Caffyns has reported underlying profit was up in the six months to the end of September by 2.3% to £1.01 million with profit before tax up 221% to £5.49m.
This included discontinued businesses.
Revenue from continuing operations increased by 10% to £105.19m compared to £95.48m in the same period last year.
The performance equates to a return on sale of 1.0%. Underlying EBITDA was £2.068m down from £2.120m in the six months to September 30, 2015.
Like-for-like new car sales were up 2.2%, while used car sales up 11.8%.
Simon Caffyn, chief executive, said: "Following a solid trading performance in the first six months, the group finished the period with cash reserves and low gearing and is now ideally placed to exploit future business opportunities.
“These funds will enable us to invest further in Caffyns Cars, our in-house brand of used cars, with the recent acquisition of 2.1 acres of land in Ashford and also in a new site to expand our Audi business in Worthing."
“In a challenging marketplace our businesses have continued to trade well.”
The group reported like-for-like sales growth across all departments: new car unit sales, used car unit sales, service and parts.
At the beginning of the financial year, shareholders approved the sale of our Land Rover business in Lewes.
The sale generated a profit, net of costs and before tax, of £4.68 million. The total cash consideration for the sale was £7.51 million.
Profit before tax for the period, which included the one-off gain on the disposal of the Land Rover business, more than trebled to £5.49 million (2015: £1.71 million).
Over a three-year period, Caffyns has seen a 35% like-for-like growth in the number of used cars sold.
The growth in the new car market over the last four years has led to an increase in the number of one to three-year old cars in circulation.
“Strong sales of both new and used cars has meant our three-year car parc has also grown considerably,” said Caffyn.
“It is encouraging to see service revenue has risen by 9.4% on a like-for-like basis as we continue to realise improvements to our customer retention processes.
“Our parts business also reported strong sales growth, up by 6.6% on a like-for-like basis from the comparative period.”
Caffyns acknowledges the beginning of work on brand cars fitted with an emissions ‘defeat-device’ issue at its dealerships.
“Although this has been a carefully managed programme, the nature of the work passing through our service departments has been low margin and has involved certain added costs, such as extra courtesy cars.
“In the short-term it has therefore had a negative impact on service profitability. In addition, we have seen some impact on our Volkswagen sales which have fallen from last year's level, broadly similar to the manufacturer's national registrations' performance.
“We remain confident that the strength of the brand and the excellent model range will lead to improvements in the trading performance of our Volkswagen division.”
On the back of strong trading in the Volvo brand, Caffyns plans to invest in the expansion of its Eastbourne centre.
Capital expenditure in the half year was £1.43 million of which £0.83 million came through the purchase of freehold land at Worthing for the relocation of Caffyn’s Audi centre.
In October, freehold land was bought for this purpose with building work expected to start We anticipate construction will commence early next year.
Also in October, Caffyns bought 2.1 acres of land next to Caffyns Cars, its used car centre in Ashford.
“This investment will almost double the footprint of our existing operations at Ashford and will enable us to further grow the exciting used car concept as well as our Vauxhall and Skoda operations at the site.
“Caffyns Cars has been very well received by our customers who particularly value the Caffyns brand. The business has traded profitably since its inception in October 2014 and we are now in a position for significant expansion of this operation.”
Caffyns said the unprecedented falls in gilt and bond yields in the period has had a "significant adverse impact" on the net funding position of the group's defined-benefit pension, in line with most similar schemes.
“Despite a strong performance from the scheme's investments, the deficit at the period end had widened to £11.58m net of tax (£13.95m gross of tax). This compared with a deficit of £4.09m net of tax at 31 March 2016 (£4.98m gross of tax).
“The scheme's recovery plan, which was agreed with the trustees following the actuarial valuation in March 2014, resulted in a total cash payment of £0.15 million being made in the first six months of this financial year. Under the terms of the recovery plan, it has been agreed that this payment will increase in future financial years by 2.25% per annum.”
Current trading and outlook
“Low interest rates and attractive marketing offers have continued to underpin the motor retail sector with the majority of cars now sold under contracts rather than by outright purchase,” said Caffyn.
“In addition, the bi-annual registration plate change in September produced a stronger than anticipated trading performance.
“However, the board remains cautious for the second half of the year given market consensus for a smaller new car market in 2017, coupled with the wider challenge to the UK economy from the weakness in sterling and the uncertainty surrounding the Brexit process.
“Following a solid trading performance in the first six months, with low gearing and cash reserves, the group is now well placed to exploit future business opportunities.”