Caffyns Regulatory News (CFYN)

HALF YEAR REPORT

for the half year ended 30 September 2014

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 16% to £1,192,000 from £1,027,000 last year

· Profit before tax up 67% to £1,213,000 from £727,000 last year

· Like for like new car unit sales up by 6.5%

· Like for like used car unit sales up by 7.4%

· Basic earnings per share up 23% to 38.0p from 30.8p last year

· Dividend increased by 12.5% to 6.75p per share from 6.0p per share last year

Simon Caffyn, Chief Executive, commented:

"I am delighted that we have increased our underlying profit before tax by 16% to £1.2m. This increase has been delivered despite four dealerships undergoing extensive upgrades during the period and follows an increase of 134% in the first half of the previous year".

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 2014 by 16% to £1.192m, up from £1.027m last year. This increase has been delivered despite four dealerships undergoing extensive upgrades during the period and follows an increase of 134% in the first half of the previous year.

Revenue in the half year period has increased by 11.3% to £103.9m from £93.4m last year.

Profit before tax after non-underlying items is up 67% to £1.213m from £727,000 last year.

Basic earnings per share are 38.0p (2013: 30.8p) and underlying earnings per share are 35.6p (2013: 33.5p). In the corresponding period last year, following a reduction in the rate of corporation tax, there was a consequent tax credit of £333,000 which increased basic earnings per share by 12.0p.

Operating Review

New and Used Cars

· During the first half, total UK new car registrations rose by 6.8%. Within this, the private and small business sector in which we operate rose by 6.7%. Our new unit sales are up by 6.5% on a like for like basis. This performance follows an increase in like for like unit sales in the first half of the previous year of 20.8%.

· Our like for like used car unit sales in the period are up 7.4% on last year following a strong performance in the first half of the prior year when like for like unit sales increased by 17.6%.

Aftersales

· Activity in the new car market over the last two years has led to an increase in the number of one to three year old cars in circulation. It is encouraging to see our aftersales revenue rise by 3.9% on a like for like basis as compared to the same period last year, despite building disruption.

Operations

· Our new Volkswagen dealership in Worthing opened in April 2014 and we are now planning to redevelop our Volkswagen dealership in Eastbourne in 2015 and expand the used car and aftersales facilities incorporating the additional land that we acquired at this site in December 2013.

· The refurbishment and expansion of the showroom in our Audi dealership in Eastbourne was completed in August 2014. With the expanded used car display area we expect trading here to increase in the second half year.

· In June 2014 we completed a full refurbishment of our Ashford Vauxhall showroom to the new corporate standard. The site continues to trade strongly and with improved profitability.

· In September 2014 we completed the construction of our Seat dealership in Tunbridge Wells alongside our refurbished Skoda dealership. Both businesses traded well during a period of disruption.

· In October 2014 we re-opened the refurbished showroom at Ashford as a Caffyns Used Car Centre. This had originally housed our Ashford Skoda operation which has been relocated to a newly built facility on the same site.

Property

· Capital expenditure in the half year was £1.96m of which £0.87m was incurred on the upgrade to our Eastbourne Audi dealership, £0.45m at the Skoda/Seat dealership in Tunbridge Wells and £0.25m at our Vauxhall dealership in Ashford.

· In September 2014, we announced the sale of the part of our freehold site in Lewes which was surplus to requirements for £858,000 and the proceeds have now been received. The net profit on disposal has been included in non-underlying "Other income" in the Statement of Financial Performance.

· Following the granting of a planning approval to the purchaser of our vacant freehold site in Hailsham, it is expected that the contract will become unconditional in December 2014 at which time the proceeds on sale of £1.4m are receivable in cash. This property has therefore been shown as a "Non-current asset held for sale" in the Statement of Financial Position.

Bank facilities

· During the half year, 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 and, together with the £3.5m overdraft facility, includes a reduction in the interest rate charged.

Pensions

· The IAS 19 net pension position at 30 September 2014 was a deficit of £9.44m net of tax (£11.85m gross of tax) compared with a deficit of £9.09m net of tax at 31 March 2014 (£11.36m gross of tax). The higher deficit reflects the impact on liabilities of a reduction in the discount rate from 4.3% at 31 March 2014 to 4.0% at 30 September 2014 and a reduction in inflation from 3.2% to 3.1%. However, the resulting increase in liabilities has been mitigated by improved returns on the scheme's assets.

· The Recovery Plan agreed with the trustees requires a cash payment of £358,000 in the year to 31 March 2015, increasing by 3.4% per annum thereafter.

People

· I am very grateful for the dedication and patience shown by our employees during the period of significant disruption at four of our dealerships. With growth across the whole company, it is encouraging to see their efforts rewarded with a further improvement in profits.

Dividend

· The Board has decided to increase the interim dividend to 6.75p per Ordinary Share. This will be paid on 9 January 2015 to shareholders on the register at close of business on 12 December 2014.

Current Trading and Outlook

· New and used car sales remain encouraging and, whilst competition in aftersales remains strong, we are seeing improved sales as our three year car parc continues to grow in line with our higher new and used car sales. The UK market remains more buoyant than in many other parts of Europe and we expect manufacturers to continue looking to the UK to delivery higher sales, although care needs to be taken to ensure that this does not come at the expense of further pressure on margin.

· We continue to see growth in new car unit sales in line with the UK market and our focus on used car unit sales, margin and finance income, together with improvements to our aftersales retention processes, are driving further and sustainable improvements in profitability.

Simon G M Caffyn

Chief Executive

28 November 2014

Condensed Consolidated Statement of Financial Performance

for the half year ended 30 September 2014

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 2013

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 2014 and similarly for the half year to 30 September 2013 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 2014.

The figures for the year ended 31 March 2014 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 28 November 2014.

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 2014.

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 interest on overdue taxation relates to the corporation tax due on a VAT repayment made to the Company in the year ended 31 March 2005. While the tax due had been the subject of dispute with HM Revenue & Customs, it has been provided for in the accounts but not paid.

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.

4. FINANCE EXPENSE

Interest payable on bank borrowings is after capitalising interest in additions to freehold properties of £8,000 (2013: £20,000) at a rate of 3.8% (2013: 3.6%).

5. TAXATION