Caffyns Regulatory News (CFYN)

HALF YEAR REPORT

for the half year ended 30 September 2015

Summary

Strong performance in the first half:

* Underlying results exclude items that have non-trading attributes due to their size, nature or incidence.

Highlights

· Underlying profit before tax up 30% to £1,547,000 (2014:£1,192,000)

· Profit before tax up 41% to £1,711,000 (2014:£1,213,000)

· Like for like new car unit sales up by 9.3%

· Like for like used car unit sales up by 11.4%

· Underlying earnings per share up 31% to 46.6p (2014:35.6p)

· Basic earnings per share up 35% to 51.4p (2014:38.0p)

· Dividend increased to 7.25p (2014:6.75p)

Simon Caffyn, Chief Executive, commented:

"I am delighted that we continue to report material increases in our underlying profitability, making four successive years of growth."

Enquiries:

INTERIM MANAGEMENT REPORT

Summary

In this our 150th year, I am pleased to report that the group has achieved underlying profit before tax in the six months to 30 September 2015 of £1.55m, up 30% from £1.2m last year. This is a further significant increase following four successive years of growth. Profit before tax after non-underlying items is up 41% to £1.7m from £1.2m last year.

Revenue in the half year period increased by 13% to £117.7m compared to £103.9m last year.

Underlying earnings per share are 46.6p (2014: 35.6p), an increase of 31% and basic earnings per share are 51.4p (2014: 38.0p), an increase of 35%.

Operating Review

New and Used Cars

· Over the half year period, our new unit sales are up by 9.3% on a like for like basis, which compares favourably to total UK new car registrations which rose by 7.3%. Within this, the private and small business sector in which we operate rose by 3.1%. Our like for like used car unit sales in the period are up 11.4% on last year following a strong performance in the prior year.

Aftersales

· The increased new car market over the last three years has led to an increase in the number of one to three year old cars in circulation. Our strong sales of both new and used vehicles has meant our own three year car parc has grown and it is encouraging to see our service revenue rise by 9% on a like for like basis as we concentrate on improving our customer retention processes.

Operations

· Our Volkswagen dealership in Worthing, which opened in April 2014, is trading ahead of plan, with strong growth in new and used car sales as well as aftersales. We started the redevelopment of our Volkswagen dealership in Eastbourne in July 2015 and the new workshop has been completed on schedule. Work has started on a new twelve car showroom with extended used car display areas, which will enable this site to expand although it is expected to be disruptive in the second half of the current year. Our Volkswagen businesses have all performed well in the first half of the year showing good improvements in profitability on the prior year.

· The refurbishment and expansion of the showroom in our Audi dealership in Eastbourne was completed in August 2014 and, with the expanded used car display area, we have seen a significant increase in new and used sales. All our Audi businesses have also seen strong year on year growth and we have submitted a planning application to relocate our dealership in Worthing to a new and significantly larger site to help this business fulfil its potential.

· Our Volvo business in Eastbourne continues to trade well and Volvo has some exciting new products recently launched in the UK with more following in the short term. The new XC90 has been particularly well received.

· In October 2014 we opened our first Caffyns Used Car Centre in Ashford. The first year of trading has seen steady sales growth, with the concept very well received by customers who value the Caffyns brand. It has traded profitably in the half year.

· Our Land Rover business has traded profitably over the half year. As we reported in our 2015 Annual Report, our five year fixed term contract with Land Rover comes up for renewal in May 2016 and we remain in discussions with Jaguar Land Rover concerning our territory.

· The emissions problems faced by Volkswagen are well documented. Volkswagen has stated that it expects to have solutions for the affected vehicles and these cars will have the necessary amendments made at authorised Volkswagen dealerships during 2016. We anticipate that this will be a carefully managed programme throughout the year and, in the short term, will involve additional work passing through our service departments. There has been some slowdown in enquiry rates at our Volkswagen dealerships but we have continued to sell at levels in line with last year. We do, however, anticipate a slowdown in sales until Volkswagen is able to fully clarify the solutions to the affected vehicles.

Property

· Capital expenditure in the half year was £0.9m of which £0.3m was incurred on the upgrade to our Eastbourne Volkswagen dealership.

· In July 2015, we completed on the sale of the site in Upperton Road, Eastbourne for £1.55m. The gain on the sale was £272,000. In April 2015 we received the cash proceeds on the sale of an investment property in Uckfield, which had been sold and reported in the previous financial year, amounting to £950,000.

Pensions

· The IAS 19 net pension position at 30 September 2015 was a deficit of £4.8m net of tax (£6.0m gross of tax) compared with a deficit of £4.3m net of tax at 31 March 2015 (£5.4m gross of tax). Although liabilities reduced following an increase in the discount rate from 3.3% at 31 March 2015 to 3.7% at 30 September 2015, asset values reduced by a greater amount after taking into account benefits paid.

· The Recovery Plan agreed with the trustees requires a cash payment of £300,000 in the current year, increasing by 2.25% per annum thereafter.

People

· I am very grateful for the dedication and patience shown by our employees. Our front line staff have worked hard to address any customer concerns regarding the Volkswagen emissions issue.

· As announced on 31 July 2015, Mark Harrison, our Finance Director, is due to retire in July 2016. As is our policy, we have engaged independent executive search consultants to recruit his successor.

· Across the Company we have seen hard work and professional application rewarded with strong growth in both sales and aftersales.

Dividend

· The Board has decided to increase the interim dividend to 7.25p per Ordinary Share. This will be paid on 8 January 2016 to shareholders on the register at close of business on 11 December 2015.

 Current Trading and Outlook

· The six months to 30 September 2015 have seen us deliver new car sales ahead of the market in addition to impressive growth in used car sales and aftersales. The economy remains steady and with continuing low interest rates we expect that European manufacturers will channel new vehicles to the UK market and support us with attractive marketing offers. We saw a recovery in new car margins in the second quarter as this marketing support became more apparent. However, the Society of Motor Manufacturers and Traders has reported a dip of 1% in the new car market in October 2015 and this, together with the well documented issues regarding Volkswagen, suggests that trading in the second half may be more challenging.

Simon G M Caffyn

Chief Executive

27 November 2015

Condensed Consolidated Statement of Financial Performance

for the half year ended 30 September 2015

*non-underlying items - see note 3

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

for the half year ended 30 September 2014

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 2015 and similarly for the half year to 30 September 2014 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 2015.

The figures for the year ended 31 March 2015 have been extracted from the statutory accounts, filed with the Registrar of Companies on which the auditor 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 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 27 November 2015.

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 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.

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.

3. NON-UNDERLYING ITEMS

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 was reached with the trustees of the Group's defined benefit pension scheme in the year ended 31 March 2015 that the inflation measure used in payment increases for pensions in excess of GMP would change from RPI to CPI for members (or dependants of members) who were in service on or after 1 April 1991. The Directors recorded this change 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.

4. FINANCE EXPENSE

There was no interest capitalised in additions to freehold properties (2014: £8,000 at a rate of 3.8%)

5. TAXATION

Taxation for the half year has been provided at the effective rate of taxation of 20% (2014: 21%) expected to apply to the whole year on ordinary trading. Tax on non-underlying items is provided at the actual rate applicable.

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.