2015 £24.5m (2014: £17.9m)

· Property portfolio revalued at 31 March 2015 - £8.49m surplus (not included in accounts)

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

"We are pleased to report further profit improvement during the year under review, despite disruption from property improvements, and following on from the 78% increase achieved in the previous year".

Enquiries:

Operational and Business Review

Summary of results

In this our 150th year, I am pleased to report further profit improvement during the year under review and an underlying profit before tax for the year of £2.47m up 14% from £2.17m last year following on from the 78% increase achieved in the previous year.

Profit before tax rose to £11.44m from £1.57m last year. The results for the year to 31 March 2015 include an £8.86m gain on the past service cost of the defined benefit pension liabilities. This is referred to below in the section on "Pension Schemes".

Revenue for the year was up 8.9% to £210.3m (2014: £193.2m).

Underlying earnings per share for the year were 78.1p (2014: 75.5p). Basic earnings per share were 335.5p (2014: 51.0p).

New and used cars

Our new unit sales were up by 6.6% on a like for like basis in the twelve month period, while total UK new car registrations rose by 7.5%. Within this, the private and small business sector in which we operate rose by 4.9% so we again outperformed our specific sector. We experienced some pressure on new car margins, particularly in the first three months of 2015 but, despite this, new car gross profits were up on last year.

Used car unit sales were up 4.3% on a like for like basis building on the strong improvement of 17.5% last year. Used car margins and gross profits both 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 8.9%. Overall aftersales were up 5.7%. Our parts sales grew at 2.7% like for like.

Operations and redevelopment

The improved profits were delivered despite disruption from further redevelopment work at a number of our sites. In Ashford the showroom and used car areas of our Vauxhall dealership were refurbished to the new corporate standards which affected trading through to June 2014. In addition in October 2014 we re-opened the old Skoda showroom in Ashford as a Used Car Centre and this is operating well as an outlet.

As previously announced we relocated our Volkswagen business in Worthing to a new 15 car showroom and 12 bay workshop at the beginning of April 2014. This business has now established itself in the new larger premises and is trading at a substantially increased level.

In August 2014 we completed the refurbishment and expansion of the showroom and used car display at our Eastbourne Audi dealership.

In September 2014 we completed the construction of our Seat dealership in Tunbridge Wells alongside the refurbished Skoda dealership. Both businesses traded ahead of expectations during the year under review.

Having acquired the adjoining land and secured improved access to the front of the site at our Eastbourne Volkswagen business in December 2013, we intend to build a new 12 car showroom with increased used car display and greater workshop capacity establishing this dealership as a major presence in the area. We are planning to start work on the redevelopment this summer at an expected total cost of £2.7m.

Operational and Business Review

The new car market continues to be driven by manufacturer offers which are positively impacting our retail sales. While Europe is showing signs of recovery, it is encouraging to see manufacturers continuing to support the UK market. Growth in new car sales in 2015 continues but at a slower rate in the private market. Recent investment has also placed particular emphasis on increasing our levels of used car sales and customer retention for aftersales business.

Groupwide projects

We continue to focus on improvements in the three key areas of used car sales, used car finance and aftersales. All of these have helped towards the increase in the profits. In addition, we have made very good progress through our use of technology to enhance the experiences of our customers from their first point of contact through the showroom buying process and to enhance methods for aftersales retention.

Property

We operate primarily from freehold properties and our property portfolio provides additional strategic flexibility to our business model. During the year, we incurred capital expenditure of £3.03m (2014: £7.46m). As previously reported, we completed significant upgrades in the first half of the financial year to our Audi dealership in Eastbourne (£0.9m spent in the year) and our Skoda/Seat dealership in Tunbridge Wells (£0.8m) as well as a full refurbishment of the Vauxhall showroom and the Used Car Centre in Ashford (£0.3m). The redevelopment and expansion of our superb Land Rover facility in Lewes was also completed at a cost of £0.4m.

During the year, we sold three freehold sites which were surplus to requirements. Following the grant of a planning approval for a mixed development of a vacant site in Lewes, contracts for sale were exchanged in September 2014 and the proceeds of £858,000 received in November. The contract for the sale of our vacant freehold site in Hailsham became unconditional and the proceeds of £1.6m were received in December 2014. Contracts for the sale of an investment property in Uckfield were exchanged in March 2015 and the proceeds of £950,000 received on 1 April 2015.

We have plans to relocate our Worthing Audi business to a larger site which will allow us to expand trading significantly. The current site is space restrictive and moving will allow us to grow our new and used car sales which should lead to stronger aftersales and overall profits. We have an option to purchase a suitable site conditional upon a satisfactory planning approval.

The Company valued its portfolio of freehold premises as at 31 March 2015. 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 of freehold properties, excluding the Group's investment property in Uckfield and the two freehold properties being offered for sale at 31 March 2015, was £8.49m. 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

We successfully concluded a renewal of our bank facilities with HSBC. The former three year revolving credit facility for £7.5m has been renewed for a further four year term from September 2014. Our overdraft facilities with HSBC remain at £3.5m. In addition, we have an overdraft facility of £7.0m provided by Volkswagen Bank together with a 10 year Term Loan expiring in November 2023. Bank borrowings, net of cash balances, at 31 March 2015 were £10.13m (2014: £11.93m) and as a proportion of shareholders' funds at 31 March 2015 were 41% (2014: 67%).

Operational and Business Review 

Pension Scheme

We announced in April 2015 that agreement had been reached with the Trustees of the Company's Defined Benefit Pension Scheme ("the Scheme") that future increases in pensions payable from the Scheme would be based on the change in the Consumer Prices Index, as opposed to the Retail Prices Index, with effect from 1 April 2015. This change has resulted in a reduction in liabilities of the Scheme as at 31 March 2015 of £8.861m as calculated under IAS 19 "Employee Benefits". This amount has been credited in the Income Statement for the year ended 31 March 2015 as an exceptional non-underlying gain.

The 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 2015 reduced to £5.4m (31 March 2014: £11.4m) after taking into account the adjustment noted above, together with the adverse impact of other actuarial changes arising from market fluctuations and which have been charged in the Statement of Comprehensive Income. The deficit, net of deferred tax, at 31 March 2015 was £4.3m (2014: £9.1m).

The pension cost under IAS 19, as in the previous year, continues to be charged as a non-underlying cost and amounted to £502,000 (2014: £600,000).

The actuarial valuation as at 31 March 2014 has been concluded and the Recovery Plan agreed with the trustees. A cash payment of £300,000 will be made in the in the year to 31 March 2016 (2014-15: £358,000) increasing by 2.25% per annum thereafter.

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 year we have had some further disruption through necessary redevelopment work. I am delighted that we have been able to take this in our stride and continue to deliver improved results. We now have an excellent property portfolio but more importantly we have a very high level of professionalism and ability amongst our people. As always 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 this success.

Apprenticeships

At the start of the recession we decided to increase the numbers on our apprenticeship programme and we continue to see the benefits flow through the business as more and more complete their training and become fully qualified. The recruitment programme will continue 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 13.5p per Ordinary Share (2014: 12.0p). If approved at the Annual General Meeting, this will be paid on 30 July 2015 to shareholders at close of business on 26 June 2015.

Together with the interim dividend of 6.75p per Ordinary Share (2014: 6.0p) paid during the year, the total dividend for the year will be 20.25p per Ordinary Share (2014: 18.0p).

Operational and Business Review

Strategy

Our strategy to focus on representing premium and premium-volume franchises is proving successful.

We continue to invest the proceeds from the sale of properties and closed operations by acquiring additional land to grow our existing businesses. Relocation of our Worthing Audi business 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.

Our focus on improving operational processes has seen 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.

Outlook

Having recently opened an all new Volkswagen facility in Worthing and completed the updating of other key dealerships, we are well placed for expansion. At Land Rover Lewes we have increased the site capacity for the growing potential of the business and relocated the aftersales facility to the same site as our showroom. This has delivered enhanced efficiencies which, together with strong new and used car sales, have resulted in improved profits. All our franchises are on two year rolling contracts, apart from Land Rover which operates a five year fixed term contract. This comes up for renewal in May 2016 and we are currently in discussion with Jaguar Land Rover concerning our territory.

The economic growth in the UK remains encouraging and Manufacturers continue to support our market with strong finance led offers, particularly on new personal contract plans as well as, increasingly, on used car plans. Though growth in the private and small business sector has slowed in 2015, and new car margins are slightly reduced, consumer confidence appears to be remaining steady. As the availability of two to three year old used cars has improved, we plan to further increase our used car sales from our larger display areas. The increase we have already seen in the size of our overall customer base, has positively affected the aftersales business and we expect this to grow further.

Our improved profitability combined with our excellent franchise representation in larger and more efficient premises leaves us well placed to take advantage of these improved economic conditions.

S G M Caffyn

Chief Executive

3 June 2015

Consolidated Income Statement

for the year ended 31 March 2015

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2015

Consolidated Statement of Financial Position

at 31 March 2015

Consolidated Statement of Changes in Equity

for the year ended 31 March 2015

for the year ended 31 March 2014

Consolidated Cash Flow Statement

for the year ended 31 March 2015

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 3 June 2015.

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 2014.

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 2015.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2015 or 2014, but is derived from those accounts. Statutory accounts for the year ended 31 March 2014 have been delivered to the Registrar of Companies and those for the year to 31 March 2015 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 2015 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 30 June 2015.

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 Group meets its 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 was renewed on 2 May 2014 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 2015. The Group also has a 10 year Term Loan with a balance outstanding at 31 March 2015 of £4.375m. 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 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 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 2014.

5. NON-UNDERLYING ITEMS

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

In respect of closed businesses in prior years, there is an impairment provision of £20,000 (2014: £nil) and costs incurred of £66,000 (2014: £nil). There were branch specific redundancy costs of £39,000 (2014: £nil).

The Group's investment property at Uckfield was sold for £950,000 in March 2015 and a profit on disposal of £431,000 recognised.

A freehold property in Lewes was sold in September 2014 for £858,000 giving rise to a net gain of £390,000 from which has been deducted other losses on disposal of plant and equipment of £7,000.

The net financing return and service cost on pension obligations in respect of the defined benefit scheme closed to future accrual is presented as a non-underlying item due to the volatility of this amount. Agreement has 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 the Guaranteed Minimum Pension 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 has 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.

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 2005. While the tax due has been the subject of dispute with HM Revenue and Customs, it has been provided for in the accounts but not paid. The tax due was paid in April 2015.

6. FINANCE EXPENSE

7. TAXATION