CAFFYNS PLC — Annual Report 2011

Mar 31, 2011

Caffyns Annual Report and Accounts 2011

Contents

Results at a Glance	1
Directors and Advisors	2
Operational and Business Review	3
Report of the Directors	7
Statement of Corporate Governance	14
Directors' Remuneration Report	18
Directors' Responsibilities	23
Report of the Independent Auditors	24
Income Statement	26
Statement of Comprehensive Income	27
Balance Sheets	28
Statement of Changes in Equity	29
Cash Flow Statement	30
Principal Accounting Policies	31
Notes to the Financial Statements	38
Five Year Review	64

Results at a Glance

Summary

	2011	2010
	£'000	£'000
Revenue	201,467	189,426
Adjusted EBITDA*	3,455	3,382
Adjusted operating profit*	2,311	2,152
Non-underlying items before tax	(1,167)	118
Adjusted profit before tax*	1,435	852
Profit before tax	268	970
Earnings per share	7.7p	38.6p
Adjusted earnings per share*	41.4p	35.7p
Final proposed dividend per share	7.0p	5.0p

* Adjusted for non-underlying items

Highlights

• Revenue up 6.4% to £201.5m
• Underlying profit before tax up by 68% to £1.44m
• Adjusted earnings per share up by 16%
• New car market share increased
• Used car unit sales up by 7.1% on a like-for-like basis
• Aftersales resilient with turnover increasing by 4.9% on a like-for-like basis
• Ratio of net bank borrowings to equity of 40% (2010: 47%)
• Seven non-strategic operations successfully closed
• Proposed final dividend of 7.0p per ordinary share (2010: 5.0p) making 12.0p in total for the year (2010: 10.0p)

Directors and Advisors

Honorary President	ALAN M CAFFYN DL C ENG MI MechE FIMI
Directors	S BRIAN BIRKENHEAD BSc (Hons) FCMA FID Chairman
	SIMON G M CAFFYN MA FIMI Chief Executive
	MARK S HARRISON FCA FIMI Finance
	GUY J AINSLEY MBA Operations
	SARAH J CAFFYN BSc (Hons) FCIPD AICSA FIMI Human Resources
	ANDREW R GOODBURN FCA Independent non-executive
	NICHOLAS W HOLLINGWORTH BSc Independent non-executive
Bankers	HSBC BANK plc Global House, High Street, Crawley RH10 1DL
	NATIONAL WESTMINSTER BANK plc Turnpike House, 123 High Street, Crawley RH10 1DQ
Independent Auditors	GRANT THORNTON UK LLP Registered Auditors, Chartered Accountants Grant Thornton House, Melton Street, Euston Square, London NW1 2EP
Company Secretary	SARAH J CAFFYN BSc (Hons) FCIPD AICSA FIMI
Registered Office	Meads Road, Eastbourne, East Sussex BN20 7DR Telephone (01323) 730201

Results

In the year to 31 March 2011 revenue has increased by 6.4% to £201.5m from £189.4m last year despite the sale or closure of seven sites during the year. Likefor-like revenue is up by 8.5%.

Underlying profit before tax rose by 68% to £1.44m from £852,000 last year. The major restructuring of the Group is now largely completed incurring nonunderlying costs of £1.17m during the year. These one-off costs reduced profit before tax to £268,000 from £970,000 last year.

Adjusted earnings per share increased to 41.4p (2010: 35.7p). Basic earnings per share were 7.7p (2010: 38.6p).

Operating Review

During the year we successfully implemented our strategy of improving performance and efficiency across the core businesses. Seven underperforming operations were closed, central support services were reduced by £0.3m and productivity improved.

The key achievements during the year to 31 March 2011 were:

• Revenue growth of 6.4% with growth in ongoing businesses up 8.5%, despite the closure or sale of seven operations.
• Underlying profit before tax up 68% to £1.44m from £852,000. Core continuing businesses further improved profitability despite pressure on margins.
• Like-for-like new car unit sales down 5.5% against a fall of 16.5% in our market segment indicating an increase in market share.
• Like-for-like used car unit sales up 7.1% against a flat market.
• We have agreed plans with our strategic franchise partners to develop existing and new sites.
• Seven non-strategic operations successfully closed allowing us to concentrate on key franchise partners.
• In our remaining sites we continued to increase operational effectiveness through improvements to facilities, operational processes and significant investment in training and development.

In summary the major restructuring exercise has produced a more profitable core business with fewer, better businesses.

New and Used Cars

Total UK new car registrations fell 7% in the 12 month period to 31 March 2011 and were down 16.5% in the private and small business sector in which we operate. Against this backdrop our like-for-like new car unit sales were down only 5.5% indicating a continuing increase in our market share. Our premium and premium-volume franchises continue to perform well and new car margins have strengthened.

Like-for-like used car unit sales were up 7.1% compared to a generally flat market. However competitive pressures have reduced margins.

Aftersales

Annual new car registrations remain at levels well below pre-recession figures and we have seen a further reduction in the overall size of the zero to five year old car servicing market.

Despite this it is encouraging that we continue to increase our aftersales turnover with like-for-like sales up 4.9% as a result of our continued focus on customer retention.

Restructuring

During the year we closed or sold seven underperforming businesses, enabling us to focus attention on our core premium and premium-volume franchises. Since October 2008 we have reduced our representation from 15 manufacturers to nine and the number of businesses has reduced from 28 to 19.

In Uckfield we sold a small Citroën business to another local operator but retained the freehold on a maximum four-year lease. The aftersales operation in Hailsham has closed along with the bodyshop business. We closed our Eastbourne Nissan and Chevrolet businesses which operated from a building constructed in the 1960s which was no longer fit for purpose. We own the freeholds of both the Hailsham and Eastbourne sites and these are being marketed for sale.

Our Tunbridge Wells bodyshop has been closed which will allow us to expand the used car and service elements of the Vauxhall dealership on this site.

We have closed our small retail Ford dealership in Haslemere and consolidated operations into the larger site in Alton. The freehold in Haslemere was sold in February for £475,000.

In April 2011 we also announced the unconditional sale of our premises in Sevenoaks. The franchise agreements with Peugeot and Citroën expired at the end of May 2011 and a strong offer for the freehold fitted well with our overall strategy. Funds of £1.75m were received on 31 May 2011.

In addition to these closures and sales we have further reduced central costs and branch administration costs on an annualised basis by over £300,000 p.a.

These actions have resulted in significant nonunderlying costs of £1.17m largely comprising redundancy and closure costs. These one-off costs are greater than anticipated at the time of the Interim Management Statement announced in February 2011 because further cost saving measures were taken prior to 31 March including additional redundancy charges. However, the overall cash flow has been positive following stock reduction and freehold sales. The funds generated by these actions will be invested in growing our remaining dealerships and in acquiring strategically aligned businesses as and when the appropriate opportunities arise.

Developments and Investments

In Lewes we have relocated our Land Rover aftersales business into a state-of-the-art facility and have started the building of a new showroom to give us greater new car space and a significantly enlarged used car display.

Our Volkswagen businesses will be expanded to meet the new Volkswagen corporate standards allowing us to grow our businesses in line with or ahead of Volkswagen's aspirations for enhanced market share by 2013.

Both Audi and Skoda are performing well and we have an opportunity to grow market share with their next generation of cars.

Finance and Working Capital

Net bank borrowings reduced in the year by £1.4m to £8.1m representing 40% of shareholders' funds (2010: 47%).

The Group has available bank facilities comprising revolving credit facilities of £8m and overdraft facilities of £10m. A revolving credit facility of £3m as at 31 March 2011 was due for repayment in December 2011 and is thus shown as a current liability in the balance sheet. However, since the year end, the repayment date has been extended to May 2012 to coincide with the repayment date of the other revolving credit facility of £5m. Discussions have commenced with the Company's bankers to renew both facilities beyond May 2012.

Vehicle stock levels at the year end were higher than normal largely due to higher used car stocks following the registration plate change in March. While the number of units increased by 5.0% over the previous year end, the average value per unit increased by 16.8% reflecting the move towards the premium and premium-volume sector. Since the year end, stock levels have reduced to more normal levels.

Property

Our property portfolio is an important aspect of our business and we operate primarily from freehold properties as well as some leasehold.

In addition to the property sale at Haslemere already mentioned, we also sold our vacant freehold site in East Grinstead for £1.0m receiving the proceeds in March 2011.

We now have four vacant freehold sites for potential sale, namely those in Upperton Road, Eastbourne, Hailsham, Goring-by-Sea and Preston Road, Brighton. As indicated, the first two sites closed in March 2011 and are currently being marketed. Our site in Goring-by-Sea has recently received a planning approval for change of use and we expect a lease to be granted to the applicant shortly, after which we shall offer the freehold of this site for sale. We announced in April that Brighton and Hove City Council rejected an application for change of use at our site in Preston Road, Brighton and our options are currently being reviewed. On 31 May 2011 we announced that we had exchanged contracts for the sale of our freehold property in Alton, Hampshire for £1.807m conditional upon a satisfactory planning application for change of use. If the planning application is successful, completion will take place in November 2012. The site trades as a Ford franchise and it is intended that the business will be transferred to alternative premises.

The Company has undertaken a valuation of its portfolio of freehold premises as at 31 March 2011. The valuation was carried out by CB Richard Ellis Limited, chartered surveyors, on the basis of existing use value. The excess of the valuation over net book value as at 31 March 2011, excluding the four sites which were either for sale or available for letting as at that date, was £6.3m. In accordance with the Company's accounting policies, this surplus has not been incorporated into the accounts.

In May 2011, the Company signed a contract to build a new showroom in Lewes, East Sussex at our Land Rover dealership at a cost of £1.9m. Work on the building has started and it is expected to open by the end of 2011.

Pension Scheme

The pension scheme deficit decreased to £5.5m at 31 March 2011 from £6.4m at 31 March 2010 mainly due to the improvement in asset values in the year. The Recovery Plan agreed with the Trustees following the actuarial valuation at 31 March 2008 required cash payments of £120,000 per annum in the two years to 31 March 2011 and a further £1.44m payable over a maximum period of eight years. Payments in respect of the Recovery Plan to the Scheme in the year to 31 March 2012 are expected to amount to £180,000.

We closed our defined benefit scheme to future accrual with effect from 1 April 2010. Continued provision of pension benefits will be available to existing employees through the alternative defined contribution scheme which has been available to new members of staff joining the Company since April 2006.

People

I am very grateful to all our employees for their positive approach during a time of change. It is always difficult to close down dealerships and we regret the loss of jobs. However, we start the current year with a stronger franchise portfolio.

I am particularly pleased that our apprentice programme has been so successful with two of our technician apprentices winning awards for excellent performance on their manufacturer programmes.

Two of our senior Land Rover technicians also achieved great success in the Jaguar Land Rover Technician of the Year awards with Andy Young declared Land Rover Technician of the Year for the third year running.

Our commitment to customer satisfaction is clearly demonstrated by our scores in manufacturer surveys and reflects the enthusiasm and commitment shown by employees across the Company.

Dividend

The Board has decided to recommend a final dividend of 7.0p per Ordinary Share (2010: 5.0p). If approved at the Annual General Meeting this will be paid on 28 July 2011 to shareholders on the register at close of business on 24 June 2011. Together with the interim dividend of 5.0p per share paid during the year (2010: 5.0p), the total dividend for the year will be 12.0p per Ordinary Share (2010: 10p).

Strategy

Our strategy is to focus on representing premium and premium-volume franchises which have proven to be more resilient and deliver stronger sales, profits and returns, despite the general economic difficulties.

Our concentration on improving our operational processes is now beginning to produce sustained benefits to profitability. The closure of loss-making and sub-scale businesses has freed up capital and management time to concentrate on performance improvements at sites with robust future profit potential and to return to sustainable levels of profitability achieved historically.

We will do this by using the proceeds from the sale of properties and closed businesses to invest in larger business opportunities in strong markets with the potential to develop higher rates of return on sales.

Outlook

We enter the year having completed a substantial restructuring of our business. We have a strong balance sheet and an excellent franchise portfolio with investment plans scheduled and underway. Our costs are lower and our structure more robust yet flexible. We continue to improve our market share in tough market conditions and enter the current year with strong new car order books.

The effects of public spending cuts are difficult to predict but we believe that we are well placed to take advantage of any upturn. We expect to show further growth this year but future economic conditions remain uncertain and our approach will inevitably have to be cautious.

S G M Caffyn

Chief Executive 3 June 2011

The directors present their report and financial statements for the year ended 31 March 2011.

Results and dividends

The results of the Group for the year are set out in the financial statements on pages 26 to 63. An interim dividend of 5.0p per share was paid to shareholders on 14 January 2011. The Board is recommending a final dividend of 7.0p per share (2010: 5.0p) making a total of 12.0p per share (2010: 10p). Total ordinary dividends paid in the year amounted to £283,000. Dividends paid in the year to preference shareholders were £102,000 as set out in note 9 to the financial statements.

Principal activities and business review

The Group's principal activities are the sale and maintenance of motor vehicles including the sale of tyres, oil, parts and accessories. Certain information required by the Companies Act 2006 to be included in the Directors' Report is contained in the Operational and Business Review on pages 3 to 6. The Operational and Business Review principally covers the development and performance of the business and the external environment. Other requisite disclosures are contained within the Directors' Report, which includes the principal risks and uncertainties affecting the business. The main financial KPIs of the Group are turnover, profit before tax, earnings per share, unit sales, gearing and cash flow from operations.

Principal risks and uncertainties

Risk is an accepted part of doing business and the Group has a risk assessment process that facilitates the identification and mitigation of risk. While the risk factors listed below could cause our actual future results to differ materially from expected results, other factors could also adversely affect the Group and they should therefore not be considered to be a complete set of all potential risks and uncertainties. The risk factors should be considered in connection with the statement on internal control and risk management included in the Statement of Corporate Governance on pages 16 and 17. Other financial risk management factors are referred to in notes 15 and 17 to the financial statements.

(i) Business conditions and the UK economy

The profitability of the Group could be adversely affected by a worsening of general economic conditions in the United Kingdom, where all of its business is transacted, including factors such as interest rates, unemployment, fuel prices, inflation, indirect taxation, the availability and cost of credit and other factors which affect levels of consumer confidence. In the event of an economic downturn similar to that recently experienced, there is likely to be an oversupply of new vehicles leading to reduced margins. This could have an adverse impact on earnings of the Group although it is likely that this would be mitigated by potential increases in the used car and aftersales markets as customers substitute nearly new for new cars or spend more keeping their old vehicles roadworthy.

(ii) Manufacturer sales incentives

A significant proportion of the Group's income is generated from manufacturer sales incentive programmes. Vehicle manufacturers incentivise dealers through programmes structured to include a fixed payment once a pre-determined target level of new cars for each manufacturer is registered by a dealership. These targets are fixed for each calendar year. Dealers then had the option of either registering new vehicles or reducing prices in order to meet sales targets. This risk can be mitigated by close monitoring of performance against objectives taking remedial sales action where necessary.

(iii) Used car prices

Used car prices can decline significantly. A large proportion of the Group's business comprises used car sales and these declines can have a material impact through reduced profits on sales and write-downs in the value of inventories. Close monitoring of the ageing of vehicle stocks and a firm policy of stock management help to mitigate this risk.

(iv) Franchise agreements

Caffyns operates franchised motor car dealerships. These franchises are awarded to the Group by the motor car manufacturers. Failure to continue to hold franchises could result in a significant reduction in the profits of the Group as our rights to source new vehicle stocks, perform warranty repairs and display vehicle manufacturer trade marks would cease. By representing nine marques, the Group believes that this diversity reduces the potential impact on the Group.

(v) Vehicle manufacturer dependencies

The Group relies on its manufacturer partners for its revenue and profits. The Group has attempted to mitigate this risk by having trading relationships with a large number of manufacturers so that the impact of any one manufacturer failing would be reduced. However, in the event that a manufacturer failed, it is inevitable that there would be short-term costs incurred and a loss of revenue while affected businesses were refranchised or sold.

(vi) Liquidity and financing

Liquidity and financing risks relate to our ability to pay for goods and services enabling us to trade. Our principal sources of finance are from our bankers by way of committed borrowing facilities, from manufacturers to fund the purchases of stock and trade credit from our suppliers. A withdrawal of facilities, or failure to renew them when due, could lead to a significant reduction in the trading ability of the Group. The Group works closely with providers of finance to help reduce this risk. The status of the Group's bank facilities is set out in note 17.

(vii) Regulatory compliance

The Group is subject to regulatory compliance risk which could arise from a failure to comply fully with the laws, regulations or codes applicable. For example, non-compliance with the regulations of the Financial Services Authority could lead to fines, enforced suspension from sales of general insurance products or public reprimand. Government policy on transport could adversely affect the Group's profitability if customers choose to use alternative forms of transport. Internal control structures are in place in order to mitigate these potential risks.

(viii) Information systems

The Group is dependent upon certain business critical systems which, if interrupted for any length of time, could have a material effect on the efficient running of the Group's businesses. The Board has implemented a series of contingency plans which would enable the Group to resume operations within a short space of time, thus mitigating the likelihood of material loss.

(ix) Competition

Caffyns competes with other franchised vehicle dealerships, private buyers and sellers, internet based dealers, independent service and repair shops and manufacturers who have entered the retail market. The sale of new and used vehicles, the performance of warranty repairs, routine maintenance business, bodyshop repairs and the supply of spare parts operate in highly competitive markets. The principle competitive factors are price, customer service and knowledge of a manufacturer's brands and models.

(x) Changes in EU legislation in relation to the distribution and sale of vehicles

The distribution and sale of vehicles is currently regulated by EU competition law contained in the Motor Vehicle Block Exemption Regulation. This Regulation enables the normal competition rules to be varied and allow restricted networks of distributors and repairers to be established. This approach is due to the relatively high value and technical complexity of motor vehicles. Changes to this legislation could adversely affect the Group's trading activities. The current regulatory regime expires in June 2013, when both new vehicle distribution and motor repair will be brought under the parallel block exemption covering agreements for the distribution of all types of goods and services. Certain changes as regards specific regulation of the aftermarket have taken effect from June 2010. Limited additional sector specific provisions, tailored to the motor retail markets, have been put in place. On the whole, these measures reflect a more permissive regime of competition regulation for the primary motor retail market, which could potentially have an adverse effect on franchised business operations.

(xi) Pension scheme

The Group operates a defined benefit pension plan which was closed to new entrants in 2006 and closed to future accrual with effect from 1 April 2010. The plan relies upon achieving satisfactory investment returns sufficient to meet the present value of the accrued liabilities. Reduced investment returns or higher liabilities due to increased mortality rates could adversely affect the surplus or deficit of the scheme and may result in increased cash contributions in future.

Directors

The directors in office at 31 March 2011 are set out below:

Mr S B Birkenhead BSc (Hons) FCMA FID (age 69) joined the Board on 1 January 2004 and was appointed chairman on 8 August 2008. He is currently chairman of Trustees at a Serco Pension Scheme. Previously, he has been a non-executive director of a number of public and private companies, was the Group finance director of National Power plc from 1988 to 1996 and from 1995 to 1997 was chairman of the Hundred Group of Finance Directors.

Mr A R Goodburn FCA (age 64) joined the Board as a non-executive director on 1 February 2004. He was finance director of Ricardo plc until 5 January 2007 at which date he retired, having formerly spent 11 years in various financial and commercial roles within the Bowthorpe Group, followed by 13 years in management consulting before joining Ricardo in 1993.

Mr N W Hollingworth BSc (age 59) joined the Board as a non-executive director on 1 March 2008. He graduated from Birmingham University in 1973 having read chemistry. He is currently Group Chief Executive of Austin Reed Group Limited, formerly Austin Reed plc which de-listed from the London Stock Exchange in January 2007, having formerly held senior management roles within Arcadia Group plc, Etam plc and The Burton Group plc.

Mr S G M Caffyn MA FIMI (age 50) joined the Board on 16 July 1992 and was appointed chief executive on 1 May 1998. He graduated from Cambridge in 1983 having read engineering, and subsequently worked for Andersen Consulting. He joined the Company in 1990.

Mr M S Harrison FCA FIMI (age 57) joined the Board on 17 April 2000. A Chartered Accountant, he was previously finance director of Faupel Trading Group plc for nine years. Having qualified with Grant Thornton, he joined KPMG. Subsequent commercial appointments were in the property, retail and distribution sectors.

Mr G J Ainsley MBA (age 46) joined the Company in September 2009 and the Board on 25 November 2009 as operations director. He has extensive experience in the motor industry, having held senior management positions with Nissan and Inchcape UK, and has an MBA from Henley Management College.

Miss S J Caffyn BSc (Hons) FCIPD AICSA FIMI (age 42) joined the Board on 28 April 2003 as human resources director. She joined the Company on 27 April 1998 as Group personnel manager and was appointed Company secretary in 1999. A Chartered Company Secretary, she was previously an HR manager at St Mary's NHS Trust, Paddington.

Appointment and replacement of the Company's directors

The rules for the appointment and replacement of the Company's directors are detailed in the Company's Articles of Association. Directors are appointed by ordinary resolution at a general meeting of holders of ordinary shares or by the Board either to fill a vacancy or as an addition to the existing Board. The appointment of non-executive directors is on the recommendation of the Nominations Committee; the procedure is detailed in the Statement of Corporate Governance on page 15.

Powers of the Company's directors

Subject to the Company's Memorandum and Articles of Association, relevant legislation and any directions given by special resolution, the Company and its Group are managed by its Board of directors. The directors have been authorised to make market purchases of the Company's Ordinary Shares. These powers are exercised under authority of resolutions of the Company passed at its Annual General Meeting. Further details of resolutions the Company is seeking are set out in the explanatory notes to the notice of Annual General Meeting.

Directors' indemnity and insurance

The Company's Articles of Association permit the Board to grant the directors indemnities in relation to their duties as directors in respect of liabilities incurred by them in connection with any negligence, default, breach of duty or breach of trust in relation to the Company. In line with market practice, each director has the benefit of a deed of indemnity. The Company has also purchased insurance cover for the directors against liabilities arising in relation to the Company, as permitted by the Companies Act 2006. This insurance does not cover fraudulent activity.

Compensation for loss of office

In the event of an executive director's employment with the Company being terminated, Mr S G M Caffyn is entitled to receive from the Company a sum equivalent to twice his annual emoluments which applied immediately before his termination and Mr M S Harrison, Mr G J Ainsley and Miss S J Caffyn are entitled to receive from the Company a sum equivalent to their annual emoluments which applied immediately before their termination. Emoluments include a proportion of the available bonus which the expired part of the measured period for bonus bears to the whole of such measurement period. If there is change in control of either the composition of the Board, the policy of the Company in General Meeting or 30% or more of the issued equity capital of the Company, Mr S G M Caffyn is entitled to elect for an early retirement pension which shall not be reduced due to early payment. The executive directors' service contracts commenced from the date of their appointment to the Board.

In the event of the chairman's employment with the Company being terminated, he is entitled to receive from the Company a sum equivalent to six months salary.

In the event of a non-executive director's employment with the Company being terminated, he is entitled to receive from the Company a sum equivalent to one month's salary.

Share capital

As at 31 March 2011, the issued share capital of the Company comprised of Ordinary Shares of 50p each and three classes of preference share namely 6.5% Cumulative First Preference Shares of £1 each, 10% Cumulative Preference Shares of £1 each and 6% Cumulative Second Preference Shares of 10p each. Details of the share capital of the Company are set out in note 22 to the accounts. While the Company did not issue any shares during the period under review, it did purchase 60,881 ordinary shares in the market. These shares are held as treasury shares in respect of the Company's share schemes. The rights and obligations attaching to the Company's shares are set out below and in the Company's Articles of Association, copies of which can be obtained from Companies House or by writing to the Company Secretary.

Rights and obligations attaching to shares

Subject to applicable statutes and other shareholders' rights, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide.

Holders of Ordinary Shares are entitled to attend and speak at general meetings of the Company, to appoint one or more proxies (and, if they are corporations, corporate representatives). Holders of Ordinary Shares are entitled to receive a dividend if one is declared and receive a copy of the Company's annual report and accounts.

Holders of Cumulative First Preference Shares are entitled in priority to any payment of dividend on any other class of shares, to a fixed cumulative preferential dividend at the rate of 6.5% per annum.

Subject to the rights of the holders of Cumulative First Preference Shares, holders of 6% Cumulative Second Preference Shares of 10p each are entitled in priority to any payment of dividend on any other class of shares to a fixed cumulative preferential dividend at the rate of 6% per annum.

Subject to the rights of the holders of Cumulative First Preference Shares and 6% Cumulative Second Preference Shares of 10p, holders of 10% Cumulative Preference Shares of 10p each are entitled in priority to any payment of dividend on any other class of shares to a fixed cumulative preferential dividend at the rate of 10% per annum.

The percentage of the total share capital represented by each class is as follows:

Authorised	£'000	%
500,000 6.5% Cumulative First Preference Shares of £1 each	500	12.35
1,250,000 10% Cumulative Preference Shares of £1 each	1,250	30.86
3,000,000 6% Cumulative Second Preference Shares of 10p each	300	7.41
4,000,000 Ordinary Shares of 50p each	2,000	49.38
	4,050	100.00
Allotted, called up and fully paid
389,000 6.5% Cumulative First Preference Shares of £1 each	389	14.54
648,000 10% Cumulative Preference Shares of £1 each	648	24.22
2,000,000 6% Cumulative Second Preference Shares of 10p each	200	7.47
Total preference shares recognised as a financial liability	1,237	46.23
2,879,298 Ordinary Shares of 50p each	1,439	53.77
	2,676	100.00

Voting rights, restrictions on voting rights and deadlines for voting rights

Shareholders (other than any who, under the provisions of the Articles of Association or the terms of the shares they hold, are not entitled to receive such notices from the Company) have the right to receive notice of, and attend, and to vote at all general meetings of the Company. The Company's auditors have similar rights except that they may not vote. A resolution put to the vote at any general meeting is to be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is properly demanded.

Every member present in person at a general meeting has, on the calling of a poll, one vote for every Ordinary Share of 50p nominal amount of share capital of which he is the holder and one vote for every 6% Cumulative Second Preference Share of 10p nominal amount of share capital of which he is the holder. In the case of joint holders of a share, the vote of the member whose name stands first in the register of members is accepted to the exclusion of any vote tendered by any other joint holder. Unless the Board decides otherwise, a shareholder may not vote at any general or class meeting or exercise any rights in relation to meetings while any amount of money relating to his shares remains outstanding.

A member is entitled to appoint a proxy to exercise all or any of their rights to attend and speak and vote on their behalf at a general meeting. Further details regarding voting at the Annual General Meeting can be found in the notes to the Notice of the Annual General Meeting. To be effective, paper proxy appointments and voting instructions must be received by the Company's registrars no later than 48 hours before a general meeting.

There are no restrictions on the transfer of Ordinary Shares in the Company other than certain restrictions which may be imposed pursuant to the Articles of Association of the Company, certain restrictions which may from time to time be imposed by laws and regulations (for example in relation to insider dealing), restrictions pursuant to the Company's share dealing code whereby directors and certain employees of the Company require prior approval to deal in Company's shares, and where a person has been served with a disclosure notice and has failed to provide the Company with information concerning the interests in those shares.

The Company is not aware of any arrangements or agreements between shareholders that may result in restrictions on the transfer of Ordinary Shares or on voting rights.

Repurchase of shares

The Company purchased 60,881 of its own Ordinary Shares with an aggregate nominal value of £30,440 (2.1% of the called up Ordinary Share capital) during the year at a cost of £284,000. These shares are being held as treasury shares in respect of the Company's share schemes. Details of the Company's share capital are given in note 22 to the financial statements.

Sharesave Scheme

The Company encourages employee share ownership through the provision of a Save As You Earn (SAYE) scheme, administered by the Yorkshire Building Society. The scheme was launched in March 2010 and applications received from 137 employees. The share options for 130,046 Ordinary Shares granted under the scheme in May 2010 are exercisable upon expiry of a three year savings contract at a predetermined price of £3.50 per share.

Articles of Association

The Company's existing Articles of Association were adopted by special resolution passed on 23 July 2008 and may only be amended by special resolution at a general meeting of the shareholders.

Significant direct or indirect shareholdings

At 2 June 2011, the directors are aware of the following interests in 3% or more of the nominal value of the Ordinary Share capital (excluding treasury shares):

	Ordinary Shares	%
T & I Limited	207,900	7.45
R J M Caffyn	139,323	5.00
GAM Exempt UK Opportunities Fund	136,234	4.88
GAM UK Diversified Fund	135,766	4.88
HSBC Republic Bank Suisse SA	128,349	4.60
Caffyns Pension Fund	125,570	4.50
EPS Enhancing Earnings Limited	114,000	4.09
A M Caffyn	108,336	3.88
K E Caffyn	104,804	3.76
Lady D A Caffyn	95,011	3.41
HSBC Global Custody	90,000	3.23
M I Caffyn	86,500	3.10

Significant Agreements

The Company has entered into a number of franchise agreements which, in aggregate, are significant and ordinarily would be terminable upon a change of control of the Company.

• Our dealerships operate under franchised new vehicle dealer agreements and authorised repairer agreements with various vehicle manufacturers. Without a franchise agreement, it is not generally possible to obtain new vehicles from a manufacturer or display vehicle manufacturer trade marks. Whilst some of the franchise agreements contain provisions entitling the vehicle manufacturers to terminate in the event of a change of control, this entitlement is circumscribed by the applicable EC Regulation 1400/2002 (commonly known as the Motor Vehicle Block Exemption) which says that, in the event of a change of control, a vehicle manufacturer is unable to terminate either the franchise agreements or authorised repairer agreements held by the Group if the new controlling entity already holds that manufacturers' brand of franchise.
• Facilities agreements dated 8 May 2009 with HSBC Bank plc and 7 January 2010 with Royal Bank of Scotland plc under which the banks agreed to make available revolving facilities to the Company up to aggregate sums of £5m and £3m respectively. In the event of a change of control, both banks are able to cancel the facilities at which time all sums due under the facilities become immediately due and payable.

Employees

The Company supports the recruitment of disabled people wherever possible. Priority is given to those who become disabled during their employment. They all have opportunities for training, career development and promotion in accordance with their skills and abilities. The Company continues its practice of keeping all its employees informed on matters affecting them by means of a periodic newsletter, and takes account of the views of employees wherever possible.

Charitable and political contributions

Donations to charitable organisations amounted to £6,441 (2010: £6,095). No contributions were made to political organisations.

Environment

The Company is aware of its environmental responsibilities arising from its motor retailing and aftersales activities and recognises that some of its activities affect the environment. The Company's Health and Safety Officer has received formal training in environmental management and is appropriately qualified in this field. The Company's policy is to promote and operate processes and procedures which, so far as is reasonably practicable, avoid or minimise the contamination of water, air or the ground. Licences are obtained from the relevant authorities where required to operate certain elements of the Company's business. Waste is disposed of by authorised contractors and is recycled where possible. Special care is taken in the storage of fuel, oils and paints and their associated equipment. Through the management of these activities, the Company seeks to minimise any adverse effects of its activities on the environment.

The Group aims to encourage the reduction of energy and water consumption and audit processes are in place to measure usage and make recommendations for improvements. An electrical test monitoring regime is in force throughout the Group. Use of the latest building materials is made in the construction of new sites and the refurbishment of existing locations. For instance, water recycling units were installed during the last major refurbishment undertaken by the Company.

Health and safety

The Company recognises its responsibility to members of staff and others working or visiting its facilities to provide, so far as is reasonably practicable, an environment which is safe and without risk to their health. The main Board maintains ultimate responsibility for health and safety issues with a qualified health and safety officer responsible on a day-to-day basis, supported by all levels of management. The Company's policy is to identify potential hazards and assess the risks presented by its activities and to provide systems and procedures which allow staff to take responsible decisions in their work in relation to their own and others' safety. The Company promotes awareness of potential risks and hazards and implementation of corresponding preventative or remedial actions through its online health and safety systems, operations manuals and monthly communication on topical issues. With clear lines of operating unit responsibility, staff are supported by specialist guidance from the Company's Health and Safety Officer. All of the Company's staff have access to a detailed health and safety guide.

Creditors payment policy and practice

It is the Company's policy to settle the terms of payment with all its suppliers at the time an order is placed, ensuring that suppliers are aware of the terms of payment and to abide by the agreed terms. At 31 March 2011 the Company's outstanding purchase ledger balances represented 25 days' purchases (2010: 27).

Property

The Company valued its portfolio of freehold premises as at 31 March 2011 but excluding four sites which were either for sale or letting as at that date. The valuation was carried out by CB Richard Ellis Limited, chartered surveyors, on the basis of existing use value. The excess of the valuation over net book value as at 31 March 2011 was £6.3m. In accordance with the Company's accounting policies, this surplus has not been incorporated into the accounts.

Post-balance sheet events

Contracts were exchanged for the sale of the Company's freehold site in Sevenoaks, Kent for £1.75m on 6 April 2011. This site ceased trading on 31 May 2011. The consideration was paid in cash on 31 May 2011.

The Company has agreed since 31 March 2011 the extension of the repayment date for its £3m revolving credit facility from January 2012 to May 2012.

On 26 May 2011, the Company signed a contract with a firm of building contractors in the sum of £1.8m in respect of the redevelopment of the Land Rover dealership in Lewes, East Sussex.

On 31 May 2011 the Company announced that contracts were exchanged for the sale of the Company's freehold site in Alton, Hampshire, conditional upon the purchaser obtaining a satisfactory planning permission for change of use. If successful, the consideration of £1.807m would be payable in cash on 27 November 2012.

Auditors

Grant Thornton UK LLP has indicated its willingness to continue as independent auditor and a resolution concerning its reappointment will be proposed at the Annual General Meeting.

By order of the Board

S J Caffyn

Company Secretary 3 June 2011

Compliance

The Board is committed to maintaining high standards of corporate governance, the process by which the Group is directed and managed, risks are identified and controlled and effective accountability is assured.

The Listing Rules require the Board to report on compliance with the provisions set out in the Combined Code on Corporate Governance ("the Code"), the guiding principle of which is to "comply or explain". This Corporate Governance Report explains the key features of the Company's corporate governance structure, how the Company applies the principles of the Code and the extent to which the Company complies with the Code. This report should be read in conjunction with the Directors' Remuneration Report on pages 18 to 22.

The Board considers that the Company has complied with the Code throughout the year, except as noted below:

One director has a service contract which runs for more than 12 months which does not comply with Code provision B.1.6 (see Directors' Remuneration Report). This does not comply with the Code requirement that such periods should be for one year or less. The Remuneration Committee has reviewed the position and decided that the existing contract should not be changed as the Committee considered that it was not in the best interests of the Company.

The Audit and Remuneration Committees include the chairman of the Company as a Committee member. This does not comply with provisions B.2.1 and C.3.1 which requires that both Committees should comprise solely independent non-executive directors. The Committees both concluded that it was in the best interests of the Company for the chairman to be a member of both committees in view of the small number of non-executive directors and to provide additional experience.

The board

The Board is responsible for approving the Group's policy and strategy. It meets at least eight times per year and has a schedule of matters specifically reserved to it for decision (such as approval of published financial information, major capital expenditure and acquisitions and disposals). The Board reviews the strategic direction of individual trading businesses, their annual budgets and their progress towards achievement of those budgets. The Board has overall responsibility for corporate governance and policy matters affecting the Company's stakeholders, the Group's system of internal control, including financial control, and risk management. It also oversees the Group's record on health and safety and environmental matters.

In the year ended 31 March 2011 the Board met on nine occasions at which all directors participated. Management supply the Board with appropriate and timely information and the directors are free to seek any further information they consider necessary. All directors have access to advice from the Company Secretary and independent professionals at the Company's expense. Training is available for new directors and other directors as necessary and new directors are also subject to a formal induction process.

The Board consists of the chairman, four executive directors who hold the key operational positions in the Company, and two other non-executive directors who bring a breadth of relevant experience and knowledge. The non-executive directors are independent of management and any significant business or other relationship which could interfere with the exercise of their independent judgement. This provides a balance whereby an individual or small Group cannot dominate the Board's decision making.

The chairman of the Board is Mr S B Birkenhead who is responsible for running the Board. The Board is responsible to shareholders for the overall direction and control of the Company, and the Company's chief executive, Mr S G M Caffyn, is responsible to the Board for management of the Company within parameters set by the Board. The Board has named Mr A R Goodburn as the senior independent non-executive director and Mr N W Hollingworth is also an independent non-executive director.

All directors are subject to re-election every three years and, on appointment, at the first Annual General Meeting after appointment.

Board Committees

The membership of the Board Committees is as follows:

Audit Committee Remuneration Committee Nominations Committee A R Goodburn (chairman) N W Hollingworth (chairman) S B Birkenhead (chairman) S B Birkenhead S B Birkenhead A R Goodburn N W Hollingworth A R Goodburn N W Hollingworth

S G M Caffyn

The Audit Committee has written terms of reference which include reviewing the annual and interim financial statements before they are approved by the Board, and monitoring the internal and external auditing processes. The Committee considers the independence and objectivity of the external auditors and the level of fees payable for both audit and non-audit work. Details of the non-audit related fees are shown in note 3 to the financial statements. The Committee met three times during the year and all members were present, and such meetings are attended, by invitation, by the finance director, the head of the internal audit function and representatives of the Company's external auditors, at the chairman's discretion.

The Audit Committee reviews all published accounts (including interim reports) and post audit findings before their presentation to the Board, focussing in particular on accounting policies, compliance, management judgement and estimates. It also monitors the Group's internal audit and risk management regime (including the effectiveness of the internal audit function and the appropriateness of "whistleblowing" procedures) and financial reporting The Audit Committee is also responsible for advising the Board on the appointment of auditors, assessing their independence and formulating policy on the award of non-audit work. Non-audit work is only awarded to the auditors after due consideration of matters of objectivity, independence, costs, quality of service and efficiency.

Non-audit services provided by the Company's auditors are kept under review by the Audit Committee. These will generally be other compliance services in the field of taxation advice. The Audit Committee ensures that the auditors' objectivity and independence are safeguarded through the use of separate teams of staff and by ensuring that the level of fees is not material to either the Group or the auditors. The report from Grant Thornton UK LLP confirming their independence and objectivity was reviewed by the chairman of the Audit Committee and the finance director. The level of fees paid to Grant Thornton UK LLP for non-audit services has been reviewed by the Audit Committee and is not perceived to be in conflict with auditor independence.

As part of this year's decision to recommend the reappointment of the auditors, the Audit Committee has taken into account the tenure of the auditors and the need to consider at least every five years whether there should be a full tender process. There are no contractual obligations that act to restrict the Audit Committee's choice of external auditors.

As a consequence of its satisfaction with the results of the activities outlined above, the Audit Committee has recommended to the board that the external auditors are reappointed.

The Remuneration Committee's responsibilities extend to determining both the Company's broad policy for executive remuneration and the terms and conditions of employment of the executive directors, including their remuneration. Details of the activities of the Remuneration Committee are set out in the Directors' Remuneration Report on pages 18 to 22. The Committee met twice during the year and all members were present.

The Nominations Committee has written terms of reference including making recommendations to the Board concerning the appointment of directors. The Committee met three times during the year. All members of the Committee were present at these meetings.

The written terms of reference for all three committees are available on the Company's website at www.caffynsplc.co.uk or on request from the Company's registered office.

Further significant commitments of the chairman

The external commitments of Mr S B Birkenhead comprises one chairmanship. This other appointment does not prevent the chairman from undertaking his commitments to the Company.

Caffyns plc 15

Performance evaluation

The Board has established a procedure to evaluate its own performance, its committees and individual directors. The directors completed detailed questionnaires and debated the matters arising at Board meetings.

Individual director evaluation showed that each director (including those seeking re-election at the Annual General Meeting in 2011) continues to demonstrate commitment to the role. The non-executive directors, led by the senior independent non-executive director, carried out a performance evaluation of the chairman after taking account of the views of the executive directors. The chairman has reviewed the performance of the non-executive directors and the chief executive. The chief executive has reviewed the other executive directors. The Board intends to carry out further performance evaluations but will keep under review the method and frequency.

Relations with shareholders

The Board values the constructive views of its shareholders and recognises their interest in the Group's strategy and performance, Board membership and quality of management. The views of major shareholders are reported back to the Board as appropriate. The nonexecutive directors have also attended a number of meetings with major shareholders. The principal methods of communication with private investors are the Interim Statement, the Annual Report and the Annual General Meeting. Information on the Company is also included on its website at www.caffynsplc.co.uk.

The AGM is used to communicate with investors and they are encouraged to participate. The chairmen of the Audit, Remuneration and Nominations Committees are available to answer questions. Separate resolutions are proposed on each issue so that they can be given proper consideration and there is a resolution to approve the Annual Report and Accounts. The Company counts all proxy votes, and after it has been dealt with by a show of hands, will indicate the level of proxies lodged on each resolution.

Accountability and audit

The Annual Report provides information on and an assessment of the Group's business, operations, financial position and prospects. The responsibilities of the directors as regards the accounts are described on page 23 and those of the auditors on page 24.

The Board is responsible for maintaining a sound system of internal controls, including financial, operational and compliance controls and risk management, and reviews the effectiveness of the system at least annually in order to safeguard shareholders' investment and the Group's assets. The system is designed to manage rather than eliminate risk and can provide only reasonable and not absolute assurance against material misstatement or loss.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that has been in place for the year under review and up to the date of approval of the Annual Report and Accounts, and that this process is regularly reviewed by the Board.

The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed.

Management are responsible for the identification and evaluation of significant risks applicable to their areas of business together with the design and operation of suitable internal controls. These risks are assessed on a regular basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe, customer or supplier actions and regulatory requirements.

The process used by the Board is to review the effectiveness of the system of internal control including a review of legal compliance, health and safety and environmental issues on a six monthly basis. Insurance and risk management and treasury issues are reviewed annually or more frequently if necessary. In addition, the Audit Committee reviews the scope of audits, the half yearly and annual financial statements (including compliance with legal and regulatory requirements) and reports to the Board on financial issues raised by both the internal and external audit reports. Financial control is exercised through an organisation structure which has clear management responsibilities with segregation of duties, authorisation procedures and appropriate information systems. The system of annual budgeting with monthly reporting and comparisons to budget is a key control over the business and in the preparation of consolidated accounts.

There is an ongoing programme of internal audit visits to monitor financial and operational controls throughout the Group. The executive directors receive regular reports from the internal audit and health and safety monitoring functions which include recommendations for improvement.

Report of the directors

Disclosures relating to significant shareholders, rights of classes of share, restrictions on voting rights, the process for amending the Company's Articles of Association and powers of the directors are covered in the Report of the Directors on pages 7 to 13.

Going concern

The directors are satisfied that, after making enquiries, the Group is in a sound financial position with adequate resources to continue in operation for the foreseeable future. In forming this view, the directors have reviewed detailed financial trading and cash flow forecasts and other financial information. These forecasts indicate that the Group will be able to operate within the financing facilities that are available to it, with sufficient margin for reasonable adverse movements in expected trading conditions. They have also taken into consideration that the Group's banking facilities remain available to them and are appropriate given the Group's current and medium-term plans. While the revolving credit facilities are due for renewal in less than 12 months from the date of these financial statements, the directors have no reason to believe that the facilities will not be renewed at a level appropriate to the Group's requirements. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Information concerning the Group's liquidity and financing risk are set out on page 8 of the Report of the Directors and note 17 to the financial statements.

Auditors' independence

The Company has reviewed its relationship with its auditors, Grant Thornton UK LLP, and concluded that there are sufficient controls and processes to ensure the required level of independence. Consequently, there are no plans to replace Grant Thornton UK LLP, whose reappointment is proposed as set out in the Notice of Annual General Meeting.

Approved by order of the Board

S J Caffyn Company Secretary 3 June 2011

UNAUDITED INFORMATION

The Remuneration Committee

The Remuneration Committee determines, on behalf of the Board, the Company's policy on executive directors' remuneration and the individual remuneration packages of executive directors within the framework of this policy. The membership of the Remuneration Committee comprises two independent non-executive directors, Mr N W Hollingworth (who chairs the Committee) and Mr A R Goodburn, together with the chairman of the Company, Mr S B Birkenhead. The Remuneration Committee has access to independent advice where it considers it appropriate. The Committee also sets the performance targets for any performance related incentives applicable to executive directors, and determines the policy for, and scope of, their pension arrangements and service contract terms relating to benefits in kind and severance. The Committee is also responsible for ensuring that the Company gives due regard to best practice and complies with all applicable regulations in relation to executive remuneration.

The terms of reference of the Committee, which are available on the Company's website, are that it determines, without reference to the Board, the pay and benefits of the executive directors in the light of the recommendations of the chief executive (other than in relation to himself). It is also responsible for reviewing and recommending appropriate incentive schemes for directors and employees.

Remuneration policy

The policy is to ensure that the directors are fairly rewarded for their individual contribution to the Group's overall performance. Executive directors' remuneration packages are designed to attract, motivate and retain directors of the calibre necessary to achieve the Group's objectives and to ensure that the Group is managed successfully in the interests of shareholders. In assessing the appropriate level and structure of remuneration for each individual, regard is given to the necessity to pay a competitive basic rate as well as ensuring that the overall package takes into account levels of remuneration elsewhere in the Group. Any incentives paid in addition are linked to corporate performance. The remuneration policy is designed to ensure that all incentive arrangements are linked to company performance and the criteria set for full vesting of incentives are suitably challenging. There are four main elements to the executive directors' remuneration packages:

a) Basic annual salary and benefits in kind

The Committee reviews each executive director's basic salary annually with effect from 1 April in each year. In deciding upon appropriate levels of remuneration, the Committee has regard to rates of pay for similar jobs in comparable companies in the sector as well as internal factors such as performance. Benefits provided include company cars, membership of the Company's medical insurance scheme and payment of business related subscriptions. Given the prevailing economic conditions, base salaries of executive directors other than Mr G J Ainsley, who became a director on 25 November 2009, have not increased since 1 April 2008.

b) Annual bonus

The Committee awards annual bonuses to executive directors based upon their performance and that of the Group in the financial year. For the year ending 31 March 2012, the bonuses have been set on a tapering scale calculated on a profit before tax and nonunderlying items and after charging all such bonuses of £1.2m at which no bonus is payable, £2.0m at which 33% of basic salary is payable, £3.0m at which 60% of basic salary is payable and £3.5m at which up to 100% is payable. Profit before tax is measured after accruing for such bonuses and bonus earned between targets is apportioned on a straight-line basis.

c) Long-term Incentive Plan

Executive directors participate in the LTIP, which was approved by shareholders at the Annual General Meeting in July 2009. Awards to directors are rights to acquire shares in the Company for a nominal payment to the extent that stretching performance conditions are satisfied over a three year period. Performance conditions are set at the time of the award and no variation can be made to such performance conditions which makes them materially easier to satisfy unless the shareholders approve such variation. Shares acquired under the LTIP must be retained until five years from the date of the grant of the award, subject to the participant being able to sell sufficient shares to fund the income tax and national insurance liabilities arising on the acquisition of the shares. Awards are not pensionable. Further details are set out in note 19 to the financial statements.

d) Pensions

Executive directors are eligible to join the Company's staff pension scheme on the same terms as staff generally. In accordance with the rules of the Company pension scheme, applicable to all members of the scheme, bonuses are pensionable. As a result of the changes in pensions legislation effective from 6 April 2006, the Company has paid a salary supplement to the chief executive in lieu of the employers' contribution to the Company's pension scheme. The defined benefit scheme operated by the Company was closed to future accrual with effect from 1 April 2010, from which date executive directors are eligible to join the Company's defined contribution scheme on the same terms as staff generally.

Directors' service contracts

Mr S G M Caffyn has a two-year rolling service contract. It is the Remuneration Committee's view that this contract is fully in the Company's interest and indeed it would be disadvantageous to the Company to seek to revoke this contract in order to enforce a change in the terms. Policy with regard to new contracts entered into with executive directors in the future will take into account all relevant factors, including the need to attract and retain high quality executive talent and the most appropriate balance between length of notice period, remuneration and other aspects of employment contracts. The terms covering compensation for loss of office are set out on page 9.

Mr M S Harrison, Miss S J Caffyn and Mr G J Ainsley have one-year rolling contracts. The non-executive directors do not hold service contracts with the Company.

Interests in shares

The interests of the directors and their families in the shares of the Company are as follows:

	As at 31 March 2011			As at 31 March 2010
	Ord	10% Pref	Ord	10% Pref
S B Birkenhead	3,000	–	3,000	–
S G M Caffyn	41,774	1,600	41,774	1,600
M S Harrison	5,000	–	5,000	–
G J Ainsley	–	–	–	–
S J Caffyn	20,398	1,655	20,398	1,655
A R Goodburn	3,000	–	3,000	–
N W Hollingworth	2,500	–	2,500	–

There were no changes in the directors' shareholdings between 1 April and the date of this report.

Mr S G M Caffyn and Miss S J Caffyn are directors of Caffyn Family Holdings Limited which owns all of the 2,000,000 6% Cumulative Second Preference Shares which have full voting rights.

The market price of the Company's Ordinary Shares at 31 March 2011 was £5.00 and the range of market prices during the year was £4.25 and £5.00.

Share price performance graph

The following graph shows the Company's performance, measured by total shareholder return, ("TSR"), in comparison to the FTSE Small Cap Index for the past five years. TSR represents share value growth, assuming that dividends paid are reinvested. The Company has been benchmarked against the FTSE SmallCap Index, which is considered to be an appropriate comparison to other public companies of a similar size.

AUDITED INFORMATION

Directors' Emoluments

							2011		2010
					In lieu of		Company		Company
	Basic				pension		pension		pension
	salary			Sub–	contri–	2011	contri–	2010	contri
	and fees	Bonus	Benefits	total	butions	Total	butions	Total	butions
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Executive directors
S G M Caffyn	249	21	13	283	7	290	–	367	–
M S Harrison	170	14	8	192	–	192	7	225	17
G J Ainsley	130	11	6	147	–	147	5	100	3
S J Caffyn	81	7	6	94	–	94	4	87	9
Non-executive directors
S B Birkenhead	55	–	–	55	–	55	–	55	–
A R Goodburn	20	–	–	20	–	20	–	20	–
N W Hollingworth	20	–	–	20	–	20	–	20	–
	725	53	33	811	7	818	16	874	29

Remuneration of non-executive directors

The non-executive directors receive a fee which is agreed by the Board, following a recommendation by the executive directors. They currently receive a fee of £19,800 per annum with the exception of the chairman during the year who received a fee at the rate of £54,500 per annum. There has been no change to these rates since 1 April 2008.

Pensions

Three executive directors are members of the Company's defined benefit pension scheme ("the DB Scheme") at the year end (2010: three). Executive directors' pensions are provided by the DB Scheme, which provides a pension of a maximum of two-thirds of final salary in respect of benefits accrued up to 31 March 2006. With effect from 1 April 2006, the accrued benefits of these directors will be on a "career average" basis and based upon earnings in each financial year. There is a widow's pension of half the director's pension and a death in service benefit of three times salary. The DB Scheme closed to future accrual with effect from 1 April 2010.

The executive directors who are members of the DB Scheme are eligible for a pension of up to two-thirds of total salary excluding benefits at normal retirement age of 65. Pensions for executives are provided on a contributory basis through the Group pension scheme. The value of share options or other benefits does not form part of pensionable salary. The pension scheme provides for the payment of benefits on death or disability. The following pension benefits accrued to directors from the Company:

		Additional accrued	Total annual
		benefits earned in	accrued pension
		the year	at 31 March 2011
		£'000	£'000
S G M Caffyn		4	97
M S Harrison		1	29
S J Caffyn		1	29
	Transfer	Transfer	Increase in
	value	value	transfer value
	at 31 March	at 31 March	less directors'
	2011	2010	contributions
	£'000	£'000	£'000
S G M Caffyn	1,764	1,585	179
M S Harrison	487	456	31
S J Caffyn	262	247	15

The primary reason for the significant increase in the transfer values is due to the rise in the equity markets during the year. The changes in the year exclude the elements due to inflation and transferred-in benefits.

Normal retirement age is 65. The directors' current ages are as stated on page 8 and 9. On early retirement before age 65, accrued pension is discounted by 4% per annum simple, except where the Company consents to early retirement between 60 and 65, and then no discount would be applied in respect of accrued benefits earned up to 31 March 2011. Along with other employees who were employed by the Company in the year ended 31 March 1991, Mr S G M Caffyn is entitled to retire at age 60 on an unreduced basis. Pensions paid increase in line with Limited Price Indexation. On death, a one-half spouse's pension is due. Children's allowances to a maximum, including spouse's pension, of 100% of the executive's pension may be payable. Allowance is made in transfer value payments for discretionary benefits.

M S Harrison, G J Ainsley and S J Caffyn were members of the Company's defined contribution scheme during the year.

The non-executive directors are not members of the Company's pension scheme.

Long-term incentive plan

Executive directors participate in a performance incentive share plan designed to deliver a market competitive contribution to total remuneration relative to companies of a comparable size. Performance conditions attached to these awards are intended to reward achievements against budget related targets and the creation of shareholder value.

Share incentive awards have been made as follows:

	Earliest Number at						Number at
	Date of	Shares	exercise	Expiry	Exercise	31 March	31 March
	grant	awarded	date	date	price	2011	2010
S G M Caffyn	6 Aug 2009	25,225	6 Aug 2012	6 Aug 2019	£0.50	25,225	25,225
M S Harrison	6 Aug 2009	17,246	6 Aug 2012	6 Aug 2019	£0.50	17,246	17,246
S J Caffyn	6 Aug 2009	8,217	6 Aug 2012	6 Aug 2019	£0.50	8,217	8,217
G J Ainsley	2 Sep 2009	9,785	2 Sep 2012	2 Sep 2019	£0.50	9,785	9,785

In addition, directors are eligible to participate in the Company's SAYE Scheme open to employees in general.

N W Hollingworth

Chairman of the Remuneration Committee 3 June 2011

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and the profit or loss of the parent Company and Group for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as each of the directors is aware:

• there is no relevant audit information of which the Company's auditors are unaware; and
• the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Operational and Business Review and Report of the Directors includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Approved by order of the Board

S G M Caffyn M S Harrison

3 June 2011

Chief Executive Finance Director

Independent auditors' report to the members of Caffyns plc

We have audited the financial statements of Caffyns plc for the year ended 31 March 2011 which comprise the Group and parent Company income statements, the Group and parent Company statements of comprehensive income, the Group and parent Company balance sheets, the Group and parent Company statements of changes in equity, the Group and parent Company cash flow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 23, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 March 2011 and of the Group's and the parent Company's profit for the year then ended;
• the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
• the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the information given in the Statement of Corporate Governance set out on pages 14 to 17 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made;
• we have not received all the information and explanations we require for our audit; or
• a Statement of Corporate Governance has not been prepared by the Company.

Under the Listing Rules, we are required to review:

• the directors' statement, set out on page 32, in relation to going concern;
• the part of the Statement of Corporate Governance relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and
• certain elements of the report to the shareholders by the Board on directors' remuneration.

Robert Napper

Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 3 June 2011

Income Statement

for the year ended 31 March 2011

Group and Company

	Note	Before non- underlying £'000	Non- underlying (note 2) £'000	2011 £'000	Before non- underlying £'000	Non underlying (note 2) £'000	2010 £'000
Revenue	1	199,829	1,638	201,467	189,426	–	189,426
Cost of sales		(171,736)	(1,750)	(173,486)	(161,831)	–	(161,831)
Gross profit		28,093	(112)	27,981	27,595	–	27,595
Operating expenses
Distribution costs		(17,732)	(745)	(18,477)	(15,382)	(71)	(15,453)
Administration expenses		(8,050)	(467)	(8,517)	(10,061)	189	(9,872)
Operating profit before other income Other income – net gains on disposal		2,311	(1,324)	987	2,152	118	2,270
of tangible fixed assets		–	157	157	–	–	–
Operating profit	3	2,311	(1,167)	1,144	2,152	118	2,270
Finance expense Finance income/(expense) on	5	(1,168)	–	(1,168)	(873)	–	(873)
pension scheme	6	292	–	292	(427)	–	(427)
Net finance costs		(876)	–	(876)	(1,300)	–	(1,300)
Profit before taxation		1,435	(1,167)	268	852	118	970
Income tax (expense)/credit	7	(267)	217	(50)	171	(34)	137
Profit for the year from continuing operations		1,168	(950)	218	1,023	84	1,107
Earnings per share continuing operations
Basic	8			7.7p			38.6p
Diluted	8			7.4p			38.6p

See accompanying notes to the financial statements.

Statement of Comprehensive Income

for the year ended 31 March 2011

Group and Company

Total comprehensive income for the year		562	(764)
Total other comprehensive income, net of taxation		344	(1,871)
Deferred tax on actuarial gain/(loss)	21	(121)	728
Defined benefit plan actuarial gain/(loss) recognised	20	465	(2,599)
Other comprehensive income:
Profit for the year		218	1,107
	Note	£'000	£'000
		2011	2010

See accompanying notes to the financial statements.

Balance Sheets

at 31 March 2011

		Group	Group	Company	Company
		2011	2010	2011	2010
	Notes	£'000	£'000	£'000	£'000
Non-current assets
Property, plant and equipment	11	27,733	31,683	27,733	31,683
Investment property	12	536	–	536	–
Goodwill	10	286	286	286	286
Deferred tax asset	21	–	96	–	96
Investment in subsidiaries	13	–	–	250	250
		28,555	32,065	28,805	32,315
Current assets
Inventories	14	26,269	22,032	26,269	22,032
Trade and other receivables	15	6,002	8,105	6,002	8,105
Cash and cash equivalents		54	407	54	407
Non-current assets classified as held for sale	11	2,704	564	2,704	564
		35,029	31,108	35,029	31,108
Total assets		63,584	63,173	63,834	63,423
Current liabilities
Interest bearing loans and borrowings	16	3,128	1,888	3,128	1,888
Trade and other payables	18	28,180	25,195	28,430	25,445
Current tax payable		213	220	213	220
		31,521	27,303	31,771	27,553
Net current assets		3,508	3,805	3,258	3,555
Non-current liabilities
Interest bearing loans and borrowings	16	5,000	8,000	5,000	8,000
Preference shares	22	1,237	1,237	1,237	1,237
Deferred tax liabilities	21	75	–	75	–
Retirement benefit obligations	20	5,481	6,358	5,481	6,358
		11,793	15,595	11,793	15,595
Total liabilities		43,314	42,898	43,564	43,148
Net assets		20,270	20,275	20,270	20,275
Capital and reserves
Share capital	22	1,439	1,439	1,439	1,439
Share premium account		272	272	272	272
Capital redemption reserve		282	282	282	282
Non-distributable reserve		2,419	2,901	2,419	2,901
Other reserve	19	72	72	72	72
Retained earnings		15,786	15,309	15,786	15,309
Total equity attributable to shareholders of Caffyns plc		20,270	20,275	20,270	20,275

The financial statements were approved by the Board of directors on 3 June 2011 and were signed on its behalf by:

S B Birkenhead Directors

M S Harrison

See accompanying notes to the financial statements. Company number: 105664

Statement of Changes in Equity

for the year ended 31 March 2011

Group and Company

At 31 March 2011	1,439	272	282	2,419	72	15,786	20,270
Purchase of own shares	–	–	–	–	–	(284)	(284)
Dividends	–	–	–	–	–	(283)	(283)
Transactions with owners:
for the year	–	–	–	(482)	–	1,044	562
Total comprehensive income
of land and buildings	–	–	–	(482)	–	482	–
Realised surpluses on disposal
Other comprehensive income	–	–	–	–	–	344	344
Profit for the period	–	–	–	–	–	218	218
Total comprehensive income
At 1 April 2010	1,439	272	282	2,901	72	15,309	20,275
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	capital	premium	reserve	reserve	reserve	earnings	Total
	Share	Share	redemption	distributable	Other	Retained
			Capital	Non

for the year ended 31 March 2010

			Capital	Non
	Share	Share	redemption	distributable	Other	Retained
	capital	premium	reserve	reserve	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2009	1,439	272	282	2,901	–	16,410	21,304
Total comprehensive income
Profit for the period	–	–	–	–	–	1,107	1,107
Other comprehensive income	–	–	–	–	–	(1,871)	(1,871)
Total comprehensive income
for the year	–	–	–	–	–	(764)	(764)
Transactions with owners:
Dividends	–	–	–	–	–	(200)	(200)
Purchase of own shares	–	–	–	–	–	(137)	(137)
Share-based payment	–	–	–	–	72	–	72
At 31 March 2010	1,439	272	282	2,901	72	15,309	20,275

Cash Flow Statement

for the year ended 31 March 2011

Group and Company

		2011	2010
	Note	£'000	£'000
Net cash from operating activities	23	1,405	144
Investing activities
Proceeds on disposal of property, plant and equipment		1,668	–
Purchases of property, plant and equipment		(1,099)	(392)
Net cash used in investing activities		569	(392)
Financing activities
Secured loans drawn down		–	8,000
Purchase of own shares		(284)	(137)
Dividends paid		(283)	(200)
Repayments of obligations under finance leases		(5)	(15)
Net cash (outflow)/inflow from financing activities		(572)	7,648
Net increase in cash and cash equivalents		1,402	7,400
Cash and cash equivalents at beginning of year		(1,476)	(8,876)
Cash and cash equivalents at end of year		(74)	(1,476)

	31 March 2011	31 March 2010	31 March 2009
	£'000	£'000	£'000
Cash and cash equivalents	54	407	32
Overdrafts	(128)	(1,883)	(8,908)
Net cash and cash equivalents	(74)	(1,476)	(8,876)

See accompanying notes to the financial statements.

Basis of preparation and statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs), International Financial Reporting Interpretations Committee ("IFRIC") and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. These policies have been consistently applied to the years presented.

The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based upon management's best knowledge of the amount, events or actions, actual results may ultimately differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by the directors in the application of accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 29.

Adoption of new and revised standards and new standards and interpretations not yet adopted

The Group has adopted the following new standards and interpretations in these financial statements:

'Improvements to IFRS' (issued in May 2009).The improvements project contains numerous amendments to IFRS that the IASB considers non-urgent but necessary. 'Improvements to IFRS' comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. No material changes to accounting policies have arisen as a result of these amendments.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the year ending 31 March 2011 but are not currently relevant to the Group:

• Amendment: IFRS 2 Group cash-settled share-based payment transactions
• IFRS 3 (revised) Business Combinations (2008)
• Amendment to IAS 32 Classification of rights issues
• IAS 39 (amended) Financial instruments: Recognition and measurement Eligible hedged items
• IAS 27 (Revised) 'Consolidated and Separate Financial Statements (2008)'
• IFRIC 15 Agreement for the Construction of Real Estate
• IFRIC 16 Hedgers of a Net Investment in a Foreign Operation
• IFRIC 17 Distribution of Non-cash Assets to Owners
• IFRIC 18 Transfers of Assets from Customers

The following standards and interpretations have been published, endorsed by the EU, and are available for early adoption but have not yet been applied by the Group in these financial statements:

Other standards/interpretations	Content	Applicable on/after
IAS 24 (revised)	Related party disclosures	1 January 2011
IFRIC 14	Prepayments of a minimum funding requirement	1 January 2011
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments	1 July 2010

The directors are currently assessing the impact of these new accounting standards on the accounting policies of the Group.

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 and the Group meet their day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities. While the revolving credit facilities are due for renewal in less than 12 months from the date of these financial statements, the directors have no reason to believe that the facilities will not be renewed at a level appropriate to the Group's requirements. The overdraft and revolving credit facilities include certain covenant tests. 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. 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 this financial information. These forecasts indicate that the Group 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.

In the event that additional funds are required in excess of current facilities consequent to the forecasts not being achieved, it would be necessary for the directors to effect contingency plans and/or make arrangements to obtain additional facilities appropriate to the Group's ongoing requirements.

Information concerning the Group's liquidity and financing risk are set out on page 8 of the Report of the Directors and note 17 to the financial statements.

The directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing this Annual Report.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year. All subsidiaries are currently dormant so the income, expenses and cash flows are the same for the Group and the Company.

The results of businesses and subsidiaries acquired or disposed of during the year are included in the consolidated income statement using the purchase method from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Acquisition

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill, which is allocated to cash generating units. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit or loss in the period of acquisition.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets acquired, and is tested annually for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Gains and losses on subsequent disposal of the assets acquired include any related goodwill.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date and annually thereafter.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Sales of motor vehicles, parts and accessories are recognised when the significant risks and rewards of ownership have been transferred to the buyer. In general this occurs when vehicles or parts are delivered to the customer and title has passed. Servicing and bodyshop sales are recognised on completion of the agreed work.

Non-underlying items

Non-underlying items are those items that are unusual because of their size, nature or incidence. The Group's management considers that these items should be disclosed separately to enable a full understanding of the Group's operating results.

Leasing

Lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Rentals payable under operating leases are charged to income on a straight-line basis over the terms of the relevant lease.

Lessor

The Group leases certain properties under operating leases. Substantially all the risks and rewards of ownership are retained by the Company and the assets are stated at historical cost less depreciation. Provision for depreciation of all tangible fixed assets of the Company is made in equal annual instalments over their estimated useful lives.

Borrowing costs

All borrowing costs are recognised in the income statement in the period in which they are incurred unless the borrowing costs are directly attributable to the acquisition, construction or production of a qualifying asset in which case they are capitalised.

Retirement benefit costs

The Group operates a defined benefit pension plan and a defined contribution plan, for its employees funded jointly by contributions from the Company and employees, the assets of which are held in independent trustee administered funds. The defined benefit pension plan assets are measured at fair value. The associated plan liabilities are discounted at high quality corporate bond rates that have terms to maturity approximating to the term of the related liability.

Pension accounting costs for the defined benefit plan is determined using the projected unit credit method after including a credit for the expected return on plan assets. Under the method, in accordance with the advice of qualified actuaries, the amounts charged in respect of employee benefits reflect the cost of benefits accruing in the year and the cost of financing accrued benefits. Actuarial gains and losses are recognised in full in the period in which they occur and presented in the Statement of Comprehensive Income.

The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair value. When the calculation results in a benefit to the Group, the recognised asset is limited to the total value of economic benefits available in the form of any future refunds from the scheme or reductions in future contributions to the scheme. An economic benefit is available to the Group if it is realisable during the life of the scheme, or on settlement of the scheme liabilities. If there is an obligation for the Company to pay deficit funding, this is also recognised.

A defined contribution plan is one under which the Group pays fixed contributions and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in the income statement when they are due.

Share-based employee compensation

The Group operates equity settled share-based compensation plans for remuneration of directors in the form of a Long-Term Incentive Plan and also incentivisation for all employees through the Company's SAYE scheme. All employee services received in exchange for the grant of any share-based compensation are measured at their fair values. These are indirectly determined by reference to the share option awarded. Their fair value is appraised at the grant date. The vesting period from the date of grant is three years.

All share-based compensation is ultimately recognised as an expense in profit and loss with a corresponding credit to the 'other reserve', net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Service and performance vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Non-vesting conditions such as the employer's requirement to continue to save under the SAYE Scheme, are taken into account when determining the fair value of the award. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options ultimately are exercised than originally estimated. Failure by the employee to meet a non-vesting condition is treated as a cancellation.

Fair value is measured by use of the Black–Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. Tax balances are not discounted.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited within other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. The tax base of an item takes into account its intended method of recovery by either sale or use.

Property, plant and equipment

Land and buildings used in the business are stated in the Balance Sheet at cost, or deemed cost, being the open market value at 31 March 1995, for those properties acquired before that date.

Depreciation on buildings is charged to income. On the subsequent sale of a property, the attributable surplus remaining in the nondistributable reserve is transferred directly to accumulated profits.

Properties in the course of construction are carried at cost, less any recognised impairment loss. Cost includes professional fees and attributable borrowing costs. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Properties are regarded as purchased or sold on the date on which contracts for the purchase or sale become unconditional. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

Other assets are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost less residual values of assets, other than land and properties under construction, over their estimated useful lives using the straight-line method, on the following basis:

Freehold buildings	– 50 years
Leasehold buildings	– Period of lease
Plant and machinery, fixtures and fittings	– three to 10 years

The leasehold land is accounted for as an operating lease.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The residual value of all assets, depreciation methods and useful economic lives, if significant, are reassessed annually.

Investment property

Investment property, which is property held to earn rentals and/or capital appreciation, is stated at cost less accumulated depreciation and impairment at the balance sheet date. Rental income from investment property is recognised on a straight-line basis over the term of the lease. Depreciation is charged so as to write off the cost less residual values of investment properties over their estimated useful lives using the straight-line method over 50 years.

Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. No further depreciation is provided once assets are classified as held for sale.

Impairment

a) Impairment of goodwill

Goodwill is tested annually for impairment. If an impairment provision is made, it cannot subsequently be reversed.

b) Impairment of intangible assets and property, plant and equipment

At each balance sheet date the Company reviews the carrying amounts of its intangible assets and property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cashgenerating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Impairment (continued)

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.

If the recoverable amount of an asset (or cash-generating unit "CGU") is estimated to be less than its carrying amount, the carrying amount of the asset (CGU) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (CGU) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

For the purpose of impairment testing, assets are Grouped together into the smallest Group of assets that generates cash inflows from continuing use that are largely independent of the cash flows from other Groups of assets. Management have determined that the cash generating units of the Group are the Groups of dealerships for each franchise. Where more than one franchise operates from a site, the franchises are aggregated together with the dominant franchise.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost represents the purchase price plus any additional costs incurred.

Vehicle stock includes service vehicles. Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories on the balance sheet as the Group has the significant risks and rewards of ownership even though legal title has not yet passed. The corresponding liability is included in trade and other payables. Parts inventories are based upon an average purchase cost principle and are written down to net realisable value by providing for obsolescence on a time and stock-based formula approach.

Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing and selling.

Trade receivables

Trade receivables do not carry any interest and are stated at their fair value on initial recognition as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits. In the Cash Flow Statement, cash and cash equivalents are shown net of bank overdrafts. Bank overdrafts are shown within interest bearing borrowings in current liabilities on the Balance Sheet.

Investments in subsidiary undertakings

Investments in subsidiary undertakings are included at cost, less amounts written off if the investment is determined to be impaired and are included in the parent Company's separate financial statements.

Financial liabilities

All financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Interest-bearing borrowings

Interest-bearing bank loans and overdrafts are recorded at their fair value on initial recognition (normally the proceeds received less transaction costs that are directly attributable to the financial liability) and subsequently at amortised cost under the effective interest method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the profit and loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables are not interest bearing and are stated at their fair value on initial recognition.

Equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Share premium includes any premium received on the sale of shares. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any income tax benefits.

The 'Non-distributable reserve' within equity is a revaluation reserve which comprises gains and losses due to the revaluation of property, plant and equipment prior to 1995.

The 'Other reserve' comprises share based payments made under the Group's Long-Term Incentive Plan and SAYE scheme.

Retained earnings includes all current and prior period retained profits.

Where any Group Company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.

Preference shares

All the preference shares are accounted for as non-current liabilities, as they have the attributes of debt. Preference dividends are accounted for as finance charges within interest payable.

Financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

A financial instrument is recognised if the Group becomes party to the contractual provisions of the instrument. Financial instruments are derecognised if the Group's contractual rights to the cash flows from the financial asset expire. Financial liabilities are derecognised if the Group's obligations specified in the contract expire or are discharged or cancelled.

for the year ended 31 March 2011

1. General information

Caffyns plc is a Company incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given on page 2. Its revenue is attributable to the sole activity of operating as a motor retailer in the south east of the United Kingdom and comprises revenue from:

	2011	2010
	£'000	£'000
Sale of goods	187,113	174,622
Rendering of services	14,354	14,804
	201,467	189,426

Based upon the management information reported to the Group's chief operating decision maker, the chief executive, in the opinion of the directors, the Company only has the one reportable segment. The Group is operated and managed on a dealership by dealership basis. These dealerships are considered to have similar economic characteristics 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 the Group's revenue. All revenue and non-current assets derive from, or are based in, the United Kingdom.

2. Non-underlying items

	2011	2010
	£'000	£'000
Within operating expenses:
Impairment of property, plant and equipment: reversal	–	359
Net profit/(loss) on disposal of property, plant and equipment	156	(41)
Losses incurred on closed businesses	(1,171)	(51)
Redundancy costs	(152)	(149)
Total non-underlying items before taxation	(1,167)	118
Income tax expense – Tax credit/(charge) on non-underlying items	217	(34)
Total after tax	(950)	84

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

Property, plant and equipment have been reviewed for possible impairment in the light of economic conditions, in particular the changes in commercial property prices. As a result of this review no impairment has been made (2010: credit £359,000).

Losses incurred in the closure of businesses amounted to £1,171,000 (2010: £51,000). These costs include wind down expenses, recognised from the date of the announcement to close, and branch specific redundancy costs which amounted to £699,000.

The Group undertook a programme of redundancies in its core business consequent to the current economic situation, resulting in non-underlying payments of £152,000 (2010: £149,000).

3. Operating profit

Operating profit has been arrived at after charging/(crediting):

	2011	2010
	£'000	£'000
Employee benefit expense (see note 4)	19,334	19,076
Impairment of property, plant and equipment	–	(359)
Depreciation of property plant and equipment
– owned assets	1,139	1,221
– under finance leases	5	9
(Profit)/loss on disposal of property, plant and equipment	(156)	14
Operating lease rentals payable
– land and buildings	542	537
– plant and machinery	21	11
Operating lease rentals receivable
– land and buildings	33	44
Operating profit has been arrived at after charging:
	2011	2010
	£'000	£'000
Auditors' remuneration
– Fees payable to the Company's auditor for the audit of the Company's annual accounts	61	59
– Fees payable to the Company's auditor and its associates for other services:
– Other services pursuant to legislation – Interim review	9	8
– Tax services (including compliance and VAT advice)	12	18
– Fees in respect of the audit of the Caffyns plc Pension Scheme	8	8
– Other services	4	4
	94	97

A description of the work of the Audit Committee is set out in the Statement of Corporate Governance on pages 14 to 17 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

for the year ended 31 March 2011

4. Employee benefit expense

The average number of people employed by the Group in the following areas was:

	2011	2010
	Number	Number
Sales	148	137
Aftersales	378	382
Administration	129	129
	655	648
	2011	2010
Employee benefit expense during the year amounted to:	£'000	£'000
Wages and salaries	16,836	16,655
Social security costs	1,703	1,470
Redundancy costs	851	272
Contributions to defined contribution plans	208	42
Other pension costs (see note 20)	(264)	637
	19,334	19,076
	2011	2010
Directors' emoluments were:	£'000	£'000
Emoluments	818	874
Pension contributions	16	29
Pension to widow of former director	19	19
	853	922

Details of the directors' remuneration and pension contributions are provided in the Directors' Remuneration Report on pages 18 to 22.

5. Finance expense

	2011	2010
	£'000	£'000
Interest payable on bank borrowings	469	402
Vehicle stocking plan interest	407	223
Interest payable on finance leases	–	2
Financing costs amortised	190	144
Preference dividends (see note 9)	102	102
Finance expense	1,168	873

6. Finance income/(expense) on pension scheme

	2011	2010
	£'000	£'000
Defined benefit pension scheme net finance income/(expense)	292	(427)

7. Tax

	2011	2010
	£'000	£'000
Current tax UK corporation tax	–	(8)
Deferred tax (see note 21)
Origination and reversal of temporary differences	(67)	(165)
Adjustments recognised in the period due to change in rate of corporation tax	79	–
Adjustments recognised in the period for deferred tax of prior periods	(62)	310
	(50)	145
Total tax (charged)/credited in the Income Statement	(50)	137
The tax (charge)/credit arises as follows:
On normal trading	(267)	171
Non-underlying (see note 2)	217	(34)
	(50)	137
The (charge)/credit for the year can be reconciled to the profit per the Income Statement as follows:
	2011	2010
	£'000	£'000
Profit before tax	268	970
Tax at the UK corporation tax rate of 21% (2010: 28%)	(56)	(272)
Tax effect of expenses that are not deductible in determining taxable profit	(27)	(45)
Marginal rate relief	–	10
Change in rate of corporation tax from 28% to 26%	79	–
Accounting depreciation for which no tax relief is due	(69)	(57)
Difference between accounts profits and taxable profits on capital asset disposals	33	–
Long-Term Incentive Plan	–	18
Movement in rolled over and held over gains	52	72
Asset impairment credit	–	101
Adjustments to tax charge in respect of prior years	(62)	310
Tax (charge)/credit for the year	(50)	137
The total tax (charge)/credit for the year is made up as follows:
	2011 £'000	2010 £'000
Total current tax charge	–	(8)
Deferred tax (charge)/credit (Charged)/credited in Income Statement	(50)	145
(Charged)/credited against other comprehensive income	(121)	735
Total deferred tax credit	(171)	880
Total tax (charge)/credit for the year	(171)	872

Caffyns plc 41

for the year ended 31 March 2011

7. Tax (continued)

Factors affecting the future tax charge

The corporation tax applicable to the Company is to change from 28% to 26% with effect from 1 April 2011. The deferred tax liability has been calculated at 26% as temporary differences will reverse after 1 April 2011. The benefit of this decrease in rate is estimated at £79,000 and is reflected as a reduction in the deferred tax expense for the year.

The Company has unrelieved advance corporation tax of approximately £1.1m (2010: £1.1m) which is available to be utilised against future mainstream corporation tax liabilities and is accounted for in deferred tax (see note 21).

The tax (charge)/credit is (increased)/decreased by non-deductible expenses including the impairment of property, plant and equipment and non-qualifying depreciation.

8. Earnings per ordinary share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Treasury shares and shares held in employee share trusts 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:

		Adjusted		Basic
	2011	2010	2011	2010
	£'000	£'000	£'000	£'000
Profit before tax	268	970	268	970
Adjustments:
Non-underlying items (note 2)	1,167	(118)	–	–
Adjusted profit/(loss) before tax	1,435	852	268	970
Taxation	(267)	171	(50)	137
Earnings	1,168	1,023	218	1,107
Earnings per share	41.4p	35.7p	7.7p	38.6p
Diluted earnings per share	39.9p	35.7p	7.4p	38.6p

The number of fully paid ordinary shares in issue at the year end was 2,788,835 (2010: 2,849,716). The weighted average shares in issue for the purposes of the earnings per share calculation were 2,822,686 (2010: 2,866,751). The shares awarded under the Long-Term Incentive Plan are not dilutive under the terms of IAS 33, but the shares granted under the Company's SAYE scheme are dilutive. The weighted average number of dilutive shares under option at fair value was 107,532 giving a total diluted weighted average number of shares of 2,930,218.

9. Dividends

2011	2010
£'000	£'000
25	25
65	65
12	12
102	102
141	142
142	58
283	200

Proposed

In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2011 of 7.0p per share which will absorb £195,000 of shareholders' funds (2010: 5.0p per share absorbing £142,000). 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

2011	2010
£'000	£'000
481	481
195	195
200	200
86	86
286	286

For the purposes of impairment testing of goodwill, the directors recognise the Group's cash generating units ("CGU") to be the smallest Group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other Groups of assets. The recoverable amount of each CGU is based on the higher of its realisable value and value in use. The realisable value of each CGU is based upon the market value of any property contained within it and is determined by an independent valuer as described in note 11. The value in use is calculated using Board approved budgeted projections for 2011/12. These projections take into account management estimates of future trading including past experience and industry expectations. They are extrapolated over an additional four years, and a risk adjusted discount rate reflecting the Group's weighted average cost of capital is applied in order to calculate each CGU's terminal value. While it is anticipated that the units will grow revenues in the future, for the purposes of impairment testing, no growth has been assumed beyond the period covered by the budget of one year. A pre-tax discount rate of 5% was applied in determining the value in use of the CGUs which the Group has estimated to be the approximate weighted average cost of capital to the Group. Based on these projections, adopting a discount rate of 10% would not give rise to any further impairment in respect of these two dealerships.

At each half-year end the directors review the goodwill for possible impairment and they have concluded that no impairment is required in the year ended 31 March 2011.

Notes to the Financial Statements

for the year ended 31 March 2011

11. Property, plant and equipment

`	Freehold	Leasehold	Fixtures &	Plant &
	property	property	fittings	machinery	Total
Group and Company	£'000	£'000	£'000	£'000	£'000
Cost or deemed cost
At 1 April 2009	30,647	319	5,660	6,401	43,027
Additions at cost	119	10	173	90	392
Transfer	(13)	–	8	5	–
Disposals	–	–	(163)	(131)	(294)
At 31 March 2010	30,753	329	5,678	6,365	43,125
At 1 April 2010	30,753	329	5,678	6,365	43,125
Additions at cost	227	160	368	344	1,099
Transfer	26	–	(28)	2	–
Transfer to assets held for sale	(2,964)	–	–	–	(2,964)
Transfer to investment property	(608)	–	–	–	(608)
Disposals	(321)	(29)	(862)	(905)	(2,117)
At 31 March 2011	27,113	460	5,156	5,806	38,535
Depreciation
At 1 April 2009	2,236	209	3,965	4,441	10,851
Charge for the year	324	25	527	354	1,230
Reversal of impairment provision	(359)	–	–	–	(359)
Disposals	–	–	(157)	(123)	(280)
At 31 March 2010	2,201	234	4,335	4,672	11,442
Depreciation
At 1 April 2010	2,201	234	4,335	4,672	11,442
Charge for the year	328	36	441	339	1,144
Transfer	19	–	(19)	–	–
Transfer to assets held for sale	(260)	–	–	–	(260)
Transfer to investment property	(72)	–	–	–	(72)
Disposals	(30)	–	(731)	(691)	(1,452)
At 31 March 2011	2,186	270	4,026	4,320	10,802
Net book amount
At 31 March 2011	24,927	190	1,130	1,486	27,733
At 31 March 2010	28,552	95	1,343	1,693	31,683
At 31 March 2009	28,411	110	1,695	1,960	32,176

Short-term leasehold property comprised £190,000 at net book value at the balance sheet date (2010: £95,000) in both the Company and the Group.

Property, plant and equipment held for sale at 31 March 2011 with a net book value of £2,704,000 fulfilled the conditions to be reclassified as non-current assets held for sale (2010: £564,000).

11. Property, plant and equipment (continued)

The depreciation charge in respect of property, plant and equipment is recognised within administration expenses within the Income Statement.

There was no future capital expenditure which has been contracted for but not yet provided in the financial statements (2010: nil).

Valuations

The freehold properties were revalued externally at 31 March 1995 by Lambert Smith Hampton, Chartered Surveyors, at open market value for existing use (which the directors are satisfied is close to the then fair value). Freehold properties acquired since that date and the other assets listed above are stated at cost in accordance with IAS 16.

Freehold property is included as follows:

		Group and Company
	2011	2010
	£'000	£'000
Valuation – March 1995, less depreciation	6,838	10,369
At cost, less depreciation	18,089	18,183
Deemed cost, less depreciation at the year end	24,927	28,552
At historic cost (including property qualifying as non-current asset held for resale)	25,212	26,180

The freehold properties (excluding sites which are classed as assets held for sale) were revalued at 31 March 2011 at fair value (open market for existing use) by CB Richard Elllis Limited, Chartered Surveyors. The excess of the valuation over the net book value of the properties subject to the valuation as at 31 March 2011 was £6.3m. In accordance with the Company's accounting policies, this surplus is not incorporated in these accounts.

Depreciation is being charged on the value of freehold buildings of £16,400,000 (2010: £16,703,000). The balance relates to freehold land, which is not depreciated.

Non-current assets classified as held for sale

The Group holds three freehold properties which are classified as held for sale. They are expected to be sold during the coming financial year and are referred to in the Operational and Business Review.

Properties held for sale are carried in the financial statements at the lower of their carrying amount on being classified as held for sale and fair value less costs to sell. No gain or loss arose on reclassifying the properties held for sale.

Assets held under finance leases

	Plant &
	machinery
	£'000
Net book amount
At 31 March 2011	–
Net book amount
At 31 March 2010	5

for the year ended 31 March 2011

12. Investment property

Group and Company
-------------------	--

Cost	£'000
At 31 March 2010 Transfer from property, plant and equipment in the year	– 536
At 31 March 2011	536

Following the sale of its business in Uckfield, East Sussex, on 31 January 2011 the Company has granted a short-term operating lease of its freehold property to the purchaser for a maximum period of four years. The lease can be terminated by the lessee on 12 months notice to the Company. The lessee also has an option to purchase the freehold property for £750,000 (as adjusted for price movements) during the first three years of the lease and, consequently, this is considered to be the fair value of the property.

13. Investments in subsidiaries

The Company owns the whole of the issued ordinary share capital of Caffyns Wessex Limited, Caffyns Properties Limited and Fasthaven Limited, all of which are now dormant. The amount at which the investments are stated is equivalent to the net assets of the subsidiaries. All subsidiary undertakings are registered in England and Wales.

		Company £'000
	Cost
	At 31 March 2011 and at 31 March 2010	476
	Provision
	At 31 March 2011 and at 31 March 2010	226
	Net book amounts
	At 31 March 2011 and at 31 March 2010	250
14.	Inventories

	2011	2010
Group and Company	£'000	£'000
Vehicles	16,692	13,213
Vehicles on consignment	8,520	7,349
Oil, spare parts and materials	1,052	1,458
Work in progress	5	12
	26,269	22,032
Inventories recognised as an expense during the year	171,820	159,778
Inventories stated at fair value less costs to sell	949	1,347
Carrying value of inventories subject to retention of title clauses	15,258	13,502

All vehicle stocks held under consignment stocking agreements are deemed to be assets of the Group and are included on the balance sheet from the point of consignment. The corresponding liabilities to the manufacturers are included within trade and other payables. Stocks are held on consignment for a maximum consignment period of 365 days. Interest is payable in certain cases for part of the consignment period, at various rates linked to the Finance House Base Rate.

14. Inventories (continued)

During the year £156,000 was recognised in respect of the write down of vehicle parts inventories due to general obsolescence (2010: £72,000).

15. Trade and other receivables

	2011	2010
Group and Company	£'000	£'000
Trade receivables	5,072	7,179
Allowance for doubtful debts	(60)	(44)
	5,012	7,135
Other receivables	990	970
	6,002	8,105

All amounts are due within one year.

The Group makes an impairment provision for all debts that are considered unlikely to be collected. At 31 March 2011 trade receivables are shown net of an allowance for impairment of £60,000 (2010: £44,000). The charge recognised during the year was £38,000 (2010: credit £15,000).

Trade receivables have been classified as loans and receivables under IAS 39.

	2011	2010
	£'000	£'000
The ageing of trade receivables at the reporting date was:
Not past due	4,684	6,381
Past due 0 –30 days	249	522
Past due 31–120 days	79	232
	5,012	7,135
	2011	2010
	£'000	£'000
The movement in the allowance for impairment during the year was:
Balance at 1 April	44	64
Net impairment recognised	38	(15)
Utilisation	(22)	(5)
Balance at 31 March	60	44

All amounts are due within one year.

Credit Risk

The Company's principal financial assets are bank balances and cash, trade receivables, which represent the Company's maximum exposure to credit risk in relation to financial assets.

The Company's credit risk is primarily attributable to its trade receivables which are all due on presentation of the invoice. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Company's management based on prior experience and their assessment of the current economic environment. Consequently the directors consider that the carrying amount of trade and other receivables approximates their fair value.

for the year ended 31 March 2011

15. Trade and other receivables (continued)

Before granting any new customer credit terms the Group uses external credit agencies to assess the new customer's credit quality and defines credit limits by customer. These credit limits and credit worthiness are regularly reviewed. The concentration of credit risk is limited due to the customer base being large and unrelated. The Group has no customer that represents more than 5% of the total balance of trade receivables.

16.	Interest bearing loans and borrowings
	Group and Company	2011	2010
	Current liabilities	£'000	£'000
	Secured bank overdrafts	128	1,883
	Secured bank loans	3,000	–
	Finance lease liabilities (see note 26)	–	5
		3,128	1,888
	Non-current liabilities
	Secured bank loans	5,000	8,000

Note 17 sets out the maturity profile of non-current liabilities.

The directors estimate that there is no material difference between the fair value of the Company's borrowings and their book value.

The loan and overdraft facilities provided to the Company of £18.0m are secured by a general debenture and fixed charges over certain freehold properties.

17. Financial instruments

The Group utilises financial instruments such as bank loans and overdrafts and new and used vehicle stocking loans in order to finance its operations and to manage the interest rate and liquidity risks that arise from those operations and from its sources of finance. The disclosures below apply to the Group and the Company unless otherwise noted.

		2011	2010
		Carrying value	Carrying value
		& fair value	& fair value
Group	Classification	£'000	£'000
Fair value of financial
assets and liabilities
Primary financial instruments
held or issued to finance
the Group's operations:
Long-term borrowings (note 16)	Financial liability measured at amortised cost	(5,000)	(8,000)
	Short-term borrowings (note 16) Financial liability measured at amortised cost	(3,128)	(1,888)
Trade and other payables	Other	(26,992)	(24,111)
(note 18)
Trade receivables (note 15)	Loans and receivables	5,012	7,135
Cash at bank and in hand	Loans and receivables	54	407
Preference share capital	Financial liabilities at amortised cost	(1,237)	(1,237)
(note 22)
	The amounts noted in the above table are the same for the Company apart from:
Trade and other payables	Other	(27,242)	(24,361)
(note 18)

Financial risk management

The Group is exposed to the following risks from its use of financial instruments:

• l Funding and liquidity risk the risk that the Group will not be able to meet its obligations as they fall due.
• l Credit risk the risk of financial loss to the Group on the failure of a customer or counterparty to meet its obligations as they fall due.
• l Market risk the risk that changes in market prices such as interest rates have on the Group's financial performance.

Due to the continued difficult economic environment, the Group maintained its focus on managing credit and liquidity risk by particularly focusing on working capital management. The Group's quantitative exposure to these risks is explained throughout these financial statements whilst the Group's objectives and management of these risks is set out below.

Capital management

The Board's policy is to maintain a strong capital base to maintain market confidence and safeguard the Group's ability to continue as a going concern whilst maximising the return on capital to the Group's shareholders. The Group monitors its capital through closely monitoring and reviewing its cash flows. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to holders of Ordinary Shares, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group's debt/equity ratio was 40% at 31 March 2011 (2010: 47%). Capital requirements imposed externally by the Group's bankers are that bank borrowings should not exceed 80% of the current value of the Group's freehold properties. The underlying pre-tax return on equity for the year was 7.1% (2010: 4.2%).

for the year ended 31 March 2011

17. Financial instruments (continued)

The Group has occasionally repurchased its own shares in the market and cancelled them in order to promote growth in earnings per share. There is no predetermined plan for doing this although the Group has permission from shareholders to buy back up to 15% of its equity at any one time. The Group may also purchase its own shares in order to satisfy share incentives issued to employees of the Group and these shares are then held as treasury shares.

Treasury policy and procedures

The Company's activities expose it primarily to the financial risks of changes in interest rates. There are no fixed rate borrowings other than preference shares.

Funding and liquidity management

The Group finances its operations through a mixture of retained profits and borrowings from banks, vehicle stocking credit lines and operating cash flow. The Group's policy is to maintain a balance between committed and uncommitted facilities and between term loans and overdrafts. Facilities are maintained at levels in excess of planned requirements and at 31 March 2011 the Group had undrawn floating rate borrowing facilities of £9.9m (2010: £8.5m) represented by overdrafts which would be repayable on demand.

Interest rate management

The objective of the Group's interest rate policy is to minimise interest costs while protecting the Group from adverse movements in interest rates. Borrowings at variable rates expose the Group to cash-flow interest rate risk whereas borrowings at fixed rates expose the Group to fair value interest rate risk. The Company does not currently hedge any interest rate risk.

Interest rate risk sensitivity analysis

As all of the Group's borrowings and vehicle stocking credit lines are floating rate instruments, they therefore have a sensitivity to changes in market rates of interest. The effect of a 100 basis points change in interest rates for floating rate instruments outstanding at the period end on the assumption that the instruments at the period end were outstanding for the entire period, would change interest charges by £81,000 (2010: £95,000) before tax relief.

Credit risk management

The Group's receivables are all denominated in sterling. The Group is exposed to credit risk primarily in respect of its trade receivables and financial assets. Trade receivables are stated net of provision for estimated impairment losses. Exposure to credit risk in respect of trade receivables is mitigated by the Group's policy of only granting credit to certain customers after an appropriate evaluation of credit risk. Credit risk arises in respect of amounts due from manufacturers in relation to bonuses and warranty receivables. This risk is mitigated by the range of manufacturers dealt with, the Group's procedures in effecting timely collection of amounts due and management's belief that it does not expect any manufacturer to fail to meet its obligations. Finance assets comprise cash balances. The counterparties are major banks and management does not expect any counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of the financial asset in the balance sheet.

These objectives, policies and strategies are consistent with those applied in the previous year.

Cash and cash equivalents

	Carrying value	Carrying value
	& fair value	& fair value
	2011	2010
	£'000	£'000
Bank balances and cash equivalents	54	407

17. Financial instruments (continued)

Borrowings

All borrowings are denominated in sterling. The effective interest rates for all borrowings are based on bank base rates. Information regarding classification of balances and interest and the range of interest rates applied in the year to 31 March 2011 is set out in the following table:

	Carrying value
	& fair value		Interest	Interest rate
	£'000	Classification	classification	range
Current: within one year or on demand
Bank borrowings	3,128	Amortised cost	Floating	1.5% to 3.6%
	Carrying value		Interest	Interest rate
	£'000	Classification	classification	range
Not repayable within one year
Bank borrowings	5,000	Amortised cost	Floating	3.58% to 4.03%
Preference share capital	1,237	Amortised cost	Fixed	6.5% to 10.0%

The maturity of non-current borrowings is as follows:

	2011	2010
	£'000	£'000
Between 1 and 2 years	5,000	3,000
Between 2 and 5 years	–	5,000
Over 5 years	1,237	1,237
	6,237	9,237

Maturities include amounts drawn under revolving credit facilities which are contractually repayable generally on a three months basis but which may be redrawn at the Group's option. The maturities above therefore represent the final repayment dates for these facilities as at 31 March. If the amounts drawn at the year end were redrawn at the Group's usual practice of three monthly drawings, the total cash outflows , assuming interest rates remain at the same rates as at the year end, are estimated on an undiscounted basis as follows:

	£'000
Within 6 months	155
6–12 months	3,130
1–2 years	5,033
Contractual cash flows	8,318

The Group has a revolving credit facility of £8.0m expiring in May 2012 and a further £3.0m which, at 31 March 2011, expired in January 2012. Since 31 March 2011, the Company has arranged for the £3.0m revolving credit facility previously repayable in January 2012 to be repayable in May 2012. It also has £10.0m of overdraft facilities. The loans carry a rate of interest between 2.75% and 2.85% above LIBOR and the overdrafts are at a rate of interest of 2.75% above bank base rate.

The facilities are subject to covenants tested half yearly with respect to debt/freehold property and interest cover. No reduction in facilities is expected to apply consequent to the trading results for the year ended 31 March 2011. The Group has granted security by way of a general debenture over its assets and a fixed charge over certain freehold properties. The balance sheet value of those assets at 31 March 2011 was £50.8m. The ongoing costs associated with the bank facilities are included in finance expense (see note 5).

The preference shares in issue do not have a maturity date as they are non-redeemable.

for the year ended 31 March 2011

18. Trade and other payables

	2011	2010
	£'000	£'000
Trade payables	12,911	12,360
Obligations relating to consignment stock	8,520	7,349
Manufacturer funding	4,225	2,409
Social security and other taxes	1,188	1,084
Preference dividends payable	51	51
Accruals	1,280	1,770
Other creditors	5	172
Group total	28,180	25,195
Amounts owed to Group undertakings	250	250
Company total	28,430	25,445

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 25 days (2010: 27 days).

The directors consider that the carrying amount of trade payables approximates to their fair value.

The obligations relating to consignment stock are all secured on the assets to which they relate. From a risk perspective, our funding is split between manufacturers through their related finance arms and that funded by ourselves through bank borrowings.

Financing for used car stock other than through bank borrowings is shown above as manufacturer funding.

19. Share-based payments

(i) Directors' Long-Term Incentive Plan

	Exercise	Exercise	Number at			Number at
Year of grant	price	date	31 March 2010	Granted	Lapsed	31 March 2011
31 March 2010	£0.50	2012	60,473	–	–	60,473

The fair value of the 2009 awards made under the Long-Term Incentive Plan is charged to the income statement over the vesting period based on the valuation derived from an adjusted Black–Scholes model. The value was calculated as £2.88 on the date of grant. The significant inputs to the valuation were the mid market share price on the day of the grant £3.64, the exercise price of £0.50, the expected life of the options of three years, the volatility of the share price at 24% (based on historical share price data) and the risk free rate of return (assumed to be the rate for a bond of similar duration and value). As dividends are payable over the vesting period a dividend yield of 3% is used.

The total credit included within operating profit relating to the share-based payments for the year was £65,000 (2010 charge of £65,000), with an associated tax charge to the income statement and equity in 2011 of £18,000 and £7,000 respectively (2010 credit of £18,000 and £7,000 respectively). A credit has arisen as the expectation of the number of awards expected to vest has been revised to nil.

Performance conditions applicable to the awards are designed to improve profits of the Group on a sustained basis over a period of three years. The awards are calculated based upon the average adjusted earnings per share over the three year period reaching a minimum of 45p per annum (at which no award is made), rising to 55p per annum at which the award of shares is based upon 35% of salary. The calculation of percentages will be on a straight-line basis between the earnings per share levels.

19. Share-based payments (continued)

(ii) SAYE scheme

	Exercise	Exercise	Number at
Year of grant	price	date	31 March 2011	Granted	Lapsed
31 March 2011	£3.50	2013	126,677	130,046	3,369

The fair value of the 2010 grants made under the SAYE scheme is charged to the income statement over the vesting period based on the valuation derived from an adjusted Black–Scholes model. The value was calculated as £4.38 on the date of grant. The significant inputs to the valuation were the mid market share price on the day of the grant £4.38, the exercise price £3.50, the expected life of the options of three years, the volatility of the share price at 29% (based on historical share price data) and the risk free rate of return (assumed to be the rate for a bond of similar duration and value). As dividends are payable over the vesting period a dividend yield of 3% is used.

The total expense included within operating profit relating to the share based payments for the year was £65,000 (2010: £Nil), with an associated tax credit to the income statement and equity in 2011 of £18,000 and £7,000 respectively (2010: £Nil).

20. Retirement benefit scheme

Defined Benefit Pension Scheme

Group and Company

Description of scheme

The Company operated a pension scheme, the Caffyns Pension Scheme ("CPS"), providing benefits based on final pensionable pay until 31 March 2006.

With effect from 1 April 2006, the scheme closed to new entrants and all members in the final salary section were transferred to the career average section for future service and certain benefits were reduced. Depending upon the proportion of pensionable pay purchased, the Company contribution rates varied between 4% and 15%. The scheme closed to future accrual with effect from 1 April 2010.

The assets of the CPS, administered by trustees, are held separately from those of the Company. The contributions are determined by a qualified actuary on the basis of triennial valuations using the projected unit method. The most recent valuation was at 31 March 2008.

Results of most recent actuarial valuation

The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments and the rates of increase in salaries and pensions. It was assumed that the long-term investment returns would be 6.56% per annum, that there would be no salary increases following closure of the scheme to future accrual, and that present and future pensions would increase at the rate of 3.30% per annum for pension accrued before 1 April 2006 and 2.40% thereafter. The last actuarial valuation as at 31 March 2008 showed that the market value of the CPS assets was £72.9m and that the actuarial value of those assets represented 91% of the value of the benefits that had accrued to employees at that date. The deficit arising of £7.3m compared to a surplus under IAS 19 at 31 March 2008 is due to different assumptions being adopted for the triennial valuation.

Costs and liabilities of the scheme are based on actuarial valuations. The latest full actuarial valuations carried out at 31 March 2008 were updated to 31 March 2011 by Towers Watson, qualified independent actuaries, for the requirements of IAS 19. Details are set out as follows:

for the year ended 31 March 2011

20. Retirement benefit scheme (continued)

IAS 19 assumptions

The principal assumptions used by the independent qualified actuaries for the purposes of IAS19 were:

	2011	2010
	%	%
Rate of increase for pensions in payment:
Pension accrued before 1 April 2006	3.30	3.50
Pension accrued after 1 April 2006	2.40	2.40
Discount rate	5.50	5.60
Inflation	3.40	3.60
Expected return on scheme assets	6.56	6.33
Rate of increase for deferred pensioners	3.40	3.60

The discount rate adopted is based upon the yields on high quality corporate bonds of appropriate duration.

The sensitivities regarding the principal assumptions used to measure scheme liabilities are set out below:

Assumption	Change in assumption	Impact on scheme liabilities
Discount rate	Increase/decrease by 0.1%	Decrease/increase by £1.0m to £1.5m
Rate of inflation	Increase/decrease by 0.1%	Decrease/increase by £1.0m to £1.5m

The expected long-term rates of return on the main asset classes were:

		Expected return		Fair value of assets
	2011	2010	2011	2010
	%	%	£'000	£'000
Equity instruments	8.40	8.60	36,499	36,374
Bonds	5.10	5.90	6,160	6,221
Gilts	4.40	3.76	25,118	24,475
Property	5.10	5.90	2,177	1,968
	6.56	6.33	69,954	69,038

The overall expected return on assets reflects the directors' long-term view of future returns taking into account market conditions at the year end and asset allocation of the scheme.

Equity instruments include shares in Caffyns plc, which are detailed in note 24.

The assumptions used by the actuary are the best estimates based on market conditions chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice. The IAS assumptions have been updated at 31 March 2010 and differ from those used for the earlier independent statutory actuarial valuation explained above.

Mortality assumptions

Life expectancy at age 65 (in years):

	2011	2011	2010	2010
	Male	Female	Male	Female
Member currently aged 65	22.2	25.0	22.1	25.0
Member currently aged 45	23.2	26.0	23.1	25.9

20. Retirement benefit scheme (continued)

The fair value of the scheme's assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the value of the scheme's liabilities, which is derived from cash flow projections over long periods and thus inherently uncertain, are:

Scheme assets and liabilities
	2011	2010	2009	2008	2007
	£'000	£'000	£'000	£'000	£'000
Fair value of scheme assets	69,954	69,038	54,861	72,507	77,955
Present value of defined benefit obligations	(75,435)	(75,396)	(58,576)	(70,643)	(77,611)
(Liability)/asset recognised in
the balance sheet	(5,481)	(6,358)	(3,715)	1,864	344

A liability is included in the balance sheet under non-current liabilities. An asset is included in the balance sheet as the scheme rules entitle the Company to offset a scheme asset against future funding.

Analysis of the movement in the net liability for defined benefit obligations recognised in the balance sheet

£'000
(3,715)
(637)
593
(2,599)
(6,358)

The actual return on scheme assets was a gain of £4,790,000 (2010: gain of £16,644,000).

Total expense recognised in income statement

	2011	2010
	£'000	£'000
Interest cost	4,110	3,858
Expected return on scheme assets	(4,402)	(3,431)
Interest – net (see note 5)	(292)	427
Current service cost	28	210
	(264)	637
The expense is recognised in the following line items in the income statement:
	2011	2010
	£'000	£'000
Net finance expense/(income):
Finance costs	4,110	3,858
Finance income	(4,402)	(3,431)
	(292)	427
Administrative expenses	28	210
Total included within staff costs (note 4)	(264)	637

for the year ended 31 March 2011

20. Retirement benefit scheme (continued)

Cumulative actuarial gains and losses in other comprehensive income
	2011	2010
	£'000	£'000
At 1 April	(4,754)	(2,155)
Net actuarial gains/(losses) recognised in the year	465	(2,599)
At 31 March	(4,289)	(4,754)
Amounts recognised in the statement of comprehensive income
	2011	2010
	£'000	£'000
Difference between actual and expected return on scheme assets	388	13,213
Changes in assumptions underlying the present value of scheme obligations	77	(15,812)
	465	(2,599)
Changes in the present value of defined benefit obligation
	2011	2010
	£'000	£'000
At 1 April	75,396	58,576
Service cost	28	210
Interest cost	4,110	3,858
Contributions from scheme members	–	411
Actuarial gains and losses	(77)	15,812
Benefits paid	(4,022)	(3,471)
At 31 March	75,435	75,396
Movement in the fair value of scheme assets
	2011	2010
	£'000	£'000
At 1 April	69,038	54,861
Expected return on scheme assets	4,402	3,431
Actuarial gains and losses	388	13,213
Contributions from the Company	148	593

Contributions from scheme members – 411 Benefits paid (4,022) (3,471)

At 31 March 69,954 69,038

The best estimate of contributions payable by the Group in the year ending 31 March 2012 is £209,000.

20. Retirement benefit scheme (continued)

History of experience adjustments
	2011	2010	2009	2008	2007
	£'000	£'000	£'000	£'000	£'000
Experience adjustments on scheme liabilities
Amount	–	–	(4,107)	–	–
Percentage of scheme liabilities	–	–	(7.0%)	–	–
Experience adjustments on scheme assets
Amount	(388)	(13,213)	20,033	8,299	1,604
Percentage of scheme assets	(0.6%)	(19.1%)	36.6%	11.5%	2.1%

21. Deferred tax

Group and Company

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

	Accelerated	Unrealised	Retirement		Short term
	tax	capital	benefit		temporary	ACT
	depreciation	gains	obligations	Losses	differences	Recoverable	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2009	(1,496)	(1,753)	1,040	287	–	1,138	(784)
(Charge)/credit to income	5	79	12	(279)	18	–	(165)
Transfer other reserves	–	–	–	–	7	–	7
Prior year adjustments	43	65	–	202	–	–	310
Recognised in comprehensive
income	–	–	728	–	–	–	728
At 31 March 2010	(1,448)	(1,609)	1,780	210	25	1,138	96
At 1 April 2010	(1,448)	(1,609)	1,780	210	25	1,138	96
Adjustment due to change in
rate of corporation tax	108	115	(127)	(15)	(2)	–	79
(Charge)/credit to income	34	(5)	(107)	11	–	–	(67)
Prior year adjustments	(66)	4	–	–	–	–	(62)
Recognised in comprehensive
income	–	–	(121)	–	–	–	(121)
At 31 March 2011	(1,372)	(1,495)	1,425	206	23	1,138	(75)

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:

	2011	2010
	£'000	£'000
Deferred tax liabilities	(2,867)	(3,057)
Deferred tax assets	2,792	3,153
	(75)	96

for the year ended 31 March 2011

21. Deferred tax (continued)

The unrealised capital gains includes 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.

Taxable trading losses amounting to £0.8m (2010: £0.9m) are available for use in future periods.

22. Called up share capital

	2011	2010
	£'000	£'000
Authorised
500,000 6.5% Cumulative First Preference Shares of £1 each	500	500
1,250,000 10% Cumulative Preference Shares of £1 each	1,250	1,250
3,000,000 6% Cumulative Second Preference Shares of 10p each	300	300
4,000,000 Ordinary Shares of 50p each	2,000	2,000
	4,050	4,050
Allotted, called up and fully paid
389,000 6.5% Cumulative First Preference Shares of £1 each	389	389
648,000 10% Cumulative Preference Share of £1 each	648	648
2,000,000 6% Cumulative Second Preference Shares of 10p each	200	200
Total preference shares recognised as a financial liability (see note below)	1,237	1,237
2,879,298 (2010: 2,879,298) Ordinary Shares of 50p each	1,439	1,439
	2,676	2,676

The cost of purchasing 60,881 Ordinary Shares (2010: 29,582) for holding as Treasury shares was £284,000 (2010: £137,000) and has been charged against retained earnings. At 31 March 2011, 90,463 Ordinary Shares were held as Treasury shares at a cost of £421,000. Treasury shares represent shares in the Company which are held by the Company for the purpose of fulfilling the requirements of the Long-Term Incentive Plan provided for certain senior managers and the Company's SAYE scheme for eligible employees. The market value of these shares at 31 March 2011 was £456,000. Dividend income from, and voting rights on, the shares held by the Trust have been waived.

The 6.5% Cumulative First Preference Shares and the 10% Cumulative Preference Shares have rights to a fixed dividend and, in the event of a winding-up, a preference to the ordinary shares for a capital repayment. The shares do not have voting rights unless the dividend is more than six months in arrears.

The 6% Cumulative Second Preference Shares have identical rights to the other classes of preference shares except that they have full voting rights along with the Ordinary Shares.

Although the Articles of Association of the Company give the directors discretion to only pay the preference dividend if they consider there are adequate profits, such dividends are cumulative. For this reason, the directors consider that the preference shares have the characteristic of a financial liability rather than equity, and consequently the preference shares are included as a non-current liability. None of the preference shares have rights of conversion or rights to capital repayment.

23. Notes to the cash flow statement

	2011	2010
	£'000	£'000
Profit before taxation	268	970
Adjustment for net finance expense	876	1,300
	1,144	2,270
Adjustments for:
Depreciation of property, plant and equipment	1,144	1,230
Impairment of property, plant and equipment	–	(359)
Change in retirement benefit obligations	(120)	(383)
(Gain)/loss on disposal of property, plant and equipment	(156)	14
Share-based payments	–	65
Operating cash flows before movements in working capital	2,012	2,837
Increase in inventories	(4,237)	(2,937)
Decrease/(increase) in receivables	1,773	(2,179)
Increase in payables	3,032	3,296
Cash generated by operations	2,580	1,017
Income taxes	(7)	–
Interest paid	(1,168)	(873)
Net cash derived from operating activities	1,405	144

24. Related parties

Directors

The remuneration of the directors, who are key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration Report on pages 18 to 22.

	2011	2010
	£'000	£'000
Short-term employee benefits	818	874
Post employment benefits	16	29
Share-based payment (note 19)	–	65
Pension to widow of former director	19	19
	853	987

The 2,000,000 6% Cumulative Second Preference Shares have full voting rights along with the Ordinary Shares. These shares are beneficially owned by Caffyn Family Holdings Limited ("Holdings"). Mr S G M Caffyn and Miss S J Caffyn are directors of Holdings. The whole of the issued share capital of Holdings is held by close relatives of these directors. Holdings controls directly 41.0% of the voting rights of Caffyns plc. The directors and shareholders of Holdings are also beneficial holders of 641,323 Ordinary Shares in Caffyns plc representing a further 13.2% of the voting rights. It is therefore considered that the Caffyn family is the ultimate controlling party.

Directors of the Company and their immediate relatives control 2.6% of the issued ordinary share capital of the Company. Dividends of £7,893 were paid to directors in the year.

for the year ended 31 March 2011

24. Related parties (continued)

Services are bought from an entity in which Mr G J Ainsley, a director of the Company, is a director and shareholder on normal commercial terms and conditions. The entity, Beachcomber Technology Limited, provided IT services to the Company in the year to a value of £23,953 (2010: £Nil).

Caffyns Pension Fund

• a) Details of contributions are disclosed in note 20.
• b) The Pension Fund held the following investments in the Company:

	Fair value
	2011	2010
	£'000	£'000
Shares held
125,570 (2010: 125,570) Ordinary Shares of 50p each	565	498
12,862 (2010: 12,862) 10% Cumulative Preference Shares of £1 each	12	15
	577	513

c) During the year to 31 March 2011 the Company met management fees of £305,000 on behalf of the Pension Fund (2010: £185,000).

25. Operating leases

The Group as lessee

The total future minimum lease payments payable under non-cancellable operating leases which fall due as follows:

	Group and Company		Group and Company
		2011		2010
	Land and		Land and
	buildings	Other	buildings	Other
	£'000	£'000	£'000	£'000
Within 1 year	508	17	488	2
In 2 to 5 years	1,782	34	1,258	8
Beyond 5 years	3,092	–	1,765	–
	5,382	51	3,511	10

The total minimum lease payments for land and buildings are until the next break point in the lease. All rentals are fixed until either the termination of the lease, or in the case of land and buildings, the next break point.

The Group leases a number of properties, the majority of which are motor vehicle showrooms with workshop and parts retail facilities, with varying lease periods. None of these leases include contingent rentals. In addition, there are other leases in respect of items of plant and equipment and the rental of motor vehicles used in the Company's bodyshop activities.

25. Operating leases (continued)

The Group as lessor

Property rental income earned by the Group and the Company during the year was £33,000 (2010: £44,000). No contingent rents were recognised in income (2010: £Nil).

At the balance sheet date, there were contracts with tenants for the following lease payments:

	2011	2010
Group and Company	£'000	£'000
Within 1 year	44	35

26. Obligations under finance leases

				Present value
		Minimum		of minimum
		lease payments	lease payments
	2011	2010	2011	2010
Group and Company	£'000	£'000	£'000	£'000
Amounts payable under finance leases:
Within one year	–	6	–	5
In the second to fifth years inclusive	–	–	–	–
	–	6	–	5
Less: Future finance charges	–	(1)	–	–
Present value of lease obligations	–	5	–	5
Less: Amount due for settlement within 12 months (shown under current liabilities)			–	(5)
Amount due for settlement after 12 months			–	–

The Company leased certain of its fixtures and fittings under finance leases. The average lease term was four years. For the year ended 31 March 2010, the average effective borrowing rate was 8.13%. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The fair value of the Company's lease obligations approximates their carrying amount.

The Company's obligations under finance leases are secured by the lessor's charges over the leased assets.

27. Capital commitments

The Group and Company had capital commitments at 31 March 2011 of £Nil (2010: £Nil).

for the year ended 31 March 2011

28. Contingent liabilities and assets

The Group and Company had no contingent liabilities at 31 March 2011 or 31 March 2010.

VAT

The claim that had been lodged with HM Revenue and Customs in connection with the repayments of VAT received in September 2004 and March 2007 was joined in a Group Litigation Order ("GLO") along with other claimants. Interest on these repayments was on a simple interest basis whereas the GLO claimed that it should have been on a compound interest basis. As previously reported, while the High Court found in the claimant's favour, it also held that the limitation period for bringing these particular claims ran out in around 2002/03. Claims were not made because, at that time, dealerships were unaware of their entitlement to claim. The view of the court on appeal was to uphold the original decision. Following a decision in the Court of Appeal, it was decided that the outcome will await the decision in another related case expected by early 2013.

In the event that a claim is successful, any further amount payable to the Company would depend upon the rate of interest decided by the courts. In view of the current state of the legal process, no amount in respect of this claim has been included in these financial statements. If successful, the claim is likely to have a material affect on the Company's financial statements.

Two other claims have been lodged with HM Revenue and Customs. The first claim relates to demonstrator bonuses paid to our former contract leasing business between 1983 and 1996 and is for £152,000. The second claim relates to the treatment of certain part-exchange vehicles acquired between 1973 and 1992 and is for £1.07m. The directors are not able to determine whether or not these claims are likely to prove successful and have therefore not included such claims in these financial statements.

29. Critical accounting judgments and estimates when applying the Group's accounting policies

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 judgements in applying the Group's accounting policies are listed below.

Retirement benefits obligation

The Group 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. At 31 March 2011 the net liability included in the balance sheet was £5.48m (2010: £6.36m).

Impairment

The carrying value of goodwill and property, plant and equipment is tested annually for impairment by using cash flow projections for each cash generating unit. These projections are based upon actual and short term planned results which are then extrapolated using a pre-tax discount rate of 5%. No impairment was provided for in the year (2010: credit of £359,000).

Inventory valuation

Motor vehicle inventories are stated at the lower of cost and net realisable value (fair value less costs to sell). Fair values are assessed using reputable industry valuation data which is based upon recent industry activity and forecasts. Whilst this data is deemed representative of current values it is possible that ultimate sales values can vary from those applied. At 31 March 2011 the value of vehicles included in the balance sheet was £16.69m (2010: £13.21m).

29. Critical accounting judgments and estimates when applying the Group's accounting policies (continued) Income tax

The actual tax on the Group's profit is determined according to complex laws and regulations. Where the effect of these laws and regulations is unclear, estimates are used in determining the liability for tax to be paid on past profits which are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the financial statements. The estimated tax charge for the year in the Income Statement is £50,000 (2010: credit of £137,000).

Deferred tax

Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income. At 31 March 2011 the net deferred tax liability included in the balance sheet was £75,000 (2010: an asset of £96,000).

Consignment inventories

Consignment vehicles are regarded as effectively under the control of the Group and are included within inventories on the balance sheet as the Group has the significant risks and rewards of ownership even though legal title has not yet passed. The corresponding liability is included in trade and other payables. At 31 March 2011 the value was £8.52m (2010: £7.35m).

VAT

The Group is in discussion with HM Revenue and Customs over issues which may arise in additional income being recognised in future periods and, although this income may be significant, it is not possible at present to quantify them. Accordingly, no amount has been included in the financial statements in respect of these issues.

Going concern

The directors assess the appropriateness of the going concern basis for the preparation of the financial statements. In doing so they consider the ability of the Group to trade within the financing facilities available to it. The conclusion of this assessment is set out in the accounting policy "The basis of preparation and statement of compliance" on page 32.

30. Post balance sheet events

A final dividend of 7.0p per share (2010: 5.0p) has been recommended by the directors.

Contracts were exchanged for the sale of the Company's freehold site in Sevenoaks, Kent for £1.75m on 6 April 2011. This ceased trading by 31 May 2011. The consideration was paid in cash on 31 May 2011.

The Company has agreed since 31 March 2011 the extension of the repayment date for its £3m revolving credit facility from January 2012 to May 2012.

On 26 May 2011, the Company signed a contract with a firm of building contractors in the sum of £1.8m in respect of the redevelopment of the Land Rover dealership in Lewes, East Sussex.

On 31 May 2011 the Company announced that contracts were exchanged for the sale of the Company's freehold site in Alton, Hampshire, conditional upon the purchaser obtaining a satisfactory planning permission for change of use. If successful, the consideration of £1.807m would be payable in cash on 27 November 2012.

Five Year Review

	2007	2008	2009	2010	2011
	£'000	£'000	£'000	£'000	£'000
Income Statement
Revenue	176,238	182,029	158,653	189,426	201,467
Operating profit/(loss) before exceptional/non-underlying items	1,858	393	(1,425)	2,152	2,311
Exceptional/non-underlying items	160	2,776	(2,132)	118	(1,167)
Finance costs	(1,232)	(1,310)	(1,177)	(1,300)	(1,168)
Finance income	657	720	314	–	292
Profit/(loss) before tax	1,443	2,579	(4,420)	970	268
Profit/(loss) after taxation	1,163	2,128	(3,969)	1,107	218
Basic earnings/(loss) per ordinary share	40.4p	73.9p	(137.8p)	38.6p	7.7p
Adjusted earnings/(loss) per ordinary share	36.5p	(6.7p)	(59.8p)	35.7p	41.4p
Dividend per ordinary share payable in respect of the year	25.0p	25.0p	4.0p	10.0p	12.0p
Balance sheet
Shareholders' funds	28,045	30,143	21,304	20,275	20,270
Bank borrowings (net)	9,841	14,184	8,908	9,491	8,078
Debt/shareholders' funds (gearing)	35%	47%	42%	47%	40%

Our Dealerships . . .

AUDI

Brighton, Sussex. 200 Dyke Road. (01273) 553061 Eastbourne, Sussex, Edward Road. (01323) 525700 Worthing, Sussex. Broadwater Road. (01903) 231111

CHEVROLET

Tunbridge Wells, Kent. Lamberts Road. (01892) 515700

FORD

Alton, Hampshire. Butts Road. (01420) 83993 Hove, Sussex, Victoria Road, Portslade (01273) 429600

JAGUAR AND DAIMLER Eastbourne, Sussex. Meads Road. (01323) 730201 & 730204

LAND ROVER Lewes, Sussex. Brooks Road. (01273) 473186

SKODA

VAUXHALL

Ashford, Kent. Monument Way. (01233) 504604 Folkestone, Kent. 8-10 Bouverie Road West. (01303) 253443 Tunbridge Wells, Kent. Lamberts Road. (01892) 515700

Ashford, Kent. Monument Way. (01233) 504600 Tunbridge Wells, Kent. North Farm Road. (01892) 530430

VOLKSWAGEN

Goring-By-Sea, Sussex. The Crescent, 341 Goring Road. (01903) 504440 Haywards Heath, Sussex. Station Garage, Market Place. (01444) 451511 Eastbourne, Sussex. Hammonds Drive. (01323) 647141 Hove, Sussex. Victoria Road, Portslade. (01273) 425600

VOLVO

Eastbourne, Sussex. 46 Lottbridge Drove. (01323) 418300 Hove, Sussex, Victoria Road, Portslade. (01273) 429600

ACCIDENT REPAIR CENTRE Ashford, Kent. Monument Way. (01233) 504606

PARTS CENTRES Ashford, Kent. Monument Way. (01233) 504614† Tunbridge Wells, Kent. Lamberts Road. (01892) 515700

HEAD OFFICE Eastbourne, Meads Road, Sussex. (01323) 730201 Meads Road, Eastbourne, East Sussex, BN20 7DR

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