Caffyns Regulatory News (CFYN)

HALF YEAR REPORT

for the half year ended 30 September 2013

Summary

Strong performance in the first half:

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

** Restated to reflect the impact of the adoption of IAS 19 (2011).

Highlights

· Underlying profit before tax up 134% to £1,027,000 (2012: £439,000)

· Profit before tax up 132% to £727,000 (2012: £314,000)

· Like for like new car unit sales up by 20.8%

· Like for like used car unit sales up by 17.6%

· Net cash generated by operating activities of £1.83m (2012: outflow £1.03m)

· Underlying earnings per share increased to 33.5p (2012: 13.4p)

· Basic earnings per share increased to 30.8p (2012: 9.9p)

· Dividend per ordinary share increased to 6.0p (2012: 5.0p)

The Chief Executive, Simon Caffyn, commented:

"I am delighted that we have increased underlying profit before tax to £1,027,000 from £439,000 last year, up 134%, and increased underlying earnings per share to 33.5p from 13.4p. Our new car unit sales in the half year were up by 20.8% and our used car unit sales were up by 17.6%, both on a like for like basis."

Enquiries:

Interim Management Report

Summary

I am pleased to report that the Group has increased underlying profit before tax in the six months to 30 September 2013 to £1.03m, up from £0.44m last year. This increase follows the successful completion of our restructuring programme in 2012 and continued improvement in new and used car sales.

Revenue has increased by 13% to £93.4m from £82.6m.

Profit before tax is £727,000 compared to £314,000 (as restated) last year. Last year's profit before tax has been restated following the implementation of the amended accounting standard IAS 19 "Employee benefits". This change is referred to below in the section on "Pensions".

Basic earnings per share are 30.8p (2012: 9.9p, as restated) and underlying earnings per share are 33.5p (2012: 13.4p, as restated).

The net cash inflow from operating activities was £1.83m (2012: outflow £1.03m).

Operating Review

New and Used Cars

· Over the half year period, total UK new car registrations rose by 12.6%. Within this, the private and small business sector in which we operate rose by 19.5%. Our new unit sales are up by 20.8% on a like for like basis as we continue to outperform the market.

· Our used car unit sales in the period are up 17.6% on last year like for like.

Aftersales

· The reduced new car market over the last three years has led to a consequential decline in the number of one to three year old cars in circulation. It is encouraging to see our aftersales revenue rise by 1.8% on a like for like basis as compared to the same period last year.

Operations

· Work on the construction of our new Volkswagen dealership in Worthing, which began in May 2013, is progressing on time and on budget and the site is scheduled to open in February 2014.

· The refurbishment and expansion of the showroom in our Volkswagen dealership in Haywards Heath was completed in May 2013.

· The freehold property we acquired in February 2013 immediately adjacent to our Land Rover dealership in Lewes,has been refurbished as an aftersales facility and has delivered the expected operating efficiencies.

· We are now trading as a full Seat dealership in Tunbridge Wells alongside our Skoda dealership and early sales are very encouraging.

· In Ashford, having agreed to continue our representation with Vauxhall, the site is enjoying strong trading activity and improved profitability.

· Work on the construction of our new Skoda dealership in Ashford, which began in August 2013, is progressing on plan towards a scheduled opening at the end of December 2013.

Property

· Capital expenditure in the six months was £2.74m (2012: £0.57m), of which £1.60m was incurred on the new Volkswagen dealership in Worthing, £0.34m on the refurbishment of the Volkswagen dealership in Haywards Heath and £0.42m on the newly acquired workshop facility in Lewes for Land Rover.

· The refurbishment of the workshop facility in Lewes, acquired in February 2013, adjacent to our new Land Rover showrooms, was completed during the period with minimal disruption to trading. A planning application for part of the site excess to requirements has recently been lodged and it is intended to market this development site for sale in due course.

· Following the exchange of contracts to sell our freehold property in Folkestone in May 2013, proceeds of £452,000 net of costs of sale were subsequently received in August 2013.

· On 14 November 2013, the Company announced the purchase of a freehold site adjacent to its existing Volkswagen dealership in Eastbourne, East Sussex, for £0.75m. The site of 0.77 acres includes a commercial building of approximately 10,000 square feet. When added to the Company's existing site of 1.3 acres, this further site will enable the Company to increase the scale of its sales and aftersales operations of this important site. Completion will take place on 10 January 2014 and the consideration is payable in cash.

Pensions

· The IAS 19 net pension position at 30 September 2013 was a deficit of £9.03m net of tax (£11.29m gross of tax) compared with a deficit of £10.50m net of tax at 31 March 2013 (£13.64m gross of tax). The lower deficit reflects the impact on liabilities of an increase in the discount rate from 4.3% at 31 March 2013 to 4.4% at 30 September 2013 and lower inflation.

· The Recovery Plan agreed with the trustees requires a cash payment of £346,000 in the year to 31 March 2014, increasing by 3.4% per annum thereafter.

· The amended accounting standard, IAS19 has been implemented in the half year to 30 September 2013 by replacing the expected return on assets with a return based upon the discount rate. This has given rise to a charge in the half-year of £300,000. The net credit shown in the Half Year Report for the period to 30 September 2012 was £29,000. Following implementation of the revised standard, the charge for that period has been restated to £169,000, reducing profit before tax by £198,000. However, the net actuarial losses in the Consolidated Statement of Comprehensive Income have also reduced by £198,000. Consequently, there are no changes to balance sheets previously reported. The pension cost under IAS 19, as in the previous year, continues to be charged as a non-underlying cost.

People

· I am very grateful for the dedication shown by our employees during the period of significant change and it is encouraging to see their efforts rewarded.

· On 25 September we announced the appointment of Nigel Gourlay to the Board as an independent non-executive director. Andrew Goodburn retired from the Board on 25 October and I, and other members of the Board, would like to thank him for his valuable contribution over more than nine years' service.

Bank facilities

· On 28 November 2013, the Company completed a £5m Term Loan with Volkswagen Bank to assist in the funding of various property developments, principally the new Volkswagen dealership in Worthing. The loan is secured on certain freehold properties and is repayable in equal instalments over ten years. Interest is payable at 1.75% over Finance House Base Rate.

Dividend

· The Board has decided to increase the interim dividend to 6.0p per Ordinary Share (2012: 5.0p per Ordinary Share). This will be paid on 10 January 2013 to shareholders on the register at close of business on 13 December 2013.

Current Trading and Outlook

· The strategic and operational changes that we have made to the Group are now delivering improved profits. Currently, the UK Market is more buoyant than in other parts of Europe and, while our new car order book is ahead of the same time last year, the outcome for the full year will be dependent on the crucial month of March 2014.

Simon G M Caffyn

Chief Executive

Condensed Consolidated Statement of Financial Performance

for the half year ended 30 September 2013

*See note 2 for details of restatement

Condensed Consolidated Statement of Comprehensive Income

*See note 2 for details of restatement

Condensed Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

for the half year ended 30 September 2012

*See note 2 for details of restatement

Consolidated Statement of Changes in Equity

*See note 2 for details of restatement

Condensed Consolidated Cash Flow Statement

*See note 2 for details of restatement

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 2013 and similarly for the half year to 30 September 2012 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 2013.

The figures for the year ended 31 March 2013 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 29 November 2013.

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 2013 apart from in relation to the amendments required by IAS 19 "Employee Benefits". The principal amendment is the requirement to calculate net interest income or expense using the discount rate used to measure the defined benefit obligation. The new standard requires retrospective application and impacts the Group's Statement of Financial Performance and Statement of Comprehensive Income as a result of the changes in assessing the return on pension scheme assets. A prior year restatement has been made to reflect these changes as set out below.

Restatement

As a result of the amendments to IAS 19 "Employee Benefits", the Group has changed its accounting policy with respect to determining the income or expense related to its defined benefit pension scheme. The standard prescribes that an interest expense or income is calculated on the net defined benefit liability/(asset) by applying the discount rate to the net defined benefit liability/(asset). This replaces the interest expense on the defined benefit obligation and the expected return on plan assets. The revised standard requires retrospective application. The table below reflects the adjustments made to the comparative amounts for the period to 30 September 2012 and year ended 31 March 2013. The associated tax has also been restated. All amounts subject to the change are non-underlying in nature. There are no associated changes to the balance sheets previously published. The consolidated cash flow statement reflects the changes to the profit before taxation and the adjustment for the net finance expense.

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 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 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.

* Restated to reflect the impact of the adoption of IAS 19 (2011) (see note 2).

4. FINANCE EXPENSE

Interest payable on bank borrowings is after capitalising interest in additions to freehold properties of £20,000 (2012: Nil) at a rate of 3.6%.

5. TAXATION