Caffyns Regulatory News (CFYN)

HALF YEAR REPORT

for the half year ended 30 September 2018

Summary

Note: Underlying results exclude items that have non-trading attributes due to their size, nature or incidence. Underlying EBITDA of £2,367,000 (2017: £1,817,000) represents Operating profit before non-underlying items of £1,730,000 (2017: £1,203,000) and Depreciation and amortisation of £637,000 (2017: £614,000).

Financial and operational review

· Underlying profit before tax up 60% to £1.19 million (2017: £0.74 million)

· Profit before tax up 3% to £0.70 million (2017: £0.68 million)

· Like-for-like new car unit sales down by 10.4% against a 1.9% fall in UK retail and small business market segment registrations with deliveries heavily impacted by stock shortages caused by the new emissions-testing regulations, commonly referred to as WLTP

· Like-for-like used car unit sales up by 6.7%

· Aftersales revenues up by 9%

· Adjusted basic earnings per share up 65% to 34.3 pence (2017: 20.8 pence)

· Basic earnings per share down 8% to 17.6 pence (2017: 19.1 pence) due to property impairment charge

· Net bank borrowings higher at £12.2 million (2017: £10.3 million) reflecting investments in premises

· Interim dividend maintained at 7.50 pence (2017: 7.50 pence)

Simon Caffyn, Chief Executive, commented:

"I am pleased to say that the half-year ended 30 September 2018 delivered an improved result with used cars and aftersales performing well."

Enquiries:

INTERIM MANAGEMENT REPORT

Summary

I am pleased to say that the half-year ended 30 September 2018 ("the period") delivered an improved result. Although revenue fell by 1% to £105.0 million (2017: £106.5 million), our underlying profit before tax grew by 60% to £1.19 million (2017: £0.74 million) as used cars and aftersales performed extremely well. Adjusted basic earnings per share were 34.3 pence (2017: 20.8 pence), a 65% improvement.

On 1 September 2018, the government introduced a new emissions-testing regime, the Worldwide Harmonised Light Vehicle Test Procedure, commonly referred to as WLTP. This led to a scarcity in new car supply in the important bi-annual registration plate change month of September and was the main reason for the fall in turnover for the six-month period.

The Company's defined-benefit pension scheme deficit, as assessed by the independent actuary, showed a welcome reduction of £2.6 million from the last financial year-end at 31 March 2018 to £6.9 million at 30 September 2018.

The Company owns the vast majority of the freeholds for the properties from which it operates which provides the dual strengths of a strong asset base and minimal exposure to rent reviews. However, property values are dictated by wider market trends and, as a result, an impairment charge of £0.35 million has been recorded against the carrying value of a single property as a non-underlying charge against profits for the period.

Profit before tax for the period was £0.70 million (2017: £0.68 million) with basic earnings per share of 17.6 pence (2017: 19.1 pence).

The Company is maintaining its interim dividend at 7.5 pence per ordinary share.

Operating review

New and used cars

The disruption to new car supply in September caused by the introduction of the new emissions-testing regime, WLTP, from the beginning of that month was a major factor in our new car unit sales being down by 10.4% on a like-for-like basis in the period. Actions taken by our manufacturers earlier in the summer to position themselves for WLTP were supportive and boosted used car sales ahead of expectations in those months. This enabled us to weather a weak performance in September and still maintain growth in vehicle sales profitability across the period. Our new car unit sales were also adversely impacted by the introduction by one of our manufacturers of an agency arrangement for fleet sales from 1 April 2018.Like-for-like used cars unit sales for the period were up 6.7% on the comparative period and we continue to invest in this area of the business. Over a five-year period, the Company has recorded a 50% growth in the number of used cars sold by its current businesses and we continue to see this area as providing opportunities for further growth.

Aftersales

Despite the reduction in new car registrations in the period, the number of one to three-year old cars in circulation continues to increase. Historically strong sales of both new and used cars has meant our three-year car parc has also grown considerably. It was encouraging to see like-for-like service revenues again grow, by 9% in the period, as we continued to realise improvements to our customer retention processes. Our parts business reported sales growth, also by 9%, on a like-for-like basis from the comparative period.

Operations

The financial performance of our Volkswagen division improved markedly in the period as many of the operational performance issues experienced in the comparative period were overcome. Given the strength of the brand, the excellent model range and the imminent arrival of several exciting new products, we are confident that further improvements in its future trading performance will be achievable.

Our Volvo business in Eastbourne traded very profitably in the period as it reaped the benefits of an excellent model range of cars which continue to be positively received by customers.

Our Audi businesses experienced a difficult six months with both the introduction of new agency terms for fleet sales from 1 April 2018 and the effects of WLTP on vehicle supply in September proving very challenging. The division remained profitable for the period although at much reduced levels than in the comparative period.

In Tunbridge Wells, our SEAT business continued to perform well and, in conjunction with the adjacent Skoda business, grew its profitability from last year's levels. Our Skoda business in Ashford performed satisfactorily.

Our Vauxhall business in Ashford experienced improved its trading performance in the period as customers' confidence in the brand grew following its takeover in the UK last year by the PSA Group. Following recent announcements of an intended reduction in the number of dealers, the manufacturer has informed us of their intention for us to retain representation for the Ashford area in Kent.

Our Motorstore used car business in Ashford continued to expand with further increases in like-for-like sales volumes being achieved in the period. The concept has been very well received by our customers who particularly value the reassurance of the Caffyns brand. To facilitate this growth, the business made investments in both staffing levels and processes which have been a short-term drag on profitability but we remain confident in our ability to further grow both the volumes and profits of this concept.

During the period, the Company generated cash of £1.4 million, from operating profits and from improvements in working capital balances at the period end.

Property

Capital expenditure in the period was £2.5 million (2017: £1.0 million) which predominantly related to the completion of our new Audi development in Worthing. This opened at the end of July 2018 and will enable the business to expand and benefit from the development of new housing which has occurred in the area. The 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.

We are considering options to develop further our Volvo site in Eastbourne which would allow for an expansion of our showroom facility to better accommodate Volvo's widened model range. A nearby commercial property has already been purchased which will facilitate this expansion by allowing our aftersales departments to be relocated into the newly acquired building.

We operate primarily from freehold sites and our property portfolio provides additional stability to our business model. Annually, we obtain an independent assessment of the values of our freehold properties against their carrying value in our accounts and had an unrecognised surplus to carrying value of £10.3 million at 31 March 2018, our last financial year-end. On occasion, changes in local conditions can result in adverse changes in valuations and, as a result, we have taken an impairment charge of £0.35 million against one property in our portfolio. This impairment charge has been reported in these results as a non-underlying charge against profits.

As part of the sale of the Land Rover business in a prior financial year, our freehold premises in Lewes have been leased to the purchaser for a fixed period to April 2020. The Board continues to evaluate future opportunities for the site.

Pensions

The Company's defined-benefit pension scheme started the period with an independently assessed deficit of £9.5 million. The Board has little control over the key assumptions in the valuation calculations as required by accounting standards but was pleased to note an improvement in the level of the discount rate in the period which resulted in a £1.9 million reduction in the assessed value of the liabilities of the Scheme. In late 2017, the Company worked with the trustees to appoint a fiduciary manager to the Scheme with the goal of both improving investment performance and reducing the risk profile of the assets. In the period, the deficit was also reduced by a gain of £0.6 million in the value of the Scheme's assets. Overall, the Scheme deficit finished the period at £6.9 million, an improvement of £2.6 million. Net of deferred tax, the deficit was £5.7 million at 30 September 2018 (2017: £5.0 million) and £7.9 million at 31 March 2018.

The pension cost under IAS 19 continues to be charged as a non-underlying cost and amounted to £127,000 in the period (2017: £117,000).

During the period, the Scheme's March 2017 actuarial valuation and associated recovery plan were agreed with the trustees and submitted to the Pensions Regulator prior to its stipulated deadline of 30 June 2018. Under the terms of this recovery plan, the Company agreed to make a cash payment of £0.48 million into the Scheme each year with these payments increasing in future financial years by a minimum of 2.25% per annum. In the period, cash payments of £0.25 million were paid into the Scheme.

Bank facilities

The Company has banking facilities with HSBC Bank which comprise a term loan, originally of £7.5 million, and a revolving-credit facility of £7.5 million, both of which will become renewable in March 2023. HSBC Bank also provides an overdraft facility of £3.5 million, renewable annually. In addition, there is 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 over the ten years to November 2023.

Bank borrowings, net of cash balances, at 30 September 2018 were £12.2 million (2017: £10.3 million), down from £14.0 million at 31 March 2018. As a proportion of shareholders' funds, bank borrowings, net of cash balances were 42% (2017: 35%). The increase in gearing over the previous twelve months was primarily the result of the investment in the Audi development at Angmering.

Taxation

The tax charge for the period has been based on as estimation of the effective tax rate on profits for the full financial year of 28.7% (2017: 19.0%). The current year effective tax rate is higher than the standard rate of corporation tax in force for the year of 19% due to the effect of items disallowable for tax purposes such as the impairment charge against property and an adjustment for an under-provision of tax for a prior period.

People

 I am very grateful for the dedication and professionalism shown by our employees. The marketplace in which we have operated in the period has been very challenging, particularly for new car sales following the introductions of WLTP, and their hard work and professional application has been instrumental in achieving strong growth in both our used car sales and aftersales businesses.

Dividend

The Board remains confident in the future prospects of the Company and has therefore declared an unchanged interim dividend of 7.50 pence per ordinary share. This will be paid on 7 January 2019 to shareholders on the register at close of business on 7 December 2018. The ordinary shares will be marked ex-dividend on 6 December 2018.

Strategy

Our continuing strategy is to focus on representing premium and premium-volume franchises as well as maximising opportunities for premium 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 from fewer but bigger sites. We continue to deliver performance improvement, in particular in our used car and aftersales operations.

Current trading and outlook

Despite a weak marketplace for the bi-annual registration plate change in September, the current industry consensus for the 2018 calendar year is for no more than a single-digit fall in the UK new car market, so we are cautiously optimistic about the outlook. However, our full year outcome will remain dependent on the success of the next bi-annual registration plate change in March 2019 as well as on the wider challenges to the UK economy from uncertainty surrounding the finalisation of the Brexit process.

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

Simon G M Caffyn

Chief Executive

22 November 2018

for the half year ended 30 September 2018

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

The initial application of IFRS15 has led to an adjustment to the opening retained earnings of a reduction of £75,000.

for the half year ended 30 September 2017

for the year ended 31 March 2018

Condensed Consolidated Cash Flow Statement

Notes to the Set of Financial Information

1. GENERAL INFORMATION

Caffyns plc is a company domiciled in the United Kingdom. The address of the registered office is Meads Road, Eastbourne, East Sussex, BN20 7DR.

These unaudited condensed consolidated interim financial statements for the half year to 30 September 2018 and similarly for the half year to 30 September 2017 are unaudited. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2018.

The figures for the year ended 31 March 2018 have been extracted from the statutory accounts, filed with the Registrar of Companies on which the auditor gave an unmodified opinion and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

These statements have been reviewed by the Company's auditor and a copy of their review report is set out at the end of these statements.

These consolidated interim financial statements were approved by the directors on 22 November 2018.

2. ACCOUNTING POLICIES

The annual financial statements of Caffyns plc are prepared in accordance with IFRSs as adopted by the European Union. The set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union. This interim financial report has been prepared under the historical cost convention as modified by the fair value accounting of defined benefit schemes and share-based payment transactions. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, 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 2018 with the exception of IFRS 9 "Financial Instruments" and IFRS 15 'Revenue from Contracts with Customers" which were adopted with effect from 1 April 2018.

IFRS 9 introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new 'expected credit loss' model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. The impairment model requires recognition for any expected credit losses rather than being restricted to only those that have been incurred. A full impact assessment of IFRS 9 has been completed and the implementation had no material effect on the Company's accounts.

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. The Company has chosen to implement the new Standard through the recognition of the cumulative effect of the retrospective application of the new standard as the beginning of the period of initial application, with no restatement to 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 or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognise revenue when (or as) a performance obligation is satisfied

A full impact assessment of IFRS 15 has been completed and revenue recognition under this standard remains consistent with the previous accounting policy with the exception to 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, with an adjustment made to recognised revenues to constrain any variable amounts of consideration receivable. The impact of adopting and implementing IFRS 15 did not have a material effect on the Company's revenue recognition. 

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.

Basis of preparation: Going concern

The condensed 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 Half Year 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 this Half Year Report.

Non-underlying items

Non-underlying items are those items that are unusual because of their size, nature or incidence. Management considers that these items should be disclosed separately to enable a full understanding of the operating results.  Profits and losses on disposal of property, plant and equipment and property impairment charges are disclosed as non-underlying, as are certain redundancy costs and costs attributable to vacant properties held pending their disposal.

The net financing return and service cost on pension obligations in respect of the defined benefit pension scheme is presented as a non-underlying item due to the inability of management to influence the underlying assumptions from which the charge is derived. The defined benefit pension scheme is closed to future accrual.

All other activities are treated as underlying.

3. OTHER INCOME (NET)

During the period, the Company agreed a settlement of £300,000 regarding a claim for loss arising from alterations and repairs required to one of its freehold premises. After allowing for professional fees and costs, a credit of £285,000 was included in Other Income in the period.

4. NON-UNDERLYING ITEMS

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

During the period, the Company impaired the carrying value of one of its freehold properties by £350,000 to reflect changes in property values in one market location.

The Company exercised a break clause of its lease for a site in Tonbridge in June 2017. The Company negotiated a total cost for the remedial work on this property of £80,000 with a further £9,000 incurred in associated professional fees in the period. The remaining provision held of £60,000 was credited back to operating expenses in the prior financial year as a non-underlying item.

In September 2017, the Company received a periodic VAT inspection from HM Revenue & Customs which identified certain items of non-compliance with relevant legislation. In the prior financial period, a sum of £20,000 was settled and a further provision of £60,000 was made as a non-underlying item to allow for items still to be resolved.

5. FINANCE EXPENSE

6. TAXATION

Taxation of trading items for the half year has been provided at the current rate of taxation of 29% (2017: 19%) expected to apply to the full year. This effective rate is higher than the standard rate of corporation tax in force of 19% due to the effect of non-deductible expenses including the impairment charge against freehold property and non-qualifying depreciation.

7. 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 period. 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 the earnings and the weighted average number of shares used in the calculations are set out below.

The number of fully paid ordinary shares in issue at the period end was 2,879,298 (2017: 2,879,298). Excluding the shares held for treasury, the weighted average shares in issue for the purposes of the earnings per share calculation were 2,694,790 (2017: 2,694,790). The shares granted under the Company's SAYE scheme are dilutive. The number of dilutive shares under option at fair value was 7,279 (2017: 12,374) giving a total diluted weighted average number of shares of 2,702,069 (2017: 2,707,164).

The Directors consider that underlying earnings per share figures provide a better measure of comparative performance.

8. DIVIDENDS

Ordinary shares of 50p each

The interim dividend proposed at the rate of 7.50 pence per share (2017: 7.50 pence) is payable on 7 January 2019 to shareholders on the register at the close of business on 7 December 2018. The shares will be marked ex-dividend on 6 December 2018.

Preference shares

Preference dividends were paid in October 2018. The next preference dividends are payable in April 2019. The cost of the preference dividends has been included within finance costs.

9. PENSIONS

The pension scheme deficit reflects a defined benefit obligation that has been updated to reflect its valuation as at 30 September 2018. This has been calculated by a qualified actuary using a consistent valuation method to that which was adopted in the audited financial statements for the year ended 31 March 2018 and in the period to 30 September 2017, and which complies with the accounting requirements of IAS 19 (revised).

The net liability for defined benefit obligations has decreased from £9,497,000 at 31 March 2018 to £6,884,000 at 30 September 2018. The decrease of £2,613,000 comprises the net charge to the Statement of Financial Performance of £128,000 and a net remeasurement gain credited to the Statement of Comprehensive Income of £2,488,000 and contributions of £253,000. Asset values were largely unchanged in the six-month period although pension benefits paid in the period were £1,966,000. Pension liabilities decreased as a result of an increase in the discount rate from 2.40% at 31 March 2018 to 2.65% at 30 September 2018 and from pensions paid in the period.

After the balance sheet date, on 26 October 2018, the High Court of Justice in London handed down a judgement confirming that pension benefits associated with guaranteed minimum pensions ("GMP"s) were required to be equalised between men and women. However, the judgement did not define a set methodology for how this equalisation should occur across all pension schemes. The trustees of the Caffyns Pension Scheme will now consider this judgement and, with the Company, decide how best to carry out this equalisation process. The financial impact of equalising GMPs remains highly uncertain although broad industry-wide estimates have suggested a possible increase in scheme liabilities of between 0% and 3%. Given this uncertainty, and the short period of time available since the legal judgement was released, no amendments as a result of any additional liability arising from this judgement has been included in these condensed financial statements.

10. RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Board believes these risks and uncertainties to be consistent with those disclosed in our latest Annual Report, including general economic factors, their impact on the Group's defined benefit pension scheme, liquidity and financing, the Group's dependency on its manufacturers' and their stability, used car prices and regulatory compliance. Following the UK's decision to leave the EU, a degree of uncertainty in the UK economy has been created and we believe that the main risks to arise from this relate to consumer confidence and the potential impact that Sterling/Euro exchange rates may have on vehicle prices.

11. CONTINGENT LIABILITIES

In September 2015, Volkswagen Aktiengesellschaft announced that certain diesel vehicles manufactured by Volkswagen, Skoda, SEAT and Audi, which contain 1.2, 1.6 and 2.0 litre EA 189 diesel engines were fitted with software which is thought to have operated such that when the vehicles were experiencing test conditions, the characteristics of nitrogen oxides ("NOx") were affected. The vehicles remain safe and roadworthy.

Technical measures have been approved by the German type approval authority, the Kraftfahrt-Bundesamt (the "KBA") in respect of Volkswagen and Audi branded vehicles, by the UK type approval authority, the Vehicle Certification Agency (the "VCA") in respect of Skoda branded vehicles, and by the Ministerio de Industria, Energía y Turismo (the "MDI") in respect of SEAT branded vehicles. The KBA and VCA have confirmed for all affected vehicles that the implementation of all technical measures does not adversely impact fuel consumption figures, CO2 emissions figures, engine output, maximum torque and noise emissions. The MDI is also content that the technical measures be applied to those SEAT vehicles for which they are the relevant approval authority.

We understand that to date in the region of 860,000 affected UK vehicles have now had the technical measures applied.

Notwithstanding the above, claims on behalf of multiple claimants, arising out of or in relation to their purchase, ownership or acquisition on finance of a Volkswagen Group vehicle affected by the NOx issue, have been brought or intimated against a number of Volkswagen entities and dealers, including Caffyns. To date, claimant law firms have listed Caffyns on a number of claim forms claiming breach of contract and a breach of the Consumer Protection from Unfair Trading Regulations 2008.

A Group Litigation Order ("GLO") has been ordered by the High Court of England and Wales setting out the parameters for the group action litigation. The next hearing is likely to occur in the first quarter of 2019. No deadlines have yet been set for disclosure, service of witnesses or expert evidence.

At present, the litigation is in its early stages, and therefore at this stage it is too early to assess reliably the merit of any such claim. Accordingly, no provision for liability has been made in this set of financial information.

Notwithstanding the early stage of the litigation, Volkswagen has agreed to indemnify Caffyns for the reasonable legal costs of defending the litigation and any damages and adverse legal costs that Caffyns may be liable to pay to the claimants as a result of the litigation and the conduct of the Volkswagen Group. The possibility, therefore, of an economic cost to Caffyns resulting from the defence of the litigation is remote. 

12. RESPONSIBILITY STATEMENT

We confirm to the best of our knowledge:

a) the Half Year Report has been prepared in accordance with IAS34 'Interim Financial Reporting';

b) the Half Year Report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules (indication of important events during the first six months and their impact on the set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year); and

c) the Half Year Report includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules (disclosure of related parties' transactions and changes therein).

By order of the Board

S G M Caffyn

Chief Executive

M Warren

Finance Director

22 November 2018

INDEPENDENT REVIEW REPORT

Introduction

We have reviewed the condensed set of financial statements in the half-yearly financial report of Caffyns plc for the six months ended 30 September 2018 which comprises the Condensed Consolidated Statement of Financial Performance, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and the related notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, as a body, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express a conclusion to the Company on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Crawley

22 November 2018