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Caffyns downbeat in the face of tough year

Brian Carte, Caffyns chairman, has said the future of the automotive retail market looks uncertain as the dealer group faces a tough year.

At Caffyns' AGM, Carte told shareholders 2008 was proving to be a difficult year: “The market for new cars continues to be under severe pressure, with new car registrations down by 2.5% since March.

“June, in particular, was a challenging month for national registrations within our main markets, with the private and small business user sectors declining by 14% when compared to the same month last year.”

Carte accredited the downturn to turmoil in the credit markets and the resultant decline in consumer confidence.

He said: “This decline in consumer activity, and consequent margin pressure, has resulted in a difficult trading environment for the first quarter of our financial year, conditions which are shared by our competitors in the sector.

“The outlook remains uncertain although we expect trading conditions to remain challenging. New car sales are expected to be generated by consumers deciding to downsize vehicles with lower CO2 emissions and lower vehicle excise duty rates.”

Caffyns’ share price has taken a nose dive since the start of March this year, falling from 840p to 545p today, giving the company a market capitalisation of £26.59 million.

Carte has also written to all shareholders today in response to the letter sent by shareholder activist, New Fortress Holdings.

Mark Bruce-Smith, who represents investment company New Fortress Holdings which owns 4.65% of Caffyns shares, wrote a letter calling for change to improve the business’s "dire performance".

Carte strongly refutes Bruce-Smith’s claims, saying Caffyn’s performance was “far from being dire, are unjustified and do not reflect the reality of the company's performance”.

The letter is presented in full on the next page.


  • Below is the letter presented in full to Caffyn’s shareholders in response to New Fortress Holdings letter which called into question the competence of the dealer group’s board.

    Dear Shareholder,

    You have been sent a letter from New Fortress dated 16 July 2008 regarding the Company's performance, capital structure and strategy. The Board does not accept New Fortress's comments in the letter, strongly refutes the implication that there has been any failing in its fiduciary duty, and would like to make clear the following achievements by the Company:


    Over the last 10 years, Caffyns has generated significant returns for ordinary shareholders:

  • The Company's ordinary share price, based on yesterday's mid-market closing price of 545p, has significantly outperformed both the FTSE All Share and FTSE Small Cap indices by 63% and 48% respectively;
  • The dividend per ordinary share has increased by an average of six per cent. on a compounded annualised basis;
  • Earnings per ordinary share have increased by an average of five per cent. on a compounded annualised basis; and
  • Net asset value has increased by 60% from £6.54 to £10.47 per ordinary share over the period. Taking into account the positive impact of the excess valuation over the net book value of the properties as at 31 March 2008, the net assets per ordinary share would be £12.15.

    Far from being the "dire" performance described in the New Fortress letter, the performance of the Company has been very creditable, particularly in light of the significant structural changes that have taken place in the industry during this period.

    Capital structure

    The second preference shares have been in issue for over 45 years. Details of the capital structure are set out in the annual report which is available to all potential purchasers of Caffyns' ordinary shares. Preference shares are not uncommon in UK publicly listed companies, as is their right to a fixed dividend.

    The Board believes the interests of preference and ordinary shareholders are aligned and the Company's strategy is designed to maximise value for all shareholders. By way of illustration, the second preference shareholders have received dividends amounting to £120,000 over the past 10 years compared with over £6 million of dividends paid to the ordinary shareholders in the same period.

    In addition to their holdings in the 6% cumulative preference shares, the Caffyn family owns a significant number of ordinary shares.


    Major structural changes have taken place in the motor retail industry in recent years, including, but not limited to, the changes arising under the EU "Block Exemption" provisions, the restructuring of Mercedes' retail operations as well as the demise of MG Rover. The Board anticipated and has responded to the structural changes in order to position the Company optimally. For example, prior to the demise of MG Rover, the Company had significantly reduced its exposure to MG Rover by lowering the number of dealerships from 20 to nine and lined up other franchises so that seven of the remaining nine dealerships were refranchised within a short period of MG Rover collapsing.

    In light of these structural changes in the industry, the Board has undertaken a restructuring process which has involved the repositioning of the group, active cost management and, where appropriate, the disposal of property in order to secure value for shareholders.

    The Board has a clear strategy on property ownership and has taken advantage of the buoyant property market in the South East of England to dispose of some excess properties, on terms designed to maximise value, and to enable significant re-investment in our dealership facilities. The Board will continue to analyse its property portfolio to determine where additional value can be generated.

    The Board continues to work hard to execute its strategy in order to deliver value for all shareholders in an increasingly challenging economic environment for customers.

    The claims set out by New Fortress in its letter are unjustified and do not reflect the reality of the Company's performance.

    Yours faithfully

    Brian Carte


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