TIDMCFYN
RNS Number : 6852G
Caffyns PLC
27 November 2020
HALF YEAR REPORT
for the six months ended 30 September 2020
Summary
6 months 6 months
to to
30 September 30 September
2020 2019
GBP'000 GBP'000
Revenue 85,352 98,978
Underlying EBITDA (see note
below) 3,218 1,719
Underlying profit before
tax (see note below) 1,534 165
Profit before tax 1,414 56
Pence Pence
Underlying basic earnings
per share 55.9 4.3
Basic earnings per share 52.3 1.0
Interim dividend per ordinary
share - 7.5
Financial and operational review
-- Underlying profit before tax of GBP1.53 million (2019: GBP0.17 million)
-- Profit before tax of GBP1.41 million (2019: GBP0.06 million)
-- Revenue reduction for the period contained at 14%, despite
the business being in covid-19 lockdown for two of the six months
of the period
-- Underlying basic earnings per share of 55.9 pence (2019: 4.3 pence)
-- Basic earnings per share of 52.3 pence (2019: 1.0 pence)
-- Net bank borrowings at 30 September of GBP12.2 million (2019: GBP13.0 million)
Simon Caffyn, Chief Executive, commented:
"The underlying profit before tax of GBP1.53 million was a
significant improvement on the GBP0.17 million recorded for the
comparative period in 2019. Pent-up customer demand and improved
operational efficiencies resulted in a strong performance for the
four months to September, more than outweighing the negative impact
of the lockdown of the business in April and May . "
Enquiries:
Simon Caffyn, Chief
Caffyns plc Executive Tel: 01323 730201
Mike Warren, Finance
Director
Headland Francesca Tuckett Tel: 020 3805 4822
Note: Underlying results exclude items that have non-trading
attributes due to their size, nature or incidence. Non-underlying
items for the period totalled GBP0.12 million (2019: GBP0.11
million) and are detailed in Note 4 to these condensed consolidated
financial statements. Underlying EBITDA of GBP3.22 million (2019:
GBP1.72 million) represents Operating profit before non-underlying
items of GBP2.23 million (2019: GBP0.85 million) and Depreciation
and amortisation of GBP0.99 million (2019: GBP0.87 million).
INTERIM MANAGEMENT REPORT
Summary
The underlying profit before tax of GBP1.53 million for the
half-year ended 30 September 2020 ("the period") was a significant
improvement on the GBP0.17 million recorded for the comparative
period in 2019. The period has been unique with the business
effectively closed in April and May due to the national covid-19
lockdown. Trading was subsequently able to restart at the beginning
of June, in accordance with strict social-distancing requirements.
The months since trading recommenced in June were then buoyed by
pent-up demand from the lockdown period, by higher levels of demand
for private transport as customers sought to reduce their reliance
on public transport, and by significant operational efficiencies
which resulted in a strong performance throughout the four trading
months from June to September. The Company utilised the support
offered by Government in the period from both Job Retention Scheme
furlough grants, which assisted us to maintain employment, and the
business rates holiday for retail premises. When comparing
outcomes, shareholders will also recall that the second stage of
the implementation of the harmonised emissions testing regime,
Real-Driving Emissions ("RDE"), adversely impacted new car
deliveries for the September 2019 bi-annual registration plate
change, on which the half year result is always reliant.
Revenue for the period fell by 14% to GBP85.4 million (2019
GBP99.0 million). With business activity heavily restricted in two
of the six months of the period, the limited 14% overall reduction
in turnover for the period highlights the buoyancy of trading since
it recommenced in June. Underlying basic earnings per share were
55.9 pence (2019: 4.3 pence).
The Company's defined-benefit pension scheme deficit, calculated
in accordance with the requirements of IAS 19 Pensions, showed a
significant increase of GBP3.9 million from the last financial
year-end at 31 March 2020 to GBP13.3 million at 30 September 2020.
Whilst the Scheme's investments performed strongly, continued
reductions in the discount rate increased the present value of the
Scheme's pension liabilities, more than offsetting the investment
gains and resulting in a widening of the deficit.
The Company continues to own all but two of the freeholds of the
properties from which it operates, and this provides the dual
strengths of a strong asset base and minimal exposure to rent
reviews which is reassuring in these uncertain times.
Profit before tax for the period was GBP1.41 million (2019:
GBP0.06 million) with basic earnings per share of 52.3 pence (2019:
1.0 pence).
Given the current levels of uncertainty and in the light of the
Government support made available to the Company in the period, t
he board is not proposing an interim dividend (2019: 7.5 pence per
ordinary share).
Operating review
New and used cars
During the two-month covid-19 closure in April and May, our
showrooms were classified as non-essential businesses and were
required to close. This resulted in new car deliveries in the
period falling by 5% from the previous year's level although we
were very pleased that this was a significantly smaller fall than
the 29% national reduction in new car registrations recorded by the
SMMT in the retail and small business market segment in which we
primarily operate. Used car unit sales for the period as a whole
were also down on the comparative period, by 17%, but demand since
trading recommenced in June has been extremely robust and ahead of
last year with new and used car deliveries up 41% and 17%
respectively compared to the same four month period in 2019.
Aftersales
We continued to provide a response service for emergency and
other key workers during the April and May closure period from
three of our locations but, in the main, aftersales activity during
lockdown was severely curtailed. Our aftersales revenues fell by
16% in the full six-month period. However, since reopening in June,
our workshops have experienced high levels of throughput and
trading has been 13% ahead of last year in the four months from
June to September. We continue to realise improvements to our
customer retention processes.
Operations
Given the dislocation to trading in the first two months of the
period, it was extremely pleasing that all six of our franchise
businesses reported improved profitability in comparison to the
prior year. Our Audi and Volkswagen businesses, in particular,
performed very strongly. Our Motorstore used car operation also
improved its profitability in the period.
During the period, we extended our representation with Volvo
with the opening of a second dealership, in Worthing. The business
performed ahead of expectations and was profitable, despite the
adverse financial impact of the two-month closure period in April
and May.
The lockdown of the business in April and May resulted in a very
substantial loss despite the receipt of grants of GBP1.2 million
under the Job Retention Scheme, which allowed us to maintain
employment levels. In response to the adverse financial impact of
covid-19, the Company implemented numerous cash preservation and
cost saving measures across many areas of the business.
Approximately 80% of the Company's employees were furloughed in
April 2020 although the number of furloughed employees began to
reduce from May as our aftersales operations returned to more
normal activity levels, and then reduced further in June as we were
given permission to reopen our showrooms. As part of our cost
savings exercise, an annual salary ceiling of GBP37,500 was
implemented for all active employees, including the executive
directors and the chairman of the Company. The non-executive
directors of the Company also agreed a significant reduction to
their fees. These salary reductions were then unwound in stages,
with all non-furloughed employees, including the board, being
returned to their full contractual salaries from 1 July 2020. By
the end of the period, less than 10% of the Company's employees
remained on full-time furlough. In the period as a whole, the
Company received total grants of GBP1.7 million from the
Government's Job Retention Scheme.
During the period, the Company also benefited from the
Government's business rates holiday scheme with savings of GBP0.6
million. Ongoing savings will continue until March 2021.
Property
Capital expenditure in the period was GBP0.2 million (2019:
GBP0.4 million).
We continue to develop plans to upgrade our Volvo site in
Eastbourne which would allow for an expansion of our showroom
facility to better represent Volvo's extended model range.
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 GBP11.8
million at 31 March 2020, our last financial year-end.
As part of the sale of the Land Rover business in April 2016,
our freehold premises in Lewes remain leased for a fixed period to
April 2021. 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 net deficit of GBP9.4 million. The
board has little control over the key assumptions in the valuation
calculations as required by accounting standards and was
disappointed to note a further reduction in the level of the
discount rate in the period which contributed towards an GBP11.1
million increase in the assessed value of the gross liabilities of
the Scheme. In the period, growth in the value of the Scheme's
gross assets was good, increasing in value by GBP7.3 million.
Overall, the Scheme net deficit at the end of the period was
GBP13.3 million, a deterioration of GBP3.9 million. Net of deferred
tax, the net deficit was GBP10.8 million at 30 September 2020
(2019: GBP7.9 million) and GBP7.6 million at 31 March 2020.
The pension cost under IAS 19 is recognised in the Condensed
Consolidated Statement of Financial Performance and continues to be
charged as a non-underlying cost, amounting to GBP113,000 in the
period (2019: GBP109,000).
The Company is in the process of completing its triennial
valuation of the Scheme with effect from 31 March 2020. Under the
existing recovery plan, agreed with the Scheme's trustees following
the 2017 triennial valuation, the Company made cash payments into
the Scheme during the period of GBP0.26 million. These payments
increase by a minimum of 2.25% per annum.
Bank and other funding facilities
The Company has banking facilities with HSBC which comprise a
term loan, originally of GBP7.5 million, and a revolving-credit
facility of GBP7.5 million, both of which will become renewable in
March 2023. HSBC also provides an overdraft facility of GBP3.5
million, renewable annually. In addition, there is an overdraft
facility of GBP7.0 million provided by Volkswagen Bank, renewable
annually, together with a term loan, originally of GBP5.0 million,
which is repayable over the ten years to November 2023.
Early in the period under review, the Company took active steps
to minimise its cash outgoings. In addition to making significant
operational savings, we were pleased to be granted capital
repayment holidays on our term loans by HSBC, for the March and
June 2020 quarters. Similar concessions were granted by Volkswagen
Bank, for the months of April, May and June 2020. The term loan and
revolving credit facilities provided by HSBC include certain
covenant tests which were passed at both 31 March and 30 September
2020. Early in the period, HSBC confirmed to the Company their
agreement to a relaxation in the covenant tests for September 2020
(not subsequently required) and March 2021. This has provided
reasonable comfort to the board that covenant tests will also be
successfully passed at the March 2021 year-end. The failure of a
covenant test would render these facilities repayable on demand at
the option of the lender.
In addition, full use was also made of inventory stocking
facilities and the Company's manufacturer partners have been, and
continue to be, very supportive, offering extended new vehicle
funding and reduced funding costs.
Cashflows in the period include a working capital improvement of
GBP2.0 million (2019: GBP0.8 million). At 31 March 2020 the
business had been forced to cease activity due to the covid-19
lockdown and cashflows in the period were boosted by the impact of
trading recommencing.
Bank borrowings, net of cash balances, at 30 September 2020 were
GBP12.2 million (2019: GBP13.0 million), down from GBP16.2 million
at 31 March 2020. As a proportion of shareholders' funds, bank
borrowings, net of cash balances were 50% at 30 September 2020
(2019: 49%).
Taxation
The tax charge for the period has been based on an estimation of
the effective tax rate on profits for the full financial year of
22% (2019: 50%). 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. The tax
charge for the period was then reduced by the reversal of an
impairment provision against the carrying value of an Advanced
Corporation Tax asset. This impairment was made in the year ended
31 March 2019 at which time management did not recognise an overall
deferred tax asset due to the inherent uncertainty at that date.
This approach remained unchanged at the previous year end, with 31
March 2020 being immediately after the start of the first covid-19
lockdown, and at the height of the accompanying economic
uncertainty. Since the end of this first lockdown at the end of May
2020, the Company has experienced a strong trading performance and
has benefitted from operational efficiencies, implemented during
and after the lockdown period. Management have prepared forecasts
extending across the next five years, which reflect an improvement
to the levels of profits recorded prior to both the covid-19
pandemic and to the effects of changes to emissions-testing regimes
on the supply of new vehicles in the crucial September bi-annual
registration plate change month. These forecasts demonstrate the
asset being utilised against future taxable profits. Consequently,
the previously held view has been revised and the impairment has
been reversed, given management's judgement of a higher level of
certainty that the available Advanced Corporation Tax and other
deferred tax assets will be utilised in future years.
The effective tax rate in the prior period was significantly
higher than the standard rate of corporation tax in force, also of
19%, mainly due to the impact on deferred tax from the change of
tax rate as well as to adjustments to prior year estimates of the
tax liability on unrealised gains charged in the current year that
would arise from the future sale of properties and goodwill.
The widening of the deficit of the Company's defined-benefit
pension scheme in the period resulted in the recognition of a
deferred tax asset on the Statement of Financial Position at 30
September 2020 of GBP0.8 million (2019: GBPNil).
People
The response from our employees to this crisis has been
outstanding and the board would like to particularly thank those
who remained active throughout the lockdown period in April and May
to ensure that we were able to offer an emergency aftersales
response to NHS and other key workers, and to restart the business
quickly and effectively, first for aftersales in May 2020 and then
for car sales in June 2020. The health and safety of our employees
and customers is our paramount concern and our showroom and
workshop activities continue to be undertaken in a responsible and
socially distanced way. The hard work and professional application
by our employees has been very much appreciated by the board and
has ensured our delivery of a strong performance for the four-month
period of June to September.
Dividend
Given the significant levels of uncertainty that remain over the
ongoing covid-19 pandemic, and in particular its progression over
the coming winter, and in light of the levels of Government support
that have been made available to the Company in the period, the
board has decided not to declare an interim dividend (2019: 7.5
pence per ordinary share).
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 business opportunities in stronger
markets to deliver higher returns from fewer but bigger sites. We
continue to seek to deliver performance improvement, in particular
in our used car and aftersales operations.
Current trading and outlook
Customer demand for both sales and aftersales since the business
was able to re-open from lockdown in June has been strong. However,
rising national covid-19 infection rates necessitated a further
four-week national lockdown which came into effect on 5 November
2020 and will end on 2 December. So far during this lockdown, we
have been able to keep our aftersales workshops fully open, as an
essential business, but have had to close our showrooms. However,
we continue to maintain a digital car sales offering for customers.
The Job Retention Scheme has been extended until March 2021 and we
have again made use of this scheme to furlough a number of staff.
The issue of Brexit remains unresolved and may adversely impact on
both our supply of new cars, and customer demand, in the final
quarter of our financial year to 31 March 2021. Given these
uncertainties, the board remains cautious of the outcome for the
full financial year.
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
26 November 2020
Condensed Consolidated Statement of Financial Performance
for the half year ended 30 September 2020
Unaudited Unaudited Audited
Half year Half year Year ended
N o to to 31 March
t e 30 September 30 September 2020
2020 2019 Total
Total Total
GBP'000 GBP'000 GBP'000
Revenue 85,352 98,978 197,854
Cost of sales (73,884) (86,515) (172,850)
---------------------------------------- ------ -------------- -------------- ------------
Gross profit 11,468 12,463 25,004
Operating expenses (9,618) (11,974) (24,060)
---------------------------------------- ------ -------------- -------------- ------------
Operating profit before other income 1,850 489 944
Other income (net) 3 360 347 728
---------------------------------------- ------ -------------- -------------- ------------
Operating profit 2,210 836 1,672
Operating profit before non-underlying
items 2,229 850 1,633
Non-underlying items within operating
profit 4 (19) (14) 39
---------------------------------------- ------ -------------- -------------- ------------
Operating profit 2,210 836 1,672
Finance expense 5 (695) (685) (1,382)
Non-underlying net finance expense
on pension scheme 4 (101) (95) (187)
---------------------------------------- ------ -------------- -------------- ------------
Net finance expense (796) (780) (1,569)
---------------------------------------- ------ -------------- -------------- ------------
Profit before taxation 1,414 56 103
Profit before tax and non-underlying
items 1,534 165 251
Non-underlying items within operating
profit 4 (19) (14) 39
Non-underlying net finance expense
on pension scheme 4 (101) (95) (187)
---------------------------------------- ------ -------------- -------------- ------------
Profit before taxation 1,414 56 103
Taxation 6 (5) (28) (355)
---------------------------------------- ------ -------------- -------------- ------------
Profit/(loss) for the period 1,409 28 (252)
---------------------------------------- ------ -------------- -------------- ------------
Earnings/(deficit) per share
Basic 7 52.3p 1.0p (9.4)p
Diluted 7 52.3p 1.0p (9.4)p
Non-GAAP measure
Underlying basic earnings/(deficit)
per share 7 55.9p 4.3p (4.9)p
Underlying diluted earnings/(deficit)
per share 7 55.9p 4.3p (4.9)p
Condensed Consolidated Statement of Comprehensive Expense
for the half year ended 30 September 2020
Note Unaudited Unaudited Audited
Half year Half year Year to
to to
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
Profit/(loss) for the period 1,409 28 (252)
--------------------------------------- ----- ------------- ------------- ---------
Items that will never be reclassified
to profit and loss:
Remeasurement of net pension
scheme obligation 9 (4,025) (1,111) (1,169)
Deferred tax on remeasurement
of pension scheme obligation 765 189 222
Effect of change in deferred
tax rate - - 154
--------------------------------------- ----- ------------- ------------- ---------
Other comprehensive expense,
net of tax (3,260) (922) (793)
--------------------------------------- ----- ------------- ------------- ---------
Total comprehensive expense for
the period (1,851) (894) (1,045)
--------------------------------------- ----- ------------- ------------- ---------
Condensed Consolidated Statement of Financial Position
at 30 September 2020
Unaudited Unaudited Audited
30 September 30 September 31 March
Note 2020 2019 2020
GBP'000 GBP'000 GBP'000
Non-current assets
Right-of-use assets 768 828 925
Property, plant and equipment 38,206 38,908 38,783
Investment properties 7,994 8,110 8,052
Interest in lease 643 819 730
Goodwill 286 286 286
Deferred tax asset 1,080 - -
Total non-current assets 48,977 48,951 48,776
--------------------------------------- ------- -------------- -------------- ----------
Current assets
Inventories 31,309 31,862 39,728
Trade and other receivables 8,106 5,936 4,318
Interest in lease 175 180 178
Current tax recoverable - - 66
Cash and cash equivalents 5,273 1,082 1,478
--------------------------------------- ------- -------------- -------------- ----------
Total current assets 44,863 39,060 45,768
--------------------------------------- ------- -------------- -------------- ----------
Total assets 93,840 88,011 94,544
Current liabilities
Interest-bearing overdrafts, loans
and borrowings 4,875 1,875 5,875
Trade and other payables 35,737 35,034 38,346
Lease liabilities 493 410 491
Current tax payable 320 33 -
--------------------------------------- ------- -------------- -------------- ----------
Total current liabilities 41,425 37,352 44,712
--------------------------------------- ------- -------------- -------------- ----------
Net current assets 3,438 1,708 1,056
Non-current liabilities
Interest-bearing loans and borrowings 12,625 12,187 11,844
Lease liabilities 1,115 1,423 1,362
Preference shares 812 812 812
Pension scheme obligation 9 13,310 9,532 9,434
--------------------------------------- ------- -------------- -------------- ----------
Total non-current liabilities 27,862 23,954 23,452
--------------------------------------- ------- -------------- -------------- ----------
Total liabilities 69,287 61,306 68,164
--------------------------------------- ------- -------------- -------------- ----------
Net assets 24,553 26,705 26,380
--------------------------------------- ------- -------------- -------------- ----------
Shareholders' equity
Ordinary share capital 1,439 1,439 1,439
Share premium 272 272 272
Capital redemption reserve 707 707 707
Non-distributable reserve 1,724 1,724 1,724
Retained earnings 20,411 22,563 22,238
--------------------------------------- ------- -------------- -------------- ----------
Total equity 24,553 26,705 26,380
--------------------------------------- ------- -------------- -------------- ----------
Condensed Consolidated Statement of Changes in Equity
for the half year ended 30 September 2020
Capital
Share Share redemption Non-distributable Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 2020
Total comprehensive
income/(expense) 1,439 272 707 1,724 22,238 26,380
Profit for the period - - - - 1,409 1,107
Other comprehensive expense - - - - (3,260) (3,260)
----------------------------------- ---------- ---------- ------------ ------------------ ----------- ----------
Total comprehensive expense
for the period - - - - (1,851) (2,153)
Transactions with owners:
Share-based payment - - - - 24 24
At 30 September 2020 (unaudited) 1,439 272 707 1,724 20,411 24,553
----------------------------------- ---------- ---------- ------------ ------------------ ----------- ----------
for the half year ended 30 September 2019
Capital
Share Share redemption Non-distributable Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 2019 1,439 272 707 1,724 23,833 27,975
Total comprehensive
income/(expense)
Profit for the period - - - - 28 28
Other comprehensive expense - - - - (922) (922)
--------------------------------- ---------- ---------- ------------ ------------------ ----------- ----------
Total comprehensive expense
for the period (894) (894)
Transactions with owners:
Dividends - - - - (404) (404)
Share-based payment - - - - 28 28
At 30 September 2019 (unaudited) 1,439 272 707 1,724 22,563 26,705
--------------------------------- ---------- ---------- ------------ ------------------ ----------- ----------
for the year ended 31 March 2020
Capital
Share Share redemption Non-distributable Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 2019 1,439 272 707 1,724 23,833 27,975
Total comprehensive expense
Loss for the year - - - - (252) (252)
Other comprehensive expense - - - - (793) (793)
------------------------------ ---------- ---------- ------------ ------------------ ----------- ----------
Total comprehensive expense
for the year (1,045) (1,045)
Transactions with owners:
Dividends - - - - (606) (606)
Share-based payment - - - - 56 56
At 31 March 2020 (audited) 1,439 272 707 1,724 22,238 26,380
------------------------------ ---------- ---------- ------------ ------------------ ----------- ----------
Condensed Consolidated Cash Flow Statement
for the half year ended 30 September 2020
Unaudited Unaudited Audited
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019 GBP'000
GBP'000 GBP'000
Cash flows from operating activities
Profit before taxation 1,414 56 103
Adjustments for:
Net finance expense and pension scheme
service cost 796 793 1,569
Depreciation of property, plant and equipment,
investment properties and right-of-use
assets 989 869 1,793
Cash payments into the defined-benefit
pension scheme (262) (263) (523)
Loss on disposal of property, plant and
equipment 1 1 2
Share-based payments 24 28 56
Decrease in inventories 1,221 2,951 646
(Increase)/decrease in receivables (3,788) 2,844 4,479
Increase/(decrease) in payables 4,601 (4,996) (7,422)
------------------------------------------------ --------------- --------------- -----------
Cash generated from operations 4,996 2,283 703
Tax recovered/(paid) 66 (81) (147)
Interest paid (683) (685) (1,358)
------------------------------------------------ --------------- --------------- -----------
Net cash generated from/(absorbed by)
operating activities 4,379 1,517 (802)
------------------------------------------------ --------------- --------------- -----------
Investing activities
Proceeds generated on disposal of property, - - -
plant and equipment
Purchases of property, plant and equipment (198) (376) (980)
------------------------------------------------ --------------- --------------- -----------
Net cash used in investing activities (198) (376) (980)
------------------------------------------------ --------------- --------------- -----------
Financing activities
Overdraft facility (repaid)/utilised (1,000) (3,000) 1,000
Secured loans utilised/(repaid) 781 (438) (781)
Dividends paid to shareholders - (404) (606)
Repayment of lease liabilities (167) (125) (261)
------------------------------------------------ --------------- --------------- -----------
Net cash used in financing activities (386) (3,967) (648)
------------------------------------------------ --------------- --------------- -----------
Net increase/(decrease) in cash and cash
equivalents 3,795 (2,826) (2,430)
Cash and cash equivalents at beginning
of period 1,478 3,908 3,908
------------------------------------------------ --------------- --------------- -----------
Cash and cash equivalents at end of period 5,273 1,082 1,478
------------------------------------------------ --------------- --------------- -----------
Cash and cash equivalents 5,273 1,082 1,478
Bank overdraft (4,000) (1,000) (5,000)
------------------------------------------------ --------------- --------------- -----------
Net cash and cash equivalents 1,273 82 (3,522)
------------------------------------------------ --------------- --------------- -----------
Notes to the Condensed Consolidated Financial Statements
for the half year ended 30 September 2020
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 condensed consolidated financial statements for the half
year to 30 September 2020 and similarly for the half year to 30
September 2019 are unaudited. They do not include all the
information required for full annual financial statements and
should be read in conjunction with the financial statements of the
Company for the year ended 31 March 2020.
The comparative financial information for the year ended 31
March 2020 in these condensed consolidated financial statements
does not constitute statutory accounts for that year. The statutory
accounts for 31 March 2020 have been delivered to the Registrar of
Companies. The auditor's report on those accounts was unqualified,
did not draw attention to any matters by way of emphasis, and did
not contain a statement under 498(2) or 498(3) of the Companies Act
2006.
These condensed consolidated financial 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 26 November 2020.
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
condensed consolidated 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. As required by the disclosure
guidance and transparency rules of the Financial Conduct Authority,
this set of condensed consolidated financial statements has been
prepared in accordance with the accounting policies set out in the
Annual Report for the year ended 31 March 2020.
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
These condensed consolidated financial statements have been
prepared on a going concern basis which the directors consider
appropriate for the reasons set out below.
The directors have considered the going concern basis and have
undertaken a detailed review of trading and cash flow forecasts for
a period in excess of one year from the date of approval of this
Interim Report. This has focused primarily on the achievement of
the banking covenants. In light of covid-19, during the period HSBC
confirmed to the Company the relaxation in the debt service
covenant test for September 2020 and March 2021. The new covenants
test requires the Company to make an underlying profit before
interest for the rolling twelve-month period to September 2020 and
to March 2021. All bank covenants have been achieved for the period
under review. The Company has modelled the periods to March and
September 2021 and conclude that there is headroom that would allow
for a significant reduction in expected new and used units over
this period. External market commentary provided by the Society of
Motor Manufacturers and Traders ("SMMT") indicate that new car
registrations for November and December 2020 will be 9% lower than
the same two-month period to December 2019, with a 28% rebound in
new car registrations then forecast for 2021. T he used car market
has remained stable over the past four years and is expected to
remain so into 2021 . Since reopening on the 1 June 2020, demand
and financial results have both been stronger than had been
anticipated and the current new car order take for December and
beyond is ahead of this time last year.
The directors have also considered the Company's working capital
requirements. The Company meets its day-to-day working capital
requirements through short-term stocking loans, bank overdrafts,
medium-term revolving credit facilities and term loans. At the
period end, the medium-term banking facilities included a term loan
with an outstanding balance of GBP6.8 million and a revolving
credit facility of GBP7.5 million from HSBC, its primary bankers,
with both facilities being renewable in March 2023. HSBC also make
available a short-term overdraft facility of GBP3.5 million, which
is due for its next annual renewal in December. The Company also
has a ten-year term loan from VW Bank with a balance outstanding at
31 March 2020 of GBP1.8 million which is repayable, to November
2023, and a short-term overdraft facility of GBP7.0 million, which
is renewable annually. In the opinion of the directors, there is a
reasonable expectation that all facilities will be renewed at their
scheduled expiry dates. The failure of a covenant test would render
these facilities repayable on demand at the option of the
lender.
The directors have a reasonable expectation that the Company has
adequate resources and headroom against the covenant test to be
able to continue in operational existence for the foreseeable
future and for at least twelve months from the date of approval of
this Interim Report. For those reasons, they continue to adopt the
going concern basis in preparing these condensed consolidated
financial statements .
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)
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019 GBP'000
GBP'000 GBP'000
Rent receivable 361 348 708
Liquidation distribution received - - 22
Loss on disposal of tangible fixed
assets (1) (1) (2)
------------------------------------ -------------- -------------- ----------
Total other income 360 347 728
------------------------------------ -------------- -------------- ----------
4. NON-UNDERLYING ITEMS
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019
GBP'000 GBP'000 GBP'000
Other income:
Net loss on disposal of property,
plant and equipment (1) (1) (2)
---------------------------------------- -------------- -------------- ----------
Within operating expenses:
Service cost on pension scheme (12) (13) (25)
Restructuring redundancy costs (6) - -
VAT compliance provision movement - - 44
Liquidation distribution received - - 22
(18) (13) 41
---------------------------------------- -------------- -------------- ----------
Total non-underlying items within
operating profit (19) (14) 39
---------------------------------------- -------------- -------------- ----------
Net finance expense on pension scheme (101) (95) (187)
---------------------------------------- -------------- -------------- ----------
Total non-underlying items within
profit before taxation (120) (109) (148)
---------------------------------------- -------------- -------------- ----------
In the prior year, the Company received a distribution of
GBP22,000 from the liquidators of MG Rover Group Limited.
5. FINANCE EXPENSE
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019 GBP'000
GBP'000 GBP'000
Interest payable on bank borrowings 227 224 440
Interest payable on inventory stocking
loans 367 360 741
Interest on lease liabilities 12 13 24
Financing costs amortised 53 52 105
Preference dividends 36 36 72
---------------------------------------- -------------- -------------- ----------
Finance expense 695 685 1,382
---------------------------------------- -------------- -------------- ----------
6. TAXATION
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019 GBP'000
GBP'000 GBP'000
Current UK corporation tax
Charge for the period (320) (12) -
Reversal of impairment of Advanced 302 - -
Corporation Tax asset
Adjustments recognised in the period
for current tax of prior periods - - 22
Total current tax (charge)/credit (8) (12) 22
-------------------------------------- -------------- -------------- ----------
Deferred tax
Origination and reversal of timing
differences 12 (16) (356)
Adjustments recognised in the period
for deferred tax
of prior periods 1 - (21)
-------------------------------------- -------------- -------------- ----------
Total deferred tax credit/(charge) 13 (16) (377)
-------------------------------------- -------------- -------------- ----------
Total tax charged in the Income
Statement (5) (28) (355)
-------------------------------------- -------------- -------------- ----------
The tax charge arises as follows:
Half year Half year Year to
to to 31 March
30 September 30 September 2020
2020 2019 GBP'000
GBP'000 GBP'000
On normal trading (27) (48) (383)
Non-underlying items 22 20 28
-------------------------------------- -------------- -------------- ----------
Total tax charge (5) (28) (355)
-------------------------------------- -------------- -------------- ----------
Taxation of trading items for the half year has been provided at
the current rate of taxation of 22% (2019: 50%) 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 and non-qualifying depreciation. The tax
charge for the period was then reduced by the reversal of an
impairment against the carrying value of an Advanced Corporation
Tax asset. This impairment was made in a prior year as has been
reversed given management's judgement of a higher level of
certainty that the available Advanced Corporation Tax will be
utilised in future years.
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.
Half year Half year Year to
to to
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
Basic
Profit/(loss) after tax for the
period 1,409 28 (252)
------------------------------------- ------------- ------------- ---------
Basic earnings/(deficit) per share 52.3p 1.0p (9.4)p
------------------------------------- ------------- ------------- ---------
Diluted earnings/(deficit) per
share 52.3p 1.0p (9.4)p
------------------------------------- ------------- ------------- ---------
Underlying
Profit before tax 1,414 56 103
Adjustment: Non-underlying items
(note 4) 120 109 148
------------------------------------- ------------- ------------- ---------
Underlying profit for the period 1,534 165 251
Taxation on normal trading (note
6) (27) (48) (383)
------------------------------------- ------------- ------------- ---------
Underlying earnings/(deficit) 1,507 117 (132)
------------------------------------- ------------- ------------- ---------
Underlying basic earnings/(deficit)
per share 55.9p 4.3p (4.9)p
------------------------------------- ------------- ------------- ---------
Diluted earnings/(deficit) per
share 55.9p 4.3p (4.9)p
------------------------------------- ------------- ------------- ---------
The number of fully paid ordinary shares in issue at the period
end was 2,879,298 (2019: 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 (2019:
2,694,790). The shares granted under the Company's SAYE scheme have
not been treated as dilutive as the market price at 30 September
2020 of GBP2.70 was less than the option price of GBP3.99.
The Directors consider that underlying earnings per share
figures provide a better measure of comparative performance.
8. DIVIDS
Ordinary shares of 50p each
No interim dividend has been declared in respect of the
half-year ended 30 September 2020. An interim dividend of 7.5 pence
per share was paid on 6 January 2020 in respect of the half-year
ended 30 September 2019.
Preference shares
Preference dividends were paid in October 2020. The next
preference dividends are payable in April 2021. 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
2020. 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 2020 and
in the period to 30 September 2019, and which complies with the
accounting requirements of IAS 19 (revised).
The net liability for defined benefit obligations has increased
from GBP9,434,000 at 31 March 2020 to GBP13,310,000 at 30 September
2020. The increase of GBP3,876,000 comprises the net charge to the
Condensed Consolidated Statement of Financial Performance of
GBP113,000, a net remeasurement loss debited to the Condensed
Consolidated Statement of Comprehensive Income of GBP4,025,000 and
contributions of GBP262,000. Asset values increased significantly
in the period, by GBP7,267,000, despite divestments to pay pension
transfers and benefits in the period of GBP2,362,000. However,
pension liabilities increased by GBP11,143,000, as a result of a
reduction in the discount rate from 2.2% at 31 March 2020 to 1.55%
at 30 September 2020, despite transfers and pensions that were paid
in the period.
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 the
ongoing covid-19 pandemic and 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 in 2016, a degree of uncertainty in
the UK economy remains and we believe that the main risks to arise
from this relate to consumer confidence and the potential impact
that Sterling/Euro exchange rates and import tariffs 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, CO(2) 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.
Notwithstanding the above, claims on behalf of multiple
claimants, arising out of or in relation to their purchase or
acquisition on finance of a Volkswagen Group vehicle affected by
the NOx issue, have been brought against a number of Volkswagen
entities and dealers, including Caffyns. Caffyns has been named as
a Defendant on fourteen claim forms alleging fraudulent
misrepresentation, breach of contract, breach of statutory duty,
breach of the Consumer Credit Act 1974 and a breach of the Consumer
Protection from Unfair Trading Regulations 2008. In total, there
are 314 claims being jointly brought against Caffyns.
In December 2019, a hearing took place in the High Court of
England and Wales on two preliminary issues:
(i) "Is the High Court of England and Wales bound by the finding
of the competent EU type approval authority that a vehicle contains
a defeat device in circumstances where that finding could have
been, but has not been, appealed by the manufacturer; and/or is it
an abuse of process for the Defendants to seek collaterally to
attack the KBA's reasoning or conclusions by denying that the
affected vehicles contain defeat devices ?"; and
(ii) "Where a vehicle's engine control unit is capable of
identifying the New European Driving Cycle test and operates in a
different mode during the test by altering the rate of exhaust gas
recirculation to reduce NOx emissions, does the vehicle contain a
"defeat device" within the meaning of Article 3(10) of Regulation
715/2007/EC ?"
Judgment was received on 30 March 2020. On the first preliminary
issue, the Court found that it was bound by the KBA's ordinance
that the software was a defeat device. The same was not true in
relation to the VCA. On the second preliminary issue, the court
found that the software was a prohibited defeat device. Permission
to appeal this judgment has been denied by the Court of Appeal.
At present, no timetable has been set for the remainder of the
case; the relevant issues of liability, loss and causation are not
yet decided. It is therefore too early to assess reliably the merit
of any claim and so we cannot confirm that any future outflow of
resources is probable.
Volkswagen Group has agreed to indemnify the Company for the
reasonable legal costs of defending the litigation and any damages
and adverse legal costs that the Company 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 the Company resulting from the defence of the litigation is
remote.
Accordingly, no provision for liability has been made in these
financial statements.
12. RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge:
a) these condensed consolidated financial statements have been
prepared in accordance with IAS34 'Interim Financial
Reporting';
b) these condensed consolidated financial statements include a
fair review of the information required by DTR 4.2.7R of the
disclosure guidance 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 guidance
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
26 November 2020
INDEPENT REVIEW REPORT
to Caffyns plc
Introduction
We have been engaged by the Company to review the condensed
consolidated set of financial statements in the half year report
for the six months ended 30 September 2020 which comprises the
Condensed Consolidated Statement of Financial Performance, the
Condensed Consolidated Statement of Comprehensive Expense, the
Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Statement of Consolidated Changes in Equity,
the Condensed Consolidated Cash Flow Statement and the notes to the
set of financial information.
We have read the other information contained in the half year
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated set of financial statements.
Directors' responsibilities
The half year 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 Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed consolidated set of financial statements included in this
half year 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 to the Company a conclusion on
the condensed consolidated set of financial statements in the half
year 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", issued by the Financial Reporting Council for use
in the United Kingdom. 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 consolidated set of
financial statements in the half year report for the six months
ended 30 September 2020 is not prepared, in all material respects,
in accordance with International Accounting Standard 34, as adopted
by the European Union, and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
Southampton
26 November 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
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