Caffyns PLC Annual Financial Report (4666A)

TIDMCFYN

RNS Number : 4666A

Caffyns PLC

02 June 2021

Caffyns plc

Preliminary Results for the year ended 31 March 2021

Summary

 
                                                    2021        2020 
                                                 GBP'000     GBP'000 
--------------------------------------------  ----------  ---------- 
  Revenue (restated, see page 8)                 165,085     195,787 
  Underlying EBITDA (see note A)                   5,124       3,428 
  Underlying profit before tax (see note A)        1,876         251 
  Profit before tax                                1,424         103 
--------------------------------------------  ----------  ---------- 
 
 
                                                 pence    pence 
---------------------------------------------  -------  ------- 
  Underlying earnings/(deficit) per share         66.0    (4.9) 
  Earnings/(deficit) per share                    52.4    (9.4) 
  Proposed final dividend per ordinary share         -        - 
  Dividend per ordinary share for the year           -     7.50 
---------------------------------------------  -------  -------

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 charge of GBP250,000 (2020: credit of GBP39,000) and are detailed in Note 5 to this consolidated financial information. Underlying EBITDA of GBP5,124,000 (2020: GBP3,428,000) represents Operating profit before non-underlying items of GBP3,142,000 (2020: GBP1,633,000) adding back Depreciation and amortisation of GBP1,982,000 (2020: GBP1,795,000).

Overview

   --    Revenue down 16% to GBP165.1 million 
   --    Like-for-like new car unit deliveries down by 10.0% 
   --    Like-for-like used car unit sales down by 19.4% 
   --    Like-for-like aftersales revenues down 11.5% to GBP16.2 million 
   --    Underlying profit before tax of GBP1.9 million (2020: GBP0.3 million) 
   --    No final dividend for the year ended 31 March 2021 
   --    Net bank borrowings at 31 March 2021 of GBP10.3 million (2020: GBP16.2 million)

-- Property portfolio revaluation as at 31 March 2021 showing an GBP12.3 million (2020: GBP11.8 million) surplus to net book value (not recognised in these accounts)

Like-for-like comparisons exclude from the current year the impact of the Volvo business at Worthing and LEVC in Eastbourne, both of which were opened during the year. All other businesses operated for the full twelve-month period in both the current and prior years

Commenting on the results Simon Caffyn, Chief Executive, said: " Covid-19 had a material impact on the business with turnover falling by 16%. However, the actions we took to improve efficiencies, coupled with investment in online selling and support from Government, allowed us to weather the periods of showroom lockdown and maximise sales when possible.

I am delighted that everyone within the company adapted quickly and rose to the challenges we faced, enabling us to deliver a profit before tax of GBP1.9 million, a significant improvement on the GBP0.25 million recorded last year. "

Enquiries:

Caffyns plc Simon Caffyn, Chief Executive Tel: 01323 730201

Mike Warren, Finance Director

HeadLand Chloe Francklin Tel: 0203 805 4822

Operational and Business Review

Summary

The underlying profit before tax of GBP1.88 million for the financial year ended 31 March 2021 ("the year") was a significant improvement on the GBP0.25 million recorded for the prior year. However, the year was defined by the coronavirus pandemic ("covid-19") which had a material impact on the business, starting in March 2020 and continuing, in one form or another, throughout the entire year . Full year turnover fell by 16% to GBP165.1 million (2020: GBP195.8 million), predominantly from significantly lower levels of new and used car deliveries. Aftersales revenues were also adversely impacted by covid-19. Margins improved, largely from very buoyant trading in the period from June to October 2020 as the business re-opened from the first lockdown in April and May 2020. The Company also implemented a cost-savings programme and, in addition, received significant furlough and grant support from the Government and from local Councils in the areas in which it operates.

Our statutory profit before tax for the year was GBP1.4 million (2020: GBP0.1 million). Basic earnings per share for the year were 52.4 pence (2020: loss per share of 9.4 pence due to a high tax charge in excess of the pre-tax profit).

Underlying earnings per share for the year were 66.0 pence (2020: loss per share of 4.9 pence).

The Company's defined-benefit pension scheme deficit, calculated in accordance with the requirements of IAS 19 Pensions, remained unchanged at GBP9.4 million (2020: GBP9.4 million). Investment gains in the Scheme's investments were offset by increases to the net present value of the Scheme's liabilities.

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.

In the light of the scale of Government support made available to the Company in the year, and continuing uncertainty over the future path of covid-19, t he board is not proposing a final dividend for the year (2020: nil pence per ordinary share). No interim dividend for the year was declared, against a 7.5 pence interim dividend in the comparative year.

Net bank debt at 31 March 2021 was GBP10.3 million (2020: GBP16.2 million) with the substantial improvement reflecting actions taken by management to control both working capital and costs, as well as the significant covid-19 support received by the Company from the Coronavirus Job Retention Scheme and the business rates holiday.

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 Government restrictions implemented to deal with the nationwide covid-19 pandemic. With our showrooms closed in April and May 2020, only online and telephone sales operations were able to continue, alongside three aftersales operations which provided essential support for NHS and other key workers only.

By the middle of May 2020, we were satisfied that we could provide a safe environment for our staff and customers and restarted our aftersales operations at all sites. Our showrooms reopened on 1 June 2020, as Government restrictions were eased. Our showrooms and workshops were able to continue operating throughout the summer and into the autumn, albeit with social-distancing and significant restrictions around access. However, Government restrictions returned in November 2020 when we were again required to close to customers and were able to operate only a "click-and-collect" service. We reopened in December 2020 but our Kent-based showrooms were required to close again before Christmas, with the remainder of our showrooms then having to close to customers in early January 2021. In all, our showrooms were closed to customers for six of the twelve months in the year and were not able to reopen again until after the end of the year, on 12 April 2021.

The first "hard" lockdown of the business in April and May 2020 resulted in a very substantial loss, despite the receipt of grants in that period of GBP1.3 million under the Government's Coronavirus 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 this number began to reduce from May 2020 as our aftersales operations returned to more normal activity levels, and then reduced further in June 2020 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 reduced in stages, with all non-furloughed employees, including the board, being returned to their full contractual salaries from 1 July 2020. After assessing the performance of the business over the ten months of the year post the initial lockdown, the board decided to repay these savings to employees (excluding the board) in recognition of their excellent efforts over that period.

The year has presented our stakeholders with significant challenges: many of our employees have continued to work throughout the pandemic in difficult conditions whilst others have had to face the implications of furlough; our shareholders have seen no dividend income this year; and our manufacturers have seen significantly reduced activity levels. For these reasons, the salary repayments excluded members of the board. In addition, the executive directors have declined their bonuses for the year that, ordinarily, would have been payable based on the achievement of financial targets set for the year.

Trading over the summer and autumn of 2020 was buoyant but showroom closures returned in November 2020 and across the whole of the first quarter of 2021. As a result, the Company was forced to return a number of employees to furlough. However, at the year-end in March 2021, under a fifth of employees still remained on furlough, and this has since fallen further as we have been able to welcome employees back to work as showrooms again reopened in April 2021. Across the year, the Company received total grants of GBP2.4 million from the Government's Coronavirus Job Retention Scheme.

Omni-channel retailing

Our omni-channel offering allows customers to interact with us in a way that suits them best, from the traditional showroom discussion through to a fully online sales process, and any combination in between. We have learnt a great deal during the last year and the new options we have introduced have significantly advanced our on-line selling capabilities. We are now able to provide our customers with this omni-channel approach to selling, and we will continue to invest and develop this further in the future.

Our People

I am very grateful for the dedication of our employees and the effort they continue to apply to provide our customers with a first-class experience. Their response to the covid-19 pandemic has been outstanding and the board would like to particularly thank those that remained active throughout the initial lockdown period. This ensured that we were able to offer an emergency aftersales response to NHS and other key workers. We have been, and remain, very focused on the health and safety of our employees and customers. Our showroom and workshop activities have been undertaken in a responsible and socially distanced way throughout the year. As a result of the hard work and professionalism shown by everyone involved, we have managed the lockdown periods well and were able to reopen our showrooms in April 2021 in a strong position.

The Company has a long tradition of investing in apprenticeship programmes. Despite the pressures on the business, 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 Government apprenticeship 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.

New and used car sales

Total UK new car registrations in the year declined by 25% as a result of the covid-19 pandemic and, within this total, new car registrations in the private and small business sector in which we principally operate fell by 24%. However, we were very pleased that our own new unit sales fell by only 10% on a like-for-like basis, despite our showrooms having operated under covid-19 restrictions for six of the twelve months in the year, with only a click-and-collect service allowed during closure periods.

Volumes of sold used cars also fell, by 19% on a like-for-like basis, although we were reassured by the resilience in unit margins. Significant efforts have been made over the last twelve months to enhance and develop our omni-channel offering for our customers 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.

Aftersales

Despite the impact of covid-19 on our aftersales business, we were encouraged that our service revenues in the year fell by only 10% 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 also reported lower sales, down by 12% on a like-for-like basis from the previous year.

Operations

Our Audi businesses produced an exceptional performance in the year, significantly growing their new car deliveries despite the backdrop of a falling UK market.

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 at the end of the previous financial year, in March 2020, but the Government-mandated temporary showroom closures meant the business was unable to begin trading until June 2020. We were extremely pleased that, once opened, the business traded profitably in the year. It continues to reap the benefits of an excellent model range of cars, which are being positively received by customers.

The performance of our Volkswagen businesses improved in the year and we remain confident that the strength of the brand, the excellent model range, and exciting new products will help to boost future trading performance.

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 impact of the covid-19 temporary closures. Our Vauxhall business in Ashford performed satisfactorily in the year.

Trading at Caffyns Motorstore, our used car business in Ashford, remained subdued as the business suffered from covid-19 temporary closures. However, the performance of the business improved in the year and we remain reassured that the concept has been very well received by our customers, who particularly value the reassurance of the Caffyns brand.

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 buying process, as well as improving aftersales retention.

New brands and models

We continue to invest in enhanced facilities to allow us to sell and service our manufacturers' ever-increasing range of electric and hybrid vehicles. During the year we also added three new brands to our portfolio, all of which offer excellent electric product. In Eastbourne we have added LEVC, based in premises adjacent to our Volvo business. LEVC, alongside Volvo, is part of the Zhejiang Geely group and supply battery-powered taxis and vans. In Ashford we are adding two new franchises in Lotus, also part of the Zhejiang Geely group, and MG, a subsidiary of SAIC. Both of these brands have battery-powered electric products and MG offers outstanding value for money in this field.

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 2021 was GBP12.3 million (2020: GBP11.8 million). This is after an impairment of the carrying value of a single property by GBP0.2 million, which was charged to administrative expenses as a non-underlying expense. In accordance with our accounting policies (which reflect those generally utilised throughout the motor retail industry), the surplus has not been incorporated into our accounts.

During the year, we incurred capital expenditure of GBP0.4 million (2020: GBP1.0 million). There were no major property development projects in the year and the spend reflected a mixture of the further installation of electric charging points and replacement spend on existing assets.

Our freehold premises in Lewes remain leased until 9 June 2021, 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 enjoys a supportive relationship with HSBC and, following the outbreak of the covid-19 pandemic in March 2020, the Company temporarily increased its overdraft facility limit from GBP3.5 million to GBP6.0 million. In September 2020, the Company reduced its overdraft facility back down to GBP3.5 million.

In addition to its facilities with HSBC, the Company also 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, each being a repayment of GBP94,000. Similar concessions were granted by Volkswagen Bank, for the months of April May and June 2020, each being a repayment of GBP42,000.

The term loan and revolving credit facilities provided by HSBC include certain covenant tests which were comfortably passed at the previous year-end, 31 March 2020. During the year, HSBC agreed to a relaxation in the covenant tests for September 2020 and March 2021 although neither relaxation was ultimately required with the original covenant tests being passed on both those dates. 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 2021 were GBP10.3 million (2020: GBP16.2 million) and as a proportion of shareholders' funds at 31 March 2021 were 37% (2020: 62%). This substantial reduction reflected the strengthened controls over working capital and cost savings implemented during the year, as well as the significant covid-19 support received by the Company from the Coronavirus Job Retention Scheme and the business rates holiday. Gearing at the prior year-end was substantially higher than usual as a result of the initial effects of the covid-19 pandemic. Available but undrawn facilities with HSBC and Volkswagen Bank at 31 March 2021 were some GBP16 million (2020: GBP10 million).

Taxation

The year ended 31 March 2021 resulted in a tax charge of GBP0.01 million (2020: GBP0.36 million). The effective tax rate was lower than the standard rate of corporation tax in force for the year of 19%, mainly due to 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 31 March 2020, being immediately after the start of the first covid-19 lockdown and at the height of the accompanying economic uncertainty, but was altered at the half-year, in September 2020. Management have prepared forecasts extending across the next five years which have provided sufficient comfort to allow the previously held view to be revised and the impairment 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 Company has no current outstanding trading losses awaiting relief (2020: GBP0.1 million). There are also 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 GBP8.3 million (2020: GBP8.9 million) which could equate to a future potential tax liability of GBP1.6 million (2020: GBP1.7 million). The Company also has an amount of GBP1.1 million (2020: GBP1.1 million) of recoverable Advanced Corporation Tax ("ACT") and GBP0.4 million (2020: GBP0.8 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 low yields of gilts and bonds continues to have a significant impact on the net funding position of the scheme. At 31 March 2021 the deficit was GBP9.4 million (2020: GBP9.4 million). The deficit, net of deferred tax, was GBP7.6 million (2020: GBP7.6 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 considered.

The pension cost under IAS 19 is charged as a non-underlying cost and amounted to GBP0.2 million in the year (2020: GBP0.2 million).

During the year, the Company made deficit-reduction contributions into the Scheme under the 2017 recovery plan of GBP0.5 million (2020: GBP0.5 million). Since the year-end, the latest formal triennial valuation of the Scheme, effective 31 March 2020, has been completed. This valuation will be formally submitted to the Pensions Regulator prior to the requisite deadline of 30 June 2021. A recovery plan to address the Scheme deficit identified from this triennial valuation has been agreed with the trustees, pending approval from the Pensions Regulator, under which the annual recovery plan payment for the coming year will increase to GBP0.8 million, with an additional one-off GBP1.0 million contribution to be paid in June 2021. The recurring annual recovery plan payment for each subsequent year will then increase by 2.25%, until superseded by any future new recovery plan to be agreed between the Company and the trustees.

Dividend

The Company has a strong balance sheet and the board remains confident in its future prospects. However, in the light of the scale of the covid-19 support received from Government by the Company in the year, to conserve cash resources, and to be mindful of the continued ongoing uncertainty over covid-19, the board has decided not to declare a final dividend in relation to the year ended 31 March 2021.

For the same reasons, no interim dividend was declared (2020: 7.5 pence per Ordinary share) during the year. The total dividend for the year was therefore nil pence per ordinary share (2020: 7.5 pence). However, the board remains committed to restarting the payment of dividends to shareholders as soon as it deems it is appropriate to do so.

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.

Annual General Meeting

T he Annual General Meeting will be held on 3 August 2021. It is anticipated that social-distancing restrictions will have been largely lifted by the date of this meeting, and therefore it is intended that the Annual General Meeting will revert to an open meeting, to which shareholders will be invited to attend in person.

Outlook

Our showrooms were allowed to reopen in mid-April 2021 so we have started the new financial year with a sense of optimism, although we are mindful that the future course of the covid-19 pandemic remains uncertain. We continue to enjoy supportive relationships with our banking partners, HSBC and Volkswagen Bank with available but undrawn facilities in excess of GBP16 million at the year-end. Our manufacturer partners also continue to be very supportive. Therefore, the board is confident that the Company has sufficient liquidity to allow it to effectively navigate the coming year and to capitalise on the trading and investment opportunities which are expected to arise as markets return to more normal levels of activity.

S G M Caffyn

Chief Executive

1 June 2021

Group Income Statement