Dealer group Caffyns posts £1.5 million pre-tax loss despite higher 2023 car sales

The AM100 car dealer group Caffyns has posted a £4.5 million swing into losses despite being able to increase its sales of new and used cars in 2023.

Its report to the London Stock Exchange revealed pre-tax losses of £1.5 million compared to the £3.1m profit it earned in 2022, when profits were already in decline, while revenues had risen 4% to £262 million off the back of a 5% rise in new car sales volume and a 2% uplift in used car volumes.

The underlying 2023 losses at Caffyns, which operates dealerships for brands including Audi, Lotus, MG, Seat/Cupra, Skoda, Volkswagen and Volvo, amounted to £0.6 million versus £3.1m the previous year.

Its banking partner HSBC has introduced new covenant "hurdles" requiring the business to focus on quarterly EBITDA targets in the year ahead.

"Trading for new cars and aftersales remained robust," said chief executive Simon Caffyn, "however, the used car market suffered a significant price correction in the final calendar quarter of 2023 which, along with interest rates and energy costs at elevated levels and inflationary pressures on the cost base, had a detrimental impact on our second half performance."

In addition to the trading losses achieved, Caffyns was hit by other costs associated with its defined benefit pension scheme, where the deficit has increased by £1.2m to £10m, and property impairment charges.

Caffyns' board has declared a full year final divident payout of 5p per ordinary share, which followed its half-year interim dividend of 5p per share.

MG sales growth

Of the £10.7m increase in revenues year-on-year some £9.4m was due to new and used car sales. While the total market for new cars in the private and small business sectors which Caffyns focuses on was down 3% nationally, the dealer group had a better outcome and grew sales by 5%.

Sales volume of used cars rose by 2%, which was lower than the national marketplace, however Caffyns said its performance was held back by lower sales at its Motorstore used car dealerships in Ashford and Lewes, and the sourcing of good quality, well-priced used cars remains very challenging.

Caffyns described the performance of its Audi, Seat and Skoda dealerships as satisfactory although with profits much reduced from the Audi sites, while its four Volkswagen dealerships underperformed due to supply constraints and operational issues at one site. New car supply constraints also adversely impacted its two Lotus dealerships at Ashford and Lewes.

Its sole Volvo dealership at Worthing suffered from the challenging transition to the agency model, and Caffyns Vauxhall at Ashford also underperformed, although the directors hope this business will benefit as Stellantis UK reduces its retail networks.

However its MG dealership at Ashford, now in its third year since opening, performed well, with significant growth.

The chief executive thanked Caffyns' entire "dedicated" workforce and added: "As a result of their hard work and professionalism, the business remains in a strong position in the competitive retail environment in which we operate."

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

"In addition, we continue to make very good progress utilising technology to enhance customers' experience throughout their buying journey, as well as improving our aftersales retention," said Caffyn.

Banking covenants

Looking ahead, he said the board remains confident in the prospects of the dealer group and it's ready to benefit from future business opportunities. The company has a strong new car forward-order book, he said, but trading conditions in the early part of the current financial year have remained challenging, with inflationary pressures and high interest rates continuing to impact on Caffyns' cost base and on its customers' confidence to spend. 

He added: "We also continue to enjoy supportive relationships with our banking partners, HSBC and Volkswagen Bank, with undrawn facilities of £7.5 million. The balance sheet is appropriately funded and our freehold property portfolio is a source of stability."

The motor retailer, which operates in Sussex and Kent, has increased net bank borrowings by 40% year-on-year to £11.3m.

It revealed its bank HSBC agreed to waive covenant tests covering interest and borrowing levels in light of the underlying trading losses achieved, but for the next financial year HSBC has introduced a new covenant test requiring Caffyns to achieve specified EBITDA "hurdles", and it notes that any failure of a covenant test could give HSBC the option to insist on repayment.

It is required to achieve £1m EBITDA for the half-year ending September 30, rising to £1.5m by December 31 and £3m by the end of the financial year at March 31.

Caffyns' directors have undertaken a detailed review of trading and cashflow forecasts for the next 12 months and it states: "Financial modelling for the coming 12-month period has allowed the directors to conclude that there is satisfactory headroom in the company's banking covenants."