TIDMCFYN
RNS Number : 2502T
Caffyns PLC
17 July 2020
Caffyns plc
Preliminary Results for the year ended 31 March 2020
Summary
2020 2019
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Revenue 197,854 209,246
Underlying EBITDA (see note A) 3,428 3,982
Underlying profit before tax (see note A) 251 1,445
Profit/(loss) before tax 103 (428)
-------------------------------------------- ---------- ----------
pence pence
--------------------------------------------- ------- --------
Underlying (deficit)/earnings per share (4.9) 35.3
Deficit per share (9.4) (21.0)
Proposed final dividend per ordinary share - 15.00
Dividend per ordinary share for the year 7.50 22.50
--------------------------------------------- ------- --------
Note A: Underlying results exclude items that have non-trading
attributes due to their size, nature or incidence. Non-underlying
items for the period totalled a credit of GBP39,000 (2019: charge
of GBP1,651,000) and are detailed in Note 5 to this consolidated
financial information. Underlying EBITDA of GBP3,428,000 (2019:
GBP3,982,000) represents Operating profit before non-underlying
items of GBP1,633,000 (2019: GBP2,626,000) adding back Depreciation
and amortisation of GBP1,795,000 (2019: GBP1,356,000).
Note B: The implementation of IFRS 16 Leases decreased profits
before tax for the year ended 31 March 2020 by GBP20,000 but
increased underlying EBITDA by GBP236,000 in comparison to the
previous accounting treatment.
Overview
-- Revenue down 5.4% to GBP197.9 million
-- Like-for-like new car unit deliveries down by 11.0%
-- Like-for-like used car unit sales down by 1.4%
-- Aftersales revenues unchanged against 2019
-- Underlying profit before tax of GBP0.3 million (2019: GBP1.4 million)
-- No final dividend for the year ended 31 March 2020 due to the impact of the covid-19 pandemic
-- Property portfolio revaluation as at 31 March 2020 showing an
GBP11.8 million (2019: GBP11.2 million) surplus to net book value
(not recognised in these accounts)
Commenting on the results Simon Caffyn, Chief Executive, said: "
The year under review was defined by two key events: the covid-19
pandemic in March 2020 and the further implementation of the
emissions-testing regime, Real Driving Emissions, in September
2019. In the light of these two events, the board reports a reduced
underlying profit before tax for the year of GBP0.25 million . The
response from our employees to the Covid-19 crisis has been
outstanding. Due to their efforts we experienced a strong trading
performance in June as the businesses began to fully re-open."
Enquiries:
Caffyns plc Simon Caffyn, Chief Executive Tel: 01323 730201
Mike Warren, Finance Director
HeadLand Francesca Tuckett Tel: 0203 805 4822
Operational and Business Review
The year under review was defined by two key events. Firstly,
the covid-19 pandemic and the related requirement to curtail the
year early, temporarily closing all our car showrooms and most of
our aftersales operations on 24 March 2020. This impacted
materially on the result for the bi-annual registration plate
change month of March, our most important trading month of the
financial year. The second event, as highlighted at our half-year
stage, was the adverse impact on the majority of our brands that
arose from the further implementation of the emissions-testing
regime, Real Driving Emissions, commonly referred to as RDE. This
created some scarcity of supply of new cars for a number of our
brands and adversely impacted on our second most important trading
month of the year, September 2019. In the light of these two
events, the board reports an underlying profit before tax for the
year of GBP0.25 million (2019: GBP1.45 million). Full year turnover
fell by 5.4% to GBP197.9 million (2019: GBP209.2 million),
predominantly due to much lower levels of new car deliveries in the
year. Used car unit sales, which remained unaffected by RDE, fell
by just 1.4%, whilst aftersales revenues were unchanged, despite
losing more than a week of activity in the run up to the
year-end.
Our statutory result before tax for the year was a profit of
GBP0.1 million (2019: loss of GBP0.4 million). Due to the tax
charge being in excess of the pre-tax profit, basic losses per
share were 9.4 pence (2019: 21.0 pence).
The underlying deficit per share for the year was 4.9 pence (2019: earnings of 35.3 pence).
Coronavirus ("covid-19")
The Company faced an unprecedented situation when it was
required to temporarily close all its car showrooms and most of its
aftersales operations on 24 March 2020, following UK Government
restrictions implemented to deal with the nationwide covid-19
pandemic. With our showrooms closed, only on-line and telephone
sales operations were able to continue, alongside three aftersales
operations which provided essential support for NHS and other key
workers only.
Subsequent to the year-end, in May 2020, we re-started our
aftersales operations at all sites with our showrooms re-opening on
1 June 2020. The temporary closure impacted the year-end audit
process and caused a delay to our normal reporting timetable. As a
result , the Annual General Meeting has been delayed from 28 July
and is now scheduled for 24 September 2020. Given the exceptional
circumstances, this year's Annual General Meeting will need to be
run as a closed meeting and shareholders will not be able to attend
in person. Shareholders will be invited to register questions in
advance of the meeting for the board to answer and answers will be
made available after the meeting via the Company's corporate
website, www.caffynsplc.co.uk.
In response to the impact of covid-19, the Company implemented
numerous cash preservation and cost saving measures across many
areas of the business. These included making extensive use of the
Government's Job Retention Scheme, with approximately 80% of the
Company's employees furloughed in April 2020. The number of
furloughed employees reduced in May as our aftersales operations
returned to more normal activity levels and then reduced further in
June as we were given permission to re-open 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, for the month of April
2020. This ceiling impacted on 45 employees, approximately 10% of
the workforce. The non-executive directors of the Company also
agreed a significant reduction to their fees. These salary
reductions have been unwound in stages, with non-furloughed
employees (except for full time executive directors) returning to
80% of their contractual salary from 1 May 2020. The full-time
executive directors moved to 50% of their contractual salary from 1
May 2020 and then to 80% of their contractual salary from 1 June
2020. The remuneration of the Chairman remained at the annual
ceiling of GBP37,500 for the month of May and then increased to 80%
of his contractual fees for June. All employees, including the
board, returned to their full contractual salaries from 1 July
2020.
The response from our employees to this crisis has been
outstanding and the board would like to particularly thank those
that remained active throughout the lockdown period 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. We remain very focused on the health and safety
of our employees and customers and our showroom and workshop
activities continue to be undertaken in a responsible and socially
distanced way.
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.
New and used car sales
Our new unit sales fell by 11.0% on a like-for-like basis. With
the key trading months of March 2020 and September 2019 impacted
respectively by the temporary showroom closures highlighted above
and the negative impact of RDE. In the year total UK new car
registrations declined by 11.7% and, within this total, new car
registrations in the private and small business sector in which we
principally operate fell by 14.3%.
Unit sales volumes of used cars fell by 1.4% on a like-for-like
basis, although unit margins remained strong. Over the last
five-year period, the Company has recorded a 33% like-for-like
growth in the number of used cars sold and we continue to see this
element of our business providing a major opportunity for further
growth. The number of used cars sold again exceeded the number of
new cars sold in the year.
Throughout the year under review, we continued to upgrade our
website with multiple enhancements to our customers' online
searching capabilities, leading to an easier, more enjoyable
car-buying experience.
Aftersales
Despite the loss of over a week's activity in late March from
the covid-19 temporary closures, we were encouraged that our
service revenues in the year continued to rise, by 2.4% on a
like-for-like basis. We continue to place great emphasis on our
customer retention programmes and in growing sales of service
plans. Our parts business reported slightly lower sales, down by
1.3% on a like-for-like basis over the previous year.
Operations
Our Volvo business in Eastbourne traded profitably in the year
and we were delighted to extend our representation by signing a new
dealer agreement for a territory in Worthing, West Sussex. The new
business was scheduled to open just as the covid-19 pandemic led to
Government-mandated temporary showroom closures and was therefore
unable to begin trading as planned in the year under review. Since
the year-end, we have now opened this site for both car sales and
aftersales operations. The franchise continues to reap the benefits
of an excellent model range of cars, which continue to be
positively received by customers.
In Tunbridge Wells, our SEAT business continued to perform well
although the adjacent Skoda business found the year more
challenging. Our Skoda business in Ashford performed
satisfactorily, after allowing for the dual impacts of the covid-19
temporary closure and RDE.
Our Audi and Volkswagen businesses both produced new car
performances in line with the national picture but both suffered
materially from the impact of the covid-19 temporary closures and,
to a lesser extent, from RDE. We remain confident that the strength
of both brands, their excellent model ranges and exciting new
products will help to lead the recovery in their future trading
performance.
Our Vauxhall business in Ashford continued to experience
challenging trading conditions in the year with Vauxhall's national
new car registrations in the year down by 26%, a much higher level
than the decline in the overall UK market.
Trading at Caffyns Motorstore, our used car business in Ashford,
remained depressed as the business suffered from growing pains.
However, the concept has been very well received by our customers
who particularly value the reassurance of the Caffyns brand and we
expect performance to improve as management and operational changes
have a positive impact on trading performance.
Groupwide projects
We remain focused on generating further improvements in used car
sales, used car finance and service labour sales. These three areas
will be key to achieving increases in profitability in the coming
years. In addition, we continue to make very good progress
utilising technology to enhance the customer-buying experiences
from their first point of contact right through to the showroom
buying process, as well as improving aftersales retention.
Property
We operate primarily from freehold sites and our property
portfolio provides additional stability to our business model. As
in previous years, our freehold premises were revalued at the
balance sheet date by chartered surveyors CBRE Limited based on an
existing use valuation. The excess of the valuation over net book
value of our freehold properties at 31 March 2020 was GBP11.8
million (2019: GBP11.2 million). We would however note that CBRE
drew attention in their valuation report to the uncertainty that
the present covid-19 pandemic could have on property values. In
accordance with our accounting policies (which reflect those
generally utilised throughout the motor retail industry), this
surplus has not been incorporated into our accounts.
No impairments against the carrying value of freehold property
were required in the year under review. In the prior year, two
properties were impaired for a total of GBP0.9 million. This was
charged to administrative expenses as a non-underlying expense.
During the year, we incurred capital expenditure of GBP1.0
million (2019: GBP2.8 million). There were no major property
development projects in the year and the spend reflected a mixture
of the installation of electric charging points, an expansion to
our smart repair offering and replacement spend on existing
assets.
The Company implemented IFRS 16 Leases with effect from 1 April
2019, the start of its financial year. As a result, one property
lease was reclassified as a right-of-use asset and one lease as an
interest in lease receivable. As a result, the Company's assets and
liabilities increased by GBP2.0 million and pre-tax profits in the
year under review were reduced by GBP20,000 compared to the
previous accounting treatment. During the year, one further lease
was entered into which was classified as a right-of-use-asset with
a value on inception of GBP0.2 million.
Our freehold premises in Lewes remain leased until at least
October 2020 to the purchaser of our former Land Rover business,
which was sold in April 2016. The board continues to evaluate
future opportunities for the site.
Bank facilities
The Company's banking facilities with HSBC comprise a term loan,
originally of GBP7.5 million, repayable by instalments over a
twenty-year period to 2038 and a revolving-credit facility of
GBP7.5 million, both of which will next become renewable in March
2023. HSBC also provides an overdraft facility of GBP3.5 million,
renewable annually. The Company continues to enjoy a supportive
relationship with HSBC and, subsequent to the year-end, the
overdraft facility limit was increased to GBP6.0 million. In
addition, the Company has 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 by
instalments over the ten years to November 2023.
In order to assist in the conservation of cash balances, HSBC
granted capital repayment holidays on our term loans, for the March
and June 2020 quarters. Similar concessions were granted by
Volkswagen Bank, for the months of April and May. The term loan and
revolving credit facilities provided by HSBC include certain
covenant tests which were passed at 31 March 2020. HSBC have
confirmed to the Company their agreement to a relaxation in the
covenant tests for September 2020 and March 2021 which provides
reasonable comfort to the directors that these tests will be
successfully passed at those times. The failure of a covenant test
would render these facilities repayable on demand at the option of
the lender.
Bank borrowings, net of cash balances, at 31 March 2020 were
GBP16.2 million (2019: GBP13.6 million) and as a proportion of
shareholders' funds at 31 March 2020 were 62% (2019: 49%).
Available but undrawn facilities at 31 March 2020 were in excess of
GBP10 million. The increase in gearing in the year was impacted by
the early curtailment of trading in March 2020 due to the covid-19
pandemic.
Taxation
The year ended 31 March 2020 resulted in a tax charge of GBP0.4
million (2019: GBP0.1 million). The effective tax rate was
significantly higher than the standard rate of corporation tax in
force for the year of 19%, mainly due to the impact on deferred tax
from the change of tax rate in the year 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 Company has current outstanding trading losses awaiting
relief of GBP0.1 million (2019: GBPNil). There are no capital
losses awaiting relief. Capital gains which remain unrealised,
where potentially taxable gains arising from the sale of properties
and goodwill have been rolled over into replacement assets, amount
to GBP8.9 million (2019: GBP7.9 million) which could equate to a
future potential tax liability of GBP1.7 million (2019: GBP1.3
million). The Company also has an amount of GBP1.1 million (2019:
GBP1.1 million) of recoverable Advanced Corporation Tax ("ACT") and
GBP0.8 million (2019: GBP0.7 million) of shadow ACT. The board
remains confident in the recoverability of the ACT although the
shadow ACT must first be fully absorbed before the ACT balance
itself can become available to be utilised.
Pension Scheme
The Company's defined benefit scheme was closed to future
accrual in 2010. In common with many companies, the board has
little control over the key assumptions in the valuation
calculations as required by accounting standards and the
unprecedented low yields of gilts and bonds continues to have a
significant impact on the net funding position of the scheme. At 31
March 2020 the deficit had widened to GBP9.4 million (2019: GBP8.6
million). The deficit, net of deferred tax, was GBP7.6 million
(2019: GBP7.1 million).
The Scheme operates with a fiduciary manager and the board,
together with the independent pension fund trustees, continues to
review options to reduce the cost of operation and its deficit.
Actions that could further reduce the risk profile of the assets
and more closely match the nature of the Scheme's assets to its
liabilities continue to be sought.
The pension cost under IAS 19 continues to be charged as a
non-underlying cost and amounted to GBP0.2 million in the year
(2019: GBP0.2 million). In the prior year, the Income Statement was
charged with a non-underlying cost of GBP0.9 million which was our
best estimate of the financial impact of equalising Guaranteed
Minimum Pensions between our male and female scheme members. This
followed the legal guidance provided by the High Court in November
2018. The full process of equalisation will need to occur over a
considerable period of time, but the estimated cost was arrived at
following advice from the Scheme's actuary.
A formal triennial valuation of the Scheme is currently
underway, effective for 31 March 2020. The last completed review
was carried out as at 31 March 2017 and was submitted to the
Pensions Regulator prior to the 30 June 2018 deadline. A recovery
plan to deal with the Scheme deficit identified from this triennial
valuation was agreed with the trustees and, as a result, the
Company made deficit-reduction contributions into the Scheme in the
year of GBP0.5 million (2019: GBP0.5 million). The annual recovery
plan payment for the coming and each subsequent year will increase
by the greater of 2.25% or the growth in shareholder dividend
payments until superseded by a new recovery plan to be agreed
between the Company and the trustees. The 31 March 2020 triennial
valuation is expected to be completed and submitted to the Pensions
Regulator by June 2021.
People
I am very grateful for the dedication of our employees and the
effort they apply to provide our customers with a first-class
experience. Across the Company the hard work and professional
application of our employees has remained outstanding.
Nick Hollingworth retired from the board in July 2019, having
served eleven years as a non-executive director. I, and the other
members of the board, would like to thank him for his outstanding
contribution over that period. Nick's successor, Stephen Bellamy,
was appointed in June 2019 and has already proved himself as a
valuable addition to the board.
The Company has a long tradition of investing in apprenticeship
programmes and this continued alongside the new Government
apprenticeship levy that was implemented in April 2017. We have
kept our apprenticeship numbers at a high level and continue to see
the benefits flow through the business as more apprentices complete
their training and become fully qualified. Due to our apprentice
numbers, we continue to fully utilise our levy payments within the
stipulated time limits.
We remain firmly committed to the long-term benefits of
apprenticeships and our recruitment programme continues with the
aim of maintaining a healthy complement in the coming year to
assist the Company to grow.
Dividend
The Company has a strong balance sheet and the board remains
confident in its future prospects. However, in the light of the
covid-19 pandemic, the Government support of which the Company has
taken advantage, and in order to conserve cash resources, the board
has decided not to declare a final dividend in relation to the year
ended 31 March 2020.
An interim dividend of 7.5 pence per Ordinary share (2019: 7.5
pence) was paid during the year. The total dividend for the year
was therefore 7.5 pence per ordinary share (2019: 22.5 pence).
Strategy
Our continuing strategy is to focus on representing premium and
premium-volume franchises as well as maximising opportunities for
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 larger business opportunities in
stronger markets to deliver higher returns on capital from fewer
but bigger sites. We continue to deliver performance improvement,
in particular in our used car and aftersales operations.
Outlook
In the light of the ongoing impact of the covid-19 pandemic, we
are very cautious about the future outlook. We incurred substantial
losses in April and May whilst the business was in an effective
lockdown state although we were pleased with the levels of trading
achieved in June as we reopened our showrooms. However, we still
expect ongoing trading to take time to revert to previous levels.
We continue to enjoy supportive relationships with our banking
partners, HSBC and Volkswagen Bank with available but undrawn
facilities in excess of GBP10 million at the year-end. By
increasing the use of inventory stocking facilities since the
year-end, headroom against banking facilities has been further
increased and is currently GBP13 million. Our manufacturer partners
have been, and continue to be, very supportive, offering extended
new vehicle funding and reduced funding costs. Therefore, the board
is confident that the Company has sufficient liquidity to allow it
to effectively navigate the post-lockdown period and to capitalise
on the trading opportunities which are expected to arise as markets
return to more normal levels of activity.
S G M Caffyn
Chief Executive
17 July 2020
Group Income Statement
for the year ended 31 March 2020
Note 2020 2019
GBP'000 GBP'000
------------------------------------------------- ------- ----------- -----------
Revenue 197,854 209,246
Cost of sales (172,850) (183,317)
------------------------------------------------- ------- ----------- -----------
Gross profit 25,004 25,929
Operating expenses
Distribution costs (16,035) (15,913)
Administration expenses (8,025) (9,843)
------------------------------------------------- ------- ----------- -----------
Operating profit before other income 944 173
Other income (net) 728 802
------------------------------------------------- ------- ----------- -----------
Operating profit 1,672 975
------------------------------------------------- ------- ----------- -----------
Operating profit before non-underlying items 1,633 2,626
Non-underlying items within operating profit 5 39 (1,651)
------------------------------------------------- ------- ----------- -----------
Operating profit 1,672 975
------------------------------------------------- ------- ----------- -----------
Finance expense 6 (1,382) (1,181)
Finance expense on pension scheme (187) (222)
------------------------------------------------- ------- ----------- -----------
Net finance expense (1,569) (1,403)
------------------------------------------------- ------- ----------- -----------
Profit/(loss) before taxation 103 (428)
------------------------------------------------- ------- ----------- -----------
Profit before tax and non-underlying items 251 1,445
Non-underlying items within operating profit 5 39 (1,651)
Non-underlying items within finance expense on
pension scheme 5 (187) (222)
------------------------------------------------- ------- ----------- -----------
Profit/(loss) before taxation 103 (428)
------------------------------------------------- ------- ----------- -----------
Taxation 7 (355) (138)
------------------------------------------------- ------- ----------- -----------
Loss for the year (252) (566)
------------------------------------------------- ------- ----------- -----------
Deficit per share
Basic 8 (9.4)p (21.0)p
Diluted 8 (9.4)p (21.0)p
Underlying (deficit)/earnings per share
Basic 8 (4.9)p 35.3p
Diluted 8 (4.9)p 35.3p
------------------------------------------------- ------- ----------- -----------
Group Statement of Comprehensive Income
for the year ended 31 March 2020
Note 2020 2019
GBP'000 GBP'000
-------------------------------------------------- ------- ---------- ----------
Loss for the year (252) (566)
Items that will never be reclassified to profit
and loss:
Remeasurement of net defined benefit liability (1,169) 1,510
Deferred tax on remeasurement 17 222 (257)
Effect of change in deferred tax rate 17 154 -
-------------------------------------------------- ------- ---------- ----------
Total other comprehensive (expense)/income,
net of taxation (793) 1,253
-------------------------------------------------- ------- ---------- ----------
Total comprehensive (expense)/income for the
year (1,045) 687
-------------------------------------------------- ------- ---------- ----------
Group Statement of Financial Position
at 31 March 2020
Note 2020 2019
GBP'000 GBP'000
-------------------------------------------- ------- ---------- ----------
Non-current assets
Right-of-use assets 10 925 -
Property, plant and equipment 11 38,783 39,225
Investment properties 12 8,052 8,169
Interest in lease 13 730 -
Goodwill 14 286 286
Deferred tax asset 17 - -
48,776 47,680
-------------------------------------------- ------- ---------- ----------
Current assets
Inventories 15 39,728 34,468
Trade and other receivables 4,318 8,796
Interest in lease 13 178 -
Current tax recoverable 66 -
Cash and cash equivalents 1,478 3,908
-------------------------------------------- ------- ---------- ----------
45,768 47,172
-------------------------------------------- ------- ---------- ----------
Total assets 94,544 94,852
-------------------------------------------- ------- ---------- ----------
Current liabilities
Interest-bearing overdrafts and loans 5,875 4,875
Trade and other payables 16 38,346 39,886
Lease liabilities 491 -
Current tax payable - 103
-------------------------------------------- ------- ---------- ----------
44,712 44,864
-------------------------------------------- ------- ---------- ----------
Net current assets 1,056 2,308
-------------------------------------------- ------- ---------- ----------
Non-current liabilities
Interest-bearing overdrafts and loans 11,844 12,625
Lease liabilities 1,362 -
Preference shares 812 812
Retirement benefit obligations 9,434 8,576
-------------------------------------------- ------- ---------- ----------
23,452 22,013
-------------------------------------------- ------- ---------- ----------
Total liabilities 68,164 66,877
-------------------------------------------- ------- ---------- ----------
Net assets 26,380 27,975
-------------------------------------------- ------- ---------- ----------
Capital and reserves
Share capital 1,439 1,439
Share premium account 272 272
Capital redemption reserve 707 707
Non-distributable reserve 1,724 1,724
Retained earnings 22,238 23,833
-------------------------------------------- ------- ---------- ----------
Total equity attributable to shareholders 26,380 27,975
-------------------------------------------- ------- ---------- ----------
Group Statement of Changes in Equity
for the year ended 31 March 2020
Share Share Capital Non- Retained Total
capital premium redemption distributable Earnings GBP'000
GBP'000 GBP'000 reserve reserve 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 - - - - (1,045) (1,045)
Transactions
with
owners:
Dividends - - - - (606) (606)
Share-based payment - - - - 56 56
---------------------- ----------- ----------- ------------- ---------------- ------------ -----------
At 31 March 2020 1,439 272 707 1,724 22,238 26,380
---------------------- ----------- ----------- ------------- ---------------- ------------ -----------
for the year ended 31 March 2019
Share Share Capital Non- Retained Total
capital premium redemption distributable Earnings GBP'000
GBP'000 GBP'000 reserve reserve GBP'000
GBP'000 GBP'000
-------------------------- ----------- ----------- ------------- ---------------- ------------ -----------
At 1 April 2018,
as
previously stated 1,439 272 707 1,724 22,981 27,123
Correction to
deferred tax liability - - - - 790 790
Change in accounting
policy - - - - (75) (75)
-------------------------- ----------- ----------- ------------- ---------------- ------------ -----------
At 1 April 2018,
restated 1,439 272 707 1,724 23,696 27,838
Total comprehensive
income
Loss for the year - - - - (566) (566)
Other comprehensive
income - - - - 1,253 1,253
-------------------------- ----------- ----------- ------------- ---------------- ------------ -----------
Total comprehensive
income for the
year - - - - 687 687
Transactions with
owners:
Dividends - - - - (606) (606)
Share-based payment - - - - 56 56
-------------------------- ----------- ----------- ------------- ---------------- ------------ -----------
At 31 March 2019 1,439 272 707 1,724 23,833 27,975
-------------------------- ----------- ----------- ------------- ---------------- ------------ -----------
The application of IFRS 15 Revenue from Contracts with Customers
led to an adjustment to the opening retained earnings of a
reduction of GBP75,000.
In the prior year, the Company identified errors in both the
calculation and methodology of its potential deferred tax liability
on held-over gains from property disposals and from accelerated
capital allowances which resulted in an overstatement of its
deferred tax liability by GBP790,000.
Group Cash Flow Statement
for the year ended 31 March 2020
Note 2020 Restated
GBP'000 2019
GBP'000
-------------------------------------------------------- ------- ----------- ----------
Net cash (outflow)/inflow from operating activities 18 (802) 3,759
Investing activities
Proceeds on disposal of property, plant and equipment - 10
Purchases of property, plant and equipment (980) (2,755)
Net cash outflow from investing activities (980) (2,745)
-------------------------------------------------------- ------- ----------- ----------
Financing activities
Overdraft facility utilised 1,000 1,000
Secured loans repaid (781) (875)
Dividends paid (606) (606)
Repayment of lease liabilities (261) -
-------------------------------------------------------- ------- ----------- ----------
Net cash outflow from financing activities (648) (481)
-------------------------------------------------------- ------- ----------- ----------
Net decrease in cash and cash equivalents (2,430) 533
-------------------------------------------------------- ------- ----------- ----------
Cash and cash equivalents at beginning of year 3,908 3,375
Cash and cash equivalents at end of year 1,478 3,908
-------------------------------------------------------- ------- ----------- ----------
2020 2019
GBP'000 GBP'000
-------------------------------- ---------- ----------
Cash and cash equivalents 1,478 3,908
Bank overdrafts (5,000) (4,000)
--------------------------------- ---------- ----------
Net cash and cash equivalents (3,522) (92)
--------------------------------- ---------- ----------
The cash flow statement for the prior year has been restated to
disclose overdraft and cash balances separately.
Notes
for the year ended 31 March 2020
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. The registered number of the Company is
105664.
This financial information has been extracted from the
consolidated financial statements which were approved by the
directors on 17 July 2020.
2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the EU, International Financial Reporting Interpretations Committee
("IFRIC") and those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. This financial information has been
prepared on the same basis as in 2019 with the exception of IFRS 16
Leases, which was implemented with effect from 1 April 2019. The
impact of this new standard on the financial statements for the
year ended 31 March 2020 is detailed below.
Whilst the financial information included in this announcement
has been computed in accordance with IFRSs, this announcement does
not itself contain sufficient information to comply with IFRSs.
The financial information set out does not constitute the
Company's statutory accounts for the year ended 31 March 2020, but
is derived from those accounts. Statutory accounts for the year
ended 31 March 2019 have been delivered to the Registrar of
Companies and those for the year ended 31 March 2020 will be
delivered following the Company's annual general meeting. The
auditors have reported on those accounts: their reports were
unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under section 498(2) or (3) Companies Act 2006 or
equivalent preceding legislation.
A copy of the annual report for the year ended 31 March 2020
will be available at www.caffynsplc.co.uk and will be posted to
shareholders by 21 August 2020.
New accounting standard
A new Standard, IFRS 16 Leases, came into effect from 1 January
2019 and has been adopted by the Company with effect from the start
of its current financial year on 1 April 2019. The new Standard,
which replaced International Accounting Standard 17 and three
related Interpretations, has completed a long-running project of
the International Accounting Standards Board to overhaul lease
accounting and requires leases to be recorded on the Statement of
Financial Position in the form of a right-of-use asset,
representing the Company's right to use the underlying asset, and a
lease liability, representing its obligations to make lease
payments.
Under the previous accounting policy, the Company classified
leases as either an operating lease or a finance lease depending
upon whether it was deemed that substantially all the risks and
rewards of ownership had transferred.
Under IFRS 16 the Company recognises a right-of-use asset for
all leases with the exception of those deemed to be of low value or
short-term in nature, in which case lease payments are expensed on
a straight-line basis over the lease term.
The revised accounting policy under IFRS 16 is as follows:
Significant accounting policies - Leases
The Company recognises a right-of-use asset and a lease
liability at the commencement date of the lease. The right-of-use
asset is initially measured at cost, and subsequently at cost less
accumulated depreciation and impairment losses and is then adjusted
for certain remeasurements of the lease liability. Depreciation is
recognised on a straight-line basis over the period of the lease
the right-of-use asset is expected to be utilised.
The lease liability is initially measured at the present value
of lease payments that are not paid at the commencement date,
discounted by the interest rate implicit in the lease or, when this
is not readily attainable, the Company's incremental borrowing
rate. The lease liability is subsequently increased by the interest
cost on the lease liability and reduced by payments made. It is
remeasured when there is a change in future lease payments arising
from a change of index or rate, a variation in amounts payable
following contractual rent reviews and changes in the assessment of
whether an extension/termination option is reasonably certain to be
exercised.
Where lease contracts include renewal and termination options,
judgement is applied to determine the lease term. The assessment of
whether the Company is reasonably certain to exercise such options
impacts the lease term and the subsequent recognition of the lease
liability and right-of-use asset.
Where the Company acts as a lessor, receipts of lease payments
are recognised in the income statement on a straight-line basis
over the period of the lease unless it is deemed that the risks and
rewards of ownership have been substantially transferred to the
Company's lessee. If it is deemed that the risks and rewards of
ownership have been substantially transferred then the Company
will, rather than recognise a right-of-use asset, recognise an
investment in the lease, this being the present value of future
lease receipts discounted at the interest rate implicit in the
lease or, if this is not specified, at the Company's incremental
borrowing rate. The finance lease receivable will be increased by
the interest received less payments made by the lessee.
Transition
The Company predominantly owns the freeholds of the properties
from which it operates but, at the date of implementation of the
Standard, had two properties subject to operating leases. One of
these properties was leased on to a third party where the terms of
the sub-lease mirror those of the Company's own lease. Upon
adopting IFRS 16, one lease has been recognised as a right-of-use
asset with a corresponding lease liability while the Company's
interest in the second lease, sub-let to a third party, has been
recognised as an asset with a corresponding lease liability .
In its transition to IFRS 16 the Company has applied the
modified retrospective approach, under which the cumulative effect
of initial application is recognised in retained earnings at 1
April 2019. Accordingly, the comparative information has not been
restated.
The Company's incremental borrowing rate has been estimated at
2.7%.
At transition, for leases classified as operating leases under
IAS 17 Leases, lease liabilities were measured at the present value
of the remaining lease payments, discounted at the Company's
incremental borrowing rate as at 1 April 2019. Right-of-use assets
were measured as an amount equal to the lease liability.
The Company has applied the following practical expedients when
applying IFRS 16 to leases previously classified as operating
leases under IAS 17:
- to apply the exemption not to recognise right-of-use assets
and liabilities with less than 12 months of the lease term
remaining at 1 April 2019;
- to exclude initial direct costs from measuring the
right-of-use asset at date of initial application;
- to use hindsight when determining the lease term if the
contract contains options to extend or terminate the lease .
Under the previous accounting treatment, the lease rentals paid
for the two properties highlighted above were charged against
underlying profits and no asset or liability was recognised in the
Statement of Financial Position. The implementation of the Standard
increased the Company's assets and liabilities by GBP2,038,000 and
reduced pre-tax profits in the year under review by GBP20,000.
During the year, the Company recognised GBP256,000 of depreciation
charges, an interest expense of GBP24,000 and made payments of
GBP260,000 in respect of its lease liabilities. As a Lessor, the
Company received payments of GBP185,000 in respect of the
investment in lease receivable.
3. 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 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
Annual Report. This has focused primarily on the achievement of the
banking covenants. All bank covenants have been achieved for the
year under review. In light of covid-19, post year-end HSBC have
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. The Company have modelled these periods and conclude
that there is headroom that would allow for a 40% 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 will remain
broadly in line with the same six-month period to December 2019
with increases into 2021 whilst the used car market has remained
stable over the past four years . Since re-opening 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 July 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 and bank overdraft
and medium-term revolving credit facilities and term loans. At the
year-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 renewed annually in August. Subsequent to the year-end, this
facility limit was increased to GBP6.0 million. The Company also
has a 10-year term loan from VW Bank with a balance outstanding at
31 March 2020 of GBP1.9 million which is repayable to November 2023
and a short-term overdraft facility of GBP7.0 million which is
renewed annually in August. 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.
Information concerning the Company's liquidity and financing
risk are set out on page 10 and note 21 to the financial
statements.
The directors have a reasonable expectation that the Company has
adequate resources and headroom against the covenant test to be
able continue in operational existence for the foreseeable future
and for at least twelve months from the date of approval of the
Annual Report. For those reasons, they continue to adopt the going
concern basis in preparing this Annual Report.
4. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
These judgements and estimates are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
Certain critical accounting estimates in applying the Company's
accounting policies are listed below.
Retirement benefit obligation
The Company has a defined-benefit pension scheme. The
obligations under this scheme are recognised in the balance sheet
and represent the present value of the obligation calculated by
independent actuaries, with input from management. These actuarial
valuations include assumptions such as discount rates, return on
assets and mortality rates. These assumptions vary from time to
time depending on prevailing economic conditions. Details of the
assumptions used are provided in note 23 to the consolidated
financial statements for the year ended 31 March 2020. At 31 March
2020, the net liability included in the Statement of Financial
Position was GBP9.4 million (2019: GBP8.6 million).
Impairment
The carrying value of property, plant and equipment and goodwill
are tested annually for impairment as described in notes 10, 11,
12, and 14 to these condensed financial information. For the
purposes of the annual impairment testing, the directors recognise
Cash Generating Units ("CGUs") to be those assets attributable to
an individual dealership, which represents the smallest group of
assets which generate cash inflows that are independent from other
assets or CGUs. The recoverable amount of each CGU is based on the
higher of its fair value less costs to sell and its value in use.
The fair value less costs to sell of each CGU is based upon the
market value of any property contained within it and is determined
by an independent valuer, and its value in use is determined
through discounting future cash inflows (as described in detail in
note 12). As a result of this review the directors considered that
no impairments were required to the carrying value of property
assets (2019: impairment charges of GBP1.0 million) (see notes 10,
11, 12 and 14).
Surplus ACT recoverable
The Company carries a balance of surplus unrelieved advanced
corporation tax ("ACT") which can be utilised to reduce corporation
tax payable subject to a restriction to 19% of taxable profits less
shadow ACT calculated at 25% of dividends. Shadow ACT has no effect
on the corporation tax payable itself but any surplus ACT on
dividends must be fully absorbed before surplus unrelieved ACT can
be utilised. In prior years, the Company has partially impaired the
value of the ACT by GBP301,000 in order to avoid recognising an
overall deferred tax asset. At 31 March 2020, the carrying value of
surplus ACT is GBP835,000 (2019: GBP835,000) and shadow ACT is
GBP845,000 (2019: GBP694,000). Uncertainty arises due to the
estimation of future levels of profitability, levels of dividends
payable and the reversal of deferred tax liabilities in respect of
accelerated capital allowances and on unrealised capital gains. For
example, a reduction in the Company's profitability could result in
a delay in the utilisation of surplus unrelieved ACT. However,
based on the Company's current projections, the directors have a
reasonable expectation that the surplus ACT will be fully relieved
against future corporation tax liabilities by 31 March 2028.
Support arrangements
On occasion, the Company can be assisted in the relocation,
development and support of certain of its businesses. On receipt of
these payments the Company forms a judgement whether the payment is
capital in nature, in which case the payment is deducted from the
capital cost of the development in question, or revenue in nature,
in which case the payment is amortised over a two-year period from
the date or relocation.
During the prior year, the Company received a contribution of
GBP255,000 from a brand partner towards the cost of developing its
Angmering dealership. The contribution agreement was not specific
as to whether the amount contributed was in respect of the capital
expenditure incurred by the Company, or in respect of other
operating activities (such as marketing) which the Company was
required to undertake as part of the relocation. Consequently, the
directors needed to apply judgement in determining the appropriate
accounting treatment. Having considered all information available,
including the contribution agreement and past correspondence with
the brand partner, the directors determined it appropriate to
account for the contribution as capital in nature, and deducted the
amount received from the carrying amount of property, plant and
equipment assets associated with the Angmering dealership.
The directors considered an alternative treatment, including
recognising the amount received over the rolling two-year term of
the franchise agreement. This would have resulted in an increase in
profit of GBP96,000 during the prior year ended 31 March 2019 and
an increase in net assets of the same amount as at 31 March 2019,
with the remaining GBP159,000 standing to be recognised over the
remaining contractual period as follows: year ended 31 March 2020:
GBP127,500, year ending 31 March 2021: GBP31,500.
5. Non-underlying items
The following amounts have been presented as non-underlying
items in these financial statements:
2020 2019
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Net (loss)/profit on disposal of property, plant and
equipment (2) (6)
------------------------------------------------------- ---------- ----------
Other income, net (2) (6)
------------------------------------------------------- ---------- ----------
Within operating expenses:
Service cost on pension scheme (25) (27)
VAT claim recovery, net of professional fees - 315
VAT compliance provision movement 44 (164)
Liquidation distribution received 22 27
Equalisation of Guaranteed Minimum Pensions - (851)
Property impairments - (945)
------------------------------------------------------- ---------- ----------
41 (1,645)
------------------------------------------------------- ---------- ----------
Non-underlying items within operating profit 39 (1,651)
------------------------------------------------------- ---------- ----------
Net finance expense on pension scheme (187) (222)
------------------------------------------------------- ---------- ----------
Non-underlying items within net finance expense (187) (222)
------------------------------------------------------- ---------- ----------
Total non-underlying items before taxation (148) (1,873)
------------------------------------------------------- ---------- ----------
Taxation credit on non-underlying items 28 356
------------------------------------------------------- ---------- ----------
Total non-underlying items after taxation (120) (1,517)
------------------------------------------------------- ---------- ----------
The following amounts have been presented as non-underlying
items in these financial statements:
-- a periodic VAT inspection from HM Revenue & Customs
carried out in a prior period identified certain items of
non-compliance with relevant legislation. In the current period, a
sum of GBP44,000 was credited to profit to release a surplus
provision which was no longer deemed required;
-- a sum of GBP22,000 was received from the liquidators of MG Rover Group Limited.
In the prior period, the following items were recorded as
non-underlying items:
-- a sum of GBP334,000 was recovered in respect of a VAT claim
submitted to HM Revenue & Customs for VAT incorrectly accounted
for on dealer contributions towards vehicle sales between 2012 and
2017. Net of costs of recovery, a credit of GBP315,000 was
recognised to profit;
-- a periodic VAT inspection from HM Revenue & Customs
identified certain items of non-compliance with relevant
legislation. In the prior period, a sum of GBP164,000 was charged
against profit to cover all items which had been resolved but not
yet settled at the year-end;
-- a sum of GBP27,000 was received from the liquidators of MG Rover Group Limited;
-- following the setting of a legal precedent regarding the
issue of equalisation of Guaranteed Minimum Pensions relating to
the members of the defined-benefit pension scheme, a sum of
GBP851,000 was charged against profit as being the best estimate of
the cost of equalising pension entitlements between men and
women;
-- the carrying values of two freehold properties were impaired
by a total of GBP945,000 following advice from the Company's
independent valuer, CBRE Limited (see notes 11 and 12).
6. Finance expense
2020 2019
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Interest payable on bank borrowings 440 356
Interest payable on inventory stocking loans 741 648
Interest on lease liabilities 24 -
Finance costs amortised 105 105
Preference dividends (see note 9) 72 72
----------------------------------------------- ---------- ----------
Finance expense 1,382 1,181
----------------------------------------------- ---------- ----------
No interest was capitalised in the current period.
Interest payable on bank borrowings for the prior period were
after capitalising interest of GBP55,000 on additions to freehold
properties at a rate of 2.6%.
The interest charged on lease liabilities arose from the
implementation of IFRS 16 Leases with effect from 1 April 2019.
7. Tax
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Current tax
UK corporation tax - (261)
Adjustments recognised in the period for current tax
of prior periods 22 (22)
-------------------------------------------------------- ---------- ----------
Total credit/(charge) 22 (283)
-------------------------------------------------------- ---------- ----------
Deferred tax (see note 17)
Origination and reversal of temporary differences (356) 21
Adjustments recognised in the period for deferred tax
of prior periods (21) 124
-------------------------------------------------------- ---------- ----------
Total (charge)/credit (377) 145
-------------------------------------------------------- ---------- ----------
Tax charged in the Income Statement (355) (138)
-------------------------------------------------------- ---------- ----------
The tax (charge)/credit arises as follows: 2020 2019
GBP'000 GBP'000
---------------------------------------------- ---------- ----------
On normal trading (383) (494)
On non-underlying items (see note 5) 28 356
---------------------------------------------- ---------- ----------
Tax charged in the Income Statement (355) (138)
---------------------------------------------- ---------- ----------
The charge for the year can be reconciled to the profit per the
Income Statement as follows:
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------- ---------- ----------
Profit/(loss) before tax 103 (428)
---------------------------------------------------------------- ---------- ----------
Tax at the UK corporation tax rate of 19% (2019: 19%) (20) 81
Tax effect of expenses that are not deductible in determining
taxable profit (23) (12)
Difference between accounts profits and taxable profits
on capital asset disposals - (1)
Other differences related primarily to the revaluation
of the pension scheme and from property impairments (134) (173)
Effect of change in corporation tax rate (255) -
Movement in rolled over and held over gains 76 166
Impairment of Advanced Corporation Tax asset - (301)
Adjustment to tax charge in respect of prior periods 1 102
---------------------------------------------------------------- ---------- ----------
Tax charge for the year (355) (138)
---------------------------------------------------------------- ---------- ----------
The total tax credit/(charge) for the year is made up as
follows:
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Total current tax credit/(charge) 22 (283)
-------------------------------------------------------- ---------- ----------
Deferred tax charge
Charged/(credited) in the Income Statement (377) 145
Credited/(charged) against other comprehensive income 376 (257)
-------------------------------------------------------- ---------- ----------
Total deferred tax charge (1) (112)
-------------------------------------------------------- ---------- ----------
Total tax credit/(charge) for the year 21 (395)
-------------------------------------------------------- ---------- ----------
Factors affecting the future tax charge
The Company has unrelieved advance corporation tax of GBP1.4
million (2019: GBP1.4 million) which is available to be utilised
against future mainstream corporation tax liabilities and is
accounted for in deferred tax (see note 17).
The tax charge is impacted by the effect of non-deductible
expenses which, for the prior year, included the impairment of
property, plant and equipment, the charge for the equalisation of
Guaranteed Minimum Pensions of members of the defined benefit
pension scheme and by non-qualifying depreciation.
8. Earnings per ordinary 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 year.
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 pots-tax effect of dividends and/or interest on the assumed
conversion of all dilutive options and other dilutive potential
ordinary shares.
Reconciliations of earnings and weighted average number of
shares used in the calculations are set out below:
Underlying Basic
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ---------- ---------- ---------- ----------
Profit/(loss) before tax 103 (428) 103 (428)
Adjustments:
Non-underlying items (note 5) 148 1,873 - -
----------------------------------------------- ---------- ---------- ---------- ----------
Profit/(loss) before tax 251 1,445 103 (428)
Tax (note 7) (383) (493) (355) (138)
----------------------------------------------- ---------- ---------- ---------- ----------
Profit/(loss) after tax (132) 952 (252) (566)
----------------------------------------------- ---------- ---------- ---------- ----------
(Deficit)/earnings per share (pence) (4.9)p 35.3p (9.4)p (21.0)p
Diluted (deficit)/earnings per share (pence) (4.9)p 35.3p (9.4)p (21.0)p
----------------------------------------------- ---------- ---------- ---------- ----------
2020 2019
GBP'000 GBP'000
---------------------------------------------------------- ---------- ----------
Underlying (deficit)/earnings after tax (132) 952
Underlying (deficit)/earnings per share (pence) (4.9)p 35.3p
Underlying diluted (deficit)/earnings per share (pence) (4.9)p 35.3p
---------------------------------------------------------- ---------- ----------
Non-underlying losses after tax (120) (1,517)
(Losses)/earnings per share (pence) (4.5)p (56.3)p
Diluted (losses)/earnings per share (pence) (4.5)p (56.3)p
---------------------------------------------------------- ---------- ----------
Total deficit (252) (566)
---------------------------------------------------------- ---------- ----------
Deficit per share (pence) (9.4)p (21.0)p
Diluted deficit per share (pence) (9.4)p (21.0)p
---------------------------------------------------------- ---------- ----------
The number of fully paid ordinary shares in circulation at the
year-end was 2,694,790 (2019: 2,694,790). The weighted average
number of 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 31 March 2020 of GBP2.80 was less
than the option price of GBP3.99.
9. Dividends
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Preference shares
7% Cumulative First Preference 12 12
11% Cumulative Preference 48 48
6% Cumulative Second Preference 12 12
-------------------------------------------------------- ---------- ----------
Included in finance expense (see note 6) 72 72
-------------------------------------------------------- ---------- ----------
Ordinary shares
Interim dividend paid in respect of the current year
of 7.5p (2019: 7.5p) 202 202
Final dividend paid in respect of the March 2019 year
end of 15.0p (2018: 7.5p) 404 404
-------------------------------------------------------- ---------- ----------
606 606
-------------------------------------------------------- ---------- ----------
No final dividend was declared in respect of the year ended 31
March 2020. In the prior year, a final dividend of 15.0 pence was
declared which absorbed GBP404,000 of shareholders' funds.
10. Right-of-use assets
2020
GBP'000
-------------------------------------- ----------
Deemed cost
At 1 April 2019, on implementation 947
Additions in the year 234
--------------------------------------- ----------
At 31 March 2020 1,181
--------------------------------------- ----------
Accumulated depreciation -
At 1 April 2019, on implementation
Depreciation for the year 256
--------------------------------------- ----------
At 31 March 2020 256
--------------------------------------- ----------
Net book value
At 31 March 2020 925
--------------------------------------- ----------
The Company implemented IFRS 16 with effect from 1 April 2019
and the accounting policy adopted is set out in detail on pages 56
and 57. In addition to one lease that was capitalised on
implementation of IFRS 16, one further property was added in the
year as a result of a lease entered into by the Company in December
2019.
Depreciation and impairment charges of GBP256,000 (2019: GBPnil)
in respect of Right-of-use assets is recognised within
Administration Expenses in the Income Statement.
11. Property, plant and equipment
Freehold Assets under Leasehold Fixtures Plant &
property construction improvements & machinery Total
GBP'000 GBP'000 GBP'000 fittings GBP'000 GBP'000
GBP'000
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
Cost or deemed
cost
At 1 April 2019 40,748 - 690 4,804 6,086 52,328
Additions at
cost 4 - 38 461 477 980
Disposals - - - (45) (46) (91)
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
At 31 March 2020 40,752 - 728 5,220 6,517 53,217
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
Accumulated depreciation
At 1 April 2019 4,955 - 445 3,168 4,535 13,103
Depreciation
charge
for the year 575 - 62 471 312 1,420
Disposals - - - (43) (46) (89)
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
At 31 March 2020 5,530 - 507 3,596 4,801 14,434
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
Net book value
31 March 2020 35,222 - 221 1,624 1,716 38,783
--------------------------- ----------- --------------- --------------- ----------- ------------ -----------
Short-term leasehold property for both the Company and the Group
comprises GBP221,000 at net book value in the Statement of
Financial Position (2019: GBP245,000).
Additions to freehold property includes interest capitalised of
GBPnil (2019: GBP55,000) (see note 6).
Depreciation and impairment charges of GBP1,420,000 (2019:
GBP1,248,000) in respect of Property, plant and equipment is
recognised within Administration Expenses in the Income
Statement.
In assessing the Company's CGUs for impairment, the directors
base their assessment of the recoverable amount on the higher of
fair value less selling costs and value in use. In the prior year,
owing to a decline in the market value of fixed assets at one
freehold property, the fair value less selling costs of those
assets declined by GBP545,000 to GBP7,963,000, and an impairment
charge of GBP545,000 was recognised in the Income Statement, as
part of Administration Expenses.
The fair value measurement of the CGU in its entirety was
categorised as a Level 3 within the hierarchy set out in IFRS 13
Fair Measurement. The following were key assumptions on which the
directors based their determination of fair value less costs of
disposal in respect of that CGU:
-- Market value of buildings per square foot: GBP299
-- Market value of site per acre: GBP2,187,000
-- Costs of disposal: 1.5% of fair value
The Company valued its portfolio of freehold premises and
investment properties as at 31 March 2020. The valuation was
carried out by CBRE Limited, Chartered Surveyors, in accordance
with the Royal Institution of Chartered Surveyors valuation -
global and professional standards requirements. The valuation is
based on existing use value which has been calculated by applying
various assumptions as to tenure, letting, town planning, and the
condition and repair of buildings and sites including ground and
groundwater contamination. The outbreak of the novel coronavirus
(covid-19), declared by the World Health Organisation as a "Global
Pandemic" on the 11 March 2020, had a significant impact on global
financial markets and travel restrictions were implemented by many
countries. Market activity was adversely impacted in many sectors.
As at the valuation date, CBRE therefore considered that they could
attach less weight to previous market evidence for comparison
purposes, when informing opinions of value. Indeed, they noted in
their report that the current response to covid-19 meant that they
were faced with an unprecedented set of circumstances on which to
base a judgement. Their valuations were therefore reported as being
subject to a 'material valuation uncertainty' as set out in VPS 3
and VPGA 10 of the RICS Valuation - Global Standards. Consequently,
less certainty - and a higher degree of caution - should be
attached to their valuation than would normally be the case, given
the unknown future impact that covid-19 might have on the real
estate market. CBRE noted in their
report, for the avoidance of doubt, that the inclusion of their
'material valuation uncertainty' declaration above did not mean
that the valuation could not be relied upon. Rather, the
declaration was included to ensure transparency of the fact that -
in the current extraordinary circumstances - less certainty could
be attached to the valuation than would otherwise be the case. CBRE
noted that the material uncertainty clause was to serve as a
precaution and did not invalidate the valuation. Other than in
relation to the caveat noted above, management are satisfied that
this valuation is materially accurate. The excess of the valuation
over net book value as at 31 March 2020 of those sites was GBP11.8
million (2019: GBP11.2 million). In accordance with the Company's
accounting policies, this surplus has not been incorporated into
these financial statements.
12. Investment properties
2020
GBP'000
------------------------------------ ----------
Cost
At 1 April 2019 and 31 March 2020 9,650
------------------------------------- ----------
Accumulated depreciation
At 1 April 2019 1,481
Depreciation for the year 117
------------------------------------- ----------
At 31 March 2020 1,598
------------------------------------- ----------
Net book value
At 31 March 2020 8,052
------------------------------------- ----------
Depreciation and impairment charges of GBP117,000 (2019:
GBP108,000) in respect of Investment properties is recognised
within Administration Expenses in the Income Statement.
The Company owns a freehold property which is leased out to a
third-party motor retail group, and accordingly accounts for the
property as an investment property. In the prior year, an
impairment charge of GBP400,000 was recognised in the Income
Statement, as part of Administration Expenses. This investment
property represents the only asset included in that CGU. In
assessing this property for impairment, the directors based their
assessment of the recoverable amount on fair value less selling
costs.
The fair value measurement of the CGU in its entirety was
categorised as a Level 3 within the hierarchy set out in IFRS 13
Fair Measurement. The valuation technique that is used to measure
the fair value less costs of disposal is consistent with that
applied in respect of the Company's property, plant and equipment
which is set out in note 11. The following are key assumptions on
which the directors based their determination of fair value less
costs of disposal in respect of that CGU:
-- Market value of buildings per square foot: GBP211
-- Market value of site per acre: GBP2,670,000
-- Initial and reversionary yields: 6.7% and 7.0% respectively
-- Costs of disposal: 1.5% of fair value
As described in note 12, the total excess of the valuation over
net book value as at 31 March 2020 was GBP11.8 million (2019:
GBP11.2 million). Investment properties accounted for GBP0.7
million (2019: GBP0.4 million) of this surplus.
13. Net investment in lease
2020 2019
GBP'000 GBP'000
------------------------------ ---------- ----------
Due after more than one year 730 -
Due within one year 178 -
------------------------------ ---------- ----------
At 31 March 2020 908 -
------------------------------ ---------- ----------
The Company implemented IFRS 16 with effect from 1 April 2019
and the accounting policy adopted is set out in detail on pages 56
and 57.
The premises shown above are sub-let to a third-party under a
lease which has the same terms and duration as the Company's own
lease.
14. Goodwill
Group and Company: 2020 2019
GBP'000 GBP'000
------------------------------------- ---------- ----------
Cost
At 1 April 2019 and 31 March 2020 481 481
------------------------------------- ---------- ----------
Provision for impairment
At 1 April 2019 and 31 March 2020 195 195
------------------------------------- ---------- ----------
Carrying amounts allocated to CGUs
Volkswagen, Brighton 200 200
Audi, Eastbourne 86 86
------------------------------------- ---------- ----------
At 31 March 2020 286 286
------------------------------------- ---------- ----------
For the purposes of the annual impairment testing, goodwill is
allocated to a CGU. Each CGU is allocated against the lowest level
within the entity at which goodwill is monitored for management
purposes. Consequently, the directors recognise CGUs to be those
assets attributable to individual dealerships and the table above
sets out the allocation of goodwill into the individual dealership
CGUs. The carrying amount of goodwill allocated to the Volkswagen,
Brighton CGU is the only amount considered significant in
comparison with the Group's total carrying amount of goodwill.
Goodwill impairment reviews are undertaken annually, or more
frequently if events or changes in circumstances indicate that the
carrying amount may not be recoverable and a potential impairment
may be required. Impairment reviews have been performed for all
CGUs for the years ended 31 March 2020 and 2019.
Valuation basis
The recoverable amount of each CGU is based on the higher of its
fair value less selling costs and value in use. The fair value less
selling costs of each CGU is based initially upon the market value
of any property contained within it and is determined by an
independent valuer as described in note 11. Where the fair value
less selling costs of a CGU indicates that an impairment may have
occurred, a discounted cash flow calculation is prepared in order
to assess the value in use of that CGU, involving the application
of a pre-tax discount rate to the projected, risk-adjusted pre-tax
cash inflows and terminal value.
Period of specific projected cash flows (Volkswagen, Brighton
CGU)
The recoverable amount of the Volkswagen, Brighton CGU is based
on value in use. Value in use is calculated using cash flow
projections for a five-year period from 1 April 2020 to 31 March
2025. These projections are based on the most recent budget which
has been approved by the board being the budget for the year ending
31 March 2021. The key assumptions in the most recent annual budget
on which the cash flow projections are based relate to expectations
of sales volumes and margins, and expectations around changes in
the operating cost base. These assumptions are based on past
experience, adjusted to expected changes, and on external sources
of information. The cash flows include ongoing capital expenditure
required to maintain the dealership, but exclude any growth capital
expenditure projects to which the Group was not committed at the
reporting date.
Growth rates, ranging from -25% (2019: -5%) to 131% (2019: 70%)
have been used to forecast cash flows for a further four years
beyond the budget period, through to 31 March 2025. These growth
rates reflect the products and markets in which the CGU operates.
These growth rates do not give rise to an impairment. Growth rates
are internal forecasts based on a combination of internal and
external information.
Discount rate
The cash flow projections have been discounted using a rate
derived from the Group's pre-tax weighted average cost of capital,
adjusted for industry and market risk. The discount rate used was
12.4% (2019: 12.4%).
Terminal growth rate
The cash flows subsequent to the forecast period are
extrapolated into the future over the useful economic life of the
CGU using a steady or declining growth rate that is consistent with
that of the product and industry. These cash flows form the basis
of what is referred to as the terminal value. The growth rate to
perpetuity beyond the initial budgeted cash flows used in the value
in use calculations to arrive at a terminal value is 0.5% (2019:
0.5%). Terminal growth rates are based on management's estimate of
future long-term average growth rates.
Conclusion
At 31 March 2020, no impairment charge in respect of goodwill
was identified (2019: no impairment charge).
Sensitivity to changes in key assumptions
Impairment testing is dependent on estimates and judgements,
particularly as they relate to the forecasting of future cash
flows. The outcome of the impairment test is not sensitive to
reasonably possible changes in respect of the projected cash flows,
the discount rate applied, nor in respect of the terminal growth
rate assumed.
15. Inventories
Group and Company: 2020 2019
GBP'000 GBP'000
--------------------------------- ---------- ----------
Vehicles 21,395 21,903
Vehicles on consignment 17,408 11,502
Oil, spare parts and materials 920 1,058
Work in progress 5 5
--------------------------------- ---------- ----------
At 31 March 2020 39,728 34,468
--------------------------------- ---------- ----------
Group and Company: 2020 2019
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Inventories recognised as an expense during the year 164,996 176,594
Inventories stated at fair value less costs to sell 810 957
Carrying value of inventories subject to retention
of title clauses 25,541 20,789
------------------------------------------------------- ---------- ----------
All vehicle inventories held under consignment stocking
arrangements are deemed to be assets of the Group and are included
on the Statement of Financial Position from the date of
consignment. The corresponding liabilities to the manufacturers are
included within trade and other payables. Inventories can be held
on consignment for a maximum consignment period set by the
manufacturer, which is generally between 180 and 365 days. Interest
is payable in certain cases for part of the consignment period, at
various rates indirectly linked to the Bank of England base
rate.
During the year, GBP39,000 was recognised in respect of the
write-down of inventories of spare parts due to general
obsolescence (2019: 43,000).
16. Trade and other payables
2020 2019
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Trade payable 10,918 17,209
Obligations relating to consignment stock 17,408 11,502
Vehicle stocking loans 7,315 7,860
Social security and other taxes 549 1,157
Accruals 1,283 1,493
Deferred income 592 590
Other creditors 281 75
-------------------------------------------- ---------- ----------
Group total 38,346 39,886
Amounts owed to Group undertakings 250 250
-------------------------------------------- ---------- ----------
Company total 38,596 40,136
-------------------------------------------- ---------- ----------
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for these trade-related purchases is 25 days
(2019: 24 days).
The directors consider that the carrying amount of trade
payables approximates to fair value.
The Group finances the purchases of new car inventory through
the use of consignment funding facilities provided by its
manufacturer partners and which are shown above as Obligations
relating to consignment stock. Vehicles are physically supplied by
the manufacturers with payment deferred until the earlier of the
registration of the vehicle or the end of the consignment period,
generally 180 days. In certain circumstances consignment periods
can be extended with the agreement of the manufacturer. The
consignment funding facilities attract interest at a commercial
rate.
The Group utilises vehicle stocking loans to assist with the
purchase of certain used car inventory. Facilities are available
from both its manufacturer partners and a third-party finance
provider and are generally available for a period of 90 days from
the date of purchase. These vehicle stocking loans attract interest
at a commercial rate.
Interest charges on consignment stocking loans and vehicle
stocking loans described above for the year ended 31 March 2020
were GBP741,000 (2019: GBP648,000).
The obligations relating to consignment stock are all subject to
retention of title clauses for the vehicles to which they relate.
Obligations for used and demonstrator cars which have been funded
are secured on the vehicles to which they relate and are shown
above as vehicle stocking loans. From a risk perspective, the
Company's funding is split between manufacturers through their
related finance arms and that funded by the Company through bank
borrowings.
The movements in deferred income in the year were as
follows:
2020 2019
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
At 1 April 2019 590 590
Utilisation of deferred income in the year (1,300) (1,216)
Income received and deferred in the year 1,302 1,216
--------------------------------------------- ---------- ----------
At 31 March 2020 592 590
--------------------------------------------- ---------- ----------
17. Deferred tax
The following are the major deferred tax assets and liabilities
recognised and the movements thereon during the current and prior
reporting period.
Accelerated Unrealised Retirement Sale of Short-term
tax capital benefit Business/ temporary Recoverable
depreciation gains obligations tax differences ACT Total
GBP'000 GBP'000 GBP'000 losses GBP'000 GBP'000 GBP'000
GBP'000
---------------- -------------- ------------ ------------- ----------- ------------- -------------- -----------
At 1 April
2019 (928) (1,357) 1,458 - (8) 835 -
Change in
tax rates
and prior
year
adjustments 117 (409) 17 - (1) - (276)
Timing
differences (131) 76 (59) 28 (14) - (100)
Recognised
in
other
comprehensive
income - - 376 - - - 376
---------------- -------------- ------------ ------------- ----------- ------------- -------------- -----------
At 31 March
2020 (942) (1,690) 1,792 28 (23) 835 -
---------------- -------------- ------------ ------------- ----------- ------------- -------------- -----------
The Company carries a balance of surplus unrelieved advanced
corporation tax ("ACT") which can be utilised to reduce corporation
tax payable subject to a restriction of 19% of taxable profits less
shadow ACT calculated at 25% of shareholder ordinary dividends.
Shadow ACT has no effect on the corporation tax payable itself but
any surplus shadow ACT on dividends must be fully absorbed before
surplus unrelieved ACT can be utilised. The value of surplus ACT is
GBP1,136,000 (2019: GBP1,136,000) and shadow ACT is GBP845,000
(2019: GBP694,000).
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and it is considered that this requirement
is fulfilled. The offset amounts are as follows:
2020 2019
GBP'000 GBP'000
--------------------------- ---------- ----------
Deferred tax liabilities (2,655) (2,293)
Deferred tax assets 2,655 2,293
--------------------------- ---------- ----------
At 31 March 2020 - -
--------------------------- ---------- ----------
The unrealised capital gains include deferred tax on gains
recognised on revaluing the land and buildings in 1995 and where
potentially taxable gains arising from the sale of properties have
been rolled over into replacement assets. Such tax would become
payable only if such properties were sold without it being possible
to claim rollover relief.
Trading losses of GBP147,000 (2019: GBPNil) are available for
use in future periods.
18. Notes to the cash flow statement
2020 2019
GBP'000 GBP'000
------------------------------------------------------------ ---------- ----------
Profit/(loss) before tax for the year 103 (428)
Adjustments for net finance expense 1,569 1,403
------------------------------------------------------------ ---------- ----------
1,672 975
Adjustments for:
Depreciation of property, plant and equipment, investment
properties and
right-of-use assets 1,793 1,356
Impairment against property, plant and equipment and
investment properties - 945
Cash payments into the defined-benefit pension scheme (523) (511)
Loss on disposal of property, plant and equipment 2 6
Share-based payments 56 56
------------------------------------------------------------ ---------- ----------
Operating cash flows before movements in working capital 3,000 2,827
Decrease/(increase) in inventories 646 (1,662)
Decrease in receivables 4,479 1,395
(Decrease)/increase in payables (7,422) 2,500
------------------------------------------------------------ ---------- ----------
Cash generated by operations 703 5,060
Tax paid, net of refunds (147) (120)
Interest paid (1,358) (1,181)
------------------------------------------------------------ ---------- ----------
Net cash (absorbed)/derived from operating activities (802) 3,759
------------------------------------------------------------ ---------- ----------
Reconciliation of debt
Group and Bank Revolving Bank overdrafts, Lease Preference Net
Company: loans credit facility net of cash Liabilities shares debt
GBP'000 GBP'000 in hand GBP'000 GBP'000 GBP'000
GBP'000
------------------- ----------- ------------------- ------------------ --------------- ------------- -----------
At 1 April 2019 9,500 4,000 92 2,038 812 16,442
Movement (781) - 3,430 (185) - 2,464
------------------- ----------- ------------------- ------------------ --------------- ------------- -----------
At 31 March 2020 8,719 4,000 3,522 1,853 812 18,906
------------------- ----------- ------------------- ------------------ --------------- ------------- -----------
Current
liabilities 875 - 3,522 491 - 4,888
Non-current
liabilities 7,844 4,000 - 1,362 812 14,018
------------------- ----------- ------------------- ------------------ --------------- ------------- -----------
At 31 March 2020 8,719 4,000 3,522 1,853 812 18,906
------------------- ----------- ------------------- ------------------ --------------- ------------- -----------
The Company implemented IFRS 16 Leases with effect from 1 April
2019 which resulted in the reclassification of two leases with an
assumed asset and liability value of GBP2,038,000.
19. Legal contingent liability
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 14 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 313 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. Volkswagen
Group is seeking permission from the Court of Appeal to appeal this
judgment.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FLFVLDSIRLII
(END) Dow Jones Newswires
July 17, 2020 02:00 ET (06:00 GMT)
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