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Caffyns PLC   -  CFYN   

Final Results

Released 07:00 03-Jun-2019

RNS Number : 8380A
Caffyns PLC
31 May 2019
 

Caffyns plc

Preliminary Results for the year ended 31 March 2019

 

Summary


 

2019

Restated 

2018


£'000

£'000




Revenue

209,246

215,868

  



Underlying* EBITDA

3,982

3,510




Underlying* profit before tax

1,445

1,390




Loss/(profit) before tax

(428)

1,165





p

p




Underlying* earnings per share

35.3

45.6




(Deficit)/earnings per share

(21.0)

38.2




Proposed final dividend per ordinary share

15.0

15.0




Dividend per share for the year

22.5

22.5


* Underlying profit before tax for the year represents loss before tax of £428,000 adjusted for non-underlying charges of £1,873,000 (see note 5). Underlying results exclude items that have non-trading attributes due to their size, nature or incidence. Underlying EBITDA represents Underlying profit before tax adjusted for interest charges of £1,181,000 (see note 6) and depreciation charges of £1,356,000 (see notes 11 and 12).

 

Overview

 

·    Like-for-like new car unit sales down 10.0% against a 2.8% fall in our market sector

·    Like-for-like used car unit sales up 5.9% against 2018

·    Aftersales revenue up 7.4% against 2018

·    Revenue down 3.1% to £209.2 million

·    Underlying profit before tax increased to £1.45 million (2018: £1.39 million)

·    Recommended dividend per ordinary share for the year maintained at 22.5 pence (2018: 22.5 pence)

·    Property portfolio revaluation as at 31 March 2019 showing an £11.2 million (2018: £10.3 million) surplus to net book value (not recognised in the accounts)

 

Commenting on the results, Simon Caffyn, Chief Executive said:

"Despite a challenging year, underlying profit before tax increased to £1.45 million from £1.39 million in the previous year."

 

Enquiries:

Caffyns plc

Simon Caffyn, Chief Executive

Tel:

01323 730201


Mike Warren, Finance Director


 

 

HeadLand

Francesca Tuckett

Tel:

0203 805 4822

 

Operational and Business Review

 

 

The year under review produced a 4% headline increase in underlying profit before tax to £1.45 million (2018: £1.39 million) although the story for the year was more nuanced. At our half-year stage, I highlighted the adverse impact on our brands that arose from the new emissions-testing regime, the Worldwide Harmonised Light Vehicle Test Procedure, commonly referred to as WLTP, which created a scarcity of supply of new cars for most of our brands. This was quickly rectified for some brands but, for others, the impact lingered well into the second half of the year and was a significant drag on both turnover and profits. As a result, our full year turnover fell by 3.1% to £209.2 million (2018: £215.9 million). However, in areas of the business that were not impacted by these external issues, we continued to achieve good growth with used car sales up by 5.9%, and service and parts revenues up by 7.7% and 7.3% respectively. Underlying earnings were also boosted by a compensation receipt, net of costs, of £0.3 million. This arose from an agreed settlement of a claim for trading losses caused by disruption from alterations and repairs required to one of our freehold premises. This credit appears in Other Income in these preliminary financial statements.

 

The statutory result before tax for the year was also heavily affected by several non-underlying items, the most significant of which was a £0.9 million charge for equalising the Guaranteed Minimum Pensions for the male and female members of our closed defined-benefit pension scheme, required following a legal precedent set in November 2018. The non-underlying items for the year are detailed in Note 5 to these preliminary financial statements.

 

Our statutory result before tax for the year was a loss of £0.4 million (2018: profit of £1.2 million). Basic deficit per share was 21.0 pence (2018: earnings of 38.2 pence).

 

Underlying earnings per share for the year were 35.3 pence (2018: 45.6 pence).

 

New and used car sales

Our new unit sales fell by 10.0% on a like-for-like basis as one of our principal manufacturers implemented an agency sales arrangement for certain classes of new car sales from April 2018 and also from the negative impact of WLTP. Excluding this one manufacturer, our new car sales would have shown growth of 2.2% against the prior year. In the year total UK new car registrations reported a 3.7% reduction whilst, within this total, new car registrations in the private and small business sector in which we principally operate fell by 2.8%. Although we experienced pressure on new car margins, our achievement of manufacturer bonus targets was pleasing with the result that an increase in unit new car gross profit partially helped to mitigate the fall in sales volumes in the year.

 

For used cars, unit sales volumes improved by 5.9% on a like-for-like basis, and with an improvement in unit used car margins. Over the last five-year period, the Company has recorded a 42% like-for-like growth in the number of used cars sold and we continue to see this element of our business providing a major opportunity for further growth. The number of used cars sold again exceeded the number of new cars sold in the year.

 

Throughout the year under review, we continued to upgrade our website with multiple enhancements to our customers' online searching capabilities, leading to an easier, more enjoyable car-buying experience.

 

Aftersales

Despite the falls in the UK new car market in the financial year under review, the number of one to three-year old cars in circulation remains historically at very high levels. Our three-year car parc has grown over the last five years and we are encouraged that our service revenues in the year have continued to rise, by 7.7% 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 sales growth, up by 7.3% on a like-for- like basis over the previous year.

 

Operations

The financial results from our Volkswagen businesses improved markedly in the year as operational performance issues experienced in the previous year were overcome and the division returned to profitable trading. Although new car sales volumes declined from last year's levels, this was more than mitigated by an increase in used car sales. Aftersales revenues, and profits, also improved against the prior year. We remain confident that the strength of the brand, the excellent model range and exciting new products will lead to further improvements in its future trading performance.

 

Our Volvo business in Eastbourne enjoyed an excellent year with the XC40 and V60 models being very positively received by customers. Our Volvo aftersales business also reported strong growth in profitability for the year. We continue to assess plans to expand our showroom facility to better accommodate these extra models and expect to commence the redevelopment in the current financial year.

 

Our Audi businesses experienced a very difficult year with the brand being particularly impacted upon by the introduction of WLTP, from 1 September 2018. New car supply was significantly constrained, and the brand reported a national 34% fall in registrations over the following seven months to our year-end at 31 March 2019. This was significantly worse than the 8% experienced by the overall UK market. This scarcity in supply adversely impacted profitability which fell by more than half against the previous year. New car supply has now largely returned to more normal levels and we look forward to improvements to profitability in this business.

 

In Tunbridge Wells, our SEAT business continued to perform well and, in conjunction with the adjacent Skoda business, continues to deliver healthy levels of profitability. Our Skoda business in Ashford also performed satisfactorily.

 

Our Vauxhall business in Ashford continued to experience challenging trading conditions in the year. However, Vauxhall's national new car registrations in the year were down by only 3% which was less than the decline in the overall UK market. Losses from the business were significantly less than experienced in the prior financial year.

 

Trading at Caffyns Motorstore, our used car business in Ashford, slowed in the year as the business suffered from growing pains although the concept has been very well received by our customers who particularly value the reassurance of the Caffyns brand. Management changes have been made since the year-end and we expect performance to improve.

 

Groupwide projects

We remain focused on generating further improvements in used car sales, used car finance and aftersales. These three key areas helped to achieve the increase in profitability in the year under review, with very pleasing growth continuing to be recorded in service labour sales. 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 showroom buying process, as well as improving aftersales retention.

 

Property

We operate primarily from freehold sites and our property portfolio provides additional stability to our business model. As in previous years, our freehold premises were revalued at the balance sheet date by chartered surveyors CBRE Limited based on an existing use valuation. The excess of the valuation over net book value of our freehold properties at 31 March 2019 was £11.2 million (2018: £10.3 million). This is after property impairments on two separate properties of £0.54 million and £0.40 million. In accordance with our accounting policies (which reflect those generally utilised throughout the motor retail industry), this surplus has not been incorporated into our accounts.

 

During the year, we incurred capital expenditure of £2.8 million (2018: £5.6 million). This included the completion of our new Audi "Terminal" facility at Angmering which opened in July 2018. This facility comprises two state-of-the-art new car configurator areas in addition to a ten-car showroom as well as extended used car display areas. The aftersales facility comprises a fourteen-bay workshop and innovative drive-through service reception area. The facility will enable the Worthing business to grow considerably and benefit from the development of new housing in the area. The business' previous base at Broadwater Road in Worthing was leased to a third party on a 15-year lease that commenced in February 2019.

 

Our freehold premises in Lewes remain leased until April 2020 to the purchaser of our former Land Rover business, which was sold in April 2016. The Board continues to evaluate future opportunities for the site.

 

Bank facilities

The Company's banking facilities with HSBC Bank 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 £7.5 million, both of which will next become renewable in March 2023. HSBC Bank also provides an overdraft facility of £3.5 million, renewable annually. In addition, the Company has an overdraft facility of £7.0 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 November 2023.

 

Bank borrowings, net of cash balances, at 31 March 2019 were £13.6 million (31 March 2018: £14.0 million) and as a proportion of shareholders' funds at 31 March 2019 were 49% (2018: 50%). The reduction in gearing in the year was primarily the result of cash generated from operating activities in the year.

 

Taxation

The year ended 31 March 2019 produced a tax charge of £0.1 million (2018: £0.1 million). The current year effective tax rate was significantly lower than the standard rate of corporation tax in force for the year of 19%, mainly due to movements in the tax liability on unrealised gains arising from the sale of properties and goodwill in prior accounting periods. The lower effective tax rate in the previous financial year was the result of an adjustment for an over-provision of tax of £0.14 million in the previous financial year.

 

The Company has no current outstanding trading or 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 £7.9 million (2018: restated as £9.0 million) which could equate to a future potential tax liability of £1.3 million (2018: restated as £1.5 million). The Company also has an amount of £1.1 million (2018: £1.1 million) of recoverable Advanced Corporation Tax ("ACT") and £0.7 million (2018: £0.8 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. However, given the inherent uncertainty in recovering this ACT, a partial impairment has been made to reduce the net deferred tax position to zero and we have not recognised a deferred tax asset at 31 March 2019.

 

As noted above, the Company identified an error in both its calculation and methodology of its potential deferred tax liability on held-over gains from property disposals and from accelerated capital allowances in prior accounting periods which had resulted in an overstatement of its deferred tax liability by £790,000 as at 1 April 2017. A prior year adjustment to the previously stated values has been made in these Financial Statements to correct this error.

 

Pension Scheme

The Company's defined benefit scheme was closed to future accrual in 2010. In common with many companies, the Board has little control over the key assumptions in the valuation calculations as required by accounting standards and the unprecedented low yields of gilts and bonds continues to have a significant impact on the net funding position of the scheme. In addition, the results for the year reflect the expected financial impact of equalising the Guaranteed Minimum Pensions of Scheme members. Therefore, it was very pleasing to note a narrowing of the deficit at 31 March 2019 to £8.6 million (2018: £9.5 million). The deficit, net of deferred tax, was £7.1 million (2018: £7.9 million).

 

In the previous financial year, the trustees appointed a fiduciary manager to the Scheme and the Board, together with the independent pension fund trustees, continues to review options to reduce the cost of operating the Scheme and reducing its deficit. Actions that could further reduce the risk profile of the assets and more closely match the nature of the Scheme's assets to its liabilities continue to be sought.

 

The pension cost under IAS 19 continues to be charged as a non-underlying cost and amounted to £249,000 in the year (2018: £236,000). In addition, the Income Statement has been charged with a non-underlying cost of £851,000 which is our best estimate of the financial impact of equalising Guaranteed Minimum Pensions between our male and female scheme members. This follows the legal guidance provided by the High Court in November 2018. The full process of equalisation will need to occur over a considerable period of time, but the estimated cost has been arrived at following advice from the Scheme's actuary.

 

A formal triennial valuation of the Scheme was last carried out as at 31 March 2017 and was submitted to the Pension Regulator prior to the 30 June 2018 deadline. A recovery plan to deal with the Scheme deficit identified from this triennial valuation was agreed with the trustees and, as a result, the Company made deficit-reduction contributions into the Scheme in the year of £480,000 (2018: £314,000). This annual recovery plan payment for the coming and each subsequent year will increase by the greater of either 2.25% or the growth in shareholder dividend payments until superseded by a new recovery plan to be agreed between the Company and the trustees. The next triennial valuation of the Scheme will take place with effect from 31 March 2020.

 

People

I am very grateful for the dedication of our employees and the effort they apply to provide our customers with a first-class experience. Across the Company the hard work and professional application of our employees has helped to minimise the fall in car sales volumes and to continue to grow our aftersales operations.

 

Nick Hollingworth will be retiring from the Board in July 2019, having served eleven years as a non-executive director. I, and other members of the Board, would like to thank him for his valuable contribution over that period. The search process for Nick's successor is well advanced and we expect to make an appointment by July.

 

Apprenticeships

The Company has a long tradition of investing in apprenticeship programmes and this continued alongside the new Government apprenticeship levy that was implemented from the start of our previous financial year in April 2017. Despite early teething problems experienced with the registration and accreditation processes of the new levy regime, our own apprenticeship numbers have increased year-on-year and we 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 currently anticipate that we will be able to fully utilise our levy payments within the stipulated time limits.

 

We remain firmly committed to the long-term benefits of apprenticeships and our recruitment programme continues with the aim of taking on an increasing complement in the coming year to assist the Company to grow.

 

Dividend

The Board remains confident in the future prospects of the Company and has therefore declared an unchanged final dividend of 15.0 pence per ordinary share. If approved at the Annual General Meeting, this will be paid on 2 August 2019 to ordinary shareholders on the register at close of business on 5 July 2019.

 

Together with the interim dividend of 7.5 pence per Ordinary share (2018: 7.5 pence) paid during the year, the total dividend for the year will be 22.5 pence per ordinary share (2018: 22.5 pence).

 

Strategy

Our continuing strategy is to focus on representing premium and premium-volume franchises as well as maximising opportunities for used cars. We recognise that we operate in a rapidly changing environment and continue to carefully monitor the appropriateness of this strategy. We continue to seek opportunities to invest in the future growth of our businesses.

 

We are concentrating on larger business opportunities in stronger markets to deliver higher returns on capital from fewer but bigger sites. We continue to deliver performance improvement, in particular in our used car and aftersales operations.

 

Outlook

We closed the year with a strong performance in the registration-plate change month of March. The current consensus for the 2019 calendar year is for a further single-digit fall in the UK new car market so we are cautious about the outlook and remain dependent on the key months of September and March. The vehicles emissions regime will undergo further change in September with the implementation of Real-Driving Emissions although we are hopeful that any constraint on new car supply will be considerably less than that caused by the implementation of WLTP in September 2018.

 

Our balance sheet is appropriately funded and our freehold property portfolio is a source of stability. We remain confident in the longer-term prospects of the Company and are ready to exploit future business opportunities.

 

S G M Caffyn 

Chief Executive

31 May 2019

 

Group Income Statement

for the year ended 31 March 2019


 

 

Note

 

 

2019

 

Restated

2018



£'000

£'000









Revenue


209,246

215,868





Cost of sales


(183,317)

(191,638)









Gross profit


25,929

24,230





Operating expenses








Distribution costs


(15,913)

(15,601)

Administration expenses


(9,843)

(6,951)









Operating profit before other income


173

1,678





Other income (net)


802

624









Operating profit


975

2,302









Operating profit before non-underlying items


2,626

2,325

Non-underlying items within operating profit

5

(1,651)

(23)









Operating profit


975

2,302









Finance expense

6

(1,181)

(935)

Finance expense on pension scheme

5

(222)

(202)









Net finance expense


(1,403)

(1,137)









(Loss)/profit before taxation


(428)

1,165









Profit before tax and non-underlying items


1,445

1,390

Non-underlying items within operating profit

5

(1,651)

(23)

Non-underlying items within finance expense on pension scheme

5

(222)

(202)









(Loss)/profit before taxation


(428)

1,165





Taxation

7

(138)

(135)









(Loss)/profit for the year


(566)

1,030













(Deficit)/earnings per share








Basic

8

(21.0)p

38.2p

Diluted

8

(21.0)p

38.1p









Non-GAAP measure : Underlying earnings per share








Basic

8

35.3p

45.6p

Diluted

 

8

35.3p

45.5p





The Revenue and Cost of sales for the Group for the prior year has been restated. This restatement arose as a result of commissions received from finance companies, which previously were incorrectly treated as a reduction to Cost of sales. These commissions are now reported as revenue and the prior year amounts have been reclassified accordingly. The reclassification had no impact on Gross profit.

 

Group Statement of Comprehensive Income

for the year ended 31 March 2019

 


 

 

Note

2019


2018



£'000


£'000

(Loss)/profit for the year



(566)


1,030

Items that will never be reclassified to profit and loss:






Remeasurement of net defined benefit liability



1,510


(1,048)

Deferred tax on remeasurement


   13

(257)


178

Total other comprehensive income/(expense), net of taxation



1,253


(870)

Total comprehensive income for the year



687


160

 

Group Statement of Financial Position

at 31 March 2019

 



 

Note

2019

£'000

 

Restated

2018

£'000

 

Restated

2017

£'000








Non-current assets














Property, plant and equipment


11

39,225


40,064

35,623

Investment property


12

8,169


6,893

6,986

Goodwill


10

286


286

286

Deferred tax asset


13

-


112

-


















47,680


47,355

42,895















Current assets














Inventories



34,468


30,398

29,904

Trade and other receivables



8,796


10,191

7,838

Current tax receivable



-


60

-

Cash and cash equivalents



3,908


3,375

2,321


















47,172


44,024

40,063















Total assets



94,852


91,379

82,958















Current liabilities














Interest bearing overdrafts, loans and borrowings



4,875


3,875

500

Trade and other payables



39,886


35,782

34,179

Current tax payable



103


-

197


















44,864


39,657

34,876















Net current assets



2,308


4,367

5,187








Non-current liabilities














Interest bearing loans and borrowings



12,625


13,500

10,375

Preference shares



812


812

812

Deferred tax liability


13

-


-

15

Retirement benefit obligations



8,576


9,497

8,554


















22,013


23,809

19,756















Total liabilities



66,877


63,466

54,632















Net assets



27,975


27,913

28,326















Capital and reserves







Share capital



1,439


1,439

1,439

Share premium account



272


272

272

Capital redemption reserve



707


707

707

Non-distributable reserve



1,724


1,724

1,724

Retained earnings



23,833


23,771

24,184















Total equity attributable to shareholders of Caffyns plc



27,975


27,913

28,326








 

Group Statement of Changes in Equity

for the year ended 31 March 2019

 

 

 


 

Share

capital

£'000

 

Share

premium

£'000

Capital

redemption

reserve

£'000

Non-distributable

reserve

£'000

 

Retained earnings

£'000

 

 

Total

£'000








At 1 April 2018, as previously stated

1,439

272

707

1,724

22,981

27,123

Correction to deferred tax liability

-

-

-

-

790

790

Change in accounting policy

-

-

-

-

(75)

(75)















At 1 April 2018, restated

1,439

272

707

1,724

23,696

27,838








Total comprehensive income














Loss for the year

-

-

-

-

(566)

(566)

Other comprehensive income

-

-

-

-

1,253

1,253















Total comprehensive income for the year

-

-

-

-

687

687








Transactions with owners:







Dividends

-

-

-

-

(606)

(606)

Share-based payment

-

-

-

-

56

56















At 31 March 2019

1,439

272

707

1,724

23,833

27,975








 

The correction to the opening deferred tax liability is detailed in Note 13 Deferred Tax.

 

The application of IFRS 15 led to an adjustment to the opening retained earnings of a reduction of £75,000.

 

 

 

for the year ended 31 March 2018

 

 

 

Share

capital

£'000

 

Share

premium

£'000

Capital

redemption

reserve

£'000

Non-distributable

reserve

£'000

 

Retained earnings

£'000

 

 

Total

£'000








At 1 April 2017

1,439

272

707

1,724

23,394

27,536

Correction to deferred tax liability

-

-

-

-

790

790















At 1 April 2017, restated

1,439

272

707

1,724

24,184

28,326








Total comprehensive income














Profit for the year

-

-

-

-

1,030

1,030

Other comprehensive expense

-

-

-

-

(870)

(870)















Total comprehensive income for the year

-

-

-

-

160

160








Transactions with owners:







Dividends

-

-

-

-

(606)

(606)

Share-based payment

-

-

-

-

33

33















At 31 March 2018

1,439

272

707

1,724

23,771

27,913








 

Group Cash Flow Statement

for the year ended 31 March 2019

 


Note


2019


2018




£'000


£'000







Net cash inflow from operating activities

14


3,759


662













Investing activities






Proceeds on disposal of property, plant and equipment



10


43

Purchases of property, plant and equipment and investment property



(2,755)


(5,545)













Net cash outflow from investing activities



(2,745)


(5,502)













Financing activities






Secured loans repaid



(875)


(8,000)

Secured loans received



-


11,500

Dividends paid



(606)


(606)













Net cash (outflow)/inflow from financing activities



(1,481)


2,894













Net decrease in cash and cash equivalents



(467)


(1,946)







Cash and cash equivalents at beginning of year



375


2,321













Cash and cash equivalents at end of year



(92)


375


































2019


2018




£'000


£'000







Cash and cash equivalents



3,908


3,375

Bank overdraft



(4,000)


(3,000)













Net cash and cash equivalents



(92)


375













 

Notes

for the year ended 31 March 2019

 

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 31 May 2019.

 

2.     ACCOUNTING POLICIES

 

The financial information has been prepared under International Financial Reporting Standards (IFRSs) issued by the IASB and as adopted by the European Commission (EC). This financial information has been prepared on the same basis as in 2018 with the exception of the implementation of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, both of which were implemented with effect from 1 April 2018 and the reassessment of the basis of assessing cash generating units ("CGUs"). The impact of these new standards on the financial statements for the year ended 31 March 2019 is detailed below.       

       
Whilst the financial information included in this announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2019 or 2018, but is derived from those accounts. Statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies and those for the year to 31 March 2019 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 2019 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 25 June 2019.

 

New accounting standards

The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 1 April 2018.

 

IFRS 9 Financial Instruments introduced extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduced a new 'expected credit loss' model for the impairment of financial assets. IFRS 9 also provided new guidance on the application of hedge accounting. The impairment model required recognition for any expected credit losses rather than being restricted to only those that have been incurred. The impact of applying IFRS 9 was not significant and did not result in a change to the Company's previously stated results and the measurement requirements of IFRS 9 did not result in a change to the carrying amounts of any financial assets or liabilities as previously stated.

 

IFRS 15 Revenue from Contracts with Customers presented new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related interpretations. The new standard established a control-based revenue recognition model and provided additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangement with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. The Company chose to implement the new standard through the recognition of the cumulative effect of the retrospective application of the new standard as at the beginning of the period of initial application on 1 April 2018, with no restatement of comparative periods.

 

The core principle of IFRS 15 is that an entity should recognise its revenue at the point in which the transfer of promised goods or services to customers is passed in exchange for consideration that the entity expects to receive in exchange for those goods and services. A full impact assessment of the standard was undertaken, and it was determined that revenue recognition remained consistent with the previous accounting policy with the exception of the income generated through commissions earned through the sale of finance agreements to purchase vehicles. The Company recognises finance commission income upon the sale of finance policies sold to customers to facilitate their vehicle purchase. In this instance, the Company is acting as an agent for various finance houses and the income is recognised when the customer receives the product. An adjustment is made to the transaction price to constrain the variable amount of consideration associated with finance commissions, in order to ensure that revenue is recognised only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This adjustment to constrain variable consideration represents a difference in the Group's accounting policy under IFRS 15 as compared to its previous revenue recognition policy under IAS 18. The impact of adopting and implementing IFRS 15 did not have a material effect on the Company's revenue recognition but led to an adjustment to the opening retained earnings of a reduction of £75,000.

 

Reassessment of the basis of assessing cash-generating units

In the prior year, the Group incorrectly based its impairment tests on cash generating units at a more aggregated level. This was based on an inappropriate interpretation of the requirements set out in IAS 36 'Impairment of assets', specifically in respect of the requirements to aggregate individual assets into CGUs at the lowest level at which cash inflows can be generated independently, where individual assets cannot generate cash inflows. In correcting their approach in the current period, the directors revisited the impairment tests undertaken in the prior year to assess whether an impairment charge would have arisen, had the correct basis of CGU assessment been applied in preparing the financial statements for the year ended 31 March 2018. The result of this exercise was that no impairment charge had arisen at 31 March 2018. The methodology applied and the key assumptions used in the impairment test as at 31 March 2018 are consistent with those disclosed in note 10, note 11 and note 12 in relation to Goodwill, Property, plant and equipment, and Investment properties, respectively.

 

Segmental reporting

Based upon the management information reported to the chief operating decision maker, the Chief Executive, in the opinion of the directors, the Company has one reportable segment. The Company physically operates and is managed from individual dealership sites although strategic and investment decisions are made based on dealership groupings or market territories. The Company's individual dealerships represent a range of manufacturers but are considered to have similar economic characteristics, such as margin structures, and offer similar products and services to a similar customer base. As such, the results of each dealership have been aggregated to form one reportable segment. There are no major customers amounting to 10% or more of revenue. All revenue and non-current assets derive from, or are based in, the United Kingdom.

 

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 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 of £7.5 million, of which £7.1 million was outstanding, and a revolving credit facility of £7.5 million, of which £4.0 million was utilised, from HSBC, its primary bankers. Both of these facilities are renewable in March 2023. HSBC also supply a short-term overdraft facility of £3.5 million, increased to £6.0 million for the months of March, April, September and October, which is renewed annually in August. The Company also has a 10-year term loan from VW Bank with a balance outstanding at 31 March 2019 of £2.4 million which is renewable in 2024 and a short-term overdraft facility of £7.0 million which is renewed annually in August, of which £4.0 million was utilised at 31 March 2019. The Company held cash balances of £3.9 million at year-end so net bank borrowings at 31 March 2019 were £13.6 million against available facilities at that date of £30.0 million. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed at their scheduled expiry dates. The overdraft and revolving credit facilities include certain covenant tests which were passed at 31 March 2019. The failure of a covenant test would render these facilities repayable on demand at the option of the lenders.

 

The directors have undertaken a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of this Annual Report which projects that the facility limits are not exceeded over the duration of the forecasts. These forecasts have made assumptions in respect of future trading conditions, particularly volumes and margins of new and used car sales, aftersales and operational improvements together with the timing of capital expenditure. The forecasts take into account these factors to an extent which the directors consider to be reasonable, based on the information that is available to them at the time of approval of these financial statements. These forecasts indicate that the Company will be able to operate within the financing facilities that are available to it and meet the covenant tests with sufficient margin for reasonable adverse movements in expected trading conditions.

 

The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing the 2019 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 benefits obligation

The Company has a defined benefit pension plan. The obligations under this plan 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 according to prevailing economic conditions. Details of assumptions used are provided in note 20 of the financial statements.

 

 At 31 March 2019, the net liability included in the statement of financial position was £8.6 million (2018: £9.5 million).

 

Impairment

The carrying value of property, plant and equipment and goodwill are tested annually for impairment as described in notes 10, 11 and 12 below. For the purposes of the annual impairment testing, the directors recognise 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 discounting future cash inflows (as described in detail in note 10). As a result of this review the directors considered it appropriate to impair the carrying value of property assets by £0.95 million (2018: £Nil) (see notes 10, 11 and 12).

 

Surplus ACT recoverable

The Company carries a balance of surplus unrelieved advanced corporation tax ("ACT") which can be utilised to reduce corporation tax payable subject to a restriction to 19% of taxable profits less shadow ACT calculated at 25% of dividends. Shadow ACT has no effect on the corporation tax payable itself but any surplus shadow ACT on dividends must be fully absorbed before surplus unrelieved ACT can be utilised. During the year, the Company partially impaired the value of the ACT by £301,000 in order to avoid recognising an overall deferred tax asset. Therefore, at 31 March 2019, the carrying value of surplus ACT is £835,000 (2018: £1,136,000) and shadow ACT is £672,000 (2018: £781,000). Uncertainty arises due to the estimation of future levels of profitability, levels of dividends payable and the reversal of deferred tax liabilities in respect of accelerated capital allowances and on unrealised capital gains. For example, a reduction in the Company's profitability could result in a delay in the utilisation of surplus unrelieved ACT. However, based on the Company's current projections, the directors have a reasonable expectation that the surplus ACT will be fully relieved against future corporation tax liabilities by 31 March 2027.

 

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 the payment is amortised over a two-year period from the date of relocation.

 

During the year the Group received a contribution of £255,000 from a brand partner toward the cost of developing the Angmering dealership. The contribution agreement was not specific as to whether the amount contributed was in respect of the capital expenditure incurred by the Group, or in respect of other operating activities (such as marketing) which the Group 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 the property, plant equipment assets associated with the Angmering dealership.

 

5.     NON-UNDERLYING ITEMS

 

The following amounts have been presented as non-underlying items in these financial statements:

 



2019

£'000


2018

£'000







Net (loss)/profit on disposal of property, plant and equipment

(6)


31












Other income (net)

(6)


31












Within operating expenses:




















Service cost on pension scheme

(27)


(34)


VAT claim recovery, net of costs

315


-


VAT compliance costs

(164)


(80)


Liquidation distribution received

27


-


Equalisation of Guaranteed Minimum Pensions

(851)


-


Property impairments

(945)


-


Property lease dilapidations

-


60













(1,645)


(54)












Non-underlying items within operating profit

(1,651)


(23)












Net finance expense on pension scheme

(222)


(202)












Non-underlying items within net finance income

(222)


(202)












Total non-underlying items before taxation

(1,873)


(225)


Taxation credit on non-underlying items

356


26












Total after tax

(1,517)


(199)






 

6.     FINANCE EXPENSE


 

2019

£'000


 

2018

£'000

Interest payable on bank borrowings

356


186

Vehicle stocking plan interest 

648


591

Financing costs amortised

105


86

Preference dividends (see note 10)

72


72

Finance expense

1,181


935





Interest payable on bank borrowings is after capitalising interest on additions to freehold properties of £55,000 (2018: £127,000) at a rate of 2.6% (2018: 2.5%).

 

 

7.     TAXATION

 



2019

£'000


2018

£'000







Current tax










UK corporation tax

(261)


(227)


Adjustments recognised in the period for current tax of prior periods

(22)


143












        Total

(283)


(84)












Deferred tax










Origination and reversal of temporary differences

21


1


Adjustments recognised in the period for deferred tax of prior periods

124


(52)












Total

145


(51)












Total tax charged in the Income Statement

(138)


(135)












 

 

The tax charge arises as follows:

 

2019

£000


 

2018

£'000







On normal trading

(494)


(161)


On non-underlying items (see note 5)

356


26












Total tax credited/(charged) in the Income Statement

(138)


(135)












 

The charge for the year can be reconciled to the profit per the Income Statement as follows:

 



2019

£'000


2018

£'000







(Loss)/profit before tax

(428)


1,165












Tax at the UK corporation tax rate of 19% (2018: 19%)

81


(221)


Tax effect of expenses that are not deductible in determining taxable profit

(12)


(25)


Difference between accounts profits and taxable profits on capital asset disposals

(1)


(2)


Other differences related primarily to the revaluation of the pension scheme and from property impairments

(173)


(76)


Movement in rolled over and held over gains

166


98


Impairment of Advanced Corporation Tax asset

(301)


-


Adjustment to tax charge in respect of prior periods

102


91












Tax charge for the year

(138)


(135)






 

The 'Adjustments to the current tax charge in respect of prior periods' as presented in the table above, relates to the tax treatment of the fixed asset additions for the Company's development at Angmering. In the prior year, the current year tax charge assumed 25% of the Angmering site costs would be qualifying for capital allowances, but the difference in the accounting and tax base cost were not taken into account when calculating the deferred tax. This resulted in a deferred tax prior period adjustment of £124,000 which has been shown within the current year tax credit, as an adjustment recognised in the period for deferred tax of prior periods.

 

Factors affecting the future tax charge

The Company has unrelieved advance corporation tax of £1.14 million (2018: £1.14 million) which is available to be utilised against future mainstream corporation tax liabilities and is accounted for in deferred tax.

 

The tax charge is impacted by the effect of non-deductible expenses including the impairment of property, plant and equipment, the charge for the equalisation of Guaranteed Minimum Pensions of members of the defined-benefit pension scheme and non-qualifying depreciation.

 

Prior year adjustment to deferred tax liability

The Company identified errors in both its calculation and methodology of its potential deferred tax liability on held-over gains from property disposals and from accelerated capital allowances in prior accounting periods which had resulted in an overstatement of its deferred tax liability by £790,000 as at 1 April 2017. A prior year adjustment to the previously stated values has been made in these Financial Statements to correct this error. The error impacted the deferred tax liability balance at 1 April 2017 and 31 March 2018 by the same amount. As a result, there is no impact on the Income Statement for the year ended 31 March 2018.

 

8.     EARNINGS PER SHARE

 

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the 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 post-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

 



2019

£'000


2018

£'000


2019

£'000


2018

£'000

 










 


(Loss)/profit before tax

(428)


1,165


(428)


1,165

 










 


Adjustments:








 


Non-underlying items (note 5)

1,873


225


-


-

 










 










 


Underlying profit/(loss) before tax

1,445


1,390


(428)


1,165

 










 


Taxation (note 7)

(493)


(161)


(138)


(135)

 










 










 


Underlying earnings/(deficit)

952


1,229


(566)


1,030

 










 










 


Underlying earnings/(deficit) per share

35.3p


45.6p


(21.0)p


38.2p

 










 










 


Diluted earnings/(deficit) per share

35.3p


45.5p


(21.0)p


38.1p

 










 


2019

£'000


2018

£'000

 





 





 





 

Underlying earnings

952


1,229

 

Underlying earnings per share

35.3p


45.6p

 

Diluted earnings per share

35.3p


45.5p

 





 





 

Non-underlying losses

(1,517)


(199)

 

Losses per share

(56.3)p


(7.4p)

 

Diluted losses per share

(56.3)p


(7.4p)

 




 





 

Total (deficit)/earnings

(566)


1,030

 





 





 

(Deficit)/earnings per share

(21.0)p


38.2p

 





 





 

Diluted (deficit)/earnings per share

(21.0)p


38.1p

 





 

 

The number of fully paid ordinary shares in circulation at the year-end was 2,694,790 (2018: 2,694,790). The weighted average shares in issue for the purposes of the earnings per share calculation were 2,694,790 (2018: 2,694,790). The shares granted under the Company's SAYE scheme have not been treated as dilutive as the market price at 31 March 2019 of £3.95 was less than the option price of £3.99.

 

9.     DIVIDENDS

 

Paid

2019


2018

 


£'000


£'000

 

Preference




 

7% Cumulative First Preference

12


18

 

11% Cumulative Preference

48


48

 

6% Cumulative Second Preference

12


12

 

Included in finance expense (see note 6)

72


72

 

Ordinary




 

Interim dividend paid in respect of the current year of 7.5p (2018: 7.5p)

202


202

 

Final dividend paid in respect of the March 2018 year end of 15.0p (2017: 15.0p)

404


404

 


606


606

 

 

Proposed

In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2019 of 15.0 pence per share which will absorb £404,000 of shareholders' funds (2018: 15.0 pence per share absorbing £404,000). The proposed final dividend is subject to approval by shareholders at the forthcoming Annual General Meeting and has not been included as a liability in these financial statements.

 

10.   GOODWILL


2019

£'000


2018

£'000









Cost:




A 1 April 2018 and 31 March 2019

481


481









Provision for impairment:

A 1 April 2018 and 31 March 2019

 

195


 

195









Carrying amounts allocated to cash generating units:

Volkswagen, Brighton

Audi, Eastbourne

 

200

86


 

200

86









At 31 March 2019

286


286





 

For the purposes of the annual impairment testing, goodwill is allocated to a CGU. Each GCU is allocated against the lowest level within the entity at which the 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 within 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 2019 and 2018.

 

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 the 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 flows and terminal value.

 

Period of specific projected cash flows (Volkswagen, Brighton)

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 2019 to 31 March 2024. These projections are based on the most recent budget which has been approved by the Board; the budget for the year ending 31 March 2020. They 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 external sources if 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 -5% (2018: 1%) to 70% (2018: 70%) have been used to forecast cash flows for a further four years beyond budget, through to 31 March 2024. These growth rates reflect the products and markets in which the CGU operates. Growth rates are internal forecasts based on both internal and external market information.

 

Discount rate

The cash flow projections have been discounted using a rate derived from the Group's pre-tax weighted average cost of capital adjusted for industry and market risk. The discount rate used is 12.4% (2018: 12.4%).

 

Terminal growth rate

The cash flows after the forecast period are extrapolated into the future over the useful economic life of the CGU using a steady or declining growth rate that it 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 applied in the value in use calculations to arrive at a terminal value is 0.5% (2018: 0.5%). Terminal growth rates are based on management's estimate of future long-term average growth rates.

 

Conclusion

At 31 March 2019 no impairment charge in respect of goodwill was identified (2018: 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.

 

11.   PROPERTY, PLANT AND EQUIPMENT











 

Freehold

Property

£'000

Assets

Under

Construction

£'000

 

Leasehold

Property

£'000

 

Fixtures

& fittings

£'000

 

Plant &

Machinery

£'000

Total

£'000

Cost or deemed cost








At 1 April 2018


37,410

3,869

690

4,876

5,595

52,440

Additions at cost


-

1,567

-

635

553

2,755

Transferred to Investment Properties

 


 

(2,098)

 

-

-

-

-

(2,098)

Transfers


5,436

(5,436)

-

-

-

-

Disposals


-

-

-

(707)

(62)

(769)

At 31 March 2019


40,748

-

690

4,804

6,086

52,328

Accumulated depreciation








At 1 April 2018


4,180

-

322

3,473

4,339

12,376

Depreciation charge for the year


544

-

62

391

252

1,248

Impairments for the year


545

-

-

-

-

545

Transferred to Investment Properties


(314)

-

-

-

-

(314)

Disposals for the year


-

-

-

(696)

(56)

(752)

At 31 March 2019


4,955

-

445

3,168

4,535

13,103

Net book amount:








At 31 March 2019


35,793

-

245

1,636

1,551

39,225

 

Additions to freehold property includes interest capitalised of £55,000 (2018: £127,000) (see note 6).

 

Depreciation and impairment charges of £1,793,000 (2018: £1,092,000) in respect of property, plant and equipment is recognised within administration expenses within the Income Statement.

 

In assessing the Company's CGUs for impairment, the directors base their assessment of the recoverable amount on the higher of fair value less selling costs and value in use. During the year, owing to a decline in the market value of the fixed assets at one freehold property, the fair value less selling costs of those assets declined by £545,000 to £7,963,000, and an impairment charge of £545,000 was recognised in the Income Statement, as part of Administration Expenses.

 

The fair value measurement of the CGU in its entirety is categorised as a Level 3 within the hierarchy set out in International Financial Reporting Standard 13 'Fair Value Measurement'. 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: £299

- Market value of site per acre: £2,187,000

- Costs of disposal: 1.5% of fair value

 

The Company valued its portfolio of freehold premises as at 31 March 2019. The valuation was carried out by CBRE Limited, Chartered Surveyors, in accordance with the Royal Institute 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 2019 of those sites valued was £11.2 million (2018: £10.3 million). In accordance with the Company's accounting policies, this surplus has not been incorporated into the accounts.

 

12.   INVESTMENT PROPERTIES

 

Group and Company

2019

£'000

Cost


At 1 April 2018

7,552

Transferred from Property, plant and equipment

2,098

At 31 March 2019

9,650

Accumulated depreciation


At 1 April 2018

659

Transferred from Property, plant and equipment

314

Depreciation charge for the year

108

Impairments for the year

400

At 31 March 2019

1,481

Net book amount:


At 31 March 2019

8,169

 

The Company owns a freehold property which is leased out to another motor retail group, and accordingly accounts for the property as an investment property. 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. During the year, owing to a decline in the market value of the investment property, the fair value less selling costs of that property declined by £400,000 to £5,269,000, and an impairment charge of £400,000 was recognised in the Income Statement, as part of Administration Expenses.

 

The fair value measurement of the that CGU in its entirety is categorised as a Level 3 within the hierarchy set out in International Financial Reporting Standard 13 'Fair Value Measurement'. The valuation technique that has been used to measure the fair value less costs of disposal is consistent with that applied in respect of the Company's freehold property portfolio and is set out in Note 11. The following are key assumptions on which the directors based their determination of fair value less costs of disposal in respect of that CGU:

- Market value of buildings per square foot: £211

- Market value of site per acre: £2,670,000

- Initial and reversionary yields: 6.74% and 7.0% respectively

- Costs of disposal: 1.5% of fair value

 

13.   DEFFERED TAXATION

The following are the major deferred tax assets and liabilities recognised by the Company and movements thereon during the current and prior reporting period.

 

Accelerated

tax depreciation

£'000

Unrealised

capital gains

£'000

Retirement

benefit obligations

£'000

 

Sale of business

£'000

Short-term temporary differences

£'000

 

Recoverable

ACT

£'000

 

 

Total

£'000

At 1 April 2017, as previously stated

Prior year adjustment

(1,334)

 

306

(1,265)

 

     484

1,454

 

-

(796)

 

-

-

 

-

1,136

 

-

(805) 

 

           790

At 1 April 2017, as restated

Re-measurement

(1,028)

-

 (781)

-

1,454

-

(796)

(52)

-

1,136

-

(15)

(52)

(Charge)/credit to income

(84)

98 

(19)

-  

-

1  

Recognised in other

comprehensive income

 

-

 

-

 

178

 

-

 

-

 

-

 

178

At 31 March 2018

(1,112)

(683)

1,613

(848)

6

1,136

112

 

At 1 April 2018, as restated

 

(1,112)

 

          (683)

 

1,613

 

(848)

 

6

 

1,136

 

112

Transfer

-

(848)

                  -

848 

-

-

-

Re-measurement

267

14


- 

(16)

-

265 

(Charge)/credit to income

(83) 

160

102 

-

2

(301)

(120)

Recognised in other

comprehensive income

 

-

 

-

 

(257)

 

-

 

-

 

-

 

(257)

At 31 March 2019

(928)

(1,357)

1,458

(8)

835

-  

 

The Company carries a balance of surplus unrelieved advanced corporation tax ("ACT") which can be utilised to reduce corporation tax payable subject to a restriction to 19% of taxable profits less shadow ACT calculated at 25% of dividends.

 

Shadow ACT has no effect on the corporation tax payable itself but any surplus shadow ACT on dividends must be fully absorbed before surplus unrelieved ACT can be utilised. The value of surplus ACT is £1,136,000 (2018: £1,136,000) and Shadow ACT is £672,000 (2018: £781,000). Given the inherent uncertainty over the timing of the utilisation of the ACT, a partial provision was taken in the year against the carrying value in order not to recognise an overall deferred tax asset. The carrying value of the ACT at 31 March 2019 is £835,000.

 

Deferred income 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:

 


2019

£'000

2018

£'000

Deferred tax liabilities

(2,293)

(2,643)

Deferred tax assets

2,293

2,755


- 

112

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 are no trading losses (2018: £Nil) available for use in future periods.

 

Prior year adjustment to deferred tax liability

The Company identified errors in both its calculation and methodology of its potential deferred tax liability on held-over gains from property disposals and from accelerated capital allowances in prior accounting periods which had resulted in an overstatement of its deferred tax liability by £790,000 as at 1 April 2017. A prior year adjustment to the previously stated values has been made in these Financial Statements to correct this error. The error impacted the deferred tax liability balance at 1 April 2017 and 31 March 2018 by the same amount, thus there is no impact on the income statement for the year ended 31 March 2018.

 

14.   NOTES TO THE CASH FLOW STATEMENT


 

2019

£'000


 

2018

£'000




(Loss)/profit before tax for the year

(428)


1,165

Adjustment for net finance expense

1,403


1,137





975


2,302

Adjustments for:




Depreciation of property, plant and equipment and investment properties

1,356


1,185

Impairment against property, plant and equipment and investment properties

945


-

Change in retirement benefit obligations

(511)


(341)

Loss/(profit) on disposal of property, plant and equipment

6


(31)

Share-based payments

56


33








Operating cash flows before movements in working capital

2,827


3,148





Increase in inventories

(1,662)


(494)

Decrease/(increase) in receivables

1,395


(2,353)

Increase in payables

2,500


1,637








Cash generated by operations

5,060


1,938





Tax paid, net of refunds

(120)


(341)

Interest paid

(1,181)


(935)








Net cash derived from operating activities

3,759


662





 

Reconciliation of net debt

 


 

Bank loans

£000

Revolving credit facility

£000

 

Net debt

£000





At 1 April 2017

3,375

7,500

10,875









Repayment

(500)

(7,500)

(8,000)

Proceeds

7,500

4,000

11,500









At 31 March 2018

10,375

4,000

14,375













Current liabilities

875

-

875

Non-current liabilities

9,500

4,000

13,500









At 31 March 2018

10,375

4,000

14,375

















At 1 April 2018

10,375

4,000

14,375









Repayment

(875)

-

(875)









At 31 March 2019

9,500

4,000

13,500













Current liabilities

875

-

875

Non-current liabilities

8,625

4,000

12,625









At 31 March 2019

9,500

4,000

13,500





 

In addition to the above, the Company held a bank overdraft, net of cash balance at bank as at 31 March 2019 of £92,000 (2018: cash balance of £375,000).

 

15.   CONTINGENT LIABILITIES

In September 2015, Volkswagen Aktiengesellschaft announced that certain diesel vehicles manufactured by Volkswagen, Skoda, SEAT and Audi, which contain 1.2, 1.6 and 2.0 litre EA 189 diesel engines were fitted with software which is thought to have operated such that when the vehicles were experiencing test conditions, the characteristics of nitrogen oxides ("NOx") were affected. The vehicles remain safe and roadworthy.

 

Technical measures have been approved by the German type approval authority, the Kraftfahrt-Bundesamt (the "KBA")  in respect of Volkswagen and Audi branded vehicles, by the UK type approval authority, the Vehicle Certification Agency (the "VCA") in respect of Skoda and certain SEAT branded vehicles, and by the Ministerio de Industria, Energía y Turismo (the "MDI") in respect of SEAT branded vehicles. The KBA and VCA have confirmed for all affected vehicles that the implementation of the technical measures does not adversely impact fuel consumption figures, CO2 emissions figures, engine output, maximum torque and noise emissions. The MDI is also content that the technical measures be applied to those SEAT vehicles for which they are the relevant approval authority.

 

We understand that to date in the region of 870,000 affected UK vehicles have now had the technical measures applied.

 

Notwithstanding the above, claims on behalf of multiple claimants, arising out of or in relation to their purchase, ownership or acquisition on finance of a Volkswagen Group vehicle affected by the NOx issue, have been brought or intimated against a number of Volkswagen entities and dealers, including Caffyns. To date, Caffyns has been named as a Defendant.on 13 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. As litigation progresses further, there is the potential for the number of claimants bringing claims against Caffyns to increase.

 

On 28 October 2016, one of the claimant firms served its application for a GLO. The application for the GLO was      finally heard by the Senior Master on 27-29 March 2018. At that hearing the Senior Master indicated that she would recommend to the President of the Queen's Bench Division that a GLO be made in the terms of the draft Order which was before her. The President of the Queen's Bench Division has since provided his consent to the GLO, and a sealed copy of the final GLO is currently awaited from the Court.

 

On 5-6 March 2019, the first case management conference ("CMC") took place. The Judge ordered that a trial of preliminary issues should take place on the following issues:

(i)             "Is the High Court of England and Wales bound by the finding of the competent EU type approval authority that a vehicle contains a defeat device in circumstances where that finding could have been, but has not been, appealed by the manufacturer; and/or is it an abuse of process for the Defendants to seek collaterally to attack the KBA's reasoning or conclusions by denying that the affected vehicles contain defeat devices?"; and

(ii)            "Where a vehicle's engine control unit is capable of identifying the New European Driving Cycle test and operates in a different mode during the test by altering the rate of exhaust gas recirculation to reduce NOx emissions, does the vehicle contain a "defeat device" within the meaning of Article 3(10) of Regulation 715/2007/EC?"

 

The preliminary issues trial will take place 2 December - 13 December 2019.

 

At present, the litigation is in its early stages, and therefore at this stage it is too early to assess reliably the merit of any such claim. Accordingly, no provision for liability has been made in these financial statements.

 

Notwithstanding the early stage of the litigation, Volkswagen has agreed to indemnify Caffyns 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 the litigation and the conduct of the Volkswagen Group. The possibility, therefore, of an economic cost to Caffyns resulting from the defence of the litigation is remote.


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