REG - Caffyns PLC - Annual Financial Report
27/05/2022 07:00
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RNS Number : 9876M Caffyns PLC 27 May 2022
Caffyns plc
Preliminary Results for the year ended 31 March 2022
Summary
2022 2021
£'000 £'000
Revenue 223,928 165,085
Underlying EBITDA (see note A) 7,712 5,124
Underlying profit before tax (see note A) 4,574 1,876
Profit before tax 4,385 1,424
pence pence
Underlying earnings per share 117.0 66.0
Earnings per share 111.3 52.4
Proposed final dividend per ordinary share 15.0 -
Dividend per ordinary share for the year 22.5 -
Note A: Underlying results exclude items that have non-trading attributes due
to their size, nature or incidence. Non-underlying items for the year totalled
a charge of £189,000 (2021: £452,000) and are detailed in Note 2 to these
consolidated financial statements. Underlying EBITDA of £7,712,000 (2021:
£5,124,000) represents Operating profit before non-underlying items of
£5,690,000 (2021: £3,142,000) adding back Depreciation and Amortisation of
£2,022,000 (2021: £1,982,000).
Overview
· Revenue up 36% to £223.9 million (2021: 165.1 million) due to a
buoyant used car market
· Like-for-like new car unit deliveries up by 7%
· Like-for-like used car unit sales up by 24%
· Like-for-like aftersales revenues up by 19% to £19.2 million
· Underlying profit before tax of £4.6 million (2021: £1.9 million)
· Final dividend of 15.0 pence per ordinary share (2021: nil pence per
ordinary share)
· Net bank borrowings at 31 March 2022 as disclosed in note 21 were
£10.4 million (2021: £10.3 million)
· Property portfolio revaluation at 31 March 2022 showed a £13.3
million surplus (2021: £12.3 million surplus) to net book value (not
recognised in these accounts)
Like-for-like comparisons exclude the impact of the Lotus and MG businesses at
Ashford, both of which were opened during the year under review. All other
businesses operated for the full twelve-month period in both years
Commenting on the results Simon Caffyn, Chief Executive, said: "The underlying
profit before tax of £4.6 million was a significant improvement on the prior
year. Despite limited new car supply, operating profits improved due to very
buoyant trading in used cars and our strong focus on improving operational
effectiveness.
The outlook will depend on consumer confidence, but we carry forward a strong
new car order book and have substantially strengthened our balance sheet"
Enquiries:
Caffyns
plc Simon Caffyn, Chief
Executive
Tel: 01323 730201
Mike Warren, Finance Director
HeadLand Chloe Francklin
Tel: 0203 805 4855
Operational and Business Review
Summary
The underlying profit before tax of £4.6 million for the financial year ended
31 March 2022 ("the year") was a significant improvement on the £1.9 million
recorded for the prior year. Full year turnover increased by 36% to £223.9
million (2021: £165.1 million), predominantly from significantly higher
levels of car deliveries. Operating margins improved significantly to £5.7
million (2021: £2.9 million) due to very buoyant trading in used cars and a
strong focus on improving operational effectiveness.
Our statutory profit before tax for the year was £4.4 million (2021: £1.4
million). Basic earnings per share for the year were 111.3 pence (2021: 52.4
pence). Underlying earnings per share for the year were 117.0 pence (2021:
66.0 pence).
The Company's defined-benefit pension scheme deficit, calculated in accordance
with the requirements of IAS 19 Pensions, reduced significantly to £2.8
million at 31 March 2022 (2021: £9.4 million). Investment gains in the
Scheme's investments were strong and combined with reductions to the net
present value of the Scheme's liabilities. The Company also made an additional
£1.0 million cash contribution to the pension scheme in the year to assist
with reducing the deficit position.
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.
The board was able to restart the payment of dividends during the year with an
interim dividend of 7.5 pence. The board is proposing a final dividend for the
year of 15.0 pence (2021: nil pence per ordinary share).
Net bank borrowings at 31 March 2022 were £10.4 million (2021: £10.3
million), which equated to gearing of 30% (2021: 37%).
Covid-19
The Company started the financial year with its car showrooms temporarily
closed and able to operate only on a "click-and-collect" basis. However, by
mid-April 2021 we were able to fully reopen and for the remainder of the
financial year were able to operate as usual, albeit with certain
social-distancing precautions remaining in place.
In April 2021, 88 employees, around one-fifth of the total workforce, remained
on furlough under the Government's Coronavirus Job Retention Scheme but we
were able to return those employees to the workplace over the spring and
summer months and we ceased to utilise the scheme from August. Grants received
in the year amounted to £0.1 million. The business also continued to benefit
from the business rates holiday for retail premises, which provided a
year-on-year saving of £0.8 million. This holiday expired on 31 March 2022.
We remain grateful to the Government for the actions that it took to protect
employment during lockdown periods where activity levels were suppressed and
there was insufficient work to occupy certain employees.
Whilst covid-19 infection levels remained at elevated levels it was pleasing
to see a waning of the impact of the covid pandemic on the business as the
year progressed. Through careful management of the workplace, we were able to
successfully manage staff absences and to continue to offer an environment
that our customers were happy to visit and transact in.
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 learnt a great deal
during the lockdown periods of the pandemic and were able to introduce new
options which significantly advanced our on-line selling capabilities. These
have been further enhanced in the current year allowing us to provide our
customers with a full omni-channel approach to purchasing their vehicle.
Our People
I am very grateful for the dedication of our employees and the effort they
applied throughout the year to provide our customers with a first-class
experience. Their response to the covid-19 pandemic has been outstanding. We
have been, and remain, very focused on the health and safety of our employees
and customers, ensuring that our showroom and workshop activities are
undertaken in a responsible and socially distanced way. As a result of the
hard work and professionalism shown by everyone involved, we have successfully
navigated the covid pandemic to leave the business 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 which will assist the Company to continue to
grow.
New and used car sales
Total UK new car registrations in the year increased by 4% as the impacts of
the covid-19 pandemic waned. However, the global shortage of semiconductors
throughout the year disrupted the production of new cars and, more recently,
the conflict in Ukraine added additional strains to supply chains, further
restricting increases in registrations. Within the total, new car
registrations in the private and small business sector, in which we
principally operate, rose by 19%. Our own new car deliveries rose by 7% on a
like-for-like basis, which was in line with the movement for those
manufacturers that we represent.
Our volume of used cars sales also rose, by 24%, on a like-for-like basis. The
shortage of new car product created a strong used car market and, together
with enhanced controls, we were able to retain significantly enhanced unit
margins. Great efforts have been made over the last twelve months to further
enhance and develop our omni-channel offering for our customers and we
continue to see this providing a major opportunity for further growth. The
number of used cars sold again exceeded the number of new cars sold in the
year. Procedures have been strengthened to monitor and control used car stock
turn and yield and to broaden our sources of replenishing inventory.
The Company's total revenues for the year increased by £58.8 million over the
previous year, of which £56.6 million arose from the from the sale of new and
used cars .
Aftersales
The impact of the covid-19 pandemic on our aftersales business reduced during
the year and we were encouraged that our service revenues in the year rose by
8% 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 higher sales, up by 25% on a like-for-like basis from
the previous year.
Operations
Our Audi businesses produced another exceptional performance in the year,
significantly growing both their new and used car deliveries.
The performance of our Volkswagen businesses improved in the year boosted by
the strength of the brand, the excellent model range, and exciting new
products.
Our Volvo businesses also enjoyed very strong performances in the year. Both
businesses, in Worthing and in Eastbourne, performed very well. The Eastbourne
result was especially commendable given the business was heavily disrupted by
building works throughout much of the year as the site underwent a significant
refurbishment. The brand continues to reap the benefits of an excellent model
range of cars, which are being positively received by customers.
In Tunbridge Wells, our combined SEAT/Skoda business continued to perform well
and our Skoda business in Ashford recorded an excellent result, significantly
ahead of the prior year.
Our Vauxhall business in Ashford performed in line with our expectations in
the year.
During the year we opened businesses for Lotus and MG, adjacent to our
existing Vauxhall operation in Ashford. The board was encouraged with their
first year of trading.
Trading at Caffyns Motorstore, our used car business in Ashford, remained
subdued as the business suffered from disruptions from building works to
accommodate the new franchises of Lotus and MG. However, the performance
improved in the year and we remain reassured that the concept continues to be
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 further 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
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 two new brands to our portfolio, both based at
existing premises in Ashford. Lotus, which is part of the Zhejiang Geely group
that also owns Volvo, and MG, a subsidiary of SAIC, commenced trading in July
2021. Both of these brands have battery-powered electric products and MG
offers outstanding value for money in this field. We will shortly be expanding
our representation with Lotus with the opening of a new dealership for Sussex,
in Lewes.
Property
We operate primarily from freehold sites which 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 2022 was £13.3 million (2021: £12.3
million). In accordance with our accounting policies, this surplus has not
been incorporated into our accounts.
During the year, we incurred capital expenditure of £2.9 million (2021: £0.4
million). There was one major property development project in the year, which
was the expansion and complete refurbishment of our Volvo premises in
Eastbourne. The remaining spend reflected a mixture of further installations
of electric charging points and replacement spend on existing assets.
The lease to the purchaser of our former Land Rover business in 2016, for our
freehold premises in Lewes, terminated on 9 June 2021 and the property was
returned to us. Our current intention is to dispose of the premises and we
expect to exchange contracts shortly. Completion of the sale will be dependent
on the purchaser gaining an appropriate planning consent and the board expects
this will take at least two years. Due to the uncertainty of a successful
outcome to the planning process, the property has continued to be shown as an
investment property on the Company's balance sheet.
The Company operates two of its franchised businesses from leased premises as
well as having a leased vehicle storage compound, which are shown on the
balance sheet as right of use assets. During the year, management reassessed
its likely future requirement for one of those premises and, as a result,
extended its estimate of the duration of its stay. As a result, the valuation
of that lease increased by £1.0 million, equal and opposite to an increase in
its lease liability.
The Company has agreed with Volvo UK to relocate its business in Worthing to a
new-build facility, adjacent to its existing Audi operation at Angmering.
Planning permission for the new facility is being sought and construction is
expected to start once a planning consent is granted, with the new facility
expected to be available to open in 2023.
Bank facilities and borrowings
The Company's banking facilities with HSBC comprise a term loan, originally of
£7.5 million, repayable by instalments over a twenty-year period to 2038 and
a revolving-credit facility of £6.0 million, both of which will next become
renewable in April 2026. HSBC also provides an overdraft facility of £3.5
million, renewable annually. The Company continues to enjoy a supportive
relationship with HSBC and successfully refinanced its borrowings in March
2022, twelve months in advance of the scheduled review date for the
facilities. The refinancing did not affect the market value of the Company's
borrowings.
In addition to its facilities with HSBC, the Company also has a
revolving-credit facility of £4.0 million provided by Volkswagen Bank,
renewable annually, together with a term loan, originally of £5.0 million,
which is repayable by instalments over the ten years to March 2024.
The term loan and revolving credit facilities provided by HSBC include certain
covenant tests which were comfortably passed at the year-end on 31 March 2022.
Any failure of a covenant test would render these facilities repayable on
demand at the option of the lender.
During the year, cash generated by operating activities was £3.4 million
(2021: £6.7 million). This reflected the deficit-reduction payment of £1.0
million made to the Company's defined-benefit pension scheme as part of the
recovery plan to the March 2020 triennial valuation, as well as outflows
associated with working capital movements. Other significant cash movements in
the year included capital expenditure of £2.8 million (2021: £0.4 million)
and repayment of bank revolving-credit facilities and term loans of £2.9
million (2021: £1.7 million). Cash balances held at 31 March 2022 were £5.7
million, a reduction of £3.0 million from the previous year-end.
Bank borrowings, net of cash balances, at 31 March 2022 were £10.4 million
(2021: £10.3 million) and as a proportion of shareholders' funds at 31 March
2022 were 30% (2021: 37%). This reduction in gearing level reflected the
strong financial result for the year as well as a significant narrowing of the
deficit in the Company's defined-benefit pension scheme. Available but undrawn
facilities with HSBC and Volkswagen Bank at 31 March 2022 were £10 million
(2021: £16 million) owing to the reduction in certain facility levels in the
year, in agreement with the Company's bank lenders.
Taxation
The year ended 31 March 2022 resulted in a tax charge of £1.39 million (2021:
£0.01 million). The effective tax rate for the year was higher than the
standard rate of corporation tax in force for the year of 19% due to the
effect on deferred tax liabilities of the scheduled increase in the
corporation tax rate to 25% in 2023. In the prior year, the effective tax rate
was significantly lower than the standard rate of corporation tax in force for
the year of 19% due to the reversal of an impairment provision against the
carrying value of an Advanced Corporation Tax ("ACT") asset.
The Company has no current outstanding trading losses awaiting relief (2021:
£Nil). 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 £7.1 million (2021: £8.3 million) which could equate to a future
potential tax liability of £1.8 million (2021: £1.6 million). The Company
was able to utilise £0.6 million of its ACT in the year, leaving an amount
carried forward to future trading periods of £0.5 million (2021: £1.1
million).
Pension Scheme
The Company's defined benefit scheme was closed to future accrual in 2010. 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 continue to have a significant impact on the net funding position of
the scheme. At 31 March 2022 the deficit was £2.8 million (2021: £9.4
million). The deficit, net of deferred tax, was £2.1 million (2021: £7.6
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 £0.2 million in the year (2021: £0.2 million).
During the year, the latest formal triennial valuation of the Scheme,
effective 31 March 2020, was completed with the valuation being formally
submitted to the Pensions Regulator in June 2021. A recovery plan to address
the Scheme deficit identified from this triennial valuation was agreed with
the trustees under which the annual recovery plan payment would increase from
£0.5 million to £0.8 million, with an additional one-off contribution of
£1.0 million, which was 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. Therefore, the Company made deficit-reduction contributions into the
Scheme during the year of £1.8 million (2021: £0.5 million).
Dividend
The uncertainty caused by the covid-19 pandemic resulted in the Company
temporarily pausing its dividend payments to shareholders. The board is aware
of the importance of dividend payments to its shareholders and remained
committed to restarting dividend payments once it was appropriate to do so.
The judgement of the board was that the performance of the business in the
first half of the year meant that it would be appropriate to restart dividend
payments and, accordingly, the board declared an interim dividend of 7.5 pence
per ordinary share (2021: Nil pence per ordinary share). The board is also
declaring a final dividend for the year of 15.0 pence (2021: Nil pence per
ordinary share) which will be paid on 9 August 2022 to those shareholders on
the register at close of business on 8 July 2022, subject to shareholder
approval at the 2022 Annual General Meeting. The ordinary shares will be
marked ex-dividend on 7 July 2022.
Strategy
Our continuing strategy is to focus on growing our loyal customer base through
representing premium and premium-volume franchises, maximising opportunities
for premium used cars and delivering an excellent after sales service. 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 business.
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, and to enhance both the purchasing and after sales experience for
our customers.
Annual General Meeting
The Annual General Meeting will be held on 2 August 2022. As no regulations
remain in place regarding social distancing, it is intended that the Annual
General Meeting will be an open meeting, to which shareholders will be invited
to attend in person.
Outlook
We have started the new financial year with a sense of optimism, although we
are mindful of disruptions to manufacturers' supply chains and dependent upon
consumer confidence. We continue to enjoy supportive relationships with our
banking partners, HSBC and Volkswagen Bank, with available but undrawn
facilities at the year-end in excess of £10 million. The balance sheet is
appropriately funded and our freehold property portfolio is a source of
stability. We remain confident in the prospects of the Company and are ready
to exploit future business opportunities.
S G M Caffyn
Chief Executive
26 May 2022
Group Income Statement
for the year ended 31 March 2022
2022 2021
Note £'000 £'000
Revenue 223,928 165,085
Cost of sales (191,982) (142,304)
Gross profit 31,946 22,781
Operating expenses
Distribution costs (17,442) (13,481)
Administration expenses (9,227) (7,317)
Operating profit before other income 5,277 1,983
Other income (net) 390 909
Operating profit 5,667 2,892
Operating profit before non-underlying items 5,690 3,142
Non-underlying items within operating profit 5 (23) (250)
Operating profit 5,667 2,892
Finance expense 6 (1,116) (1,266)
Finance expense on pension scheme (166) (202)
Net finance expense (1,282) (1,468)
Profit before taxation 4,385 1,424
Profit before tax and non-underlying items 4,574 1,876
Non-underlying items within operating profit 5 (23) (250)
Non-underlying items within finance expense on pension scheme 5 (166) (202)
Profit before taxation 4,385 1,424
Taxation 7 (1,386) (14)
Profit for the year 2,999 1,410
Earnings per share
Basic 8 111.3p 52.4p
Diluted 8 109.6p 52.1p
Underlying earnings per share
Basic 8 117.0p 66.0p
Diluted 8 115.2p 65.6p
Group Statement of Comprehensive Income
for the year ended 31 March 2022
2022 2021
Note £'000 £'000
Profit for the year 2,999 1,410
Items that will never be reclassified to profit and loss:
Remeasurement of net defined benefit liability 5,045 (301)
Deferred tax on remeasurement 17 (1,261) 57
Effect of change in deferred tax rate 17 511 -
Total other comprehensive income/(expense), net of taxation 4,295 (244)
Total comprehensive income for the year 7,294 1,166
Group Statement of Financial Position
at 31 March 2022
2022 2021
Note £'000 £'000
Non-current assets
Right-of-use assets 10 1,413 610
Property, plant and equipment 11 38,975 37,624
Investment properties 12 7,646 7,751
Interest in lease 13 389 557
Goodwill 14 286 286
Deferred tax asset 17 - 412
48,709 47,240
Current assets
Inventories 15 27,546 36,562
Trade and other receivables 5,264 5,072
Interest in lease 13 168 173
Current tax recoverable 40 34
Cash and cash equivalents 2,759 5,735
35,777 47,576
Total assets 84,486 94,816
Current liabilities
Interest-bearing bank overdrafts and loans 1,875 3,875
Trade and other payables 16 29,495 39,338
Lease liabilities 496 495
Current tax payable 236 306
32,102 44,014
Net current assets 3,675 3,562
Non-current liabilities
Interest-bearing bank loans 11,312 12,187
Lease liabilities 1,434 783
Deferred tax liability 17 1,298 -
Preference shares 812 812
Retirement benefit obligations 2,797 9,434
17,653 23,216
Total liabilities 49,755 67,230
Net assets 34,731 27,586
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 30,589 23,444
Total equity attributable to shareholders 34,731 27,586
Group Statement of Changes in Equity
for the year ended 31 March 2022
Capital Non-
Share Share redemption distributable Retained
capital premium reserve reserve Earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2021 1,439 272 707 1,724 23,444 27,586
Total comprehensive
income
Profit for the year - - - - 2,999 2,999
Other comprehensive - - - - 4,295 4,295
income
Total comprehensive - - - - 7,294 7,294
income
Transactions with
owners:
Dividends - - - - (202) (202)
Issue of shares - SAYE - - - - - -
Share-based payment - - - - 53 53
At 31 March 2022 1,439 272 707 1,724 30,589 34,731
for the year ended 31 March 2021
Capital Non-
Share Share redemption distributable Retained
capital premium reserve reserve Earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2020 1,439 272 707 1,724 22,238 26,380
Total comprehensive
Income/(expense)
Profit for the year - - - - 1,410 1,410
Other comprehensive - - - - (244) (244)
expense
Total comprehensive - - - - 1,166 1,166
income
Transactions with
owners:
Issue of shares - SAYE - - - - 3 3
Share-based payment - - - - 37 37
At 31 March 2021 1,439 272 707 1,724 23,444 27,586
Group Cash Flow Statement
for the year ended 31 March 2022
2022 2021
Note £'000 £'000
Net cash inflow from operating activities 18 3,390 6,724
Investing activities
Proceeds on disposal of property, plant and equipment - -
Purchases of property, plant and equipment (2,837) (394)
Receipt from investment in lease 185 185
Net cash outflow from investing activities (2,652) (209)
Financing activities
Revolving-credit facility repaid (2,000) (2,000)
Revolving-credit facility utilised - 1,000
Secured loans repaid (875) (657)
Bank refinancing arrangement fees (98) -
Issue of shares - SAYE scheme - 3
Dividends paid (202) -
Repayment of lease liabilities (539) (604)
Net cash outflow from financing activities (3,714) (2,258)
Net (decrease)/increase in cash and cash equivalents (2,976) 4,257
Cash and cash equivalents at beginning of year 5,735 1,478
Cash and cash equivalents at end of year 2,759 5,735
Notes
for the year ended 31 March 2022
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 26 May 2022.
2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with UK adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with International Financial Reporting
Standards ("IFRS") as adopted in the United Kingdom.
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 2022, but is derived from those accounts.
Statutory accounts for the year ended 31 March 2021 have been delivered to the
Registrar of Companies and those for the year ended 31 March 2022 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 2022 will be available
at www.caffynsplc.co.uk and will be posted to shareholders by 8 July 2022.
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 of one year
from the date of approval of this Annual Report. This has focused primarily
on the achievement of the banking covenants, which have all been achieved for
the year under review.
Under the Company's first covenant test, it is required to make underlying
earnings before bank interest, depreciation and amortisation ("senior EBITDA")
for the rolling twelve-month period to 31 March 2022, which is at least four
times the level of interest payable on bank borrowings to HSBC and Volkswagen
Bank ("senior interest").
The Company's second covenant test requires total bank borrowings to HSBC and
Volkswagen Bank at 31 March 2022 not to exceed 375% of senior EBITDA for the
rolling twelve-month period to 31 March 2022.
The Company's final covenant test requires that the level of its bank
borrowings do not exceed 70% of the independently assessed value of its
charged freehold properties.
In the coming twelve months, each of the three covenant tests must be passed
at 30 June 2022, 30 September 2022, 31 December 2022 and 31 March 2023, with
the test on 31 March 2023 being the final test to be carried out within the
twelve-month period from the anniversary of the signing of these financial
statements. The Company has modelled this period and conclude that there is
headroom that would allow for an approximate 10% 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 are forecast to show a year-on-year increase of 5% in 2022 to
1.72 million, with a further 17% increase into 2023 to 2.02 million
registrations as the global shortage in semiconductors end allowing
manufacturing levels to rise. The used car market has remained stable over the
five years from 2015 to 2019, at between 7.6 and 8.2 million transactions and
dropped by only 15% in 2020 due to the effects of the covid-19 pandemic,
compared to a comparable 29% fall in new car registrations. Since showrooms
reopened in April 2021, demand for used cars has been buoyant and transactions
grew by 12 % in 2021. The continuing shortage in new car supply has assisted
the used car market, and is expected to continue to do so. The Company's
financial results in the year under review were robust and the current new
car order take held for future delivery is at elevated levels.
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 £6.2 million and a
revolving credit facility of £6.0 million from HSBC, its primary bankers,
with both facilities being renewable in April 2026. HSBC also make available a
short-term overdraft facility of £3.5 million, which is renewed annually in
August. The Company also has a ten-year term loan from Volkswagen Bank with a
balance outstanding at 31 March 2022 of £1.0 million, which is repayable to
March 2024, and a short-term revolving-credit facility of £4.0 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 12 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 a period of one year
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. At 31 March 2022, the net liability
included in the Statement of Financial Position was £2.8 million (2021: £9.4
million).
Impairment
The carrying value of property, plant and equipment and goodwill are tested
annually for impairment as described in notes 11, 12, 13 and 15 to the
financial statements. 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 15). As a result of this review the directors considered that no
impairments were required to the carrying value of its property assets (2021:
£184,000 to a single property asset) (see notes 11, 12, 13 and 15).
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. 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 2024.
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.
In November 2018, the Company received a contribution of £255,000 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) that 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 £96,000 during the year
ended 31 March 2019 and an increase in net assets of the same amount as at 31
March 2019, with the remaining £159,000 standing to be recognised over the
remaining contractual period as follows: year ended 31 March 2020: £127,500,
year ending 31 March 2021: £31,500.
In December 2019, the Company separately received a contribution of £225,000
from a brand partner as support for establishing a new franchise business. In
the judgement of the directors, and having considered all information
available, the directors determined it appropriate to account for the
contribution as revenue in nature, with the support to be allocated on a
straight-line basis over the first 24 months of operation of the new business.
The launch of the new business was delayed by the covid-19 pandemic with the
business unable to commence trading until car showrooms were allowed to
re-open in June 2020. As a result, £93,750 of the £225,000 support package
was recognised in the Income Statement for the prior year with a further
£112,500 being recognised in the Income Statement for the current year. It is
expected that the remaining £18,750 will be recognised in the Income
Statement for the year ending 31 March 2023.
5. Non-underlying items
The following amounts have been presented as non-underlying items in these
financial statements:
2022 2021
£'000 £'000
Net loss on disposal of property, plant and equipment - (3)
Other income, net - (3)
Within operating expenses:
Service cost on pension scheme (23) (23)
Redundancy and restructuring costs - (40)
Property impairments - (184)
(23) (247)
Non-underlying items within operating profit (23) (250)
Net finance expense on pension scheme (166) (202)
Non-underlying items within net finance expense (166) (202)
Total non-underlying items before taxation (189) (452)
Taxation credit on non-underlying items 36 86
Total non-underlying items after taxation (153) (366)
In the prior period, the following amounts have been presented as
non-underlying items:
· redundancy and restructuring costs of £40,000 were incurred in the
year as a result of changes necessitated by the covid-19 pandemic;
· the carrying value of a freehold property was impaired by a total of
£184,000 following advice from the Company's independent valuer, CBRE Limited
(see notes 11 and 12).
6. Finance expense
2022 2021
£'000 £'000
Interest payable on bank borrowings 297 367
Interest payable on inventory stocking loans 581 681
Interest on lease liabilities 37 21
Finance costs amortised 141 125
Preference dividends (see note 9) 72 72
Finance income on interest in lease (12) -
Finance expense 1,116 1,266
7. Tax
2022 2021
£'000 £'000
Current tax
UK corporation tax 432 401
Adjustments recognised in the period for current tax of prior periods (5) (33)
Total charge 427 368
Deferred tax (see note 17)
Origination and reversal of temporary differences 312 (381)
Change in corporation tax rate 647 -
Adjustments recognised in the period for deferred tax of prior periods - 27
Total charge/(credit) 959 (354)
Tax charged in the Income Statement 1,386 14
2022 2021
The tax charge arises as follows: £'000 £'000
On normal trading 1,422 100
On non-underlying items (see note 5) (36) (86)
Tax charged in the Income Statement 1,386 14
The charge for the year can be reconciled to the profit per the Income
Statement as follows:
2022 2021
£'000 £'000
Profit before tax 4,385 1,424
Tax at the UK corporation tax rate of 19% (2021: 19%) 833 271
Tax effect of expenses that are not deductible in determining taxable profit 126 133
Other differences - 34
Effect of change in corporation tax rate 647 -
Movement in rolled over and held over gains (215) (117)
Reversal of impairment of Advanced Corporation Tax asset - (301)
Adjustment to tax charge in respect of prior periods (5) (6)
Tax charge for the year 1,386 14
The current year total tax charge is impacted by the effect of non-deductible
expenses, which includes non-qualifying depreciation; and one-off rate change
adjustments to take into account the legislative increase in the corporation
tax rate to 25% in 2023.
In the prior year an impairment provision against the carrying value of an
Advanced Corporation Tax asset was reversed. This impairment was initially
made in the year ended 31 March 2019 at which time management did not
recognise an overall deferred tax asset due to the inherent uncertainty at
that date. This approach remained unchanged at the previous year end, with 31
March 2020 being immediately after the start of the first covid-19 lockdown,
and at the height of the accompanying economic uncertainty, but was altered at
the half-year, at 30 September 2020. Forecasts prepared by management at that
time, extending across a five year period, reflected an improvement to the
levels of profits and these forecasts allowed the previously held view to be
revised and the impairment to be reversed, given management's judgement of a
higher level of certainty that the available Advanced Corporation Tax and
other deferred tax assets would be utilised in future years.
The total tax charge for the year is made up as follows:
2022 2021
£'000 £'000
Total current tax charge 427 368
Deferred tax credit/(charge)
(Charged)/credited in the Income Statement 959 (354)
Charged/(credited) against other comprehensive income 750 (57)
Total deferred tax charge 1,709 (411)
Total tax charge/(credit) for the year 2,136 (43)
Factors affecting the future tax charge
The Company has unrelieved advance corporation tax of £0.5 million (2021:
£1.1 million), which is available to be utilised against future mainstream
corporation tax liabilities and is accounted for in deferred tax (see note
24).
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
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Profit before tax 4,385 1,424 4,385 1,424
Adjustments:
Non-underlying items (note 5) 189 452 - -
Profit before tax 4,574 1,876 4,385 1,424
Tax (note 7) (1,422) (100) (1,386) (14)
Profit after tax 3,152 1,776 2,999 1,410
Earnings per share (pence) 117.0p 66.0p 111.3p 52.4p
Diluted earnings per share (pence) 115.2p 65.6p 109.6p 52.1p
2022 2021
£'000 £'000
Underlying earnings after tax 3,152 1,776
Underlying earnings per share (pence) 117.0p 66.0p
Underlying diluted earnings per share (pence) 115.2p 65.6p
Non-underlying losses after tax (153) (366)
Losses per share (pence) (5.7)p (13.6)p
Diluted losses per share (pence) (5.6)p (13.5)p
Total earnings 3,019 1,410
Earnings per share (pence) 111.3p 52.4p
Diluted earnings per share (pence) 109.6p 52.1p
The number of fully paid ordinary shares in circulation at the year-end was
2,695,502 (2021: 2,695,376). The weighted average number of shares in issue
for the purposes of the earnings per share calculation were 2,695,418 (2021:
2,694,846). The shares granted in the year under the Company's SAYE scheme
have been treated as dilutive. For the purposes of this calculation, the
weighted average number of shares in issue for the purposes of the earnings
per share calculation were 2,737,264 (2021: 2,707,660).
9. Dividends
2022 2021
£'000 £'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 of 7½ pence per ordinary share paid in respect 202 -
of the current year (2021: Nil pence)
No final dividend paid in respect of the March 2021 year end (2020: Nil pence) - -
202 -
A final dividend of 15.0 pence per ordinary share was declared in respect of
the current year ended 31 March 2022.
10. Right-of-use assets
2022
£'000
Deemed cost
At 1 April 2021 1,181
Additions in the year 1,142
At 31 March 2022 2,323
Accumulated depreciation
At 1 April 2021 571
Depreciation for the year 339
At 31 March 2022 910
Net book value
At 31 March 2022 1,413
The right-of-use assets above represent three long term property leases for
premises from which the Company operates a Volkswagen dealership in Brighton,
a Volvo dealership in Worthing and a car storage compound in Tunbridge Wells.
Depreciation charges of £339,000 (2021: £315,000) in respect of right-of-use
assets has been recognised within administration expenses in the Income
Statement.
The interest expense on the associated lease liability of £37,000 (2021:
£21,000) is disclosed is note 6.
Payments made in the year on the above leases were £539,000 (2021:
£335,000).
11. Property, plant and equipment
Freehold Leasehold Fixtures & Plant &
property improvements fittings machinery Total
£'000 £'000 £'000 £'000 £'000
Cost or deemed cost
At 1 April 2021 40,752 728 5,350 6,735 53,565
Additions at cost 1,945 - 508 476 2,929
Disposals - - (229) (2,135) (2,364)
At 31 March 2022 42,697 728 5,629 5,076 54,130
Accumulated depreciation
At 1 April 2021 6,113 581 4,091 5,156 15,941
Depreciation charge
for the year 616 73 506 383 1,578
Disposals - - (229) (2,135) (2,364)
At 31 March 2022 6,729 654 4,368 3,404 15,155
Net book value
31 March 2022 35,968 74 1,261 1,672 38,975
Short-term leasehold property for both the Company and the Group comprises
£74,000 at net book value in the Statement of Financial Position (2021:
£147,000).
Depreciation charges of £1,578,000 (2021: £1,550,000) in respect of
Property, plant and equipment was recognised within Administration Expenses in
the Income Statement.
The Company valued its portfolio of freehold premises and investment
properties as at 31 March 2022. 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. Management are satisfied that this valuation is materially
accurate. The excess of the valuation over net book value as at 31 March 2022
of those sites was £13.3 million (2021: £12.3 million). In accordance with
the Company's accounting policies, this surplus has not been incorporated into
these financial statements.
12. Investment properties
2022
£'000
Cost
At 1 April 2021 and 31 March 2022 9,650
Accumulated depreciation
At 1 April 2021 1,899
Depreciation for the year 105
At 31 March 2022 2,004
Net book value
At 31 March 2022 7,646
Depreciation charges of £105,000 (2021: £301,000) in respect of Investment
properties have been recognised within administration expenses in the Income
Statement.
The Company owns a freehold property that is partially leased out to a
third-party tenant, and accordingly accounts for the property as an investment
property. Based on an independent valuation of the property carried out by
CBRE, no impairment charges were required to be recognised in the Income
Statement, as part of administration expenses (2021: £184,000). 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 12. 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: £195
· Market value of site per acre: £2,472,000
· Initial and reversionary yields: 6.7% and 7.0% respectively
· Costs of disposal: 1.5% of fair value
As described in note 11, the total excess of the valuation of all of the
Company's freehold properties over net book value as at 31 March 2022 was
£13.3 million (2021: £12.3 million). Investment properties accounted for
£0.8 million (2021: £0.6 million) of this surplus.
13. Net investment in lease
2022 2021
£'000 £'000
Due after more than one year 389 557
Due within one year 168 173
At 31 March 2022 557 730
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
2022 2021
Group and Company: £'000 £'000
Cost
At 1 April 2021 and 31 March 2022 481 481
Provision for impairment
At 1 April 2021 and 31 March 2022 195 195
Carrying amounts allocated to CGUs
Volkswagen, Brighton 200 200
Audi, Eastbourne 86 86
At 31 March 2022 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 2022 and 2021.
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 2022 to 31 March 2027. 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 2023. 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 -1% (2021: -1%) to 15% (2021: 176%) have been used
to forecast cash flows for a further four years beyond the budget period,
through to 31 March 2027. 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. Based on these forecasts, the headroom
available on the total future profits is £3.2 million (2021: £2.4 million)
before an impairment would be necessary.
Period of specific projected cash flows (Volvo, Worthing CGU)
The recoverable amount of the Volvo, Worthing CGU is based on value in use.
Value in use is calculated using cash flow projections for a five-year period
from 1 April 2022 to 31 March 2027. 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 2023. 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 -46% (2021: -25%) to 7% (2021: 8%) have been used
to forecast cash flows for a further four years beyond the budget period,
through to 31 March 2027. 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. Based on these forecasts, the headroom
available on the total future profits is £1.1 million (2021: £1.7 million)
before an impairment would be necessary.
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% (2021: 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% (2021: 0.5%).
Terminal growth rates are based on management's estimate of future long-term
average growth rates.
Conclusion
At 31 March 2022, no impairment charge in respect of goodwill was identified
(2021: 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: 2022 2021
£'000 £'000
Vehicles 22,561 19,741
Vehicles on consignment 3,969 15,995
Oil, spare parts and materials 1,009 821
Work in progress 7 5
At 31 March 2022 27,546 36,562
2022 2021
Group and Company: £'000 £'000
Inventories recognised as an expense during the year 185,398 135,348
Inventories stated at fair value less costs to sell 884 708
Carrying value of inventories subject to retention of title clauses 14,675 23,940
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, £25,000 was recognised in respect of the write-down of
inventories of spare parts due to general obsolescence (2021: 37,000).
16. Trade and other payables
2022 2021
£'000 £'000
Trade payable 14,034 14,742
Obligations relating to consignment stock 3,969 15,995
Vehicle stocking loans 7,327 5,100
Social security and other taxes 823 1,173
Accruals 2,732 1,482
Deferred income 532 614
Other creditors 78 232
At 31 March 2022 29,495 39,338
Trade and other payables principally comprise amounts outstanding for trade
purchases and ongoing costs. The average credit period taken for these
trade-related purchases was 28 days (2021: 33 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 2022 were £581,000 (2021:
£681,000).
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 Company deferred payments of VAT of £440,000 under the covid-19 payment
deferral scheme operated by HMRC. This VAT was to be settled by eleven equal
monthly instalments, with payments having commenced in April 2021. At 31 March
2022, all amounts had been settled (2021: £400,000 outstanding and included
in within Social security and other taxes).
The movements in deferred income in the year were as follows:
2022 2021
£'000 £'000
At 1 April 2021 614 592
Utilisation of deferred income in the year (1,401) (1,136)
Income received and deferred in the year 1,319 1,158
At 31 March 2022 532 614
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 tax Unrealised capital gains Retirement benefit obligations Short-term
depreciation £'000 £'000 temporary differences Recoverable
£'000 £'000 ACT Total
£'000 £'000
At 1 April 2021 (925) (1,572) 1,792 (19) 1,136 412
Change in tax rates and
prior year adjustments (225) (428) (39) 45 - (647)
Utilisation of ACT - - - - (599) (599)
Timing differences 210 216 (303) 163 - 286
Recognised in other
comprehensive income - - (750) - - (750)
At 31 March 2022 (940) (1,784) 700 189 537 (1,298)
The Finance Act 2021 introduced an increase in the main corporation tax rate
to 25% from 1 April 2023.
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. During the year the
Shadow ACT was fully utilised allowing a partial utilisation of the ACT,
leaving the remaining value of surplus ACT available for utilisation in future
periods at 31 March 2022 of £537,000 (2021: £1,136,000).
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:
2022 2021
£'000 £'000
Deferred tax liabilities (2,724) (2,516)
Deferred tax assets 1,426 2,928
At 31 March 2022 (1,298) 412
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.
There were no trading losses available for use in future periods (2021:
£Nil).
18. Notes to the cash flow statement
2022 2021
£'000 £'000
Profit before tax for the year 4,385 1,424
Adjustments for net finance expense 1,282 1,468
5,667 2,892
Adjustments for:
Depreciation of property, plant and equipment, investment properties and
right-of-use assets 2,022 1,982
Impairment against property, plant and equipment and investment properties - 184
Cash payments into the defined-benefit pension scheme (1,781) (526)
Loss on disposal of property, plant and equipment - 3
Share-based payments 53 37
Operating cash flows before movements in working capital 5,961 4,572
Decrease in inventories 9,016 3,484
Increase in receivables (94) (754)
(Decrease)/increase in payables (9,911) 697
Cash generated by operations 4,972 7,999
Tax paid, net of refunds (503) (31)
Interest paid (1,079) (1,244)
Net cash derived from operating activities 3,390 6,724
All interest payments are treated as operating cash movements as they arise
from movements in working capital.
Reconciliation of debt
Liabilities
Revolving arising from Bank and cash balances
Bank credit Lease Preference financing £'000 Net
Group and loans facilities liabilities shares activities debt
Company: £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2021 8,062 8,000 1,278 812 18,152 (5,735) 12,417
Cash movement (875) (2,000) (539) - (3,414) 2,976 (438)
Non-cash movement - - 1,191 - 1,191 - 1,191
At 31 March 2022 7,187 6,000 1,930 812 15,929 (2,759) 13,170
Current liabilities 875 1,000 495 - 2,370 (2,759) (389)
Non-current liabilities 6,312 5,000 1,435 812 13,559 - 13,559
At 31 March 2022 7,187 6,000 1,930 812 15,929 (2,759) 13,170
Non-cash movements in lease liabilities relate to the reassessment of the
expected duration of one existing lease and one new lease that was entered
into during the year.
19. Legal contingent liability
Since 2015, the Company has been named as co-defendant in a number of legal
actions that have been initiated against certain of the vehicle manufacturers
which it represents. These actions contend that customers have been unfairly
treated as a result of their vehicles having been fitted with software which
is suggested by the claimant law firms to have operated such that when the
vehicles were experiencing test conditions, the emission levels of nitrogen
oxides ("NOx") were affected. The vehicles remain safe and roadworthy.
These claims on behalf of multiple claimants, arising out of or in relation to
their purchase or acquisition on finance of a vehicle affected by the NOx
issue, have been brought against a number of Jaguar Land Rover, Vauxhall,
Volkswagen Audi, SEAT and Skoda group entities and dealers, including the
Company. The Company has been named as a defendant on a number of 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, although not all of these
causes of action are being brought against the Company specifically.
In all cases brought to date, the relevant vehicle manufacturers listed above
have agreed to indemnify the Company for the reasonable legal costs of
defending the litigation and any damages and adverse legal costs that Caffyns
may be liable to pay to the claimants as a result of these legal actions. The
possibility, therefore, of an economic cost to the Company resulting from the
defence of these legal actions is remote.
At present, no timetable can be determined for the resolution of these cases
and the relevant issues of liability, loss and causation have not yet been
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.
Accordingly, no provision for liability has been made in these financial
statements.
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