CAFFYNS PLC — Annual Report 2022

Jul 4, 2022

Caffyns plc Annual Report for the year ended 31 March 2022

Caffyns plc Annual Report 2022

www.caffyns.co.uk

Caffyns plc Annual Report 2022

Visit us online

Like-for-like comparisons exclude the impact of the Lotus and MG businesses at Ashford, both of which were opened during the year under review. All other businesses operated for the full twelve-month period in both years

Summary

	2022 £’000	2021 £’000
Revenue	223,928	165,085
Underlying EBITDA (see note below and note 3)	7,712	5,124
Underlying profit before tax (see note below)	4,574	1,876
Profit before tax	4,385	1,424
Underlying earnings per share (see note 9)	117.0	66.0
Earnings per share	111.3	52.4
Proposed final dividend per ordinary share	15.0	—
Dividend per ordinary share for the year	22.5	—

Note: Underlying results exclude items that have non-trading attributes due to their size, nature or incidence. Non-underlying items for the year totalled a charge of £189,000 (2021: £452,000) and are detailed in Note 2 to these consolidated financial statements. Underlying EBITDA of £7,712,000 (2021: £5,124,000) represents operating profit before non-underlying items of £5,690,000 (2021: £3,142,000) adding back depreciation and amortisation of £2,022,000 (2021: £1,982,000).

Overview

• Revenue up 36% to £223.9 million (2021: 165.1 million) due to a buoyant used car market
• Like-for-like new car unit deliveries up by 7%
• Like-for-like used car unit sales up by 24%
• Like-for-like aftersales revenues up by 19% to £19.2 million
• Underlying profit before tax of £4.6 million (2021: £1.9 million)
• Final dividend of 15.0 pence per Ordinary share (2021: nil pence per Ordinary share)
• Net bank borrowings at 31 March 2022 as disclosed in note 21 were £10.4 million (2021: £10.3 million)
• Property portfolio revaluation at 31 March 2022 showed a £13.3 million surplus (2021: £12.3 million surplus) to net book value (not recognised in these accounts)

Results at a Glance

Contents

• Our Business
• Results at a Glance
• Operational and Business Review
• Strategic Report
• Governance
• Board of Directors
• Chairman’s Statement on Corporate Governance
• Directors’ Remuneration Report
• Report of the Directors
• Directors’ Responsibilities Statement
• Financials
• Report of the Independent Auditor
• Income Statement
• Statement of Comprehensive Income
• Statement of Financial Position
• Statement of Changes in Equity
• Cash Flow Statement
• Principal Accounting Policies
• Notes to the Financial Statements
• Other Information
• Five-year Review

Revenue (£’000)

Year	18	19	20	21	22
	195,787	209,246	215,868	165,085	223,928

Underlying PBT (£’000)

Year	18	19	20	21	22
	251	1,445	1,390	1,876	4,574

Underlying earnings/(deficit) per ordinary share (pence)

Year	18	19	20	21	22
	(4.9)	35.3	45.6	66.0	117.0

Stock code CFYN

01

www.caffyns.co.uk

Financials

Other information

Governance

Our Business

Operational and Business Review

“The underlying profit before tax of £4.6 million was a significant improvement on the prior year. Despite limited new car supply, operating profits improved due to very buoyant trading in used cars and our strong focus on improving operational effectiveness.”

Summary

The underlying profit before tax of £4.6 million for the financial year ended 31 March 2022 (“the year”) was a significant improvement on the £1.9 million recorded for the prior year. Full year turnover increased by 36% to £223.9 million (2021: £165.1 million), predominantly from significantly higher levels of car deliveries. Operating profit improved significantly to £5.7 million (2021: £2.9 million) due to very buoyant trading in used cars and a strong focus on improving operational efficiency. Our statutory profit before tax for the year was £4.4 million (2021: £1.4 million). Basic earnings per share for the year were 111.3 pence (2021: 52.4 pence). Underlying earnings per share for the year were 117.0 pence (2021: 66.0 pence).

The Company’s defined benefit pension scheme deficit, calculated in accordance with the requirements of IAS 19 Pensions, reduced significantly to £2.8 million at 31 March 2022 (2021: £9.4 million). Investment gains in the Scheme’s investments were strong and combined with reductions to the net present value of the Scheme’s liabilities. The Company also made an additional £1.0 million cash contribution to the pension scheme in the year to assist with reducing the deficit position.

The Company continues to own all but two of the freeholds of the properties from which it operates, and this provides the dual strengths of a strong asset base and minimal exposure to rent reviews. The board was able to restart the payment of dividends during the year with an interim dividend of 7.5 pence. The board is proposing a final dividend for the year of 15.0 pence (2021: nil pence per Ordinary share).

Net bank borrowings at 31 March 2022 were £10.4 million (2021: £10.3 million), which equated to gearing of 30% (2021: 37%).

Covid-19

The Company started the financial year with its car showrooms temporarily closed and able to operate only on a “click-and-collect” basis. However, by mid-April 2021, we were able to fully reopen and for the remainder of the financial year were able to operate as usual, albeit with certain social distancing precautions remaining in place.

In April 2021, 88 employees, around one-fifth of the total workforce, remained on furlough under the Government’s Coronavirus Job Retention Scheme, but we were able to return those employees to the workplace over the spring and summer months and we ceased to utilise the scheme from August. Grants received in the year amounted to £0.1 million. The business also continued to benefit from the business rates holiday for retail premises, which provided a year-on-year saving of £0.8 million. This holiday expired on 31 March 2022.

We remain grateful to the Government for the actions that it took to protect employment during lockdown periods where activity levels were suppressed and there was insufficient work to occupy certain employees. Whilst covid-19 infection levels remained at elevated levels it was pleasing to see a waning of the impact of the covid pandemic on the business as the year progressed. Through careful management of the workplace, we were able to successfully manage staff absences and to continue to offer an environment that our customers were happy to visit and transact in.

02

Caffyns plc Annual Report 2022

“I am very grateful for the dedication of our employees and the effort they applied throughout the year to provide our customers with a first-class experience.”

Omni-channel retailing

Our omni-channel offering allows customers to interact with us in a way that suits them best, from the traditional showroom discussion through to a fully online sales process, and any combination in between. We learnt a great deal during the lockdown periods of the pandemic and were able to introduce new options which significantly advanced our on-line selling capabilities. These have been further enhanced in the current year allowing us to provide our customers with a full omni-channel approach to purchasing their vehicle.

Our people

I am very grateful for the dedication of our employees and the effort they applied throughout the year to provide our customers with a first-class experience. Their response to the covid-19 pandemic has been outstanding. We have been, and remain, very focused on the health and safety of our employees and customers, ensuring that our showroom and workshop activities are undertaken in a responsible and socially distanced way. As a result of the hard work and professionalism shown by everyone involved, we have successfully navigated the covid pandemic to leave the business in a strong position.

The Company has a long tradition of investing in apprenticeship programmes. Despite the pressures on the business, we have kept our apprenticeship numbers at a high level and continue to see the benefits flow through the business as more apprentices complete their training and become fully qualified. Due to our apprentice numbers, we continue to fully utilise our Government apprenticeship levy payments within the stipulated time limits. We remain firmly committed to the long-term benefits of apprenticeships and our recruitment programme continues with the aim of maintaining a healthy complement in the coming year which will assist the Company to continue to grow.

New and used car sales

Total UK new car registrations in the year increased by 4% as the impacts of the covid-19 pandemic waned. However, the global shortage of semiconductors throughout the year disrupted the production of new cars and, more recently, the conflict in Ukraine added additional strains to supply chains, further restricting increases in registrations. Within the total, new car registrations in the private and small business sector, in which we principally operate, rose by 19%. Our own new car deliveries rose by 7% on a like-for-like basis, which was in line with the movement for those manufacturers that we represent. Our volume of used cars sales also rose, by 24%, on a like-for-like basis. The shortage of new car product created a strong used car market and, together with enhanced controls, we were able to retain significantly enhanced unit margins. Great efforts have been made over the last twelve months to further enhance and develop our omni-channel offering for our customers and we continue to see this providing a major opportunity for further growth. The number of used cars sold again exceeded the number of new cars sold in the year. Procedures have been strengthened to monitor and control used car stock turn and yield and to broaden our sources of replenishing inventory. The Company’s total revenues for the year increased by £58.8 million over the previous year, of which £56.6 million arose from the from the sale of new and used cars.# Stock code CFYN 03 www.caffyns.co.uk

Financials

Other information

Governance

Our Business

Operational and Business Review continued

“We remain focused on generating further improvements in used car sales, used car finance and service labour sales. These three areas will be key to achieving further increases in profitability in the coming years.”

Aftersales

The impact of the covid-19 pandemic on our aftersales business reduced during the year and we were encouraged that our service revenues in the year rose by 8% on a like-for-like basis. We continue to place great emphasis on our customer retention programmes and in growing sales of service plans. Our parts business also reported higher sales, up by 25% on a like-for-like basis from the previous year.

Operations

Our Audi businesses produced another exceptional performance in the year, significantly growing both their new and used car deliveries. The performance of our Volkswagen businesses improved in the year, boosted by the strength of the brand, the excellent model range, and exciting new products. Our Volvo businesses also enjoyed very strong performances in the year. Both businesses, in Worthing and in Eastbourne, performed very well. The Eastbourne result was especially commendable given the business was heavily disrupted by building works throughout much of the year as the site underwent a significant refurbishment. The brand continues to reap the benefits of an excellent model range of cars, which are being positively received by customers. In Tunbridge Wells, our combined SEAT/Skoda business continued to perform well and our Skoda business in Ashford recorded an excellent result, significantly ahead of the prior year. Our Vauxhall business in Ashford performed in line with our expectations in the year. During the year, we opened businesses for Lotus and MG, adjacent to our existing Vauxhall operation in Ashford. The board was encouraged with their first year of trading. Trading at Caffyns Motorstore, our used car business in Ashford, remained subdued as the business suffered from disruptions from building works to accommodate the new franchises of Lotus and MG. However, the performance improved in the year and we remain reassured that the concept continues to be well received by our customers, who particularly value the reassurance of the Caffyns brand.

Groupwide projects

We remain focused on generating further improvements in used car sales, used car finance and service labour sales. These three areas will be key to achieving further increases in profitability in the coming years. In addition, we continue to make very good progress utilising technology to enhance the customer-buying experiences from their first point of contact right through the buying process, as well as improving aftersales retention.

New brands and models

We continue to invest in enhanced facilities to allow us to sell and service our manufacturers’ ever-increasing range of electric and hybrid vehicles. During the year, we also added two new brands to our portfolio, both based at existing premises in Ashford. Lotus, which is part of the Zhejiang Geely group that also owns Volvo, and MG, a subsidiary of SAIC, commenced trading in July 2021. Both of these brands have battery-powered electric products and MG offers outstanding value for money in this field. We will shortly be expanding our representation with Lotus with the opening of a new dealership for Sussex, in Lewes.

Property

We operate primarily from freehold sites, which provides additional stability to our business model. As in previous years, our freehold premises were revalued at the balance sheet date by chartered surveyors CBRE Limited, based on an existing use valuation. The excess of the valuation over net book value of our freehold properties at 31 March 2022 was £13.3 million (2021: £12.3 million). In accordance with our accounting policies, this surplus has not been incorporated into our accounts. During the year, we incurred capital expenditure of £2.9 million (2021: £0.4 million). There was one major property development project in the year, which was the expansion and complete refurbishment of our Volvo premises in Eastbourne. The remaining spend reflected a mixture of further installations of electric charging points and replacement spend on existing assets.

04 Caffyns plc Annual Report 2022

The lease to the purchaser of our former Land Rover business in 2016, for our freehold premises in Lewes, terminated on 9 June 2021 and the property was returned to us. Our current intention is to dispose of the premises and we expect to exchange contracts shortly. Completion of the sale will be dependent on the purchaser gaining an appropriate planning consent and the board expects this will take at least two years. Due to the uncertainty of a successful outcome to the planning process, the property has continued to be shown as an investment property on the Company’s balance sheet. The Company operates two of its franchised businesses from leased premises as well as having a leased vehicle storage compound, which are shown on the balance sheet as right of use assets. During the year, management reassessed its likely future requirement for one of those premises and, as a result, extended its estimate of the duration of its stay. As a result, the valuation of that lease increased by £1.0 million, equal and opposite to an increase in its lease liability. The Company has agreed with Volvo UK to relocate its business in Worthing to a new-build facility, adjacent to its existing Audi operation at Angmering. Planning permission for the new facility is being sought and construction is expected to start once a planning consent is granted, with the new facility expected to be available to open in 2023.

Bank facilities and borrowings

The Company’s banking facilities with HSBC comprise a term loan, originally of £7.5 million, repayable by instalments over a twenty-year period to 2038 and a revolving credit facility of £6.0 million, both of which will next become renewable in April 2026. HSBC also provides an overdraft facility of £3.5 million, renewable annually. The Company continues to enjoy a supportive relationship with HSBC and successfully refinanced its borrowings in March 2022, twelve months in advance of the scheduled review date for the facilities. The refinancing did not affect the market value of the Company’s borrowings. In addition to its facilities with HSBC, the Company also has a revolving credit facility of £4.0 million provided by Volkswagen Bank, renewable annually, together with a term loan, originally of £5.0 million, which is repayable by instalments over the ten years to March 2024. The term loan and revolving credit facilities provided by HSBC include certain covenant tests which were comfortably passed at the year-end on 31 March 2022. Any failure of a covenant test would render these facilities repayable on demand at the option of the lender.

During the year, cash generated by operating activities was £3.4 million (2021: £6.7 million). This reflected the deficit-reduction payment of £1.0 million made to the Company’s defined-benefit pension scheme as part of the recovery plan to the March 2020 triennial valuation, as well as outflows associated with working capital movements. Other significant cash movements in the year included capital expenditure of £2.8 million (2021: £0.4 million) and repayment of bank revolving credit facilities and term loans of £2.9 million (2021: £1.7 million). Cash balances held at 31 March 2022 were £5.7 million, a reduction of £3.0 million from the previous year-end. Bank borrowings, net of cash balances, at 31 March 2022 were £10.4 million (2021: £10.3 million) and as a proportion of shareholders’ funds at 31 March 2022 were 30% (2021: 37%). This reduction in gearing level reflected the strong financial result for the year as well as a significant narrowing of the deficit in the Company’s defined-benefit pension scheme. Available but undrawn facilities with HSBC and Volkswagen Bank at 31 March 2022 were £10 million (2021: £16 million) owing to the reduction in certain facility levels in the year, in agreement with the Company’s bank lenders.

Taxation

The year ended 31 March 2022 resulted in a tax charge of £1.39 million (2021: £0.01 million). The effective tax rate for the year was higher than the standard rate of corporation tax in force for the year of 19% due to the effect on deferred tax liabilities of the scheduled increase in the corporation tax rate to 25% in 2023. In the prior year, the effective tax rate was significantly lower than the standard rate of corporation tax in force for the year of 19% due to the reversal of an impairment provision against the carrying value of an Advanced Corporation Tax (“ACT”) asset. The Company has no current outstanding trading losses awaiting relief (2021: £Nil). There are also no capital losses awaiting relief. Capital gains which remain unrealised, where potentially taxable gains arising from the sale of properties and goodwill have been rolled over into replacement assets, amount to £7.1 million (2021: £8.3 million) which could equate to a future potential tax liability of £1.8 million (2021: £1.6 million). The Company was able to utilise £0.6 million of its ACT in the year, leaving an amount carried forward to future trading periods of £0.5 million (2021: £1.1 million).

Pension scheme

The Company’s defined benefit scheme was closed to future accrual in 2010. The board has little control over the key assumptions in the valuation calculations as required by accounting standards and the low yields of gilts and bonds continue to have a significant impact on the net funding position of the scheme. At 31 March 2022, the deficit was £2.8 million (2021: £9.4 million). The deficit, net of deferred tax, was £2.1 million (2021: £7.6 million).# Stock code CFYN 05 www.caffyns.co.uk Financials Other informationGovernance

Our Business Operational and Business Review continued

The Scheme operates with a fiduciary manager and the board, together with the independent pension fund trustees, continues to review options to reduce the cost of operation and its deficit. Actions that could further reduce the risk profile of the assets and more closely match the nature of the Scheme’s assets to its liabilities continue to be considered. The pension cost under IAS 19 is charged as a non-underlying cost and amounted to £0.2 million in the year (2021: £0.2 million). During the year, the latest formal triennial valuation of the Scheme, effective 31 March 2020, was completed with the valuation being formally submitted to the Pensions Regulator in June 2021. A recovery plan to address the Scheme deficit identified from this triennial valuation was agreed with the trustees under which the annual recovery plan payment would increase from £0.5 million to £0.8 million, with an additional one-off contribution of £1.0 million, which was paid in June 2021. The recurring annual recovery plan payment for each subsequent year will then increase by 2.25%, until superseded by any future new recovery plan to be agreed between the Company and the trustees. Therefore, the Company made deficit reduction contributions into the Scheme during the year of £1.8 million (2021: £0.5 million).

Dividend

The uncertainty caused by the Covid-19 pandemic resulted in the Company temporarily pausing its dividend payments to shareholders. The board is aware of the importance of dividend payments to its shareholders and remained committed to restarting dividend payments once it was appropriate to do so. The judgement of the board was that the performance of the business in the first half of the year meant that it would be appropriate to restart dividend payments and, accordingly, the board declared an interim dividend of 7.5 pence per Ordinary share (2021: Nil pence per Ordinary share). The board is also declaring a final dividend for the year of 15.0 pence (2021: Nil pence per Ordinary share) which will be paid on 9 August 2022 to those shareholders on the register at close of business on 8 July 2022, subject to shareholder approval at the 2022 Annual General Meeting. The Ordinary shares will be marked ex- dividend on 7 July 2022.

Strategy

Our continuing strategy is to focus on growing our loyal customer base through representing premium and premium-volume franchises, maximising opportunities for premium used cars and delivering an excellent after sales service. We recognise that we operate in a rapidly changing environment and continue to carefully monitor the appropriateness of this strategy. We continue to seek opportunities to invest in the future growth of our business. We are concentrating on business opportunities in stronger markets to deliver higher returns from fewer but bigger sites. We continue to seek to deliver performance improvement, in particular in our used car and aftersales operations, and to enhance both the purchasing and aftersales experience for our customers.

Annual General Meeting

The Annual General Meeting will be held on 2 August 2022. As no regulations remain in place regarding social distancing, it is intended that the Annual General Meeting will be an open meeting, to which shareholders will be invited to attend in person.

Outlook

We have started the new financial year with a sense of optimism, although we are mindful of disruptions to manufacturers’ supply chains and dependent upon consumer confidence. We continue to enjoy supportive relationships with our banking partners, HSBC and Volkswagen Bank, with available but undrawn facilities at the year-end in excess of £10 million. The balance sheet is appropriately funded and our freehold property portfolio is a source of stability. We remain confident in the prospects of the Company and are ready to exploit future business opportunities.

S G M Caffyn
Chief Executive
26 May 2022

06 Caffyns plc Annual Report 2022

Business model

Caffyns is one of the leading motor retail and aftersales companies in the south-east of England. The Company’s principal activities are the sale and maintenance of motor vehicles, including the sale of tyres, oil, parts and accessories. The Operational and Business Review, which forms part of the Strategic Report, principally covers the development and performance of the business and the external environment and is set out on pages 2 to 6. The main Key Performance Indicators are:

Financial	2022	2021
Revenue (£ million)	223.93	165.09
Underlying EBITDA (£ million)	7.71	5.12
Profit for the year before tax (£ million)	4.39	1.42
Underlying earnings per share (pence)	117.0	66.0
Earnings per share (pence)	111.3	52.4
Bank overdrafts and loans (net of cash in hand balances) (£ million)	10.43	10.33
Gearing (%)	30.0	37.4

Note: Underlying results exclude items that have non-trading attributes due to their size, nature or incidence.

Other and non-financial	2022	2021
UK new car market – total registrations (million)	1.64	1.57
UK new car market – retail and small business sector registrations (million)	0.88	0.74
Caffyns new car unit sales (‘000)	3.95	3.60
Caffyns used car unit sales (‘000)	5.58	4.43
Caffyns aftersales revenues (excluding internal sales) (£ million)	19.26	17.03
Company employees (full-time equivalents)	402	402

Source of UK market registrations: Society of Motor Manufacturers and Traders (“SMMT”).

Business performance

New and used cars

Our new unit deliveries were up by 6.6% on a like-for-like basis. Over the twelve-month period, total UK new car registrations rose by 4.2% and, within this, the private and small business sector in which we have most exposure to rose by 19.0%. New car registrations to the fleet market in the year fell by 8.9%. Overall, we were satisfied with the level of new car deliveries we achieved for the year. Our used unit sales increased by 24.1% on a like-for-like basis, with very buoyant trading. Transaction data released by the Society of Motor Manufacturers and Traders reported used car transactions in the UK up 11.5% for the 2021 calendar year.

Aftersales

Over recent years, new car registration levels have been adversely impacted by several factors, from changes in emissions regulations in 2018 and 2019, the covid-19 pandemic in 2020 and 2021 and the continuing disruptions caused to manufacturers’ production levels from the global shortage of semiconductors. This has acted to significantly reduce the number of one to three-year-old cars in circulation. Despite these factors, aftersales revenues rose in the year by 18.6%, on a like-for-like basis, aided by further enhancements to our aftersales marketing and retention procedures which continue to benefit this area of the business.

EBITDA

EBITDA has seen a substantial increase during the year as the business rebounded from a covid-impacted year and enjoyed buoyant trading across both car sales and aftersales. However, it should be noted that the Company received a partial payment holiday from business rates from the local Councils in areas in which it operates, which produced a saving of £0.8 million. That payment holiday finished on 31 March 2022 so this saving will not be available to the Company for future financial periods.

Business strategy

The Company continues to focus on the premium and premium-volume market where it believes that there is greater scope to deliver stronger sales, profits and returns. Representation is held for a strong portfolio of nine franchises being Audi, LEVC, Lotus, MG, SEAT, Skoda, Vauxhall, Volkswagen and Volvo. We generally operate from our own freehold properties, which we believe offers better long-term returns and greater flexibility. Proceeds from disposals of properties are generally reinvested in the property portfolio.

Strategic Report

07 www.caffyns.co.uk Financials Other informationGovernance

Our Business Strategic Report continued

08 Caffyns plc Annual Report 2022

Corporate social responsibility, Human rights and diversity

Caffyns has a long-standing Corporate and Social Responsibility agenda including its approach to its employees, the environment, and health and safety. We are also conscious of human rights issues within the Company and the key area that would impact our business would be via our supply chain. However, our supply chain is predominantly the major international motor manufacturers who also take these issues very seriously. The UK Corporate Governance Code includes a recommendation that boards should consider the benefits of diversity, including gender, when making board appointments. The board recognises the importance of gender balance and the important requirement to ensure that there is an appropriate range of experience, balance of skills and background on the board. We will continue to make changes to the composition of the board irrespective of gender or any form of discrimination so that the best candidate is appointed. The table below gives the total number of our employees in each category, by gender, at 31 March 2022.

	Female	Male	Total
Director	1	5	6
Senior management	1	10	11
All other employees	102	325	427

Employees

We recognise that our people are our key asset and are responsible for delivering our strategy. We continue to invest in an enhanced training and development programme, with support from our manufacturer partners. The positive approach shown by our employees throughout the Company’s businesses has been key to our success. Employees are encouraged to discuss with management factors affecting the Company and any other matters that they are concerned about. In addition, the board takes account of employees’ interests when making decisions. We have a HR director who has day to day responsibility for employee welfare. Suggestions from employees aimed at improving the Company’s performance are welcomed.# Good performance from employees is recognised every four months by their peer group who nominate employees for awards and formal company-wide recognition. A significant number of employees are remunerated partly by profit-related bonus schemes. We have a dedicated company intranet which keeps employees up to date with company developments and activities. This platform also includes the Company’s policies and procedures. Long service awards were made during the year to those staff with 25 years’ continuous service. All employment policies remain compliant with current legislation. It is our policy to encourage career development for all employees and to help staff achieve job satisfaction and increase their personal motivation. We support the recruitment of disabled people wherever possible. Priority is given to those who become disabled during their employment. Employment by the Company is offered on the basis of the person’s ability to work and not on the basis of race, individual characteristics or political opinion. We have continued to recruit to our apprenticeship programme, and we are seeing the benefits of this investment. We look to further recruit both apprentices and others across the Company’s businesses as we continue to grow.

Principal risks and uncertainties

Risk is an accepted part of doing business and the Company 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 Company and they should therefore not be considered to be a complete set of all potential risks and uncertainties. The risk factors should be considered alongside the statement on internal control and risk management included in the Statement on Corporate Governance on page 22 and those in note 21 to the financial statements.

Stock code CFYN
09
www.caffyns.co.uk
Financials
Other information
Governance
Our Business

Principal risks

| Potential impact/material risk | Key controls and mitigating factors # Strategic Report continued

Changes in legislation in relation to the distribution and sale of vehicles

Sales agreements are granted by manufacturers based on standards but agreements are restricted to areas of influence granted by manufacturers, who also determine choice of partner, enabling them to restrict entry into the franchise or the number of outlets any one dealer can hold. Aftersales agreements are legislated by a Block Exemption, dictating that aftersales businesses that meet a manufacturer’s qualitative standards criteria have an entitlement to represent that brand’s aftersales service and parts franchise. By continuing to focus on providing excellent customer facilities, excellent customer service and by providing high- level representation for the Company’s manufacturer partners, current business relationships will be maintained, providing opportunities for selective growth.

Pension scheme

Caffyns operates a defined benefit pension scheme which was closed to new entrants in 2006 and closed to future accrual in 2010. The scheme relies on 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 and/or continuing record low interest rates could adversely affect the surplus or deficit of the scheme and may result in increased cash contributions in future. The Company reviews the position of the defined benefit pension scheme through regular meetings of a Pensions sub- committee, chaired by the Chairman of the Audit and Risk Committee. The Company continues to review possible options to mitigate the risk of underlying volatility causing an increase in the deficit.

Political uncertainties

The United Kingdom’s departure from the European Union, coupled with wider global developments such as the conflict in Ukraine, means that a degree of uncertainty in the economic outlook exists. We believe the main risks to arise relate to consumer confidence, new car production levels, the potential impact that sterling/euro exchange rates may have on vehicle pricing, the possible imposition of tariffs and/ / or restrictions on the imports of cars and parts into the United Kingdom. We continue to focus on delivering an excellent service to new and existing customers, giving confidence in our operations and building a strong loyalty base and to maintaining our close working relationship with our nine manufacturers.

12 Caffyns plc Annual Report 2022

Environment and climate change

The Taskforce on Climate-related Financial Disclosures (“TCFD”) has published four “pillars” relating to disclosures and we include in this Annual Report certain of the recommended disclosures, although we would note that we are still at the beginning of this journey and that more time will be required to allow for a full consideration of the issues and outcomes. We expect to be able to widen our disclosures in future Annual Reports. The areas in which we are unable to comply and require more time to implement recommendations are listed below. It is expected that full implementation of these TCFD recommendations will require between two and three years, except for the measurement of scope 3 emissions where no time frame can currently be determined, as further clarity is required to identify which emissions would be applicable for the Company to have to measure.

Areas of non-compliance are:

• Completion of a full risk and opportunity assessment of climate- related risks and opportunities over the short, medium and long term, taking into account different scenarios including a 2 degree Celsius or lower scenario;
• A description of the relative significance of climate-related risks in relation to our other principal risks;
• Identification of specific climate- related targets and the metrics to be used to assess the achievement of these targets; and
• Measurement and disclosure of scope 3 emissions.

In relation to the four pillars relating to disclosures, the Company’s current position is as follows:

• Governance: The board of directors retains ultimate responsibility for the Company’s environmental policies and for seeking to minimise the effect on the environment of our operations. This includes developing principles and approaches to protecting the environment to the extent that we are able, minimising the environmental impact of our business and providing a framework to manage climate related risks. Once these principles and approaches have been developed management will be responsible for their implementation. The board is considering whether subsidiary working parties should be formed and whether external assistance would be beneficial to review and quantify our carbon emissions;
• Strategy: A fundamental change to our business will arise from the transition from cars powered by fossil fuels to cars powered by non-fossil fuels by 2030, most likely battery-electric but possibly also hydrogen. Energy supply, particularly of electricity and gas, will require close monitoring to ensure supplies are sustainable and affordable. The Company will continue its policy of entering into long-term contracts at fixed prices for the supply of electricity and gas;
• Risk management: The Company has not yet been able to implement a process for identifying and assessing all climate-related risks but expects to have done so during the coming year. We will be reliant on our manufacturers to control the new car transition away from fossil-fuel powered engines by the supply of appropriately powered new cars but we will continue to monitor diversification of representation and other climate-related risks and opportunities; and
• Metrics and targets: The Company’s aim is to consistently reduce its energy usage, and hence the amount of CO 2 we emit from our activities, and to contribute towards worldwide efforts to limit global warming to 1.5% above pre-industrial levels. We disclose below our emissions caused by activities in the current financial year but we do not currently have the data available to be able to set targets for future years.

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. Our Health, Safety and Environment Officer has received formal training in environmental management and is appropriately experienced in this field. Our 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 fuels and oils. Through the management of these activities, we seek to minimise any adverse effects of its activities on the environment.

Stock code CFYN

13 www.caffyns.co.uk

Financials

Other information

Governance

Our Business

We also seek to reduce our energy and water consumption and our use of plastic materials. Audit processes are in place to measure usage and make recommendations for improvements. An electrical test monitoring regime is in place throughout the Company’s businesses. Use of the latest building materials is made in the construction of new sites and the refurbishment of existing locations. As our manufacturers transition away from petrol and diesel-powered cars our own fleet increasingly reflects that movement. At 31 March 2022 17% of our own demonstrator, courtesy and staff car fleet comprised either alternatively-fuelled or battery-electric cars.

Future emissions legislative changes

The Government has indicated that the sale of vehicles powered solely by an internal combustion engine will be banned from the end of 2030 onwards. Hybrid vehicles, which are powered by a combination of a battery and an internal combustion engine, will still be allowed to be sold up to the end of 2035. After that time, all vehicles will need to be powered without the use of an internal combustion engine. The implementation of this intended legislation will bring significant change to the motor retail industry, and we are working with our manufacturers to more fully develop our transitional plans. We have already installed electric charging points in all our dealerships, although further installations will be required in the coming years. A number of the other actions we have already taken are detailed below and we anticipate fuller disclosures of our plans, and their possible impact on the business, will be made in future Annual Reports.

Streamlined energy and carbon reporting

This section includes our mandatory reporting of greenhouse gas emissions for the period 1 January 2021 to 31 December 2021, the latest annual period for which data is available, and is pursuant to the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. We report our emissions data using an operational control approach taking data for which we deem ourselves responsible, including both energy consumption and vehicle usage for business use.

In the 2021 calendar year, our businesses emitted 796 tonnes of carbon dioxide (“CO 2 ”) (2020: 1,197 tonnes). The significant reduction in the tonnage of CO 2 emitted from our usage of electricity arose primarily from the improvement in the conversion factor for electricity, rather than reduction in the absolute level of kWhs used, as a result of the increasing levels of UK electrical generation coming from renewables and other non-fossil fuel sources.Our emissions are principally of CO 2 and are from the following sources:

Greenhouse gas emissions data

Tonnes of CO 2	2021	2020	2019
Scope 1
Gas consumption	278.9	250.8	308.8
Owned transport	39.4	27.4	74.2
Water supply	4.1	4.4	4.8
Scope 2
Purchased electricity	479.1	920.8	972.6
Generated electricity	(5.5)	(6.3)	(6.3)
Statutory total	796.0	1,197.1	1,354.1
Revenue (£million)	201.4	176.1	203.7

Scope 1 and Scope 2 energy consumption and greenhouse gas emissions data has been calculated in line with the UK Government environmental reporting guidance. Emission Factor Databases consistent with the UK Government environmental reporting guidance have been used, utilising the current published kWh gross calorific value and CO 2 e emissions factors relevant for the reporting calendar year. We have selected emissions £million of revenues per tonne as our intensity ratio as this, in our view, provides the best comparative measure over time.

2019 intensity ratio: 6.6 tonnes of CO 2 per £million of revenue
2020 intensity ratio: 6.8 tonnes of CO 2 per £million of revenue
2021 intensity ratio: 4.0 tonnes of CO 2 per £million of revenue

The Company’s total energy consumption for the period 1 January 2021 to 31 December 2021 was 3.9 million kWh (2020: 3.5 million kWh). The 2020 calendar year was heavily impacted by the covid-19 pandemic for much of the year with lockdown periods where, to varying degrees, the business was in lockdown mode and not fully operational, which had the effect of reducing its energy usage. The methodology for calculating this annual energy consumption figure was the same as that outlined above for producing the estimate of the Company greenhouse gas emissions. All of the Company’s energy consumption arose in the United Kingdom. Our greenhouse gas emissions associated with waste arise from a number of waste streams generated from our business. For conversion to carbon dioxide equivalent (“CO2e”) data is not readily available for a number of our waste streams, so we have chosen to report this in weight and percentage of waste recycled compared to waste sent to landfill, as opposed to CO 2 . Waste in 2021 was 509.1 tonnes (2020: 491.8 tonnes) of which 95% was recycled (2020: 98%).

Strategic Report continued 14 Caffyns plc Annual Report 2022

Reducing carbon and waste

During the year, we have continued to assess and monitor our energy use and, where practicable, we continue to implement measures in order to reduce the environmental impact of our activities. Climate change influences seasonal energy usage and while, at times, we benefit from milder weather, we are aware that any adverse change could affect energy usage. To minimise our energy usage we continue, where practicable, to install LED lighting at our sites as this uses significantly less energy than conventional lighting. In addition, we limit the duration of periods when full lighting is used, using sensors and timers to further reduce the energy we use. We continue to improve our energy use and efficiency by replacing old equipment with new efficient units and ensuring workshop doors are closed when not in use by fitting automatic closing devices. Water use in valeting areas uses recycling facilities, where practicable, and all sites have appropriate water filtration systems. At one dealership, we are able to generate electricity through the use of roof-mounted photovoltaic cells, whilst elsewhere, we use air-sourced heat pumps to reduce electricity consumption. We seek to limit our paper consumption and waste through increasingly paperless communications and systems, and to minimise the use of plastic materials.

Health and safety

The board recognises its responsibility to members of staff and others working or visiting our facilities to provide, so far as is reasonably practicable, an environment that is safe and without risk to their health and this is always the first agenda item at each board meeting. The board maintains ultimate responsibility for health and safety issues with a full-time Heath, Safety and Environment 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 our staff to take responsible decisions in their work in relation to their own, and others’, safety. We promote awareness of potential risks and hazards and implementation of corresponding preventative or remedial actions through 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 Heath, Safety and Environment Officer. All our staff have access to a detailed health and safety guide.

Section 172 statement

Section 172 of the Companies Act 2006 requires directors to take into consideration the interests of all stakeholders and other matters in their decision making. The directors continue to have regard to the interests of the Company’s employees and other stakeholders, the impact of its activities on the community, the environment and the Company’s reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the directors consider what is most likely to promote the success of the Company for its members in the long term. We explain in this Annual Report how the board engages with stakeholders.

• Relations with key stakeholders, such as shareholders and suppliers, are considered in more detail on page 22;
• The Company’s employees are recognised as vital to its success and employee relations are considered in more detail on pages 3, 8 and 36. The board intends to further enhance its methods of engagement with its employees in the coming financial year with the Chief Executive visiting the Company’s sites regularly for question-and-answer sessions with staff. He will report to the board on the outcome of these sessions. In addition, the board takes account of employees’ interests when making decisions;
• The directors are fully aware of their responsibilities to promote the success of the Company in accordance with section 172 of the Companies Act 2006. To ensure the Company operates in line with good corporate practice, all directors receive refresher training annually on the scope and application of section 172. This encourages the board to reflect on how the Company engages with its stakeholders and opportunities for enhancement in the future and was considered at the Company’s board meeting in March 2022. As required, the Company Secretary provides support to the board to help ensure that sufficient consideration is given to issues relating to the matters set out in s172(1)(a)-(f);
• The board regularly reviews the Company’s principal stakeholders and how it engages with them;
• This is achieved through information provided by management and also by direct engagement with stakeholders themselves; and
• We aim to work responsibly with our stakeholders, including suppliers. The board has recently reviewed its anti-corruption and anti-bribery, equal opportunities, and whistleblowing policies.

During the year under review, ended 31 March 2022, the key decisions taken by the board included:

Covid-19 pandemic

The Company started its financial year with its car showrooms closed and able to operate only a click-and-collect service, as they were classified by Government as non-essential businesses. Fortunately, restrictions were lifted in mid-April 2021 and, from that point, our showrooms joined our workshops in being able to operate as usual, albeit with strict social distancing in place for customers and staff and, for a time, measures for car sales such as appointment-only access to showrooms and unaccompanied test drives. As the year has progressed, covid-19 has become largely an endemic threat, but the board has been mindful of ensuring a safe environment for its employees and customers.

Stock code CFYN 15 www.caffyns.co.uk

Financials Other informationGovernanceOur Business

Dividends

The Company is aware of its responsibility to shareholders to provide a return on the investment that they have made and has returned over £3.50 in dividends per Ordinary share over the last two decades. However, the initial stages of the covid-19 pandemic presented a major challenge to the business and resulted in the Company receiving significant financial support from Government and local Councils and also from stakeholders such as its funders and suppliers. As a result, the board paused the payment of dividends in the previous financial year, whilst remaining committed to restarting the payment of dividends to shareholders as soon as it deemed it was appropriate to do so. At the half-year stage, in September 2021, the board decided that it would be appropriate to restart dividends and an interim dividend of 7.5 pence was declared to holders of the Ordinary shares. The financial performance of the Company in the current financial year has been strong, allowing the board to also declare a final dividend for the year, of 15.0 pence per Ordinary share.

Pension scheme triennial valuation

The triennial valuation of the Company’s defined benefit pension scheme was effective from 31 March 2020. The Scheme has operated with an actuarial deficit for a number of years with a recovery plan having been agreed between the Company and the Scheme’s trustees following the previous triennial valuation in 2017. This recovery plan included the payment of a one-off cash contribution of £1 million to the Scheme, which was paid in June 2021.# Chairman’s Statement on Corporate Governance

This statement explains how the Company has applied the main and supporting principles of corporate governance and describes the Company’s compliance with the provisions of the UK Corporate Governance Code (the “Code”), as published in 2018 by the Financial Reporting Council and available at www.frc.org.uk. The Company fully complied with all provisions of the Code throughout the year ended 31 March 2022, except for Provisions 10, 11, 24, 36, 38 and 39.

• Provision 10 requires that non- executive directors should be deemed to have lost their independence once they have served for nine years. Mr R C Wright was appointed as Chairman on 26 July 2012 so exceeded nine years’ service during the financial year. The board believes that Mr R C Wright will continue to act independently and to robustly challenge the executive, where appropriate;
• Provision 11 requires at least half the board, excluding the Chairman, should consist of independent non-executive directors. The board believes the composition of the board and the committees reflect the compact nature of the board and size of the Company as a whole, and that directors have shown that they are able to work in a collegiate fashion;
• Provision 24 requires that the chairman of the board should not be a member of the Audit & Risk Committee. The Company believes that an Audit & Risk Committee of three non-executive directors operates better than one with just two members and, due to the size of the board, the chairman needs to be a member in order to achieve this;
• Provision 36 requires that remuneration schemes for directors should promote long-term shareholdings by executive directors and support alignment with long-term shareholder interests. The Company operates a Save As You Earn scheme for all eligible employees, including directors, but does not operate a Long-Term Incentive Plan (“LTIP”) for directors, primarily due to the volatility in the share price and relative lack of liquidity in the trading of its shares. However, all executive directors are Ordinary shareholders and those shareholdings are detailed on page 36;
• Provision 38 requires that only directors’ salaries should be pensionable. The Company Secretary is a member of the Company’s defined contribution pension scheme on the same terms as all other employees and any bonus payments made to her are pensionable. This is a long-standing arrangement with which the board is satisfied and has decided that it would not be in the best interests of the Company to change her existing employment contract; and
• Provision 39 requires that notice periods should be one year or less. The Chief Executive has a service contract which runs for more than twelve months (see page 27 of the Directors’ Remuneration Report). This also is a long-standing arrangement. The Remuneration Committee reviews the position annually and has decided that it would not be in the best interests of the Company to change his existing contract.

A description of the Company’s business model and strategy is set out in the Strategic Report on page 7.

Structure of the board and its key activities

The board is collectively responsible for the long-term success of the Company and for ensuring that it operates to a governance standard which serves the best interests of the Company. The board sets the strategy of the Company and its individual trading businesses and ensures that the Company has in place the financial and human resources it needs to meet its objectives. There is a written schedule of matters reserved for board decision, which is summarised below.

Schedule of matters reserved for decision by the board

• Business strategy;
• Approval of significant capital projects and other investments;
• Principal terms of agreements for the Company’s principal banking facilities;
• Annual business plan and budget monitoring;
• Risk management strategy and internal control and governance arrangements;
• Approval of acquisitions and divestments;
• Changes to management and control structure;
• Significant changes to accounting policies and/or practices;
• Financial reporting to shareholders;
• Dividend policy;
• Health and safety policy;
• Changes in employee share incentives;
• Reviewing the overall corporate governance arrangements;
• Appointments to the board and its committees;
• Policies relating to directors’ remuneration and service;
• Prosecution, defence or settlement of material litigation;
• Any alterations to the share capital of the Company;
• Approval of all circulars and announcements to shareholders;
• Major changes to the Company’s pension schemes; and
• Insurance cover, including directors’ and officers’ liability insurance and indemnification of the directors.

The Chairman takes responsibility for ensuring that the directors receive accurate, timely and clear information. Monthly financial information is provided to the directors. Regular and ad hoc reports and presentations are circulated, with all board and committee papers being issued in advance of meetings by the Company Secretary. In addition to formal board meetings, the Chairman

Stock code CFYN
17
www.caffyns.co.uk

Our Business
Financials
Other information
Governance

Our Business
Other information
Governance
Financials
Governance

Chairman’s Statement on Corporate Governance continued

maintains regular contact with the Chief Executive and other directors to discuss specific issues. In furtherance of their duties, the directors have full access to the Company Secretary and may take independent professional advice at the Company’s expense. The board believes that, given the experience and skills of its directors, the identification of training needs is best left to the individual’s discretion. If any developmental need is identified through the board’s formal appraisal process or by an individual director, the Company makes the necessary resources available. As part of their role, the non-executive directors constructively challenge and help develop proposals on strategy. The non-executive directors scrutinise management’s performance in meeting agreed goals and objectives and monitor the reporting of performance. They satisfy themselves on the integrity of financial information and that the Company’s financial controls and systems of risk management are robust and defensible. They determine appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning. The non-executive directors meet formally, without the executive directors, at least once a year.# Directors' Report

Operating within prescribed delegated authority, such as capital expenditure limits, the operational running of the Company and its businesses is carried out by the executive directors, led by the Chief Executive. The board delegates certain of its duties to its Audit and Risk, Nomination and Remuneration Committees, each of which operates within prescribed terms of reference. These are set out on the Company’s website. The responsibilities of the board’s committees are set out below and on page 19 of this report and in the Directors’ Remuneration Report. The board has evaluated the performance of its Audit & Risk and Remuneration Committees for the year under review. The Chairman and the respective committee chairman take responsibility for carrying out any actions recommended as a result of that evaluation.

Performance evaluation

The board has established a procedure to evaluate its performance, as well of its Audit & Risk and Remuneration committees, and its individual directors. Detailed questionnaires are completed by the directors, who then debate any matters arising. Individual director evaluation has shown that each director continues to demonstrate commitment to the role. The non-executive directors, led by the senior independent director, have 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. The latest board evaluation process concluded that the board and its committees were operating effectively, with clear demarcation of the respective responsibilities of individual directors and board committees. The board is satisfied that all directors are each able to devote the amount of time required to attend to the Company’s affairs and their duties as a board member. The Chairman discusses with each director any training and development needs.

Board composition and independence

As at 26 May 2022, the board comprised three executive directors and three non- executive directors, one of whom is the Chairman. Mr R C Wright is the non- executive Chairman and Mr S G M Caffyn is the Chief Executive. The Chairman leads the board and the Chief Executive manages the Company and implements the strategy and policies adopted by the board. There is a clear division of responsibility between the role of the non-executive Chairman and the Chief Executive; this is recorded in a written statement which is reviewed and agreed annually by the board. The Chairman is responsible for leadership of the board and ensuring its effectiveness for all aspects of its role. The Company maintains appropriate directors’ and officers’ insurance in respect of legal action against its directors.

Directors’ conflict of interest

Conflicts of interest can include situations where a director has an interest that directly or indirectly conflicts, or may possibly conflict, with the interests of the Company. The board operates a formal system for directors to declare at all board meetings all conflicts of interest. The non-conflicted directors must act in the way they consider, in good faith, would be most likely to promote the success of the Company.

Balance and challenge

The non-executive directors complement the skills and experience of the executive directors, providing the requisite degree of judgement and scrutiny to the decision-making process at board and committee level. Mr N T Gourlay is the senior independent director. The board maintains and regularly reviews a register of all interests, offices and appointments that are material to be considered in the assessment of the independence of directors and has concluded that there are not, in relation to any director, any relationships or circumstances regarded by the Company as affecting their exercising independent judgement.

Re-election of directors

All directors will seek re-election annually in accordance with the latest corporate governance recommendations.

Meetings and attendance

There were eight meetings of the board in the year under review. All directors were in attendance for all of the meetings.

Nomination Committee

Our Nomination Committee comprises two non-executive directors, the non- executive Chairman and the Chief Executive. The members are:

Name	Role
R C Wright	Chairman
N T Gourlay	Non-Executive Dir
S G Bellamy	Non-Executive Dir
S G M Caffyn	Chief Executive

18 Caffyns plc Annual Report 2022

The Nomination Committee is responsible for leading the process for appointments to the board and meets at least once a year. The Committee is chaired by Mr R C Wright. The Company Secretary or alternate also attends meetings in her capacity as secretary of the Committee. Where the matters discussed relate to the chairman, such as in the case of selection and appointment of the Company Chairman, the senior independent director chairs the Committee. New directors receive a full, formal and tailored induction on joining the board.

The principal responsibilities of the Committee are as follows:

• To regularly review the structure, size and composition of the board and make recommendations to the board regarding any adjustments deemed appropriate;
• To prepare the description of the role and capabilities required for a particular board appointment. Executive search consultants may be retained as appropriate to assist in this process;
• To identify, and nominate for the approval by the board, candidates to fill board vacancies as and when they arise;
• To satisfy itself, with regard to succession planning, that processes are in place regarding both board and senior appointments; and
• To undertake an annual performance evaluation to ensure that all members of the board have devoted sufficient time to their duties.

The Committee met twice during the year. All members eligible to attend were present at both the meetings.

Audit and Risk Committee

Our Audit and Risk Committee comprises two non-executive directors and the Chairman. The members are:

Name	Role
N T Gourlay	Chairman
R C Wright	Non-Executive Ch
S G Bellamy	Non-Executive Dir

The Committee is chaired by Mr N T Gourlay. The Company Secretary, or alternate, also attends meetings in her capacity as secretary of the Committee. The chairman of the Committee is considered by the board as having recent and relevant financial experience. The board also remains satisfied that the Committee as a whole has competence relevant to the sectors in which the Company operates. The chairman of the board is on the Committee due to his experience and the small number of non- executive directors on the board. The board are satisfied with this arrangement.

The Audit and Risk Committee meets at least three times a year. The meetings are attended by invitation by the executive directors and by the head of the internal audit function and the internal auditor, and by representatives of the Company’s external auditor, at the chairman’s discretion. The Committee’s meetings in quarters one and three coincide with the Company’s reporting timetable for its audited financial statements and unaudited interim condensed financial statements respectively.

During these meetings, the Committee:

• Reviews the drafts of the financial statements and preliminary and interim results announcements; and
• Reviews all published accounts (including interim reports) and post-audit findings before their presentation to the board, focusing in particular on accounting policies, compliance, management judgement and estimates, and considers the reports of the external auditor on the unaudited interim condensed financial statements and the full-year audited financial statements.

At the second of these meetings, the Committee reviews the external audit plan. The Committee’s third meeting is primarily concerned with:

• Reviewing the Company’s systems of control and their effectiveness;
• Significant corporate governance issues, such as those relating to the regulation of financial services;
• Reviewing the external auditor’s performance;
• Reviewing the risk register and making recommendations to the board on the content and relative importance of the risks identified;
• Recommending to the board the reappointment, or not, of the external auditor; and
• Reviewing the effectiveness and independence of the external auditor, including monitoring the level of audit and non-audit fees.

The Committee met three times in the year with all directors in attendance at all the meetings. The Committee reviewed the effectiveness of the Company’s system of internal control and financial risk management during the year, including the review of the Company’s risk register, and including consideration of reports from both the internal and external auditors. The Committee reported the results of its work to the board and the board considered these reports when reviewing the effectiveness of the Company’s system of internal control which forms part of the board’s high-level risk review performed during the year. The effectiveness of the internal audit function was also monitored.

The Committee provides advice to the board on whether the annual report is fair, balanced and provides the necessary information shareholders require to assess the Company’s performance, business model and strategy. In doing so, the following issues have been addressed specifically:

• Review of key strategic risks: The Committee chairman conducts an annual review of key strategic risks and would normally undertake site visits in order to ensure that the review includes a detailed understanding of the business. However, due to the covid-19 pandemic, these visits remained suspended in the year.# Governance

Chairman’s Statement on Corporate Governance continued

The review highlights the key risks based on a combination of likelihood and impact, and then also considers what appropriate mitigating factors should be implemented (highlights from this work are included in the Strategic Report).

• Review of poorly performing dealerships: As part of both the interim and year-end review processes, consideration is given to potential impairments of property, plant and equipment, investment property and goodwill relating to poorly performing locations and that any related impairments are provided for. Management then follow up with detailed action plans to either Stock code CFYN 19 www.caffyns.co.uk Our Business Financials Other informationGovernanceOur Business Other informationGovernance FinancialsGovernance Chairman’s Statement on Corporate Governance continued improve dealership performance or seek an exit solution. The Committee also reviews progress on these plans at the following review. As part of the external audit, the Committee fully discusses with the external auditor the identification of cash generating units (“CGUs”) for the purposes of impairment testing. The Committee is satisfied that no impairments were required in relation to the current financial year.

• Going concern: The Finance Director provides an assessment of the Company’s ability to continue to trade on a going concern basis for a period of one year from the date of approval of this Annual Report. Forecasts are based on financial plans agreed with the board (budgets or forecasts), the Company’s most recent trading results, and include a range of possible downside scenarios including the impact of the ongoing covid-19 pandemic and restrictions placed on business in order to combat its effects. The assumptions that underpin the assessments are considered and discussed in detail when the Committee meets. The conclusion of that review is included in the Going Concern section of this report.

• Inventory valuation: The value of new and used cars, as well as the provision for slow-moving and obsolete inventory, can have a significant influence on the inventory valuation in the financial statements. The Committee has considered the Company’s procedures and controls, which are satisfactory, to reduce the risk of misstatement in relation to inventory valuation.

• Pensions: The Company operates a defined benefit pension scheme, closed to future accrual, which has an excess of liabilities over the value of assets owned by the scheme. The assessment of the valuation of the scheme is based on several key assumptions, which can have a significant impact on the valuation of the deficit. The Committee has considered the assumptions used for the valuation of the liabilities of the scheme and is satisfied that these are reasonable. Mr N T Gourlay will attend the 2022 Annual General Meeting and will be available at that meeting to answer any questions regarding the workings of the Audit & Risk Committee that shareholders may wish to raise.

Anti-bribery

During the year, as well as its routine business, the Committee continued to monitor the suitability of the Company’s controls designed to combat bribery to satisfy itself of the adequacy of its systems and procedures for the prevention of bribery and corruption, particularly in the light of the Bribery Act 2010. It has reviewed the Company’s anti-bribery policy statement which has been adopted by the board.

Whistleblowing

The Committee has reviewed the arrangements for its employees to raise, in confidence, concerns about possible improprieties in relation to financial reporting, suspected fraud and dishonest acts, or other similar matters, commonly known as “whistleblowing”. The Committee reviews any such reported incidences and any improvements to internal procedures that may be required.

Non-audit services provided by the external auditor

Non-audit services provided by the Company’s auditor are kept under review by the Committee. The Company’s auditor does not provide compliance services in the field of taxation advice. The Committee ensures that the auditor’s objectivity and independence are safeguarded by ensuring that the level of fees is not material to either the Company nor the auditor. The report from BDO LLP confirming their independence and objectivity was reviewed by the chairman of the Audit and Risk Committee and the Finance Director. The level of fees paid to BDO LLP for non- audit services is not regarded to conflict with auditor independence. Fees payable to the auditor are set out in note 3 to the financial statements.

Effectiveness and independence of the external auditor

The Committee is responsible for advising the board on the appointment of the auditor, assessing their independence and formulating policy on the award of non-audit work. The current auditor is BDO and the year under review is their third year of tenure. They were appointed as the result of a formal competitive tender process in 2019. Non-audit work is only awarded to the external auditor after due consideration of matters of objectivity, independence, value for money, quality of service and efficiency. At the conclusion of each year’s audit, the performance of the external auditor is reviewed by the Committee, with the executive directors, covering such areas as quality of audit team, business understanding, audit approach and process management. Where appropriate, actions are agreed against the points raised and subsequently monitored for progress. We note that, as part of their normal cycle of reviews, the Financial Reporting Council (“FRC”) has reviewed BDO’s audit of the 31 March 2021 Annual Report. The Audit & Risk Committee received the final report on 23 May 2022 and has had initial discussions as to the findings with the audit partner. The chairman of the Audit & Risk Committee will engage further with the wider audit committee once he has discussed the detailed report with the FRC.

Tax strategy and objective

As a responsible taxpayer, the Company is committed to establishing, maintaining and monitoring the implementation of an appropriate tax strategy. Our tax strategy is aligned with our objective of paying the correct amount of tax at the right time. Commercial transactions are therefore structured in the most tax efficient way but without resorting to artificial arrangements that we would regard as abusive. There is an ethical dimension to achieving this objective. The ethical 20 Caffyns plc Annual Report 2022 dimension reflects the need to mitigate the risk to the Company’s reputation that would arise from tax strategy that entails aggressive tax planning. A copy of the Company’s tax strategy is available from its corporate website, www.caffynsplc.co.uk.

Going concern

The financial statements have been prepared on a going concern basis, which the directors consider appropriate for the reasons set out below. The directors have considered the going concern basis and have undertaken a detailed review of trading and cash flow forecasts for a period of one year from the date of approval of this Annual Report. This has focused primarily on the achievement of the banking covenants. All three bank covenant tests have been passed for the year under review. Under the Company’s first covenant test, it is required to make underlying profits before senior interest(that being paid to HSBC and VW Bank on its term loan and revolving credit facility borrowings), corporation tax, depreciation and amortisation (“senior EBITDA”) for a rolling twelve-month period which is at least four times the level of senior interest. Under the second test, the Company’s borrowings from HSBC and VW Bank on its term loan and revolving credit facilities must be less than 375% of its senior EBITDA. The Company’s final covenant test requires that the level of its bank borrowings do not exceed 70% of the independently assessed value of its charged freehold properties. Property values would need to reduce by some two-thirds before this covenant test became at risk of failure. These Company’s covenants are tested quarterly with the test on 31 March 2023 being the final test to be carried out within the twelve-month period from the anniversary of the signing of these financial statements. The Company has modelled this period and conclude that there is headroom that would allow for an approximate 10% reduction in expected new and used units over this period.

External market commentary provided by the Society of Motor Manufacturers and Traders (“SMMT”) indicate that new car registrationsare forecast to show a year- on-year increase of 5% in 2022 to 1.72 million, with a further 17% increase into 2023 to 2.02 million registrations as the global shortage in semiconductors ends, allowing manufacturing levels to rise. The used car market has remained stable over the five years from 2015 to 2019, at between 7.6 and 8.2 million transactions and dropped by only 15% in 2020 due to the effects of the covid-19 pandemic, compared to a comparable 29% fall in new car registrations. Since showrooms reopened in April 2021, demand for used cars has been buoyant and transactions grew by 12% in 2021. The continuing shortage in new car supply has assisted the used car market and is expected to continue to do so. The Company’s financial results in the year under review were robust and the current new carorder take held for future delivery is at elevated levels. The directors have also considered the Company’s working capital requirements. The Company meets its day-to-day working capital requirements through short-term stocking loans, bank overdraft and revolving credit facility, and medium-term revolving credit facilities and term loans. At the year-end, the medium-term banking facilities included a term loan with an outstanding balance of £6.2 million and a revolving credit facility of £6.0 million from HSBC, its primary bankers, with both facilities being next renewable in April 2026.HSBC also make available a short-term overdraft facility of £3.5 million, which is renewed annually each August. The Company also has a ten-year term loan from Volkswagen Bank with a balance outstanding at 31 March 2022 of £1.0 million, which is repayable, to March 2024, and a short-term revolving-credit facility of £4.0 million, which is renewed annually each August. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed at their scheduled expiry dates. The failure of a covenant test would render these facilities repayable on demand at the option of the lender. Information concerning the Company’s liquidity and financing risk are set out on page 10 and note 21 to the financial statements. The directors have a reasonable expectation that the Company has adequate resources and headroom against the covenant test to be able continue in operational existence for the foreseeable future and for a period of one year from the date of approval of the Annual Report. For those reasons, they continue to adopt the going concern basis in preparing this Annual Report.

Viability statement

In accordance with provision 31 of the UK Corporate Governance Code, the directors have assessed the viability of the Company over a three-year period to 31 March 2025 and have concluded that the Company is viable over that chosen period. The directors believe this period to be appropriate as the Company’s strategic review considered by the board encompasses this period. In making their assessment, the directors have considered the Company’s current financial position and performance and its cash flow projections, including future capital expenditure, in relation to the availability of finance and funding facilities, and have considered these factors in relation to the principal risks and uncertainties which are included in the Report of the Directors.

During the year to 31 March 2022, the board carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The directors believe that the Company is well placed to manage its business risks successfully, having considered the principal risks and uncertainties. Accordingly, the board believes that, taking into account the Company’s current position, and subject to the principal risks faced by the business, the Company will be able to continue in operation and to meet its liabilities as they fall due for the period up to 31 March 2025.

Stock code CFYN
21
www.caffyns.co.uk

Our Business Financials Other informationGovernanceOur Business Other informationGovernance FinancialsGovernance

Chairman’s Statement on Corporate Governance continued

Risk management and internal controls

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 Company’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 has completed a robust assessment of the Company’s emerging and principal risks, including a description of its principal risks, the procedures that are in place to identify emerging risks, and an explanation of how these risks are being managed or mitigated. 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 to 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 and Risk 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 functions.

Financial control is exercised through an organisational 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 Company. The executive directors receive regular reports from the internal audit and health and safety monitoring functions which include recommendations for improvement.

Financial reporting

The directors consider the annual report and accounts, taken as a whole, to be fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

Relations with shareholders

The board values the constructive views of its shareholders and recognises their interest in the Company’s strategy and performance, board membership and quality of management. The views of major shareholders are reported back to the board as appropriate. The non- executive directors are available to attend meetings with major shareholders. The principal methods of communication with private investors are the Interim Report, the Annual Report and the Annual General Meeting. Information on the Company is also included on its corporate website, www.caffynsplc.co.uk.

The Annual General Meeting is used to communicate with investors. The chairmen of the Audit and Risk, Remuneration and Nomination 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 financial statements. The Company counts all proxy votes and, after it has been dealt with by a show of hands, indicates the level of proxies lodged on each resolution.

Relations with suppliers

The board maintains close relationships with its suppliers and, in particular, with the nine motor manufacturers for which it currently holds operating franchises: namely Audi, LEVC, Lotus, MG, SEAT, Skoda, Vauxhall, Volkswagen and Volvo. The Chief Executive holds regular meetings with these parties and the Company’s operations are split into three divisions with the head of each division specifically tasked with maintaining a close and mutually beneficial relationship with their manufacturer.

For its wider supplier base, the Company ensures that it operates in an ethical manner, ensuring that invoices are settled within agreed terms. The average credit period taken for trade-related purchases in the year under review was twenty-eight days (2021: thirty-three days). The shortening of the payment settlement period arose primarily from the withdrawal in the prior year of certain payment extensions allowed by many of the Company’s vehicle manufacturers in relation to the covid-19 pandemic.

During the year, the Company has been appointed by Lotus Cars to extend its representation, with the addition of a Sussex territory. The Company expects to commence trading for this new business brands from its existing site in Lewes, Sussex, in June 2022.

By order of the board

R C Wright
Chairman
26 May 2022

22
Caffyns plc Annual Report 2022

Directors’ Remuneration Report

Annual Statement from the Chairman of the Remuneration Committee

Introduction

On behalf of your board, I am pleased to present our Directors’ Remuneration Report for the year ended 31 March 2022. The Directors’ Remuneration Report has been prepared on behalf of the board by the Remuneration Committee in accordance with the requirements of the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendments) Regulations 2013, and is split into two sections:

• The directors’ remuneration policy sets out the Company’s policy on remuneration, which was subject to a binding shareholder vote at the Annual General Meeting on 24 September 2020. This remuneration policy will continue to be voted on in the future at least once every three years; and
• The annual report on remuneration sets out the payments and awards made to the directors and details the link between company performance and remuneration for the financial year ended 31 March 2022.

The information set out on pages 24 to 34 (the annual report on remuneration) is subject to audit except for the performance graph and table, the change in remuneration of the Chief Executive, the relative importance of the spend on pay, the implementation of remuneration policy in the year, the considerations by the directors of matters relating to directors’ remuneration and the statement of shareholder voting at the 2020 Annual General Meeting.

Remuneration outcomes for the financial year ended 31 March 2022

Annual bonus opportunities for the directors are based on the achievement of underlying profit before tax targets, subject to the discretion of the Remuneration Committee.# Directors’ Remuneration Report continued

24 Caffyns plc Annual Report 2022

Remuneration policy

The policy of the Committee is to ensure that the executive directors are fairly rewarded for their individual contributions to the Company’s overall performance and to provide a competitive remuneration package to executive directors to attract, retain and motivate individuals of the calibre required to ensure that the Company is managed successfully in the interests of all stakeholders. In addition, the Committee’s policy is that a substantial proportion of the remuneration of the executive directors should be performance-related. The Company’s directors’ remuneration policy is voted on every three years and was last approved by shareholders at the Annual General Meeting held on 24 September 2020 and became effective from that date. The full policy was disclosed in the 2020 Annual Report, which is available on the Caffyns plc website located at www.caffynsplc.co.uk. The main elements of the remuneration package of executive directors are set out below:

| Purpose and link to strategy | Operation # Directors’ Remuneration Report

Approach to recruitment remuneration

The Committee’s approach to recruitment remuneration is to offer a market competitive remuneration package sufficient to attract high-calibre candidates who are appropriate to the role but without paying any more than is necessary. Any new executive director’s remuneration package would include the same elements and be in line with the policy table set out earlier in the directors’ remuneration policy, including the same limits on performance-related remuneration. Were an internal candidate promoted to the board, the original grant terms and conditions of any bonus or share awards made before that promotion would continue to apply. Reasonable relocation and other similar expenses may be paid if appropriate.

Directors’ service contracts, notice periods and termination payments

| Provision | Policy # Directors' Remuneration Report

These salary and fee reductions were then unwound in stages with the full-time executive directors moving to 50% of their contractual salary from 1 May 2020 and then to 80% of their contractual salary from 1 June 2020. The remuneration of both the Company Secretary and the Chairman remained at the annual ceiling of £37,500 for the month of May 2020 and then increased to 80% of their contractual salary and fees for June 2020. All board members returned to their full contractual fee and salary levels from 1 July 2020. The total salary reductions across the three-month period amounted to £68,000 and these savings are reflected in the remuneration table below. In addition, the inflationary pay increase that had been scheduled for implementation from 1 April 2020 was initially deferred, and subsequently cancelled. Lastly, under the terms of the directors’ bonus scheme for the prior year, the directors were entitled to a bonus equivalent to 31% of salary but waived those bonuses in recognition of the exceptional circumstances of that year.

Salary and fees £’000	Taxable benefits £’000	Annual bonus £’000	In lieu of pension contributions £’000	Single total figure £’000	Fixed sums £’000	Variable sums £’000
	2022	2021	2022	2021	2022	2021
Executive
S G M Caffyn	295	252	21	21	244	—
M Warren	152	130	5	7	125	—
S J Caffyn	48	45	8	6	40	—
Total	495	427	34	34	409	—
Non-executive
R C Wright	68	61	—	—	—	—
N T Gourlay	30	28	—	—	—	—
S G Bellamy	30	28	—	—	—	—
Total	128	117	—	—	—	—
623	544	34	34	409	—	26

Employment benefits made available to the executive directors include the provision of a company car, a 50% contribution towards the cost of private medical health and the cost of appropriate subscriptions.

Annual bonus

Bonuses are earned by reference to the financial year and paid in May or June following the end of the financial year and on completion of the external audit. Any bonuses accruing to the executive directors in respect of the year ended 31 March 2022 were based on the underlying profit before tax as shown below.

Bonus paid as a percentage of base salary
	Max	Actual	Max	Actual	Max	Actual
	2022	2022	2021	2021	2022	2021
Underlying profit before tax (£’million)*	£2.20	£2.44	£4.20	£4.57
Threshold	100%	83%	100%	83%	100%	83%
Target	15%	25%	100%	100%
Maximum	£244,000	£125,000	£40,000
Actual performance
S G M Caffyn		100%		83%
M Warren		100%		83%
S J Caffyn		100%		83%

• The underlying profit before tax is calculated after taking account of the cost of such bonus including employer’s National Insurance charges and contributions in lieu of pension contributions.

Although the stipulated maximum profit target was met in relation to the financial year ended 31 March 2022, the executive directors requested that the Remuneration Committee apply its discretion and award a reduced level of bonuses, of 83%, to the executive directors. This was due to the level of support received by the Company from the partial holiday from business rates provided by local Councils in the areas in which the Company operates.

Pension entitlements and cash allowances

One executive director, the Company Secretary, was a deferred member of the Company’s closed defined benefit pension scheme at 31 March 2022 (2021: one). The defined benefit pension scheme will provide a pension to the Company Secretary of a maximum of two-thirds of final salary in respect of benefits accrued up to 31 March 2006. From 1 April 2006 until 1 April 2010 when the scheme closed to future accrual, the accrued benefits of this director were based on a “career average” basis and based upon earnings in each financial year. Under the rules of the scheme, the Company Secretary is eligible for a pension at normal retirement age of 65. If early retirement is taken before age 65, the accrued pension is discounted by 5% per annum (2021: 5%) simple, except where the Company consents to early retirement between 60 and 65 and then no discount is applied. Pensions paid increase in line with price indexation which may be limited. On death, a one-half spouse’s pension becomes due. Children’s allowances up to a maximum of 100% of the executive’s pension may be payable, including any spouse’s pension. Allowance is made in transfer value payments for discretionary benefits. The total annual accrued pension excludes transferred-in benefits.

	Normal retirement date	Total annual accrued defined benefit pension at 31 March 2022 £’000	Total annual accrued defined benefit pension at 31 March 2021 £’000
S J Caffyn	12 December 2033	37	36

The pension for the Company Secretary for service since 2010 has been provided on a contributory basis through the Company’s defined contribution pension scheme. In certain years, the Company Secretary elected not to be included in the defined contribution pension scheme and instead to be paid a salary supplement in lieu of the employer’s contribution to the Company’s defined contribution pension scheme. In the year to 31 March 2022, one of the executive directors was a member of the Company’s defined contribution pension scheme (2021: one). The non-executive directors are not members of the Company’s defined contribution pension scheme (2021: none).

Statement of directors’ shareholdings

The directors’ shareholdings as at 31 March 2022 are summarised within the Report of the Directors.

All-employee share scheme

Details of share options held by executive directors under the Company’s savings-related share option schemes, the latest of which were granted in December 2020, are as follows:

Scheme	Date of grant	Earliest exercise date	Expiry date	Exercise price £	Number at 1 April 2021	Granted/ (lapsed) in the year	Number at 31 March 2022
SGM Caffyn	ShareSave	23/12/2020	01/04/2024	30/09/2024	3.06	1,211	—
M Warren	ShareSave	23/12/2020	01/04/2024	30/09/2024	3.06	1,211	—

The market value of the shares at the date of the grant on 23 December 2020 was £3.85 giving a face value of the awards for each of the directors listed of £957.

Directors’ Remuneration Report continued

Performance graph and table

The chart below shows the Company’s eight-year annual Total Shareholders’ Return performance against the FTSE Small-Cap Total Return Index, which is considered an appropriate comparison to other public companies of a similar size.

0.0    50.0    100.0   150.0   200.0
|-------|-------|-------|-------|

FTSE Small Cap TSR
Caffyns TSR

20/04/2014 20/04/2015 20/04/2016 20/04/2017 20/04/2018 20/04/2019 20/04/2020 20/04/2021 20/04/2022

The table below sets out the total remuneration delivered to the Chief Executive over each of the last nine years, valued using the same methodology as applied to the single total figure of remuneration.

Chief Executive: S G M Caffyn

Financial years ended 31 March	2014	2015	2016	2017	2018	2019	2020	2021	2022
Total single remuneration figure (£’000)	534	389	410	388	302	364	319	281	576
Annual bonus % of maximum opportunity	100%	39%	43%	31%	0%	19%	0%	0%	83%

	Salary and fees % increase/(decrease)	Benefit-in-kind % increase/(decrease)	Annual bonus % increase
	2019/20 to 2020/21	Current year to prior year	2019/20 to 2020/21
Executive directors
Simon Caffyn	(13)%	2%	4%
Sarah Caffyn	(5)%	2%	44%
Michael Warren	(7)%	2%	(45)%
Non-executive directors
Richard Wright	(9)%	2%	0%
Nigel Gourlay	(5)%	2%	0%
Stephen Bellamy	(5)%	2%	0%
Employee average
All employees	(4)%	2%	14%

When considering the year-on-year increases in the table above, it should be noted that, as a result of the covid-19 pandemic, the directors made voluntary salary reductions in the prior year period from April to June 2020 and waived bonuses that would have been payable for the year ended 31 March 2021 equivalent to 31% of salary. The contractual salaries of the directors remained unchanged during the year ended 31 March 2021 with the usual annual pay review, effective 1 April 2020, being cancelled due to the covid-19 pandemic. Full details of the salaries and bonuses sacrificed in the prior year can be found on page 30. The underlying package of benefit-in-kind for the directors, and for employees in general, remained unchanged in comparison to the prior years although the outcomes were different. Care should be exercised when considering the percentage changes, given the relatively small sums involved in each year.

	Salary only 2022 £’000	Total earnings 2022 £’000	Ratio 2022 %	Salary only 2021 £’000	Total Earnings 2021 £’000	Ratio 2021 %
Single remuneration figure for the Chief Executive	295	576	252	281
Remuneration for the Company’s remaining full-time equivalent employees:
25th percentile	30	46	13:1	32	42	7:1
Median	24	33	17:1	14	32	9:1
75th percentile	14	23	25:1	21	22	13:1

The pay ratio disclosure above complies with Regulation 18 of The Companies (Miscellaneous Reporting) regulations 2018. These ratios have been prepared using Option A in the regulations by ranking the annualised earnings of those employees of the Company in employment on 31 March 2022, the last day of the financial year under review. Earnings includes salary, bonuses, variable elements of pay such as commissions and overtime, holiday and sickness pay, company pension contributions and the taxable value of benefits-in-kind. The Company’s Chairman and non-executive directors have been excluded from the calculation as they receive a fee rather than a salary. Any employees on zero-hour contracts have been included if they worked in the month of March 2022.# Change in remuneration of Chief Executive

The base salary of the Chief Executive increased by 2% between 31 March 2021 and 31 March 2022, mirroring that for the Company’s Regional Directors and Heads of Business. Neither the Chief Executive nor the comparator group received any changes to their employment benefits during the year. The Chief Executive received a bonus for the current year but waived his bonus for the prior year. The bonuses earned by the comparator group increased by 145% compared to the prior year, which was heavily impacted by the covid-19 pandemic. The comparator group comprises Regional Directors and Heads of Business and has been selected on the basis that these managers have direct senior operational management responsibilities.

Relative importance of spend on pay

The table below sets out the total spend on pay in the two years to 31 March 2022 compared with other disbursements from profit (i.e. distributions to shareholders). These were the most significant outgoings for the Company in the last financial year).

	Spend in 2022 £’000	Spend in 2021 £’000	Decrease %
Spend on staff pay (including directors)	15,455	13,614	13.5
Profit distributed by way of dividend	606	—	∞

A final dividend of 15.0 pence per ordinary share has been declared for the year ended 31 March 2022, in addition to an interim dividend of 7.5 pence that was paid during the year. The total dividend payable in respect of the year to 31 March 2022 will therefore be £606,000 (2021: £Nil).

Implementation of remuneration policy for the coming financial year ending 31 March 2023

The annual salaries and fees to be paid to directors in the coming financial year are set out in the table below, together with any increases expressed as a percentage.

	2023 salary/fees £’000	2022 salary/fees £’000	Increase %
S G M Caffyn	306	295	3.5
M Warren	157	152	3.5
S J Caffyn	50	48	3.5
R C Wright	70	68	3.5
N T Gourlay	31	30	3.5
S G Bellamy	31	30	3.5

Stock code CFYN 33 www.caffyns.co.uk

Directors’ Remuneration Report continued

The basis for determining annual bonus payments for the financial year ending 31 March 2023 is set out in the policy table in the Directors’ Remuneration Report on page 25. The profit targets are considered commercially sensitive because of the information that it could provide to the Company’s competitors and consequently these profit targets will only be disclosed after the end of the financial year, in the Directors’ Remuneration Report in the 2023 Annual Report.

Consideration by the directors of matters relating to directors’ remuneration

The Committee

The Committee is responsible for reviewing and recommending the framework and policy for remuneration of the executive directors and of senior management. The Committee’s terms of reference are available on the Company’s corporate website. The members of the Committee at 31 March 2022 were Mr S G Bellamy (Chairman), Mr R C Wright and Mr N T Gourlay. Mr S G Bellamy and Mr N T Gourlay were independent non-executive directors throughout the year. The Committee met three times during the year and all members were present. The primary role of the Committee is to set the directors’ remuneration policy and accordingly to:

• review, recommend and monitor the level and structure of remuneration for the executive directors and to review and monitor the level and structure of remuneration of other senior executives;
• approve the remuneration package for the executive directors;
• determine the balance between base pay and performance-related elements of the package to align executive directors’ interests with those of shareholders and other stakeholders; and
• approve annual incentive payments for executive directors.

Summary of activity during the year ended 31 March 2022

During the year, the Committee conducted its annual review of all aspects of the remuneration packages of the executive directors to ensure that they continue to reward and motivate achievement of medium and long-term objectives, and align their interests with those of shareholders and other stakeholders. Accordingly, the Committee’s activities during the year included:

• reviewing the basic salaries of the executive directors and reviewing and monitoring the level and structure of remuneration of other senior executives;
• reviewing the basic salary of the Company’s Chairman. This review was performed by Mr S G Bellamy and Mr N T Gourlay only; and
• setting the annual performance targets in line with the Company’s plan for the coming financial year ending 31 March 2023 and determining the amounts that may potentially have been payable for the financial year under review ended 31 March 2022.

Statement of voting at the 2020 Annual General Meeting

At the last Annual General Meeting, votes to approve the Directors’ Remuneration Report were cast as follows:

Votes for	%	Votes against	%	Withheld	%
2,899,279	99.95	1,700	0.05	100	0.00

A shareholder vote on the directors’ remuneration policy is required at least every third year. The policy was last voted on at the 2020 Annual General Meeting and will be voted on again at the 2023 Annual General Meeting. Votes at the 2020 meeting on the directors’ remuneration policy were cast as follows:

Votes for	%	Votes against	%	Withheld	%
2,899,279	99.95	1,700	0.05	100	0.00

Mr S G Bellamy will attend the 2022 Annual General Meeting and will be available at that meeting to answer any questions that shareholders may wish to raise.

By order of the board
S G Bellamy
Chairman of the Remuneration Committee
26 May 2022

34 Caffyns plc Annual Report 2022

Report of the Directors

The directors present their report and the financial statements for the year ended 31 March 2022.

Results and dividends

The results of the Company for the year are set out in the financial statements on pages 48 to 85. An interim dividend of 7.5p per share was paid to shareholders on 10 January 2022. The board is recommending a final dividend of 15.0 pence per share (2021: Nil) making a total of 22.5 pence per share (2021: Nil). Total Ordinary dividends paid in the year amounted to £202,000. Dividends paid in the year to preference shareholders were £72,000 (2021: £72,000) as set out in note 10 to the financial statements. Future developments of the Company are set out in the Operational and Business Review on pages 2 to 6.

Financial risk management

Consideration of principal risks and uncertainties is included on pages 9 to 11 of the Strategic Report, including the management of financial risks. These are also outlined further in note 21 to the financial statements.

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 by shareholders entitled to vote 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 Nomination Committee; the procedure is detailed in the Chairman’s Statement on Corporate Governance on page 18.

Directors

Details of the directors who served during the year and who remained in office at 31 March 2022 are set out below.

• Mr R C Wright PG Dip FIMI FCIM was appointed Chairman on 26 July 2012. He joined the board as a non-executive director and Chairman-elect on 1 November 2011. He has previously held senior executive roles with the Ford Motor Company including: Director, European Operations at Jaguar Cars Limited; Director of Sales, Ford Motor Company Limited; and President/ Managing Director of Ford Belgium NV. He was Chairman of API Group plc from 2001 until 31 October 2014, and sat on the advisory board of Warwick Business School, University of Warwick, for several years. He is the former Chair of the board of National Savings and Investments, part of HM Treasury. He is currently an advisor to a number of privately held companies including being Chairman of Thames River Moorings Limited.
• Mr N T Gourlay BSc, a Chartered Accountant, joined the board as a non- executive director on 26 September 2013. He spent more than twenty years with the BAT plc group of companies, leaving in 2001. In 2003 Mr Gourlay co-founded Animos LLP, a business consultancy of which he remains a partner.
• Mr S G Bellamy BCom CA(NZ) joined the board on 18 June 2019 and has been chairman and non-executive director to a wide range of both public and private companies and chairman of, and advisor to, investment committees and capital providers. He was previously joint founder and Chief Executive Officer of Accretion Capital LLP and Chief Operating Officer and Chief Financial Officer of Sherwood International Plc. Prior to Sherwood, he was a UK Investment Director of Brierley Investments, an active investor in quoted UK companies. He is a New Zealand Chartered Accountant and worked at Coopers & Lybrand (now PwC), both in New Zealand and New York. He is currently also an advisor to mid-market private equity firms.
• Mr S G M Caffyn MA FIMI 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 Warren BSc FCA joined the board on 31 May 2016 and was appointed Finance Director on 31 July 2016. He is a Chartered Accountant and spent twenty one years with H.R. Owen plc of which the eight years until April 2015 were as Finance Director. He graduated from Southampton in 1986 having read civil engineering and subsequently worked for PwC.
• Ms S J Caffyn BSc FCIPD AICSA FIMI has thirty years’ Human Resource experience across several different sectors.# Governance Report of the Directors continued

Interests in shares

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

	As at 31 March 2022			As at 31 March 2021
	Ordinary	11% Preference	7% Preference	Ordinary	11% Preference	7% Preference
R C Wright	7,500	—	—	7,500	—	—
S G M Caffyn	76,988	1,600	200	76,988	1,600	200
M Warren	6,825	—	—	6,825	—	—
S J Caffyn	46,232	1,655	—	46,232	1,655	—
N T Gourlay	4,893	—	—	4,893	—	—
S G Bellamy	5,000	—	—	5,000	—	—

Mr S G M Caffyn and Ms S J Caffyn are directors of Caffyn Family Holdings Limited, which owns all the 2,000,000 6% Cumulative Second Preference shares which have full voting rights, except in relation to matters that under the Listing Rules (as amended from time to time) are required to be voted on by premium-listed securities, being the Ordinary shares.

The market price of the Company’s Ordinary shares at 31 March 2022 was £5.50 and the range of market prices during the year was £3.70 to £6.00.

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. Ms S J Caffyn is entitled to receive from the Company a sum equivalent to her annual emoluments, which applied immediately before her termination, and Mr M Warren is entitled to receive from the Company a sum equivalent to six months’ emoluments, which applied immediately before his 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. The executive directors’ service contracts commenced from the date of their appointment to the board. In the event of the Chairman’s or a non- executive director’s employment with the Company being terminated, they are entitled to receive from the Company a sum equivalent to six months’ fees.

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.

Sharesave scheme

The Company encourages employee share ownership through the provision of periodic Save As You Earn schemes. The current scheme, which is administered by the Yorkshire Building Society, was launched in December 2020 with share options for 101,926 Ordinary shares being subscribed. The scheme matures in February 2024 when the share options become exercisable upon expiry of a three-year savings contract at a pre- determined price of £3.06 per share. At 31 March 2022, the number of share options outstanding was 94,325.

Greenhouse gas emissions

Information on greenhouse gas emissions is set out in the Strategic Report on page 13.

Employees

Employees are encouraged to discuss with management any matters which they are concerned about and issues affecting the Company. The Chief Executive had planned in the previous financial year to start visiting each site regularly for a question-and-answer session with staff, although this has had to be delayed due to the covid-19 pandemic. Once physical visits are able to occur on a routine basis, he will be reporting to the board on the outcome of these sessions.

In addition, the board takes account of employees’ interests when making decisions. Suggestions from employees aimed at improving the Company’s performance are welcomed. The board reviews feedback from the employee consultation group on pay and bonuses as well as reviewing all exit interview feedback. The board also meets with senior staff during the strategic review process. The Company has a Human Resources director, Ms S J Caffyn. Further information on employees is set out in the Strategic Report on page 8 and the Section 172 statement on page 14.

36 Caffyns plc Annual Report 2022

Share capital and the rights and obligations attaching to shares

As at 31 March 2022, the issued share capital of the Company comprised Ordinary shares of 50p each and three classes of preference share, namely 7% Cumulative First Preference shares of £1 each, 11% 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 25 to the financial statements.

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 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 7% 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 11% Cumulative Preference shares of £1 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 11% per annum.

The percentage of the total share capital represented by each class of share as at 31 March 2022 is shown below. The full rights and obligations attaching to the Company’s shares are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House or by writing to the Company Secretary.

	£’000	%
Authorised
	500	12.35	7% Cumulative First Preference shares of £1 each
	1,250	30.86	11% Cumulative Preference shares of £1 each
	300	7.41	6% Cumulative Second Preference shares of 10p each
	2,000	49.38	4,000,000 Ordinary shares of 50p each
	4,050	100.00
Allotted, called-up and fully paid
	171	7.58	170,732 7% Cumulative First Preference shares of £1 each
	441	19.60	441,401 11% Cumulative Preference shares of £1 each
		8.88	2,000,000 6% Cumulative Second Preference shares of 10p each
Total Preference shares recognised as a financial liability	812	36.06
	1,439	63.94	2,879,298 Ordinary shares of 50p each
	2,251	100.00

Stock code CFYN 37

www.caffyns.co.uk

Our Business | Financials | Other information | Governance
Our Business | Other information | Governance | Financials

Property

The Company valued its portfolio of freehold premises as at 31 March 2022. The valuation was carried out by CBRE Limited, Chartered Surveyors, based on an existing use valuation. The excess of the valuation over net book value at that date was £13.3 million (2021: £12.3 million). In accordance with the Company’s accounting policies, this surplus has not been incorporated into these financial statements.

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 auditor has 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 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 which the member is the holder, and one vote for every 6% Cumulative Second Preference share of which the member 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 meeting or class meeting or exercise any rights in relation to meetings while any amount of money relating to their 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.# Our Business

Governance

Directors’ Responsibilities Statement

The directors are responsible for preparing the annual report and the financial statements in accordance with UK-adopted international accounting standards and 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 the group financial statements and have elected to prepare the company financial statements in accordance with UK-adopted international accounting standards. 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 of the group and company and of the profit or loss for the group for that period.

In preparing these financial statements the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether they have been prepared in accordance with UK-adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business;
* prepare a Director’s Report, a Strategic Report and Remuneration Committee Report which comply with the requirements of the Companies Act 2006.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and 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. 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.

The directors are responsible for ensuring that the Annual Report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy.

Website publication

The directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s corporate website, www.caffynsplc.co.uk, in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors’ responsibilities pursuant to Disclosure Guidance and Transparency Rules 4 (“DTR 4”)

The directors confirm to the best of their knowledge that:
* the financial statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and the Company; and
* the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face.

Approved by order of the board
S G M Caffyn
M Warren
Chief Executive
Finance Director
26 May 2022

Stock code CFYN 41

www.caffyns.co.uk
Financials
Other information
Governance
Our Business
Financials
Other information
Governance

Report of the Independent Auditor

Opinion on the 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 2022 and of the Group’s and Parent Company’s profit for the year then ended;
* the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
* the Parent Company financial statements have been properly prepared in accordance with UK-adopted international accounting standards; and
* the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Caffyns plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2022 which comprise the Group and Company Income Statement, the Group and Company Statement of Comprehensive Income, the Group and Company Statement of Financial Position, the Group and Company Statement of Changes in Equity, the Group and Company Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee.

Independence

Following the recommendation of the Audit & Risk Committee, we were appointed by the directors on 25 July 2019 to audit the financial statements for the year ended 31 March 2020 and subsequent financial periods.

Significant direct or indirect shareholdings

At 24 May 2022, the directors were aware of the following interests in 3% or more of the nominal value of the Ordinary share capital (excluding treasury shares) of the Company:

Ordinary shares	%
Maland Pension Fund (Pershing Nominees Ltd RKCLT)	390,000
Charles Stanley	241,114
HSBC Republic Bank Suisse SA	128,349
Caffyns Pension Fund	125,570
GAM Exempt UK Opportunities Fund	108,575
Interactive Investor Services Nominees Ltd	107,997
A W Caffyn/B Lees	107,409
K E Caffyn	104,804
M I Caffyn	103,495
Armstrong Investments (Nortrust Nominees)	100,000

Caffyns plc Annual Report 2022

Fostering relationships with stakeholders

Details of the Company’s engagement with stakeholders are explained in more detail on page 14. The Company also engages with its suppliers in order to maintain good relationships, and with its prospective and actual customers by offering excellent service and an attractive omni-channel retail experience.

Modern Slavery Act 2015

In the light of the legislation regarding employment and human rights, in particular the Modern Slavery Act 2015, the board continues to review its policies and risk management processes to determine additional measures which may be required to prevent slavery and human trafficking taking place in any part of its businesses, or in its supply chains. We expect all who have, or seek to have, a business relationship with Caffyns plc or with any of our employees, to familiarise themselves with our anti-slavery values and to act at all times in a way which is consistent with those values. The board has adopted a Statement on Slavery and Human Trafficking, which can be found on its corporate website at www.caffynsplc.co.uk.

Business at the Annual General Meeting

As well as dealing with formal business, the Company takes the opportunity afforded at the Annual General Meeting to provide up-to-date information about the Company’s trading position and to invite and answer questions from shareholders on its policies and business. At the Annual General Meeting, a separate resolution is proposed for each substantive matter. The Company’s Annual Report and financial statements are posted to shareholders, together with the Notice of Annual General Meeting summarising the business proposed, giving the requisite period of notice.

The board has carefully considered the format of this year’s Annual General Meeting, which is scheduled to be held on 2 August 2022, and its intention is that the meeting will be run as an open meeting to which shareholders will be invited to attend in person. Further information will be made available closer to the date of the meeting via the Company’s corporate website, www.caffynsplc.co.uk.

Auditor

BDO LLP has indicated its willingness to continue as the independent auditor to the Company and a resolution concerning its reappointment will be proposed at the Annual General Meeting in August 2022.

By order of the board
S J Caffyn
Company Secretary
26 May 2022

Stock code CFYN 39
www.caffyns.co.uk
Our Business
Financials
Other information
Governance
Our Business
Other information
Governance
Financials
Governance
Directors’ Responsibilities Statement
40
Caffyns plc Annual Report 2022

There are no restrictions on the transfer of Ordinary shares 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 the Company’s shares, and where a person 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.The period of total uninterrupted engagement including retenders and reappointments is three years, covering the years ended 31 March 2020 to 31 March 2022. We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group or the Parent Company.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included:

• Evaluating the directors’ assessment of going concern through analysis of the Group’s cash flow forecast through to 31 March 2025, including assessing and challenging the assumptions underlying the forecasts by reference to our own knowledge of the industry and also commentary and forecasts made by industry experts (e.g. SMMT, CAP).
• As part of this process, we have considered the impact of factors such as inflationary and supply-chain pressures. We have also sensitised these forecasts and considered the underlying assumptions of the forecasts to industry commentary.
• We also obtained an understanding of the financing facilities, including the nature of these facilities, repayment terms and covenants. We then assessed the facility headroom and covenant compliance calculations on both a base case scenario, and the sensitised forecasts.
• We considered the likelihood of the sensitised forecasts happening and considered what actions the Group has available should there be a potential covenant breach.

We assessed the adequacy and appropriateness of the going concern disclosures in the financial statements with reference to the requirements of the financial reporting framework and our understanding of the business.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of one year from when the financial statements are authorised for issue.

In relation to the Parent Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Report of the Independent Auditor continued

42 Caffyns plc Annual Report 2022

Overview

	100% (2021: 100%)
of Group profit before tax
of Group revenue	100% (2021: 100%)
of Group total assets	100% (2021: 100%)

Key audit matters

	2022	2021
Defined benefit pension scheme	✔	✔
Going concern	✗	✔
Impairment review	✗	✔

Going concern is no longer considered to be a key audit matter due to the strength of the Company’s and Group’s performance during the year and financial position at the year-end. The impairment review is also no longer considered a key audit matter due to the financial performance of the Group and Company and the extent of the headroom in management’s assessment.

Materiality

Group financial statements as a whole £220,000 (2021: £80,000) based on 5% (2021: 5%) of profit before tax (2021: profit before tax adjusted for the impairment charge in the year)

1 These are areas which have been subject to a full scope audit by the group engagement team

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement.

The only trading component in the Group is the Parent Company, Caffyns plc, with all the subsidiary companies being dormant. Caffyns plc was identified as the only significant component and was subject to a full scope audit by the Group audit team. The remaining components were considered to be not significant and were subject to analytical review procedures at a Group level by the Group audit team.

Stock code CFYN

43 www.caffyns.co.uk

Financials Other informationGovernanceOur Business Financials

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

| Key audit matter | How the scope of our audit addressed the key audit matter # Auditor's Report

We considered 5% of adjusted profit before tax to be a key performance benchmark for the Parent Company and the users of the financial statements in assessing financial Performance. Materiality: £165,000 (2021: £60,000).

Basis for determining performance materiality

On the basis of our risk assessment, together with our assessment of the Group’s control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality. The basis of calculating performance materiality is unchanged from the prior year. On the basis of our risk assessment, together with our assessment of the Group’s control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality. On the basis of our risk assessment, together with our assessment of the Parent Company’s control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality. The basis of calculating performance materiality is unchanged from the prior year. On the basis of our risk assessment, together with our assessment of the Parent Company’s control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality.

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £8,800 (2021: £1,600). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Stock code: CFYN
45
www.caffyns.co.uk

Financials
Other information
Governance
Our Business

Financials
Other information

The directors are responsible for the other information. The other information comprises the information included in the Annual Report other than the financial statements and our Auditor’s Report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Corporate governance statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Parent Company compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.

• Going concern and longer-term viability
  • The directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 21; and
  • The directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set out on page 21.
• Other Code provisions
  • Directors’ statement on fair, balanced and understandable set out on page 22;
  • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 22;
  • The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on page 22; and
  • The section describing the work of the Audit & Risk Committee set out on page 19.

Report of the Independent Auditor continued
46
Caffyns plc Annual Report 2022

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.

Strategic Report and Directors’ Report

In our opinion, based on the work undertaken in the course of the audit:
* the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
* the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.

Directors’ remuneration

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Corporate governance statement

In our opinion, based on the work undertaken in the course of the audit the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in this information.

In our opinion, based on the work undertaken in the course of the audit information about the Parent Company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules. We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Parent Company.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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; or
* we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Stock code: CFYN
47
www.caffyns.co.uk

Financials
Other information
Governance
Our Business

Financials

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Procedures performed by the Group audit team included: • Discussions with management, the directors and those charged with governance regarding known or suspected instances of fraud or non-compliance with laws and regulations; • Obtaining an understanding of controls designed to prevent and detect irregularities, including specific consideration of controls and group accounting policies relating to significant accounting estimates; • Obtaining an understanding of the significant laws and regulations impacting the Group and the motor retail industry, including data protection laws and regulations around FCA compliance; • Communicating relevant laws and regulations and potential fraud risks to all engagement team members (which included motor dealership specialists) and remained alert to any indications of fraud or non- compliance with laws and regulations throughout the audit; • Reviewing minutes of meetings of those charged with governance to identify any instances of non- compliance with laws and regulations; • Considering the susceptibility of the financial statements to misstatement as a result of fraud and identifying the areas in which fraud might occur as being through the management override of controls and manual adjustments to revenue and estimates in inventory; • Testing journals entries as part of our planned audit approach, with a particular focus on journal entries to key financial statement areas such as revenue and inventories and journals raised after the year-end; and • Consideration of significant management judgements, particularly in respect of the underlying assumptions in impairment assessments and estimating the defined pension benefit liability (as detailed within key audit matters above). Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent 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 Parent Company’s members those matters we are required to state to them in an auditor’s 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Stephen Le Bas (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Southampton United Kingdom BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 26 May 2022

Income Statement for the year ended 31 March 2022

Group and Company	Note	2022 £’000	2021 £’000
Revenue	1	223,928	165,085
Cost of sales		(191,982)	(142,304)
Gross profit		31,946	22,781
Operating expenses
Distribution costs		(17,442)	(13,481)
Administration expenses		(9,227)	(7,317)
Operating profit before other income		5,277	1,983
Other income (net)	4	390	909
Operating profit		5,667	2,892
Operating profit before non-underlying items		5,690	3,142
Non-underlying items within operating profit	2	(23)	(250)
Operating profit	3	5,667	2,892
Finance expense	6	(1,116)	(1,266)
Finance expense on pension scheme	7	(166)	(202)
Net finance expense		(1,282)	(1,468)
Profit before taxation		4,385	1,424
Profit before tax and non-underlying items		4,574	1,876
Non-underlying items within operating profit	2	(23)	(250)
Non-underlying items within finance expense on pension scheme	2	(166)	(202)
Profit before taxation		4,385	1,424
Taxation	8	(1,386)	(14)
Profit for the year attributable to the owners of the parent		2,999	1,410
Earnings per share
Basic	9	111.3p	52.4p
Diluted	9	109.6p	52.1p
Underlying earnings per share
Basic	9	117.0p	66.0p
Diluted	9	115.2p	65.6p

See accompanying notes to the financial statements.
48 Caffyns plc Annual Report 2022

Statement of Comprehensive Income for the year ended 31 March 2022

Group and Company	Note	2022 £’000	2021 £’000
Profit for the year		2,999	1,410
Items that will never be reclassified to profit and loss:
Remeasurement of net defined benefit liability	23	5,045	(301)
Deferred tax on remeasurement	24	(1,261)	57
Effect of change in deferred tax rate		511	—
Total other comprehensive income/(expense), net of taxation		4,295	(244)
Total comprehensive income for the year		7,294	1,166

See accompanying notes to the financial statements.
49 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials

Statement of Financial Position at 31 March 2022

Note	Group 2022 £’000	Group 2021 £’000	Company 2022 £’000	Company 2021 £’000
Non-current assets
Right-of-use assets	11	1,413	610	1,413
Property, plant and equipment	12	38,975	37,624	38,975
Investment properties	13	7,646	7,751	7,646
Interest in lease	14	389	557	389
Goodwill	15	286	286	286
Deferred tax asset	24	—	412	—
Investment in subsidiary undertakings	16	—	—	250
		48,709	47,240	48,959
Current assets
Inventories	17	27,546	36,562	27,546
Trade and other receivables	18	5,264	5,072	5,264
Interest in lease	14	168	173	168
Current tax recoverable		40	34	40
Cash and cash equivalents		2,759	5,735	2,759
		35,777	47,576	35,777
Total assets		84,486	94,816	84,736
Current liabilities
Interest-bearing bank overdrafts and loans	20	1,875	3,875	1,875
Trade and other payables	19	29,495	39,338	29,745
Lease liabilities	22	496	495	496
Current tax payable		236	306	236
		32,102	44,014	32,352
Net current assets		3,675	3,562	3,425
Non-current liabilities
Interest-bearing bank loans	20	11,312	12,187	11,312
Lease liabilities	22	1,434	783	1,434
Deferred tax liability		1,298	—	1,298
Preference shares	25	812	812	812
Retirement benefit obligations	23	2,797	9,434	2,797
		17,653	23,216	17,653
Total liabilities		49,755	67,230	50,005
Net assets		34,731	27,586	34,731
Capital and reserves
Share capital	25	1,439	1,439	1,439
Share premium account		272	272	272
Capital redemption reserve		707	707	707
Non-distributable reserve		1,724	1,724	1,724
Retained earnings		30,589	23,444	30,589
Total equity attributable to shareholders		34,731	27,586	34,731

The financial statements were approved by the board of directors and authorised for issue on 26 May 2022 and were signed on its behalf by:
R C Wright
Chairman
M Warren
Finance Director

Company number: 105664
50 Caffyns plc Annual Report 2022

Statement of Changes in Equity for the year ended 31 March 2022

	Share capital £’000	Share premium £’000	Capital redemption reserve £’000	Non- distributable reserve £’000	Retained earnings £’000	Total £’000
Group and Company
At 1 April 2021	1,439	272	707	1,724	23,444	27,586
Total comprehensive income
Profit for the year	—	—	—	—	2,999	2,999
Other comprehensive income	—	—	—	—	4,295	4,295
Total comprehensive income for the year	—	—	—	—	7,294	7,294
Transactions with owners:
Dividends	—	—	—	—	(202)	(202)
Issue of shares – SAYE	—	—	—	—	—	—
Share-based payment	—	—	—	—	53	53
At 31 March 2022	1,439	272	707	1,724	30,589	34,731

	Share capital £’000	Share premium £’000	Capital redemption reserve £’000	Non- distributable reserve £’000	Retained earnings £’000	Total £’000
for the year ended 31 March 2021
Group and Company
At 1 April 2020	1,439	272	707	1,724	22,238	26,380
Total comprehensive income/(expense)
Profit for the year	—	—	—	—	1,410	1,410
Other comprehensive expense	—	—	—	—	(244)	(244)
Total comprehensive income for the year	—	—	—	—	1,166	1,166
Transactions with owners:
Issue of shares – SAYE	—	—	—	—	3	3
Share-based payment	—	—	—	—	37	37
At 31 March 2021	1,439	272	707	1,724	23,444	27,586

Stock code CFYN
51 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials

Cash Flow Statement for the year ended 31 March 2022

Group and Company	Note	2022 £’000	2021 £’000
Net cash inflow from operating activities	27	3,390	6,724
Investing activities
Proceeds on disposal of property, plant and equipment		—	—
Purchases of property, plant and equipment		(2,837)	(394)
Receipt from investment in lease		185	185
Net cash outflow from investing activities		(2,652)	(209)
Financing activities
Revolving credit facility repaid		(2,000)	(2,000)
Revolving credit facility utilised		—	1,000
Secured loans repaid		(875)	(657)
Bank refinancing arrangement fees		(98)	—
Issue of shares – SAYE scheme		—	3
Dividends paid		(202)	—
Repayment of lease liabilities		(539)	(604)
Net cash outflow from financing activities		(3,714)	(2,258)
Net (decrease)/increase in cash and cash equivalents		(2,976)	4,257
Cash and cash equivalents at beginning of year		5,735	1,478
Cash and cash equivalents at end of year		2,759	5,735

See accompanying notes to the financial statements.# Caffyns plc Annual Report 2022

Principal Accounting Policies

Basis of preparation and statement of compliance

The financial statements have been prepared in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards (“IFRS”) as adopted in the United Kingdom. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.

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 estimated 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 32.

The consolidated financial statements are prepared in Sterling, which is both the functional currency of the Company and its subsidiaries and the presentational currency of the Group. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.

Standards, amendments and interpretations to existing Standards that are not yet effective and have not been adopted early by the Group

There have been no adoptions during the year which have had any material impact on the financial statements. At the date of authorisation of these financial statements, there are no new Standards, or amendments to existing Standards, that have been published by the International Accounting Standards Board that are not effective, and, in some cases, not yet been adopted by the UK endorsement board that would have a material impact on 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 directors have considered the going concern basis and have undertaken a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of approval of this Annual Report. This has focused primarily on the achievement of the banking covenants, which have all been achieved for the year under review.

Under the Company’s first covenant test, it is required to make underlying earnings before bank interest, depreciation and amortisation (“senior EBITDA”) for the rolling twelve-month period to 31 March 2022, which is at least four times the level of interest payable on bank borrowings to HSBC and Volkswagen Bank (“senior interest”). The Company’s second covenant test requires total bank borrowings to HSBC and Volkswagen Bank at 31 March 2022 not to exceed 375% of senior EBITDA for the rolling twelve-month period to 31 March 2022. The Company’s final covenant test requires that the level of its bank borrowings do not exceed 70% of the independently assessed value of its charged freehold properties.

In the coming twelve months, each of the three covenant tests must be passed at 30 June 2022, 30 September 2022, 31 December 2022 and 31 March 2023, with the test on 31 March 2023 being the final test to be carried out within the twelve-month period from the anniversary of the signing of these financial statements. The Company has modelled this period and conclude that there is headroom that would allow for an approximate 10% reduction in expected new and used units over this period.

External market commentary provided by the Society of Motor Manufacturers and Traders (“SMMT”) indicate that new car registrations are forecast to show a year-on-year increase of 5% in 2022 to 1.72 million, with a further 17% increase into 2023 to 2.02 million registrations as the global shortage in semiconductors ends allowing manufacturing levels to rise.

The used car market has remained stable over the five years from 2015 to 2019, at between 7.6 and 8.2 million transactions and dropped by only 15% in 2020 due to the effects of the covid-19 pandemic, compared to a comparable 29% fall in new car registrations. Since showrooms reopened in April 2021, demand for used cars has been buoyant and transactions grew by 12% in 2021. The continuing shortage in new car supply has assisted the used car market, and is expected to continue to do so.

The Company’s financial results in the year under review were robust and the current new car order take held for future delivery is at elevated levels. The directors have also considered the Company’s working capital requirements. The Company meets its day-to-day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities and term loans. At the year-end, the medium-term banking facilities included a term loan with an outstanding balance of £6.2 million and a revolving credit facility of £6.0 million from HSBC, its primary bankers, with both facilities being renewable in April 2026. HSBC also make available a short-term overdraft facility of £3.5 million, which is renewed annually in August. The Company also has a ten-year term loan from Volkswagen Bank with a balance outstanding at 31 March 2022 of £1.0 million, which is repayable to March 2024, and a short-term revolving credit facility of £4.0 million, which is renewed annually in August. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed at their scheduled expiry dates. The failure of a covenant test would render these facilities repayable on demand at the option of the lender.

Information concerning the Company’s liquidity and financing risk are set out on page 10 and note 21 to the financial statements. The directors have a reasonable expectation that the Company has adequate resources and headroom against the covenant test to be able continue in operational existence for the foreseeable future and for at least twelve months from the date of approval of the Annual Report. For those reasons, they continue to adopt the going concern basis in preparing this Annual Report.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (“the Group”) 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 acquisition 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.

Acquisitions

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 (“CGUs”). 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 generated from a contract for the sale of goods is recognised on delivery when all promises to the customer have been fulfilled, such as the supply of a specific vehicle. If the customer has added various accessory products to their order, the Company’s promise is fulfilled by supplying these products onto the vehicle at the time of its delivery.

Where the Company acts as an agent on behalf of a principal in relation to the sale of a new car, the associated income is recognised within revenue in the period in which the product is sold.

Finance commissions are earned from the finance house that is providing a finance arrangement to a consumer buying the vehicle. In this regard, the Company’s customer is considered to be the finance house, rather than the end user of the vehicle. Income derived from such commissions is recognised within revenue on completion of the arranging of the various products (i.e. at the point at which control passes to the customer).

For servicing work, the Company promises to complete the work in accordance to the contract. This obligation is satisfied when the customer takes collection of their vehicle on completion of the work.# Principal Accounting Policies continued

Deferred tax

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 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 financial year-end 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 considers 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 Statement of Financial Position at cost. The property held at the date of transition to IFRSs in 2007 was recognised at deemed cost, being the carrying amount at the date of transition to IFRSs. The date of the last valuation undertaken under its previous GAAP was in 1995. Depreciation on buildings is charged to the Income Statement. On the subsequent sale of a property, the attributable surplus remaining in the non-distributable 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 the Income Statement. 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 – 3 to 10 years The residual value of all assets, depreciation methods and useful economic lives, if significant, are assessed 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. Rental income from investment property is recognised on a straight-line basis over the term of the lease. Depreciation is charged to write off the cost less residual values of investment properties over their estimated useful lives using the straight- line method over 50 years. Any transfers from property, plant and equipment are made at cost less accumulated depreciation.

Leases
The Company recognises a right-of- use asset and a lease liability at the commencement date of the lease. The right-of-use asset is initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses and is then adjusted for certain remeasurements of the lease liability. Depreciation is recognised on a straight-line basis over the period of the lease the right-of-use asset is expected to be utilised. The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted by the Company’s incremental borrowing rate. The lease liability is subsequently increased by the interest cost on the lease liability and reduced by payments made. It is remeasured when there is a change in future lease payments arising from a change of index or rate, a variation in amounts payable following contractual rent reviews and changes in the assessment of whether an extension/ termination option is reasonably certain to be exercised. Where lease contracts include renewal and termination options, judgement is applied to determine the lease term. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term and the subsequent recognition of the lease liability and right-of-use asset.

Where the Company acts as a lessor, receipts of lease payments are recognised in the income statement on a straight-line basis over the period of the lease unless it is deemed that the risks and rewards of ownership have been substantially transferred to the Company’s lessee. If it is deemed that the risks and rewards of ownership have been substantially transferred then the Company will, rather than recognise a right-of-use asset, recognise an investment in the lease, this being the present value of future lease receipts discounted at the interest rate implicit in the lease or, if this is not specified, at the Company’s incremental borrowing rate. The finance lease receivable will be increased by the interest received less payments made by the lessee.

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 property, plant and equipment, investment properties and right-of-use assets: At each financial year-end date, the Company reviews the carrying amounts of its property, plant and equipment, investment properties and right-of-use assets in order to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash inflows that are independent from other assets, the Company estimates the recoverable amount of the CGU to which it belongs. 56 Caffyns plc Annual Report 2022

The 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 inflows 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 inflows have not been adjusted. If the recoverable amount of an asset or 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 inflows from other groups of assets. Management have determined that the CGUs are the individual dealerships for each 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 inventories include owned vehicles used for demonstration purposes and as courtesy cars for service customers. Consignment vehicles are regarded as being under the effective control of the Company and are included within inventories on the Statement of Financial Position as the Company has substantially all the significant risks and rewards of ownership even though legal title may not yet have passed. The corresponding liability is included in trade and other payables. Parts inventories are valued at cost and are written down to net realisable value, in accordance with normal industry practice, by providing for obsolescence on a time in stock basis. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing and selling.

Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and on demand deposits. In the Cash Flow Statement, cash and cash equivalents exclude the Company’s Cash Overdraft facility from Volkswagen Bank, as this facility has the properties of a revolving credit facility. This facility is shown within interest-bearing borrowings in current liabilities on the Statement of Financial Position.

Investments in subsidiary undertakings
Investments in subsidiary undertakings are included at cost less amounts written off if the investment is determined to have been impaired and are included in the Parent Company’s separate financial statements.

Interest-bearing borrowings
Interest-bearing bank loans and revolving credit facilities 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 profit or loss 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 and other payables
Trade payables are not interest-bearing and are stated at their fair value on initial recognition and are subsequently carried at amortised cost. Other payables include obligations relating to consignment stock and vehicle stocking loans. Obligations relating to consignment stock relate to new cars supplied by manufacturers on consignment terms and the full purchase price can be funded. Vehicle stocking loans relates to creditors in relation to used vehicles and is funded up to a level generally 80% of market value of the used car based on independent market guides. The utilisation is recorded at fair value with associated interest charged to profit or loss. Cash flows relating to these arrangements are included in operating cash flows.

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. Stock code CFYN 57 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Principal Accounting Policies continued for the year ended 31 March 2022

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 corporation tax benefits. The capital redemption reserve comprises the nominal value of ordinary and preference share capital purchased by the Company in prior years and cancelled. 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. Retained earnings includes all current and prior period retained profits. Where any company in the Group purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of.# Notes to the Financial Statements

1. General information

Caffyns plc is a company incorporated in England and Wales under the Companies Act 2006 and is listed on the London Stock Exchange. The address of the registered office is given on page 16. 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:

	2022 £’000	2021 £’000
Sale of goods	211,485	154,269
Rendering of services	12,443	10,816
Total revenue	223,928	165,085

Sales of motor vehicles, parts and aftersales services

The Group’s full revenue recognition policy is set out in the section on Principal Accounting Policies under the heading Revenue Recognition. The Group generates revenue through the sale of new and used motor vehicles and of parts (together comprising Sale of Goods as shown above), and through the provision of aftersales services in the form of vehicle servicing, maintenance and repairs and introducing customers to finance companies (together comprising Rendering of Services as shown above).

The Group recognises revenue from the sale of new and used motor vehicles when a customer takes possession of the vehicle, at which point they have an obligation to pay in full and as such control is considered to transfer at this point. The Group typically receives cash equal to the invoice amount for most direct retail sales to consumers at the time the consumer takes possession of the vehicle. When the consumer has taken out a finance agreement to purchase the vehicle, the Group receives payment from the finance company at the time the consumer takes possession of the vehicle. Payment terms on sales to corporate customers typically range from seven to ten days.

The Company acts as an agent in instances where it facilitates sales that have been arranged by the manufacturer.

The Group recognises revenue from the provision of aftersales services when the service has been completed, at which point customers have an obligation to pay in full. The Group typically receives cash equal to the invoice amount for most direct retail sales to consumers at the time the service has been completed. Payment terms on sales to corporate customers typically range from 30 to 60 days.

All revenue recognised in the Income Statement is from contracts with customers and no other revenue has been recognised. No impaired losses have been recognised on any receivables arising from a contract with a customer. Due to the nature of the Group’s contractual relationships with customers and the nature of the services provided, there are no timing differences between revenue recognised in the Income Statement and trade receivables being recognised in the Statement of Financial Position.

There have been no significant judgements regarding the timing of transactions or the associated transaction price. The transaction price is set out in individual contractual agreements and there is a range of prices based on the types of goods and services offered. There are no variable pricing considerations.

Contract liabilities relating to aftersales service plans

Where the Group receives an amount of consideration in advance of completion of performance obligations under a contract with a customer, the value of the advance consideration is initially recognised as a contract liability within liabilities. Revenue is subsequently recognised as the performance obligations are completed over the period of the contract (i.e. as control is passed to the customer). Contract liabilities are presented within trade and other payables in the Statement of Financial Position and disclosed in note 19 Trade and Other Payables. Approximately one-third of the value of these liabilities would be anticipated to be recognised as revenue in each of the next three financial years.

Contract costs

The Group applies the practical expedient in paragraph 94 of IFRS 15 Revenue from Contracts and recognises the incremental costs of obtaining contracts as an expense when incurred if the amortisation period of the assets that the Group otherwise would have recognised is one year or less. The Group is satisfied that any incremental costs incurred in obtaining contracts that extend for more than one year is immaterial.

Transaction price allocation to remaining performance obligations

The Group applies the practical expedient in paragraph 121 if IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Stock code CFYN

www.caffyns.co.uk

1. General information continued

Segmental reporting

Based upon the management information reported to the chief operating decision maker, the Chief Executive, in the opinion of the directors the Company has one reportable segment. The Company physically operates and is managed from individual dealership sites although strategic and investment decisions are made based on dealership groupings or market territories. The Company’s individual dealerships represent a range of manufacturers but are considered to have similar economic characteristics, such as margin structures, and offer similar products and services to a similar customer base. As such, the results of each dealership have been aggregated to form one reportable segment.

There are no major customers amounting to 10% or more of revenue. All revenue and non-current assets derive from, or are based in, the United Kingdom.

2. Non-underlying items

	2022 £’000	2021 £’000
Net loss on disposal of property, plant and equipment	—	(3)
Other income, net	—	(3)
Within operating expenses:
Service cost on pension scheme	(23)	(23)
Redundancy and restructuring costs	—	(40)
Property impairments	—	(184)
	(23)	(247)
Non-underlying items within operating profit	(23)	(250)
Net finance expense on pension scheme	(166)	(202)
Non-underlying items within net finance expense	(166)	(202)
Total non-underlying items before taxation	(189)	(452)
Taxation credit on non-underlying items	36	86
Total non-underlying items after taxation	(153)	(366)

In the prior period, the following items were recorded as non-underlying items:
• redundancy and restructuring costs of £40,000 were incurred in the year as a result of changes necessitated by the covid-19 pandemic;
• the carrying value of a freehold property was impaired by a total of £184,000 following advice from the Company’s independent valuer, CBRE Limited (see notes 12 and 13).

3. Operating profit

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

	2022 £’000	2021 £’000
Employee benefit expense	17,428	15,236
Coronavirus Job Retention Scheme grant claims	(110)	(2,413)
Depreciation of property, plant, equipment and investment property
– owned asset	1,683	1,667
– right-of-use assets	339	315
Impairments of investment property	–	184
Net loss on disposal of property, plant and equipment	–	3
Short-term lease rentals payable – land and buildings	93	106
Rental income	(336)	(710)

The Company applies the exemption in IFRS 16 Leases not to recognise right-of-use assets and liabilities for leases with a duration of less than twelve months.

Operating profit has been arrived at after charging:

	2022 £’000	2021 £’000
Auditor’s remuneration
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts	73	73
Fees payable to the Company’s auditor and its associates for other services:
– pursuant to legislation being review of interim financial statements	20	13
	93	86

The Company’s Statutory Auditor is BDO LLP.The statutory audit of the Caffyns plc Occupational Pension Scheme is performed by Grant Thornton UK LLP. A description of the work of the Audit and Risk Committee is set out in the Chairman’s Statement on Corporate Governance on pages 19 and 20 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the Statutory Auditor.

The Company refers to underlying profit and underlying EBITDA as being key alternative performance measures when considering the results for the year. These performance metrics can be reconciled to the Company’s result for the year as follows:

	2022 £’000	2021 £’000
Profit for the year	2,999	1,410
Tax charge (note 8)	1,386	14
Profit before tax	4,385	1,424
Net finance expense (notes 6 and 7)	1,282	1,468
Non-underlying items within operating profit (note 2)	(23)	250
Depreciation charged on property, plant and equipment, right-of-use assets and investment properties (notes 11, 12 and 13)	2,022	1,982
Underlying earnings before interest, tax, depreciation and amortisation (“EBITDA”)	7,712	5,124

4. Other income

	2022 £’000	2021 £’000
Rent receivable	336	710
Local Government covid-19 support grants	54	202
Loss on disposal of tangible fixed assets	—	(3)
Other income	390	909

Stock code CFYN 61 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

5. Employee benefit expense

The average number of people (full-time equivalents) employed in the following areas was:

	2022 Number	2021 Number
Sales	123	121
Aftersales	199	201
Administration	80	80
Average number of full-time equivalents employees	402	402

Employee benefit expense, including directors, during the year amounted to:

	2022 £’000	2021 £’000
Wages and salaries	15,455	13,614
Social security costs	1,641	1,325
Redundancy costs	—	40
Contributions to defined contribution plans	309	234
Other pension costs (see note 23)	189	225
Employee benefit expense	17,594	15,438

Directors’ emoluments were:

	2022 £’000	2021 £’000
Salaries and short-term employee benefits	1,092	591

Details of the directors’ remuneration are provided in the Directors’ Remuneration Report on pages 23 to 34.

Key management compensation:

	2022 £’000	2021 £’000
Salaries and short-term employee benefits	1,829	1,081

Key management personnel includes the directors and other key operational employees.

6. Finance expense

	2022 £’000	2021 £’000
Interest payable on bank borrowings	297	367
Interest payable on inventory stocking loans (see note 19)	581	681
Interest on lease liabilities	37	21
Finance costs amortised	141	125
Preference dividends (see note 10)	72	72
Finance income on interest in lease	(12)	—
Finance expense	1,116	1,266

7. Finance expense on pension scheme

	2022 £’000	2021 £’000
Defined benefit pension scheme net finance expense (see note 23)	166	202

62 Caffyns plc Annual Report 2022

8. Tax

	2022 £’000	2021 £’000
Current tax
UK corporation tax	432	401
Adjustments recognised in the period for current tax of prior periods	(5)	(33)
Total charge	427	368
Deferred tax (see note 24)
Origination and reversal of temporary differences	312	(381)
Change in corporation tax rate	647	—
Adjustments recognised in the period for deferred tax of prior periods	—	27
Total charge/(credit)	959	(354)
Tax charged in the Income Statement	1,386	14

The tax charge/(credit) arises as follows:

	2022 £’000	2021 £’000
On normal trading	1,422	100
On non-underlying items (see note 2)	(36)	(86)
Tax charged in the Income Statement	1,386	14

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

	2022 £’000	2021 £’000
Profit before tax	4,385	1,424
Tax at the UK corporation tax rate of 19% (2021: 19%)	833	271
Tax effect of expenses that are not deductible in determining taxable profit	126	133
Movement in rolled over and held over gains	(215)	(117)
Change in corporation tax rate	647	—
Reversal of impairment of Advanced Corporation Tax asset	—	(301)
Other differences	—	34
Adjustment to tax charge in respect of prior periods	(5)	(6)
Tax charge for the year	1,386	14

The current year total tax charge is impacted by the effect of non-deductible expenses, which includes non-qualifying depreciation; and one-off rate change adjustments to take into account the legislative increase in the corporation tax rate to 25% in 2023. In the prior year, an impairment provision against the carrying value of an Advanced Corporation Tax asset was reversed. This impairment was initially made in the year ended 31 March 2019 at which time management did not recognise an overall deferred tax asset due to the inherent uncertainty at that date. This approach remained unchanged at the previous year end, with 31 March 2020 being immediately after the start of the first covid-19 lockdown, and at the height of the accompanying economic uncertainty, but was altered at the half-year, at 30 September 2020. Forecasts prepared by management at that time, extending across a five year period, reflected an improvement to the levels of profits and these forecasts allowed the previously held view to be revised and the impairment to be reversed, given management’s judgement of a higher level of certainty that the available Advanced Corporation Tax and other deferred tax assets would be utilised in future years.

Stock code CFYN 63 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

8. Tax continued

The total tax charge for the year is made up as follows:

	2022 £’000	2021 £’000
Total current tax charge	427	368
Deferred tax charge/(credit)
Charged/(credited) in the Income Statement	959	(354)
Charged/(credited) against other comprehensive income	750	(57)
Total deferred tax charge/(credit)	1,709	(411)
Total tax charge/(credit) for the year	2,136	(43)

Factors affecting the future tax charge

The Company has unrelieved advance corporation tax of £0.5 million (2021: £1.1 million), which is available to be utilised against future mainstream corporation tax liabilities and is accounted for in deferred tax (see note 24).

9. Earnings per Ordinary share

The calculation of the basic earnings per share is based on the earnings attributable to Ordinary shareholders divided by the weighted average number of shares in issue during the year. Treasury shares are treated as cancelled for the purposes of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post-tax effect of dividends and/or interest on the assumed conversion of all dilutive options and other dilutive potential Ordinary shares.

Reconciliations of earnings and weighted average number of shares used in the calculations are set out below:

	Underlying		Basic
	2022 £’000	2021 £’000	2022 £’000	2021 £’000
Profit before tax	4,385	1,424	4,385	1,424
Adjustments:
Non-underlying items (note 2)	189	452	—	—
Profit before tax	4,574	1,876	4,385	1,424
Tax (note 8)	(1,422)	(100)	(1,386)	(14)
Profit after tax	3,152	1,776	2,999	1,410
Earnings per share (pence)	117.0p	66.0p	111.3p	52.4p
Diluted earnings per share (pence)	115.2p	65.6p	109.6p	52.1p

	2022 £’000	2021 £’000
Underlying earnings after tax	3,152	1,776
Underlying earnings per share (pence)	117.0p	66.0p
Underlying diluted earnings per share (pence)	115.2p	65.6p
Non-underlying losses after tax	(153)	(366)
Losses per share (pence)	(5.7)p	(13.6)p
Diluted losses per share (pence)	(5.6)p	(13.5)p
Total earnings	3,019	1,410
Earnings per share (pence)	111.3p	52.4p
Diluted earnings per share (pence)	109.6p	52.1p

64 Caffyns plc Annual Report 2022

The number of fully paid Ordinary shares in circulation at the year-end was 2,695,502 (2021: 2,695,376). The weighted average number of shares in issue for the purposes of the earnings per share calculation were 2,695,418 (2021: 2,694,846). The shares granted in the year under the Company’s SAYE scheme have been treated as dilutive. For the purposes of this calculation, the weighted average number of shares in issue for the purposes of the earnings per share calculation were 2,737,264 (2021: 2,707,660).

10. Dividends

	2022 £’000	2021 £’000
Preference shares
7% Cumulative First Preference	12	12
11% Cumulative Preference	48	48
6% Cumulative Second Preference	12	12
Included in finance expense (see note 6)	72	72
Ordinary shares
Interim dividend of 7½ pence per Ordinary share paid in respect of the current year (2021: Nil)	202	—
No final dividend paid in respect of the March 2021 year end (2020: Nil)	—	—
	202	—

A final dividend of 15.0 pence per Ordinary share was declared in respect of the current year ended 31 March 2022.

11. Right-of-use assets

	Group and Company £’000
Deemed cost
At 1 April 2020 and 31 March 2021	1,181
Deemed cost
At 1 April 2021	1,181
Additions	1,142
At 31 March 2022	2,323
Accumulated depreciation
At 1 April 2020	256
Depreciation for the year	315
At 31 March 2021	571
Accumulated depreciation
At 1 April 2021	571
Depreciation for the year	339
At 31 March 2022	910
Net book value
At 31 March 2022	1,413
At 31 March 2021	610

The right-of-use assets above represent three long-term property leases for premises from which the Company operates a Volkswagen dealership in Brighton, a Volvo dealership in Worthing and a car storage compound in Tunbridge Wells. Depreciation charges of £339,000 (2021: £315,000) in respect of right-of-use assets has been recognised within administration expenses in the Income Statement. The interest expense on the associated lease liability of £37,000 (2021: £21,000) is disclosed in note 6. Payments made in the year on the above leases were £353,000 (2021: £335,000).# Notes to the Financial Statements continued for the year ended 31 March 2022

12. Property, plant and equipment

Group and Company	Freehold property £’000	Leasehold improvements £’000	Fixtures & fittings £’000	Plant & machinery £’000	Total £’000
Cost or deemed cost
At 1 April 2020	40,752	728	5,220	6,517	53,217
Additions at cost	—	—	160	234	394
Disposals	—	—	(30)	(16)	(46)
At 31 March 2021	40,752	728	5,350	6,735	53,565
Cost or deemed cost
At 1 April 2021	40,752	728	5,350	6,735	53,565
Additions at cost	1,945	—	508	476	2,929
Disposals	—	—	(229)	(2,135)	(2,364)
At 31 March 2022	42,697	728	5,629	5,076	54,130
Accumulated depreciation
At 1 April 2020	5,530	507	3,596	4,801	14,434
Depreciation charge for the year	583	74	522	371	1,550
Disposals	—	—	(27)	(16)	(43)
At 31 March 2021	6,113	581	4,091	5,156	15,941
Accumulated depreciation
At 1 April 2021	6,113	581	4,091	5,156	15,941
Depreciation charge for the year	616	73	506	383	1,578
Disposals	—	—	(229)	(2,135)	(2,364)
At 31 March 2022	6,729	654	4,368	3,404	15,155
Net book value
31 March 2022	35,968	74	1,261	1,672	38,975
31 March 2021	34,639	147	1,259	1,579	37,624
31 March 2020	35,222	221	1,624	1,716	38,783

Short-term leasehold property for both the Company and the Group comprises £74,000 at net book value in the Statement of Financial Position (2021: £147,000). Depreciation charges of £1,578,000 (2021: £1,550,000) in respect of property, plant and equipment has been recognised within administration expenses in the Income Statement.

The freehold properties were originally revalued externally on 31 March 1995 by Herring Baker Harris, Chartered Surveyors, at open market value for existing use (which is close to the then fair value). Freehold properties acquired since that date and the other assets listed above have been stated at cost in accordance with IAS 16 Property, Plant and Equipment.

The Company valued its portfolio of freehold premises and investment properties as at 31 March 2022. The valuation was carried out by CBRE Limited, Chartered Surveyors, in accordance with the Royal Institution of Chartered Surveyors valuation – global and professional standards requirements. The valuation is based on existing use value which has been calculated by applying various assumptions as to tenure, letting, town planning, and the condition and repair of buildings and sites including ground and groundwater contamination. Management are satisfied that this valuation is materially accurate. The excess of the valuation over net book value as at 31 March 2022 of those sites was £13.3 million (2021: £12.3 million). In accordance with the Company’s accounting policies, this surplus has not been incorporated into these financial statements.

13. Investment properties

Group and Company	2022 £’000	2021 £’000
Cost
At 1 April 2021 and 31 March 2022	9,650	9,650
Accumulated depreciation
At 1 April 2021	1,899	1,598
Depreciation for the year	105	117
Impairments for the year	—	184
At 31 March 2022	2,004	1,899
Net book value
At 31 March 2022	7,646	7,751

Depreciation and impairment charges of £105,000 (2021: £301,000) in respect of Investment properties have been recognised within administration expenses in the Income Statement.

The Company owns a freehold property that is partially leased out to a third-party tenant, and accordingly accounts for the property as an investment property. Based on an independent valuation of the property carried out by CBRE, no impairment charges were required to be recognised in the Income Statement, as part of administration expenses (2021: £184,000). This investment property represents the only asset included in that CGU. In assessing this property for impairment, the directors based their assessment of the recoverable amount on fair value less selling costs. The fair value measurement of the CGU in its entirety was categorised as a Level 3 within the hierarchy set out in IFRS 13 Fair Measurement. The valuation technique that is used to measure the fair value less costs of disposal is consistent with that applied in respect of the Company’s property, plant and equipment, which is set out in note 12. The following are key assumptions on which the directors based their determination of fair value less costs of disposal in respect of that CGU:

• Market value of buildings per square foot: £195
• Market value of site per acre: £2,472,000
• Initial and reversionary yields: 6.7% and 7.0% respectively
• Costs of disposal: 1.5% of fair value

As described in note 12, the total excess of the valuation of all of the Company’s freehold properties over net book value as at 31 March 2022 was £13.3 million (2021: £12.3 million). Investment properties accounted for £0.8 million (2021: £0.6 million) of this surplus.

14. Net investment in lease

Group and Company	2022 £’000	2021 £’000
Due after more than one year	389	557
Due within one year	168	173
At 31 March 2022	557	730

The premises shown above are sub-let to a third party under a lease which has the same terms and duration as the Company’s own lease.

15. Goodwill

Group and Company	2022 £’000	2021 £’000
Cost
At 1 April 2021 and 31 March 2022	481	481
Provision for impairment
At 1 April 2021 and 31 March 2022	195	195
Carrying amounts allocated to CGUs
Volkswagen, Brighton	200	200
Audi, Eastbourne	86	86
At 31 March 2022	286	286

For the purposes of the annual impairment testing, goodwill is allocated to a CGU. Each CGU is allocated against the lowest level within the entity at which goodwill is monitored for management purposes. Consequently, the directors recognise CGUs to be those assets attributable to individual dealerships and the table above sets out the allocation of goodwill into the individual dealership CGUs. The carrying amount of goodwill allocated to the Volkswagen, Brighton CGU is the only amount considered significant in comparison with the Group’s total carrying amount of goodwill. Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable and a potential impairment may be required. Impairment reviews have been performed for all CGUs for the years ended 31 March 2021 and 2022.

Valuation basis

The recoverable amount of each CGU is based on the higher of its fair value less selling costs and value in use. The fair value less selling costs of each CGU is based initially upon the market value of any property contained within it and is determined by an independent valuer as described in note 12. Where the fair value less selling costs of a CGU indicates that an impairment may have occurred, a discounted cash flow calculation is prepared in order to assess the value in use of that CGU, involving the application of a pre-tax discount rate to the projected, risk-adjusted pre-tax cash inflows and terminal value.

Period of specific projected cash flows (Volkswagen, Brighton CGU)

The recoverable amount of the Volkswagen, Brighton CGU is based on value in use. Value in use is calculated using cash flow projections for a five-year period from 1 April 2022 to 31 March 2027. These projections are based on the most recent budget which has been approved by the board being the budget for the year ending 31 March 2023. The key assumptions in the most recent annual budget on which the cash flow projections are based relate to expectations of sales volumes and margins, and expectations around changes in the operating cost base. These assumptions are based on past experience, adjusted to expected changes, and on external sources of information. The cash flows include ongoing capital expenditure required to maintain the dealership but exclude any growth capital expenditure projects to which the Group was not committed at the reporting date. Growth rates, ranging from -1% (2021: -1%) to 15% (2021: 176%) have been used to forecast cash flows for a further four years beyond the budget period, through to 31 March 2027. These growth rates reflect the products and markets in which the CGU operates. These growth rates do not give rise to an impairment. Growth rates are internal forecasts based on a combination of internal and external information. Based on these forecasts, the headroom available on the total future profits is £3.2 million (2021: £2.4 million) before an impairment would be necessary.

Period of specific projected cash flows (Volvo, Worthing CGU)

The recoverable amount of the Volvo, Worthing CGU is based on value in use. Value in use is calculated using cash flow projections for a five-year period from 1 April 2022 to 31 March 2027. These projections are based on the most recent budget which has been approved by the board being the budget for the year ending 31 March 2023. The key assumptions in the most recent annual budget on which the cash flow projections are based relate to expectations of sales volumes and margins, and expectations around changes in the operating cost base. These assumptions are based on past experience, adjusted to expected changes, and on external sources of information. The cash flows include ongoing capital expenditure required to maintain the dealership but exclude any growth capital expenditure projects to which the Group was not committed at the reporting date.Growth rates, ranging from -46% (2021: -25%) to 7% (2021: 8%) have been used to forecast cash flows for a further four years beyond the budget period, through to 31 March 2027. These growth rates reflect the products and markets in which the CGU operates. These growth rates do not give rise to an impairment. Growth rates are internal forecasts based on a combination of internal and external information. Based on these forecasts, the headroom available on the total future profits is £1.1 million (2021: £1.7 million) before an impairment would be necessary.

68 Caffyns plc Annual Report 2022

Discount rate

The cash flow projections have been discounted using a rate derived from the Group’s pre-tax weighted average cost of capital, adjusted for industry and market risk. The discount rate used was 12.4% (2021: 12.4%).

Terminal growth rate

The cash flows subsequent to the forecast period are extrapolated into the future over the useful economic life of the CGU using a steady or declining growth rate that is consistent with that of the product and industry. These cash flows form the basis of what is referred to as the terminal value. The growth rate to perpetuity beyond the initial budgeted cash flows used in the value in use calculations to arrive at a terminal value is 0.5% (2021: 0.5%). Terminal growth rates are based on management’s estimate of future long-term average growth rates.

Conclusion

At 31 March 2022, no impairment charge in respect of goodwill was identified (2021: no impairment charge).

Sensitivity to changes in key assumptions

Impairment testing is dependent on estimates and judgements, particularly as they relate to the forecasting of future cash flows. The outcome of the impairment test is not sensitive to reasonably possible changes in respect of the projected cash flows, the discount rate applied, nor in respect of the terminal growth rate assumed.

16. Investments in subsidiary undertakings

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 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 and have their registered office at 4 Meads Road, Eastbourne, East Sussex, BN20 7DR.

Company	2022 £’000
Cost
At 1 April 2021 and 31 March 2022	476
Provision
At 1 April 2021 and 31 March 2022	226
Net book value
At 31 March 2022	250
At 31 March 2021	250

17. Inventories

Group and Company	2022 £’000	2021 £’000
Vehicles	22,561	19,741
Vehicles on consignment	3,969	15,995
Oil, spare parts and materials	1,009	821
Work in progress	7	5
At 31 March 2022	27,546	36,562

Group and Company:	2022 £’000	2021 £’000
Inventories recognised as an expense during the year	185,398	135,348
Inventories stated at fair value less costs to sell	884	708
Carrying value of inventories subject to retention of title clauses	14,675	23,940

Stock code CFYN 69 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

17. Inventories continued

All vehicle inventories held under consignment stocking arrangements are deemed to be assets of the Group and are included on the Statement of Financial Position from the date of consignment. The corresponding liabilities to the manufacturers are included within trade and other payables. Inventories can be held on consignment for a maximum consignment period set by the manufacturer, which is generally between 180 and 365 days. Interest is payable in certain cases for part of the consignment period, at various rates indirectly linked to the Bank of England base rate. During the year, £25,000 was recognised in respect of the write-down of inventories of spare parts due to general obsolescence (2021: £37,000).

18. Trade and other receivables

Group and Company	2022 £’000	2021 £’000
Trade receivables	3,979	3,757
Allowance for doubtful debts	(4)	(3)
3,975	3,754
Other receivables	1,289	1,318
At 31 March 2022	5,264	5,072

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 2022 trade receivables were shown net of an allowance for impairment of £4,000 (2021: £3,000). The charge recognised during the year was £4,000 (2021: £2,000). Trade receivables have been classified at amortised cost under IFRS 9 Financial Instruments.

Group and Company	2022 £’000	2021 £’000
Not impaired:
Neither past due nor impaired	3,910	3,694
Past due up to three months but not impaired	65	60
At 31 March 2022	3,975	3,754

Group and Company	2022 £’000	2021 £’000
The movement in the allowance for impairment during the year was:
At 1 April 2021	3	7
Impairment recognised in the Income Statement	4	2
Utilisation	(3)	(6)
At 31 March 2022	4	3

All amounts are due within one year.

Credit risk

The Company’s principal financial assets are trade receivables, bank balances and cash that 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 that are due on the earlier of the presentation of the invoice or the expiry of a credit term. The amounts presented in the Statement of Financial Position 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 to their fair value. Before granting any new customer credit terms the Company uses external credit rating agencies to assess the potential new customer’s credit quality and to define credit facility limits to be made available. These credit limits and creditworthiness are regularly reviewed. The concentration of credit risk is limited due to the customer base being large and unrelated. The Company has no customer that represents more than 5% of the total balance of trade receivables.

70 Caffyns plc Annual Report 2022

19. Trade and other payables

	2022 £’000	2021 £’000
Trade payable	14,034	14,742
Obligations relating to consignment stock	3,969	15,995
Vehicle stocking loans	7,327	5,100
Social security and other taxes	823	1,173
Accruals	2,732	1,482
Deferred income	532	614
Other creditors	78	232
Group total	29,495	39,338
Amounts owed to Group undertakings	250	250
Company total	29,745	39,588

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for these trade-related purchases was 28 days (2021: 33 days). The directors consider that the carrying amount of trade payables approximates to fair value. The Group finances the purchases of new car inventory through the use of consignment funding facilities provided by its manufacturer partners and which are shown above as Obligations relating to consignment stock. Vehicles are physically supplied by the manufacturers with payment deferred until the earlier of the registration of the vehicle or the end of the consignment period, generally 180 days. In certain circumstances, consignment periods can be extended with the agreement of the manufacturer. The consignment funding facilities attract interest at a commercial rate. The Group utilises vehicle stocking loans to assist with the purchase of certain used car inventory. Facilities are available from both its manufacturer partners and a third-party finance provider and are generally available for a period of 90 days from the date of purchase. These vehicle stocking loans attract interest at a commercial rate. Interest charges on consignment stocking loans and vehicle stocking loans described above for the year ended 31 March 2022 were £581,000 (2021: £681,000). The obligations relating to consignment stock are all subject to retention of title clauses for the vehicles to which they relate. Obligations for used and demonstrator cars which have been funded are secured on the vehicles to which they relate and are shown above as vehicle stocking loans. From a risk perspective, the Company’s funding is split between manufacturers through their related finance arms and that funded by the Company through bank borrowings. The Company deferred payments of VAT of £440,000 under the covid-19 payment deferral scheme operated by HMRC. This VAT was to be settled by eleven equal monthly instalments, with payments having commenced in April 2021. At 31 March 2022, all amounts had been settled (2021: £400,000 outstanding and included in within Social security and other taxes).

The movements in deferred income in the year were as follows:

	2022 £’000	2021 £’000
At 1 April 2021	614	592
Utilisation of deferred income in the year	(1,401)	(1,136)
Income received and deferred in the year	1,319	1,158
At 31 March 2022	532	614

Management are satisfied in respect of the brought forward deferred income for both the current and prior years, that the amount of deferred income not recognised as revenue in the year is not material.

Stock code CFYN 71 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

20. Interest-bearing loans and borrowings

Group and Company	2022 £’000	2021 £’000
Current liabilities:
Secured bank loans and overdrafts	1,875	3,875
Non-current liabilities:
Secured bank loans	11,312	12,187
At 31 March 2022	13,187	16,062

Note 21 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.# 21. Financial instruments

The Group utilises financial instruments such as bank loans and overdrafts and new and used vehicle stocking loans 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.

Group and Company

	2022 carrying value & fair value £’000	2021 carrying value & fair value £’000
Fair value of financial assets and liabilities:
Primary financial instruments held or issued to finance operations
Classification
Long-term bank borrowings (note 20)	(11,312)	(12,187)
Financial liability measured at amortised cost
Bank revolving-credit facility (note 20)	(1,000)	(3,000)
Financial liability measured at amortised cost
Other short-term bank borrowings (note 20)	(875)	(875)
Financial liability measured at amortised cost
Trade and other payables (note 19)	(28,140)	(37,551)
Financial liability measured at amortised cost
Lease liabilities (note 22)	(1,930)	(1,278)
Trade and other receivables (note 18)	5,264	5,072
Financial asset at amortised cost
Cash and cash equivalents	2,759	5,735
Financial asset at amortised cost
Preference share capital (note 25)	(812)	(812)
Financial liability measured at amortised cost

The amounts noted in the above table are the same for the Company apart from:
| Trade and other payables (note 19) | (28,390) | (37,801) |
| Financial liability measured at amortised cost | | |

Financial risk management

The Group is exposed to the following risks from its use of financial instruments:
a. Funding and liquidity risk – the risk that the Group will not be able to meet its obligations as they fall due;
b. Credit risk – the risk of financial loss to the Group on the failure of a customer or counterparty to meet their obligations as they fall due; and
c. Market risk – the risk that changes in market prices, such as interest rates, have on the Group’s financial performance.

The Group manages 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 while the Group’s objectives and management of these risks is set out below.

Capital management

The Group views its financial capital resources as primarily comprising share capital, bank loans and overdrafts, vehicle stocking credit lines and operating cash flow. The board’s policy is to maintain a strong capital base to facilitate market confidence and safeguard the Group’s ability to continue as a going concern while maximising the return on capital to the Group’s shareholders. The Group monitors its capital through closely scrutinising and reviewing its cash flows. The capital of the Group is £34.7 million (2021: £27.6 million) and comprises share capital, share premium, retained earnings and other reserve accounts: the capital redemption reserve, the non-distributable reserve and the other reserve. In order to maintain or adjust the capital structure, the Group may adjust the level of dividends paid to the holders of Ordinary shares, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group’s ratio of net bank loans and overdrafts to equity was 30% at 31 March 2022 (2021: 37%). Capital requirements imposed externally by HSBC are that borrowings should not exceed 70% of the current open-market value for existing use of the Group’s freehold properties which are subject to a fixed charge. The underlying pre-tax return as a proportion of equity for the year was 13.2% (2021: 6.8%).

The Company has occasionally repurchased its own shares in the market and cancelled them to promote growth in earnings per share. There is no predetermined plan for doing this, although the Company has permission from its shareholders to buy back up to 15% of its equity in any one financial year. The Company may also purchase its own shares to satisfy share incentives issued to employees 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 risk management

The Group finances its operations through a mixture of retained profits and borrowings from bank, 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 2022 the Group had undrawn floating rate borrowing facilities of £10.3 million (2021: £15.7 million) represented by overdrafts and revolving credit facilities which would be repayable on demand, in respect of which all conditions precedent had been met. The Group is not directly exposed to foreign currency risk.

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 Group 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 change of 100 basis points 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 £178,000 (2021: £154,000) 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 their credit risk. Credit risk also 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 do 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 Statement of Financial Position. These objectives, policies and strategies are consistent with those applied in the previous year.

Group and Company

	2022 carrying value & fair value £’000	2021 carrying value & fair value £’000
Bank balances and cash equivalents	2,759	5,735

The net bank borrowings of the Company at 31 March 2022 were £10.4 million (2021: £10.3 million).

	2022 £’000	2021 £’000
Interest-bearing overdrafts and loans due within one year	1,875	3,875
Interest-bearing bank loans due after more than one year	11,312	12,187
Less: Cash and cash equivalents	(2,759)	(5,735)
At 31 March 2022	10,428	10,327

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 2022 are set out in the following table:

	Carrying value & fair value	Classification	Interest classification	Interest rate range
Current: within one year or on demand
Revolving-credit facility	1,000	Amortised cost	Floating	Base rate + 2.50%
Term loan	500	Amortised cost	Floating	VBBR* + 1.75%
Term loan	375	Amortised cost	Floating	SONIA** + 2.75%
Trade and other payables	28,140	Amortised cost	–	–
Not repayable within one year
Term loan	5,812	Amortised cost	Floating	SONIA** + 2.75%
Term loan	500	Amortised cost	Floating	VBBR * + 1.75%
Revolving-credit facility	5,000	Amortised cost	Floating	SONIA** + 2.75%
Preference share capital	812	Amortised cost	Fixed	–

• Volkswagen Bank Base Rate, a base rate calculated by Volkswagen Bank United Kingdom Branch.
  ** Sterling Overnight Index Average.

The maturity of non-current borrowings is as follows:

Group and Company	2022 £’000	2021 £’000
Between one and two years	1,167	12,207
Between two and five years	11,031	915
Over five years	1,636	1,260
At 31 March 2022	13,834	14,382

Maturities include lease liabilities and amounts drawn under revolving credit facilities. The maturities of lease liabilities represent the undiscounted future repayments on those leases. The Company’s revolving credit facility can continue to be drawn in whole or part at any time under a facility which will continue until April 2026. The maturities of the revolving credit facility represent the final payment dates for those drawn facilities as at 31 March 2023.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 year-end, are estimated on an undiscounted basis as follows:

Group and Company	2022 £’000	2021 £’000
Within six months	359	320
Six – twelve months	359	320
More than twelve months	6,093	6,187
Contractual cash flows	6,811	6,827

The Group has a term loan with HSBC, first entered into in March 2018, originally of £7.5 million, at a rate of interest of 2.75% above SONIA. The loan has a current four-year term to next expire in April 2026, and is repayable over 20 years. The balance outstanding on this term loan at 31 March 2022 was £6.2 million (2021: £6.6 million) with capital repayments in the year of £0.38 million.

HSBC also make available to the Group a revolving-credit facility of £6.0 million at a rate of interest of 2.75% above SONIA. This facility has a four-year term and expires in April 2026. The balance drawn as at 31 March 2022 was £5.0 million (2021: £5.0 million).

These facilities are subject to covenants which are tested quarterly with respect to debt/freehold property values and interest cover and borrowing levels which were all passed at 31 March 2022. The failure of a covenant test would render these facilities repayable on demand at the option of the lender.

The Group also has a bank term loan from Volkswagen Bank United Kingdom Branch, which carries a rate of interest of 1.75% above VBBR. The loan is repayable over its ten-year term which expires in March 2024. No reduction in term loan or revolving-credit facilities is expected to apply consequent to the trading results for the year ended 31 March 2022.

The Group also had £7.5 million of combined annual overdraft and revolving credit facilities (2021: £10.5 million) from HSBC and Volkswagen Bank United Kingdom Branch and these facilities are next due for renewal in August 2022. The directors have every expectation that these facilities will be renewed based on the current discussions with the relevant banks. These facilities carry interest rates of 2.5% above UK bank base rate and 2.64% above VBBR, respectively.

The Group has granted security to HSBC and Volkswagen Bank United Kingdom Branch by way of a general debenture over its assets and a fixed charge over certain freehold property. The total value of those assets at 31 March 2022 in the Statement of Financial Position was £64.2 million (2021: £69.3 million). The Group has also granted security to its defined benefit pension scheme by way of fixed charge over certain freehold properties. This charge ranks in priority behind those charges granted to HSBC and Volkswagen Bank United Kingdom Branch.

The ongoing costs associated with the bank facilities are included in finance expense (see note 6). The preference shares in issue do not have a maturity date as they are non-redeemable.

22. Lease liabilities

Group and Company	2022 £’000	2021 £’000
Deemed liability
At 1 April	1,278	1,853
Additions in the year	1,142	—
Interest charge for the year	49	29
Lease payments	(539)	(604)
At 31 March	1,930	1,278
Due in less than one year	496	495
Due after more than one year	1,434	783
At 31 March	1,930	1,278

Stock code CFYN 75 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials

Notes to the Financial Statements continued for the year ended 31 March 2022

23. Retirement benefit scheme

Description of scheme

The Company operates a pension scheme, the Caffyns Pensions 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 on the proportion of pensionable pay purchased, the Company contribution rates varied between 4% and 15%. With effect from 1 April 2010, the Scheme closed to future accrual with all members transferred to a defined contribution scheme for their future service.

As part of the 2014 funding valuation, it was agreed that the inflation measure used to set in-deferment and in-payment increases for pensions in excess of guaranteed minimum pensions would change from the Retail Prices Index to the Consumer Prices Index for members (or dependents of members) who were in service on or after 1 April 1991.

The Trustees are responsible for the operation and governance of the Scheme, including making decisions regarding the Scheme’s funding and investment strategy, in conjunction with the Company. The assets of the Caffyns Pensions Scheme, administered by Capita Employee Solutions, are held separately from those of the Company, being held in separate funds by the trustees of the Caffyns Pensions Scheme. The Scheme rules do not impose a restriction on the level of Scheme asset that may be reported under IAS 19. The Scheme has been registered with the Pensions Regulator and is subject to the scheme-specific funding requirements as outlined in UK legislation. The liabilities are determined by a qualified actuary based on triennial valuations using the projected unit method. The most recent completed valuation was at 31 March 2020.

Description of expected cash flows to and from the Scheme

As part of the 31 March 2020 funding valuation, the Trustees and the Company agreed a recovery plan with a view to eliminating the scheme-specific funding shortfall by 30 June 2031.

Over the year to 31 March 2022, the Company contributed £1,781,000 (2021: £527,000) to fund the existing deficit, of which £781,000 (2021: £502,000) was in relation to deficit-reduction contributions and £1,000,000 was a one-off contribution.

Over the year to 31 March 2023, the Company expects to contribute £767,000 in relation to deficit-reduction contributions. In addition, the Company will continue to make contributions towards risk benefits and to meet the administrative expenses of the Scheme and its Pension Protection Fund levies.

The liabilities of the Scheme are based on the current value of expected benefit payment cash flows to members of the Scheme over the next 70 to 80 years. The average duration of the liabilities is approximately 15 years. Expected benefit payments in the year to 31 March 2023 are £3,817,000.

Risks to the Scheme

The ultimate cost of the Scheme to the Company will depend upon actual future events rather than the assumptions made. Many of the assumptions made are unlikely to be borne out in practice and as such the cost of the Scheme may be higher, or lower, than disclosed. In general, the risk to the Company is that assumptions underlying the disclosures, or the calculation of contribution requirements, are not borne out in practice and the cost to the Company is higher than expected.

More specifically, the Scheme exposes the Company to actuarial risks such as:

• Interest rate risk – the present value of the defined benefit liability is calculated using a discount rate determined by reference to market yields of corporate bonds whereas the Scheme holds a mixture of investments. A decrease in market yield on high quality corporate bonds will increase the Company’s defined benefit liability, although it is expected that this would be offset partially by an increase in the fair value of certain of the Scheme’s assets;
• Investment risk – the Scheme’s assets at 31 March 2022 are invested by an appointed fiduciary management company, SEI Investments (Europe). The investment in various types of asset funds is intended to reduce risk while maintaining planned returns;
• Longevity risk – the Company is required to provide benefits for life for the members of the Caffyns Pensions Scheme. Increases in life expectancy of the members will increase the defined benefit liability;
• Inflation risk – a significant proportion of the defined benefit liability is linked to inflation. An increase in the inflation rate will increase the Company’s liability. A portion of the Scheme’s assets are inflation-linked debt securities, which would mitigate some of the effect of inflation.

The Company has applied IAS 19 Employee Benefits (Revised) to this scheme and the following disclosures relate to this Standard. The Company recognises any remeasurement (actuarial gains and losses) in each period in the Statement of Comprehensive Income.

76 Caffyns plc Annual Report 2022

Results of most recent actuarial valuation

The assumptions which have the most significant effect on the results of the valuation are those relating to rates of mortality, the discount rate used to reflect the present value of scheme liabilities, and the rate of inflation.

As at the year-end, the last available actuarial valuation, as at 31 March 2020, showed that the market value of the assets of the Caffyns Pensions Scheme were £80.8 million and that the actuarial value of those assets represented 79% of the value of the benefits that had accrued to employees at that date. The deficit arising at 31 March 2020 of £21.9 million compared to a deficit of £9.4 million under IAS 19 and was due to different assumptions being adopted for the triennial valuation.

The payments agreed with the trustees of the Caffyns Pensions Scheme under the recovery plan were for deficit-reduction cash payments to be made in the year ended 31 March 2022 of £750,000 with payments increasing from 1 April 2022 by 2.25% per annum. In addition, from the year ended 31 March 2022 until the end of the present recovery plan, the monetary excess of any Ordinary dividends paid to shareholders in excess of 22½ pence will be matched by a further equal contribution into the Scheme.

The costs and liabilities of the Caffyns Pensions Scheme are based on actuarial valuations.## Notes to the Financial Statements continued for the year ended 31 March 2022

23. Retirement benefit scheme

At the year-end, the latest available full actuarial valuation, carried out at 31 March 2020, was updated to 31 March 2022 by Willis Towers Watson, independent qualified actuaries, for the requirements of IAS 19. Details of the actuarial assumptions are as follows:

Mortality tables used: females	97% of SAPS series 2	97% of SAPS series 2
Mortality tables used: males	100% of SAPS series 2	100% of SAPS series 2
Future improvements in mortality	CMI2021 + 1.25%	CMI2020 + 1.25%
Discount rate	2.65%	1.95%
Inflation (CPI)	3.80%	2.75%
Pension increase for in-payment benefits (CPI max 5%)	3.20%	2.70%

The discount rate adopted is based upon the yields of 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%	+/- £1.4 million
Pension increases	Increase/decrease by 0.1%	+/- £0.9 million
Mortality	Increase/decrease by 0.1%	+/- £4.6 million

The fair value of assets of the Caffyns Pensions Scheme for each class of asset, all of which have a quoted market price in an active market, are as follows:

Market value	2022 £’000	2021 £’000
LDI fund	18,862	16,896
Growth fund	72,991	72,181
Equity instruments	870	469
At 31 March 2022	92,723	89,546

A fiduciary manager, SEI Investments (Europe) operates with the objective of improving the performance of the assets of the Caffyns Pensions Scheme. Assets of the Scheme (excluding cash in the trustees’ administrative bank account) at 31 March 2022 were invested 26% (2021: 19%) in LDI funds, 73% (2021: 80%) in return enhancing growth funds and 1% (2021: 1%) in Caffyns plc shares.

In accordance with the requirements of IAS 19 Employee Benefits, the expected return on assets is based on the discount rate noted above of 2.65% and not the return on the underlying portfolio of investments. Consequently, the charge to the Income Statement for the year ending 31 March 2023 is expected to be approximately £88,000. Equity instruments include shares in Caffyns plc, which are detailed in note 28. 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 timescales covered, may not necessarily be borne out in practice.

Life expectancy at age 65 (in years):	2022 Male	2022 Female	2021 Male	2021 Female
Member currently aged 65	21.6	23.9	21.6	23.8
Member currently aged 45	22.9	25.4	22.9	25.4

A liability for the defined benefit pension scheme deficit is included in the Statement of Financial Position under the heading of non-current liabilities.

Analysis of the movement in the net liability for defined benefit obligations recognised in the Statement of Financial Position

	2022 £’000	2021 £’000
At 1 April 2021	(9,434)	(9,434)
Expense recognised in the Income Statement	(189)	(225)
Contributions paid by the Company	1,781	526
Net remeasurement recognised in other comprehensive income	5,045	(301)
At 31 March 2022	(2,797)	(9,434)

Total expense recognised in the Income Statement

	2022 £’000	2021 £’000
Interest cost	1,891	1,946
Interest income on Scheme assets	(1,725)	(1,744)
Interest – net (see note 7)	166	202
Current service cost	23	23
Total	189	225

Changes in the present value of the defined benefit pension obligation

	2022 £’000	2021 £’000
At 1 April 2021	98,980	90,515
Service cost	23	23
Interest cost	1,891	1,946
Actuarial gains - experience	2,670	(954)
Actuarial losses/(gains) – demographic assumptions	160	(198)
Actuarial (gains)/losses – financial assumptions	(4,220)	11,811
Benefits paid	(3,984)	(4,163)
At 31 March 2022	95,520	98,980

In October 2018, the High Court issued a judgement which required pension schemes to equalise members’ benefits to address the unequal effect of Guaranteed Minimum Pensions between genders. In assessing the present value of the pension liabilities, an allowance for the liabilities to increase by 0.9% continues to be made for the estimated cost of this Guaranteed Minimum Pensions equalisation process.

Movement in the fair value of scheme assets

	2022 £’000	2021 £’000
At 1 April 2021	89,546	81,081
Interest income	1,725	1,745
Actuarial gains – financial assumptions	3,655	10,357
Contributions paid by the Company	1,781	526
Benefits paid	(3,984)	(4,163)
At 31 March 2022	92,723	89,546

Reconciliation of the impact of the asset ceiling

The Company has reviewed the implications of the guidance provided in IFRIC 14 and has concluded that it is not necessary to make adjustments to the IAS 19 disclosures at 31 March 2022 as any scheme surplus would be available to the Company unconditionally by way of a refund, assuming the gradual settlement of scheme liabilities over time until all members had left the Caffyns Pensions Scheme.

24. Deferred tax

Group and Company

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

	Accelerated tax depreciation £’000	Unrealised capital gains £’000	Retirement benefit obligations £’000	Tax losses £’000	Short-term temporary differences £’000	Recoverable ACT £’000	Total £’000
At 1 April 2020	(942)	(1,690)	1,792	28	(23)	835	—
Change in tax rates and prior year adjustments	1	—	—	(28)	—	—	(27)
Timing differences	16	118	(57)	—	4	301	382
Recognised in other comprehensive income	—	—	57	—	—	—	57
At 31 March 2021	(925)	(1,572)	1,792	—	(19)	1,136	412
At 1 April 2021	(925)	(1,572)	1,792	—	(19)	1,136	412
Change in tax rates and prior year adjustments	(225)	(428)	(39)	—	45	—	(647)
Utilisation of ACT	—	—	—	—	(599)	(599)
Timing differences	210	216	(303)	—	163	—	286
Recognised in other comprehensive income	—	—	(750)	—	—	—	(750)
At 31 March 2022	(940)	(1,784)	700	—	189	537	(1,298)

The Finance Act 2021 introduced an increase in the main corporation tax rate to 25% from 1 April 2023. The Company carries a balance of surplus unrelieved advanced corporation tax (“ACT”) which can be utilised to reduce corporation tax payable subject to a restriction of 19% of taxable profits less shadow ACT calculated at 25% of shareholder ordinary dividends. Shadow ACT has no effect on the corporation tax payable itself but any surplus shadow ACT on dividends must be fully absorbed before surplus unrelieved ACT can be utilised. During the year the Shadow ACT was fully utilised allowing a partial utilisation of the ACT, leaving the remaining value of surplus ACT available for utilisation in future periods at 31 March 2022 of £537,000 (2021: £1,136,000).

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and it is considered that this requirement is fulfilled. The offset amounts are as follows:

	2022 £’000	2021 £’000
Deferred tax liabilities	(2,724)	(2,516)
Deferred tax assets	1,426	2,928
At 31 March 2022	(1,298)	412

The unrealised capital gains include deferred tax on gains recognised on revaluing the land and buildings in 1995 and where potentially taxable gains arising from the sale of properties have been rolled over into replacement assets. Such tax would become payable only if such properties were sold without it being possible to claim rollover relief. There were no trading losses available for use in future periods (2021: £Nil).

25. Called-up share capital

	2022 £’000	2021 £’000
Authorised
500,000 7% Cumulative First Preference shares of £1 each	500	500
1,250,000 11% Cumulative Preference shares of £1 each	1,250	1,250
3,000,000 6% Cumulative Second Preference shares of 10 pence each	300	300
4,000,000 Ordinary shares of 50 pence each	2,000	2,000
At 31 March 2022	4,050	4,050
Allotted, called-up and fully paid
170,732 7% Cumulative First Preference shares of £1 each	171	171
441,401 11% Cumulative Preference shares of £1 each	441	441
2,000,000 6% Cumulative Second Preference shares of 10 pence each	200	200
Total preference shares recognised as a financial liability (see note below)	812	812
2,879,298 Ordinary shares of 50 pence each	1,439	1,439
At 31 March 2022	2,251	2,251

At 1 April 2021, the Company held 2,879,298 Ordinary shares with 183,922 shares held in treasury. During the year, 126 of these shares were utilised for options exercised under the 2020 SAYE scheme. Shares held in treasury at 31 March 2022 were 183,796. In the prior year, 586 treasury shares were utilised under the 2017 SAYE scheme. The remaining treasury shares are held to fulfil the requirements of the current, and any future, Company Save As You Earn schemes for eligible employees. The market value of these shares at 31 March 2022 was £1.0 million (2021: £0.6 million). Dividend income from, and voting rights on, the shares held in treasury have been waived.

The 7% Cumulative First Preference shares have rights to a fixed dividend and, in the event of a winding-up, a priority to the Ordinary shares for a capital repayment. The shares do not have voting rights. The 11% Cumulative Preference shares have rights to a fixed dividend and, in the event of a winding-up, a priority to the Ordinary shares for a capital repayment.26. Share-based payments

Year of grant	Exercise price	Exercise date	Number at 1 April 2020	Issued	Cancelled	Number at 31 March 2021
2017	£3.99	September 2020	85,372	(586)	(84,786)	—
2020	£3.06	February 2024	—	101,926	—	101,926

Year of grant	Exercise price	Exercise date	Number at 1 April 2021	Issued	Lapsed	Number at 31 March 2022
2020	£3.06	February 2024	101,926	(126)	(7,475)	94,325

All grants made under the Company’s Save As You Earn schemes are for periods of three years and vest in Ordinary shares. The market value of the shares at the date of the grant of the 2017 Save As You Earn scheme options was £4.99 and at the date of the grant of the 2020 Save As You Earn scheme options was £3.85. The fair value of the 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 volatility factor for movements in the Company’s share price used in the valuation model was estimated at 65%. At the exercise date of the 2017 grant, the exercise price was above the current market price of the Company’s Ordinary shares. As a result, only 586 options were exercised with the remaining options lapsing. The total expense included within operating profit relating to share-based payments for the year was £53,000 (2021: £37,000), with an associated tax credit to the Income Statement and Equity of £10,000 (2021: £7,000).

1. Notes to the cash flow statement

Group and Company	2022 £’000	2021 £’000
Profit before tax for the year	4,385	1,424
Adjustments for net finance expense	1,282	1,468
	5,667	2,892
Adjustments for:
Depreciation of property, plant and equipment, investment properties and right-of-use assets	2,022	1,982
Impairment against investment properties	—	184
Cash payments into the defined-benefit pension scheme	(1,781)	(526)
Loss on disposal of property, plant and equipment	—	3
Share-based payments	53	37
Operating cash flows before movements in working capital	5,961	4,572
Decrease in inventories	9,016	3,484
Increase in receivables	(94)	(754)
(Decrease)/increase in payables	(9,911)	697
Cash generated by operations	4,972	7,999
Tax paid, net of refunds	(503)	(31)
Interest paid	(1,079)	(1,244)
Net cash derived from operating activities	3,390	6,724

All interest payments are treated as operating cash movements as they arise from movements in working capital.

Stock code CFYN 81 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

1. Notes to the cash flow statement continued

Group and Company:	Bank loans £’000	Revolving credit facilities £’000	Lease liabilities £’000	Preference shares £’000	Liabilities arising from financing activities £’000	Bank and cash balances £’000	Net debt £’000
At 1 April 2020	8,719	9,000	1,853	812	20,384	(1,478)	18,906
Cash movement	(657)	(1,000)	(575)	—	(2,232)	(4,257)	(6,489)
At 31 March 2021	8,062	8,000	1,278	812	18,152	(5,735)	12,417
Current liabilities	875	3,000	495	—	4,370	(5,735)	(1,365)
Non-current liabilities	7,187	5,000	783	812	13,782	—	13,782
At 31 March 2021	8,062	8,000	1,278	812	18,152	(5,735)	12,417
At 1 April 2021	8,062	8,000	1,278	812	18,152	(5,735)	12,417
Cash movement	(875)	(2,000)	(539)	—	(3,414)	2,976	(438)
Non-cash movement	—	—	1,191	—	1,191	—	1,191
At 31 March 2022	7,187	6,000	1,930	812	15,929	(2,759)	13,170
Current liabilities	875	1,000	495	—	2,370	(2,759)	(389)
Non-current liabilities	6,312	5,000	1,435	812	13,559	—	13,559
At 31 March 2022	7,187	6,000	1,930	812	15,929	(2,759)	13,170

Non-cash movements in lease liabilities relate to the reassessment of the expected duration of one existing lease and one new lease that was entered into during the year.

1. Related parties

The remuneration of directors, who are key management personnel, is set out in note 5 for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the Directors’ Remuneration Report on pages 30 to 34.

The 2,000,000 6% Cumulative Second Preference shares have full voting rights along with the Ordinary shares, except in relation to matters which under the Listing Rules, as amended from time to time, are required to be voted on only by premium-listed securities, being the Ordinary shares. These Cumulative Second Preference shares are beneficially owned by Caffyn Family Holdings Limited (“Holdings”). Mr S G M Caffyn and Ms S J Caffyn are directors of Holdings. The whole of the issued share capital of Holdings is held by close relatives of those directors. Holdings controls directly 42.6% (2021: 42.6%) of the voting rights of Caffyns plc. The directors and shareholders of Holdings are also beneficial holders of 542,481 (2021: 535,481) Ordinary shares in Caffyns plc representing a further 11.6% (2021: 11.4%) of the voting rights. It is therefore considered that the Caffyn family is the ultimate controlling party. As required under the Stock Exchange Listing Rules, the Company entered into a Relationship Agreement with Holdings on 6 November 2014 whereby Holdings undertakes to the Company that it shall exercise its voting rights and shall exercise all its powers to ensure, so far as it is properly able to do so, that its associates shall exercise their respective voting rights and exercise all their respective powers to ensure, to the extent that they are able by the exercise of such rights to procure, that:
a. transactions and arrangements between any member of the Company and Holdings (and/or any of its associates) will be conducted at arm’s length and on normal commercial terms;
b. neither Holdings nor any of its associates will take any action that would have the effect of preventing the Company from complying with its obligations under the Listing Rules; and
c. neither Holdings nor any of its associates will propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules.

Directors of the Company and their immediate relatives control 14.3% (2021: 14.0%) of the issued Ordinary share capital of the Company. Dividends of £11,000 were paid to directors in the year (2021: £Nil).

82 Caffyns plc Annual Report 2022

Caffyns Pension Scheme

Details of contributions are disclosed in note 23. The Caffyns Pension Scheme held the following investments in the Company:

	Fair value 2022 £’000	Fair value 2021 £’000
Shares held:
125,570 (2021: 125,570) Ordinary shares of 50 pence each	691	439
12,862 (2021: 12,862) 11% Cumulative Preference shares of £1 each	20	20
At 31 March 2022	711	459

During the year to 31 March 2022, the Company paid management fees of £338,000 (2021: £410,000) on behalf of the Caffyns Pension Scheme. These costs comprised the Pension Protection Fund levy, actuarial advisory fees and external administration fees.

1. Leases as a lessor

The Group’s interest in leases

At 31 March 2022, the Company had an interest in a single lease. The total future minimum lease receipts payable are:

Group and Company	2022 £’000	2021 £’000
Within one year	185	185
In two to three years	185	185
In three to four years	185	185
In four to five years	78	185
Beyond five years	—	78
	633	818

The finance income on the net investment in the lease was £12,000 (2021: £7,000).

Group and Company	2022 £’000	2021 £’000
Gross undiscounted cash flows	633	818
Unearned finance income	(76)	(88)
Net investment in lease	557	730

The Group as lessor – operating leases

The Company’s gross property rental income earned during the year from the direct lease of three (2021: three) investment properties owned by the Group was £336,000 (2021: £710,000). No contingent rents were recognised in income (2021: £Nil).

At 31 March 2022, there were contracts for land and buildings with tenants for the following lease rentals receivable:

Group and Company	2022 £’000	2021 £’000
Within one year	265	311
In two to three years	251	237
In three to four years	238	237
In four to five years	209	209
Beyond five years	1,361	1,570
	2,324	2,564

Stock code CFYN 83 www.caffyns.co.uk Financials Other informationGovernanceOur Business Financials Notes to the Financial Statements continued for the year ended 31 March 2022

1. Capital commitments

Neither the Group nor the Company had any capital commitments at 31 March 2022 (2021: £Nil).

1. Legal contingent liability

Since 2015, the Company has been named as co-defendant in a number of legal actions that have been initiated against certain of the vehicle manufacturers which it represents. These actions contend that customers have been unfairly treated as a result of their vehicles having been fitted with software which is suggested by the claimant law firms to have operated such that when the vehicles were experiencing test conditions, the emission levels of nitrogen oxides (“NOx”) were affected. The vehicles remain safe and roadworthy.# 32. Critical accounting judgements and estimates when applying the Company’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 estimates in applying the Company’s accounting policies are listed below.

Retirement benefit obligation

The Company has a defined benefit pension scheme. The obligations under this scheme are recognised in the balance sheet and represent the present value of the obligation calculated by independent actuaries, with input from management. These actuarial valuations include assumptions such as discount rates, return on assets and mortality rates. These assumptions vary from time to time depending on prevailing economic conditions. Details of the assumptions used are provided in note 23. At 31 March 2022, the net liability included in the Statement of Financial Position was £2.8 million (2021: £9.4 million).

Impairment

The carrying value of property, plant and equipment and goodwill are tested annually for impairment as described in notes 11, 12, 13 and 15. For the purposes of the annual impairment testing, the directors recognise Cash Generating Units (CGUs) to be those assets attributable to an individual dealership, which represents the smallest group of assets which generate cash inflows that are independent from other assets or CGUs. The recoverable amount of each CGU is based on the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell of each CGU is based upon the market value of any property contained within it and is determined by an independent valuer, and its value in use is determined through discounting future cash inflows (as described in detail in note 15). As a result of this review, the directors considered that no impairments were required to the carrying value of its property assets (2021: £184,000 to a single property asset) (see notes 11, 12, 13 and 15).

Surplus ACT recoverable

The Company carries a balance of surplus unrelieved advanced corporation tax (“ACT”) which can be utilised to reduce corporation tax payable subject to a restriction to 19% of taxable profits less shadow ACT calculated at 25% of dividends. Uncertainty arises due to the estimation of future levels of profitability, levels of dividends payable and the reversal of deferred tax liabilities in respect of accelerated capital allowances and on unrealised capital gains. For example, a reduction in the Company’s profitability could result in a delay in the utilisation of surplus unrelieved ACT. However, based on the Company’s current projections, the directors have a reasonable expectation that the surplus ACT will be fully relieved against future corporation tax liabilities by 31 March 2024.

Support arrangements

On occasion, the Company can be assisted in the relocation, development and support of certain of its businesses. On receipt of these payments the Company forms a judgement whether the payment is capital in nature, in which case the payment is deducted from the capital cost of the development in question, or revenue in nature, in which case the payment is amortised over a two-year period from the date or relocation.

In November 2018, the Company received a contribution of £255,000 from a brand partner towards the cost of developing its Angmering dealership. The contribution agreement was not specific as to whether the amount contributed was in respect of the capital expenditure incurred by the Company, or in respect of other operating activities (such as marketing) that the Company was required to undertake as part of the relocation. Consequently, the directors needed to apply judgement in determining the appropriate accounting treatment. Having considered all information available, including the contribution agreement and past correspondence with the brand partner, the directors determined it appropriate to account for the contribution as capital in nature, and deducted the amount received from the carrying amount of property, plant and equipment assets associated with the Angmering dealership. The directors considered an alternative treatment, including recognising the amount received over the rolling two-year term of the franchise agreement. This would have resulted in an increase in profit of £96,000 during the year ended 31 March 2019 and an increase in net assets of the same amount as at 31 March 2019, with the remaining £159,000 standing to be recognised over the remaining contractual period as follows: year ended 31 March 2020: £127,500, year ending 31 March 2021: £31,500.

In December 2019, the Company separately received a contribution of £225,000 from a brand partner as support for establishing a new franchise business. In the judgement of the directors, and having considered all information available, the directors determined it appropriate to account for the contribution as revenue in nature, with the support to be allocated on a straight-line basis over the first 24 months of operation of the new business. The launch of the new business was delayed by the covid-19 pandemic with the business unable to commence trading until car showrooms were allowed to re-open in June 2020. As a result, £93,750 of the £225,000 support package was recognised in the Income Statement for the prior year with a further £112,500 being recognised in the Income Statement for the current year. It is expected that the remaining £18,750 will be recognised in the Income Statement for the year ending 31 March 2023.

84 Caffyns plc Annual Report 2022

Financials

Five Year Review (unaudited)

	2018 £’000	2019 £’000	2020 £’000	2021 £’000	2022 £’000
Income Statement
Revenue	215,868	209,246	195,787	165,085	223,928
Underlying operating profit	2,325	2,626	1,633	3,142	5,690
Finance expense	(935)	(1,181)	(1,382)	(1,266)	(1,116)
Underlying profit before tax	1,390	1,445	251	1,876	4,574
Non-underlying items	(225)	(1,873)	(148)	(452)	(189)
Profit/(loss) before tax	1,165	(428)	103	1,424	4,385
Profit/(loss) after tax	1,030	(566)	(252)	1,410	2,999
Basic earnings/(deficit) per Ordinary share	38.2p	(21.0)p	(9.4)p	52.4p	111.3p
Underlying earnings/(deficit) per Ordinary share	45.6p	35.3p	(4.9)p	66.0p	117.0p
Dividend per Ordinary share payable in respect of the year	22.50p	22.50p	7.50p	0.00p	22.50p
As at year-end
Shareholders’ funds	27,913	27,975	26,380	27,586	34,731
Property, plant and equipment*	46,957	47,394	46,835	45,375	46,621
Bank overdrafts and loans (net)	14,000	13,592	16,241	10,327	10,428
Bank overdrafts and loans/shareholders’ funds (gearing)	50%	49%	62%	37%	30%
Retirement benefit liability	9,497	8,576	9,434	9,434	2,797

• Represents property, plant and equipment and investment properties

86 Caffyns plc Annual Report 2022

Our dealerships

AUDI

BRIGHTON:

200 Dyke Road, Brighton, BN1 5AT (01273 553061)

EASTBOURNE:

Edward Road, Eastbourne, BN23 8AS (01323 525700)

WORTHING:

Roundstone Lane, Worthing, BN16 4BD (01903 231111)

MG

ASHFORD:

Monument Way, Orbital Park, Ashford, TN24 0HB (01233 504620)

LEVC

EASTBOURNE:

Lottbridge Drove, Eastbourne, BN23 6PJ (01323 418312)

LOTUS

KENT:

Monument Way, Orbital Park, Ashford, TN24 0HB (01233 504630)

SUSSEX:

Brooks Road, Lewes, BN7 2DN (01903 444148)

SEAT

TUNBRIDGE WELLS:

North Farm Industrial Estate, Tunbridge Wells, TN2 3EL (01892 515700)

SKODA

ASHFORD:

The Boulevard, Ashford, TN24 0GA (01233 504600)

TUNBRIDGE WELLS:

North Farm Industrial Estate, Tunbridge Wells, TN2 3EL (01892 515700)

VAUXHALL

ASHFORD:

Monument Way, Orbital Park, Ashford, TN24 0HB (01233 504604)

VOLKSWAGEN

BRIGHTON:

Victoria Road, Portslade, BN41 1YD (01273 425600)

EASTBOURNE:

Lottbridge Drove, Eastbourne, BN23 6PW (01323 647141)

HAYWARDS HEATH:

Market Place, Haywards Heath, RH16 1DB (01444 451511)

WORTHING:

Nightingale Avenue, Worthing, BN12 6FH (01903 837878)

VOLVO

EASTBOURNE:

Lottbridge Drove, Eastbourne, BN23 6PJ (01323 418300)

WORTHING:

Palatine Road, Worthing, BN12 6JH (01903 507124)

MOTORSTORE

ASHFORD:

Monument Way, Orbital Park, Ashford, TN24 0HB (01233 504624)

HEAD OFFICE

EASTBOURNE:

Meads Road, Eastbourne, BN20 7DR (01323 730201)

Stock code CFYN
www.caffyns.co.uk

Our Business
Financials
Governance
Other information

Caffyns plc
Meads Road
Eastbourne
East Sussex BN20 7DR# Caffyns plc Annual Report 2022

	2022-03-31	2021-03-31
Issued Capital
Issued Capital	0.00	0.00
Share Premium	0.00	0.00
Capital Redemption Reserve	0.00	0.00
Non-Distributable Reserve	0.00	0.00
Retained Earnings	103,577.00	89,408.00
Total Equity	103,577.00	89,408.00

	2021-03-31	2020-03-31
Issued Capital
Issued Capital	0.00	0.00
Share Premium	0.00	0.00
Capital Redemption Reserve	0.00	0.00
Non-Distributable Reserve	0.00	0.00
Retained Earnings	89,408.00	83,088.00
Total Equity	89,408.00	83,088.00

GBP
GBPx
shares