Caffyns Regulatory News (CFYN)

HALF YEAR REPORT

for the half year ended 30 September 2012

Summary

Highlights

·; Profit before tax up to £512,000 from £241,000 last year

·; Like for like new car unit sales up by 18.9%

·; Successful property sale completed realising £1.3m

·; Inventory levels in the half year reduced by £4.6m

·; Brighton Volkswagen redevelopment completed

·; Basic earnings per share increased to 15.4p from 6.4p last year

·; Dividend maintained at 5.0p

The Chief Executive, Simon Caffyn, commented:

"Our improved profitability in the first half year has continued into the early part of our second half year. However, the trading for the full year will, as always, depend on our performance in the crucial month of March."

Enquiries:

Interim Management Report

Summary

The Group has continued to trade profitably at levels above the previous year and reports a profit before tax for the half year of £512,000 (2011: £241,000). In the six months to 30 September 2012 revenue reduced to £82.6m (2011: £86.7m). Revenue on a like for like basis, excluding the disposal of four non-core operations, increased by 1.7%.

Profit before tax and non-underlying items (as restated) also rose to £439,000 (2011: £268,000). The net non-underlying gain of £73,000 comprised a gain on the sale of a property in Goring-by-Sea of £800,000 and a net credit on the pension scheme of £29,000 less the costs of closing businesses of £600,000 and other redundancies of £156,000. The net financing return and service cost on pension obligations in respect of the defined benefit scheme closed to future accrual is now presented as a non-underlying item due to the volatility of this amount. While the profit before tax for the Company is unchanged, the comparative figures in respect of non-underlying items for the previous periods have been restated accordingly.

Basic earnings per share are up at 15.4p (2011: 6.4p) and adjusted earnings per share (as restated) are 13.4p (2011: 7.9p).

Operating Review

New and Used Cars

·; Our new unit sales were up by 18.9% on a like for like basis. Over the half year period, total new car registrations rose by 6.3%. Within this, the private and small business sector in which we operate rose by 12.8% so we are outperforming both the overall UK average and the specific sector in which Caffyns operates.

·; Used car unit sales were down 5.9% on last year on a like for like basis, due largely to the reduction at our Brighton Volkswagen dealership which suffered disruption during a showroom upgrade.

Aftersales

·; The decline of the new car parc over the last three years has led to a consequential decline in the number of one to three year old cars in circulation. We have restricted the fall in our aftersales revenue to 2.7% on a like for like basis as compared to 2011 levels.

Working Capital

·; Inventory levels in the half year period reduced by £4.6m and debtors by a further £0.5m.

Operations

·; The refurbishment work at our Brighton Volkswagen dealership is now complete with an enlarged car showroom and aftersales facility.

·; Our loss-making Ford and Volvo business in Brighton was sold in July 2012 releasing working capital, comprising principally stocks, of £459,000. We closed our Ford retail dealership in Alton in September 2012 recording a non-underlying loss in the first half of the year of £194,000.

·; We have begun trading as a Seat authorised repairer in Tunbridge Wells alongside our Skoda dealership and Seat sales are expected to follow.

·; Our website presence continues to improve and in July we won the Motor Trader Award for the best mobile website and our dealer website was also highly commended.

Property

·; Capital expenditure in the six months was £565,000 (2011: £1.3m), of which £277,000 was incurred on the Brighton Volkswagen showroom upgrade.

·; Our site in Goring-by-Sea was sold in May 2012 for £1.28m, giving rise to a gain on sale of approximately £0.8m.

·; On 31 July 2012 we exchanged contracts for the sale of our Volvo business in Hove. We have retained our lease on the premises and granted a sub-lease to the purchaser.

·; Following the closure of our Ford business in Alton, the agreement to sell the freehold property became unconditional in October 2012 and a non-underlying gain of £1.15m will be reported in the full year results.

Pensions

·; The IAS 19 net pension position at 30 September 2012 was a deficit of £8.9m net of tax (£11.8m gross of tax) compared with a deficit of £4.75m net of tax at 31 March 2012 (£6.26m gross of tax). The higher deficit reflects the impact on liabilities of a reduction in the discount rate from 5.1% at 31 March 2012 to 4.4% at 30 September 2012 and lower than expected investment returns.

·; The triennial valuation as at 31 March 2011 has now been completed and shows a deficit at that date of £14.4m. The Recovery Plan agreed with the trustees requires a cash payment of £375,000 in the year to 31 March 2013 followed by £346,000 in the year to 31 March 2014 increasing by 3.4% per annum thereafter.

People

·; In August we announced the resignation from the Board of the Operations Director, Guy Ainsley.

·; We are particularly pleased to report that in September we won the South East Regional Apprentice Large Employer of the Year Award and in November we were recognised as one of the top 100 Apprenticeship Employers of the Year in the UK.

Dividend

·; The Board has decided to maintain the interim dividend at 5.0p per Ordinary Share. This will be paid on 11 January 2013 to shareholders on the register at close of business on 14 December 2012.

Current Trading and Outlook

Our improved profitability in the first half year has continued into the early part of our second half year. However, the trading for the full year will, as always, depend on our performance in the crucial month of March.

Simon G M Caffyn

Chief Executive

Condensed Consolidated Income Statement

for the half year ended 30 September 2012

*See note 2

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

for the half year ended 30 September 2011

Consolidated Statement of Changes in Equity

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 Saffrons Rooms, Meads Road, Eastbourne BN20 7DR.

These condensed consolidated interim financial statements for the half year to 30 September 2012 and similarly for the half year to 30 September 2011 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 2012.

The figures for the year ended 31 March 2012 have been extracted from the statutory accounts, filed with the Registrar of Companies on which the auditors gave an unqualified 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 auditors 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 30 November 2012.

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 Services 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 2012 apart from the disclosure of the pension charge to the Income Statement. The net financing return and service cost on pension obligations in respect of the defined benefit pension scheme closed to future accrual is now presented as a non-underlying item due to the volatility of this amount. Prior period figures have been restated on a consistent basis, the result of which was to reduce profit before taxation before non-underlying items by £102,000 and £215,000 for the period ended 30 September 2011 and year ended 31 March 2012 respectively. While the total tax charge for the Group is unchanged, the comparative taxation figures in respect of non-underlying items for the previous periods have been restated accordingly. The change in accounting policy had no impact upon the balance sheet of the group.

There are a number of accounting standards that have become effective in the current period. However, there is no material impact upon the financial statements.

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 the 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 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 Interim Management 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 Interim Management Report.

3. NON-UNDERLYING ITEMS

Losses incurred in the closure of businesses amounted to £600,000 (2011: £347,000). 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. Dealerships affected included the sale of the Volvo/Ford dealership in Hove, Sussex and the closure of the Ford dealership in Alton, Hampshire together with the trading at Ashford 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 £156,000 (2011: £226,000).

As stated in note 2 above, the net financing return and service cost on pension obligations in respect of the defined benefit scheme closed to future accrual is now presented as a non-underlying item due to the volatility of this amount. While the profit before tax for the Group is unchanged, the comparative figures in respect of non-underlying items for the previous periods have been restated accordingly.

4. FINANCE EXPENSE

5. TAXATION

Taxation for the half year has been provided at the effective rate of taxation of 24% (2011: 26%) expected to apply to the whole year on ordinary trading. Tax on non-underlying items is provided at the actual rate applicable. The UK corporation tax rate reduction from 24% to 23% has been enacted and will be effective from 1 April 2013. This will reduce the Group's future tax charge accordingly. The effect on the deferred tax balance at 30 September 2012 was to increase the deferred asset by £42,000.

6. 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.