Cambria Automobiles plc
Annual Report 2011

Plain-text annual report

Directors’ report and financial statements Registered number 05754547 31 August 2011 Contents Chairman’s Statement ............................................................. 4 Operating and Financial Review ............................................. 7 Directors’ report ......................................................................16 Statement of directors’ responsibilities in respect of the Directors’ Report and the financial statements ....................18 Independent auditor’s report to the members of Cambria Automobiles plc .......................................................19 Consolidated Statement of comprehensive income ............ 20 Consolidated Statement of changes in equity ....................... 21 Consolidated Statement of financial position ..................... 22 Consolidated Cash Flow Statement .......................................23 Notes ....................................................................................... 24 Company Balance Sheet .........................................................53 Company Reconciliation of movements in shareholders’ funds ................................................................ 54 Notes ....................................................................................... 56 2 2 33 Chairman’s Statement Once again I am pleased to report another set of record results for Cambria with the Group achieving revenues of £373.3 million and an underlying profit before tax of £4.9m million. The ongoing development and the resulting performance of the Group is very encouraging particularly in light of the extremely tough trading conditions. Cambria has successfully integrated the acquisitions made in recent years and is well placed to consolidate on its success. Group Overview Cambria was established in 2006 with a plan to create a top ten UK dealership group through the acquisition of attractive individual or groups of dealerships, and build on these opportunities through organic investment and development from the Group’s own resources. For a significant proportion of the period since the formation of the Group, the UK economy has struggled and it is testament to the quality of the Cambria operating teams that they have not only taken advantage of opportunities to acquire businesses, but also have significantly improved the operational performance of those businesses acquired. Delivering operational improvement is key to the Board’s objective of providing superior returns on shareholders’ funds, which reached 22.7% in the year reported Challenging markets can test the best of plans, but we believe that these results underline the robust nature of our business model and the effectiveness of our senior management team in driving its implementation. A continual focus upon tight management of costs, coupled with our lean operating procedures, has also contributed to this result. We believed that the economic recession and the challenges faced by our industry in the UK would provide further opportunities for acquisition and the Group examined a number of potential acquisitions during the year to 31 August 2011 without completing any. I am pleased to report however that we have completed one subsequent to the year end. This is evidence of the rigour we apply in the analysis and assessment of an opportunity. We maintain a pipeline of prospects, but we will only acquire a business if we believe that it is capable of generating a superior return against capital required and will respond to the operational changes and discipline the team brings to all our businesses. 4 UK New Car Market The UK new car market decreased by 9% in the year compared to the previous year. When I reported last year I said the outlook for the following 12 months in the UK was at best uncertain. This proved to be the case with some of the most difficult trading conditions many automotive operators had ever experienced in the UK. It is believed that the UK economy is suffering a double dip recession, which may continue for the next 12 months and conceivably for some time to come. The Board has once again recognised the challenges that this is creating operationally and the 2011/2012 budget process implemented a further cost review programme to ensure the Group is appropriately shaped to continue to maximise profitability in the current environment. We anticipate more difficult trading conditions but believe we are well prepared for this environment. Most importantly the Board remains confident that our business model will enable us to continue to be successful notwithstanding these operating challenges. Financial Management The Board continues to place great importance on the prudent management of Cambria’s finances. The Group balance sheet has been strengthened by the results for 2010/2011 and continues to be underpinned by the ownership of freehold properties at a number of the dealerships we operate, together with an overall prudent level of debt. We will continue to purchase freeholds of the dealerships we acquire where such freeholds can be acquired at reasonable cost and are locations we believe will serve us well in the future. Liquidity remains high as a result of our banking facilities with Lloyds Banking Group and as well as our stock finance facilities. This liquidity will enable us to take advantage of future acquisition opportunities as they arise and this prudent approach to the management of key aspects of our business will drive future returns. As I reported last year, in 2010 Cambria achieved a key milestone when its shares were admitted to trading on AIM in April. We did not raise new funds at the time of the IPO as the Board believed it had sufficient capital to continue to expand the Group for the foreseeable future in a manner which enhanced shareholder value. We have retained this capital and will deploy it selectively going forward. The Board continues to work on broadening the institutional shareholder base and attracting shareholders who will support the Group in its future development. The Board is pleased to announce the appointment of Collins Stewart as Cambria’s broker. The appointment of Collins Stewart will broaden the access we have to institutional investors who are attracted to the Cambria story. Collins Stewart will support us in managing the broadening of the shareholder base in a structured manner when the lock-up period for Promethean held shares ceases. 5 Chairman’s Statement (continued) Key Relationships Our lending bank Lloyds Banking Group and our other credit institutions have continued to support the Group and in particular have been responsive to our acquisition programme recognising our strategy of prudent financial management. Notwithstanding the continued criticism of the UK lending banks, we are grateful for this continued strong support which will be important and a key differentiator in capitalising on future acquisition opportunities. Our relationship with the manufacturers that we represent is a core pillar of our business approach. The management team continues to develop and maintain strong working relationships where Cambria is seen as an effective and valued business partner. We are pleased to add Alfa Romeo and Vauxhall as brand partners and we continue to discuss representation with a number of additional manufactures that we do not currently represent with a view to securing opportunities with them in the future. As announced in our pre-close statement issued in September, Rodney Smith, a Non-Executive Director, and founding Director of the Group informed the Board of his intention to retire, and will step down from the Board on 30 November 2011. On behalf of the Board and shareholders I would like to thank Rodney for his valued contribution to the development of the Group over the past five years. We will announce the appointment of a new Non-Executive Director in due course. Finally the Board would like to thank the Cambria associates who in these challenging times continue to demonstrate a strong commitment to the Cambria Group. Dividend The Board is pleased to announce the inaugural dividend payment by the Company of 0.3p per share. It is the intention of the Board to maintain a progressive dividend policy. Outlook Cambria continues to take positive steps to manage the cost base in order to ensure that we have a business which is agile enough to meet the challenges of the market in which we operate. We continue to out-perform our underlying markets and view the future with confidence, notwithstanding the obvious short-term challenges which our industry faces. Warren Scott Non-Executive Chairman 6 Operating and Financial Review Chief Executive’s Review Mark Lavery, Chief Executive said “The year to August 2011 has been another strong year for Cambria with underlying profit before tax growing by 16.7% to £4.9m, up from £4.2m in a very difficult market. While the ending of the government sponsored scrappage scheme reduced revenues, the cost reduction actions taken during the year more than offset the reduction in revenues. This is the fourth successive year in which Cambria has delivered significant earnings growth and high level of return on shareholders’ funds. I am pleased with the performance achieved by the Group against the backdrop of challenging new and used car markets. We continue to use this market weakness to drive forward our buy-and-build strategy, utilising our strong balance sheet. It was pleasing to announce the acquisition of our maiden Vauxhall dealership, Doves Vauxhall in Southampton, on 1 September 2011. We continue to out-perform our underlying markets and view the future with confidence, notwithstanding the obvious short-term challenges which the industry faces. Cambria continues to take positive steps to manage the cost base of the business with further rationalisation of the more mature businesses in the portfolio to ensure that these businesses are more agile in the challenging market conditions. There are obvious challenges in the consumer environment. Economic times remain uncertain and UK consumer confidence remains fragile; combined with exchange rate pressures and inflationary pressures these lead the Board to be cautious about the trading outlook for the current financial year” Operating and Financial Review Cambria Automobiles plc announces its full year results for the financial year ending 31st August 2011, its second set of full year results as a public company. Cambria is a franchised motor retail group that was formed in 2006 and through a buy-and-build strategy, encompassing eight corporate acquisitions to date, has grown to represent 14 different brands from 27 locations with 39 new car and motorcycle franchises. The Group focuses on acquiring and improving under-performing businesses where it believes the best shareholder returns can be achieved. Revenue Underlying EBITDA* Underlying operating profit* Underlying profit before tax* Underlying net profit margin* EBITDA Operating profit Profit before tax Non-underlying expenses Net Assets Net profit margin Underlying earnings per share* Earnings per share * these items are excluding the non-underlying costs of £0.23m (2010: £1.54m) 12 months ended 31-Aug 2011 £m 12 months ended 31-Aug 2010 £m 373.3 7.2 5.7 4.9 1.3% 6.9 5.5 4.7 0.2 19.5 1.25% 3.63p 3.47p 392.1 6.1 4.7 4.2 1.06% 4.5 3.2 2.6 1.54 16.0 0.66% 3.06p 1.95p 8 Operating and Financial Review (continued) I am pleased to announce that for the fourth year in succession we have seen significant growth in our underlying pre tax profits to £4.9m against a previous year of £4.2m. These results have been achieved in a period of significant economic uncertainty and poor consumer confidence, which has impacted particularly in the second half of our financial year. Despite the reduced revenue of £373m, down 4.8%, the Group delivered an improved gross margin, which combined with tight cost management, has resulted in the improvement in Group net profit. Financial Highlights • Fourth successive year of increased underlying PBT, achieving £4.9m compared with the previous year’s £4.2m • Total revenue decreased 4.8% year on year to £373.3m significantly impacted by the removal of the scrappage scheme • Gross profit decreased by 1% year on year, however underlying EBITDA increased by 17.9% to £7.2m Underlying earnings per share increased to 3.63p from 3.06p • Group net assets at £19.5m under-pinned by £22.6m of freehold and long lease-hold property • Robust balance sheet position with only £0.3m of goodwill • Strong cash flow ensured net debt reduced to £1m from £4.4m , gearing at 5.2% • Underlying return on shareholders’ funds of 22.7 % • Announcement of maiden dividend of 0.3p per share Operational Highlights • New Car Unit Volumes decreased 11% year on year against a new car market decrease of 9% year on year and a market decline in private registrations of 21% • New car volumes excluding scrappage increased 9% • Used Car Volumes increased 1% year on year • Service Hours increased 2% year on year • Major re-development and opening of an additional facility adding Alfa Romeo and a further Renault dealership to the Group’s brand portfolio • Major re-development of the Maidstone freehold property for Honda and Mazda • Continued robust approach to the management of the Group’s working capital and cash generation • Additional £5m, three year Revolving Credit Facility arranged to finance further acquisitions • Post year end addition of the Group’s maiden Vauxhall dealership Operating Review Group Strategy Since our incorporation in March 2006, we have continued to apply our focused “buy-and-build” strategy organically acquiring under- performing motor dealership assets. Following any acquisition, the Cambria management team implements new financial, operational controls and processes in order to rationalise, restructure and develop each individual dealership. This tailored approach ensures the changes made to each dealership are sustainable and create shareholder value through achieving an appropriate contribution for the level of investment. We have now completed eight separate transactions since our incorporation. During the period under review, the Group has continued to integrate the ten additional businesses acquired in the previous financial year, six of which had been acquired from an Administrator. One of the Acquisitions required that a major re-development of a dealership was undertaken during the period under review. In Blackburn, the Group has also entered into occupation of a leasehold premises, redeveloped it and added Alfa Romeo and a further Renault dealership to the Group. We continue with our three step approach to purchasing a new business – acquisition, integration, operation, as laid out below: Acquisition When acquiring new businesses we are diligent in ensuring that none of the contractual obligations that are taken on pursuant to the acquisition upset the integrity of our balance sheet. This includes ensuring that leases reflect market value and that any unusual contractual obligations are addressed prior to acquisition to ensure that we avoid any legacy costs. Our Group balance sheet shows that on consolidation we have only £0.3m of goodwill which has been generated across the eight acquisitions. We do not have any defined benefit pension schemes. We have always taken the approach that Cambria will not acquire any business unless there is a strong underlying business case to do so, and have aborted on a transaction this year where this criterion was not met. Our acquisitions have to date, and will continue to, be funded from our own cash resources. 9 Operating and Financial Review (continued) Integration The integration process starts with an Associate engagement evening where our senior management present the Cambria “Four Pillar” culture change programme. After this meeting, the Group integration team implements systems, processes and procedures to improve legislator compliance i.e. FSA, Health & Safety etc. Newly acquired Associates are transferred to Cambria employment contracts with the compensation and benefits commensurate with the particular business. A training needs analysis is conducted followed by the implementation of training programmes for all relevant Associates in the new business. Operation With any new acquisition, the standard financial controls are implemented immediately ranging from individual cheque signatories to daily reporting of vehicle sales and aftersales revenues, margins and other performance figures. We then implement our two growth strategies (i) “Cambria Digital”, which is our internet social networking strategy for vehicle sales, and (ii) in aftersales we implement the “Duty of Care Gearbox” which is designed to supply our guests with a one stop solution for all their vehicle maintenance needs. We believe our three step approach gives us a significant advantage particularly in difficult economic times. Brand Partnerships In line with our “buy-and-build” strategy, we have continued to work with existing Brand Partners and new potential Brand Partners with whom we can develop Primary Brand Partner relationships (more than three franchises). During the year we have worked hard to integrate those businesses acquired in the first half of the previous financial year, making significant investment in the management of those businesses as well as in the property infrastructure. During the period we have completed the redevelopment of the Maidstone Honda and Mazda dealership at a capital investment of £0.7m. The redevelopment caused significant interruption to the business performance, but now leaves us with a well presented modern retail facility from which we can represent our brand partners. Additionally we have entered into a new leasehold property in Blackburn, adjoining our existing Blackburn dealership. We have completed a major refurbishment of that facility and have added Alfa Romeo and Renault onto the Blackburn Motorpark which now represents Alfa Romeo, Fiat, Renault and Volvo. Again this development and start up took significant management and capital investment of £0.5m. By mutual consent we have terminated the Lotus franchise in Preston. During the course of the year we worked with a number of new potential Brand Partners to identify acquisition opportunities within their networks. We entered into a number of acquisition target negotiations, none of which concluded during the financial year. Unfortunately during the process of one such negotiation, we took the decision to abort the transaction as a result of our diligence investigations after incurring significant professional fees. On 1 September 2011 we completed the acquisition of our maiden Vauxhall dealership, in Southampton, which has been long established with the Vauxhall Brand. We are very pleased to bring the Vauxhall franchise into the Group’s Brand portfolio and intend to make Vauxhall a Primary Brand Partner as other opportunities arise. The acquisition was the Groups 8th corporate transaction and takes the Group to 27 locations representing 39 franchised outlets. Cambria has enjoyed the benefits of a strategically balanced brand portfolio with a strong mix of prestige/high luxury and volume businesses, and intends to continue the buy and build strategy acquiring businesses that represent good value for our shareholders. Volume Citroen Fiat Ford Mazda Nissan Renault Seat Vauxhall 3 1 2 5 5 16 Motorcycle Triumph 1 5 5 4 1 2 1 1 20 3 3 Prestige Aston Martin Alfa Romeo Honda Jaguar Volvo 10 Blackburn Preston Bolton Bury Oldham Warrington Birmingham Wellingborough Northampton Woburn Swindon Exeter Automobiles plc Locations across the UK Welwyn Garden City Brentwood Wimbledon Croydon Southampton Thanet Tunbridge Wells Canterbury Ashford Maidstone Gatwick Horsham 11 Operating and Financial Review (continued) Cambria’s balanced brand portfolio has seen us benefit from the relative stability of the prestige/high luxury market. The government’s scrappage scheme finished in May 2010 and this has had a major impact on volume operations in relation to the vehicle unit sales in our 2010 reporting period. When making acquisitions, the Board understands that the integration and maturing of the dealerships takes time and management investment. Where we acquire businesses from distressed sales, the integration process typically takes longer, and we have to be conscious of the potential dilution in earnings whilst these businesses are restructured and invested in. We continue to promote the philosophy of stand alone autonomous business units where a local management team are empowered via our “four pillar strategy” to run a local business unit. Cambria dealerships do not trade under the “Cambria” name but prefer to focus on local branding. Cambria’s dealerships trade as “Grange”, “Doves”, “Dees”, “Invicta Motors”, “Pure Triumph” or “Motorparks” depending on the franchise and the name in the local area. When acquiring a business, the Board consider the geographical location of the franchise and then chooses to either adopt a new trading style or retain the existing business name. New Car Sales The new car market in the period was down by 9% against the previous period which was assisted significantly by the government’s scrappage scheme which represented 13% of the market in that period. The more important and relevant measure for franchised dealers is the private registrations statistics which showed the market down 21% year on year. Our new car volumes for the period were 8,155 units against a previous year of 9,163 units, a decrease of 11% year on year. The Government backed scrappage scheme accounted for 18% of our volumes in the previous period. It is also worth noting that the Japanese Tsunami had an impact on the supply and availability of certain manufacturer models that were reliant either on component supply from Japan or indeed where the vehicles were manufactured in Japan. Gross Margin for new cars improved from 6.9% to 7.2% as expected due to the low margins retained on those scrappage vehicles sold in the previous year. Used Car Sales 2011 saw Cambria grow used car volumes to 14,217 units against a previous year of 14,034, an increase of 1%. The average price of the used cars sold reduced, but Gross margin on used cars showed a small improvement from 8.1% to 8.2%. Our used car strategy continues to be a core part of our activity and with the continued success of the Cambria Digital strategy we believe this is an area where we can continue to improve performance. We continue to pay particular attention to stock profile, price alignment and brand offerings in all our retail outlets. We have a small central buying team and continue to work with our re-marketing partner and local management to increase their knowledge and understanding of local market conditions. We continue to demonstrate that local management should purchase stock profiled by price and model for their local market. Aftersales Notwithstanding the continued decrease in the one to three year car parc, as new vehicle registrations fall year on year, we saw our aftersales revenue remain broadly flat. Gross margin in the period improved from 42.3% to 42.8% in the current year. The Aftersales departments contributed £22m of gross profit which represents 46.2% of total gross profit for the year. We continue to invest in vehicle health checks, and our Guest Connect Strategy for retaining our aftersales guests outside of the 0-3 year car parc with our “Duty of Care Gearbox” that is intended to provide all guests with a one stop maintenance solution for their vehicle. Outlook The current trading environment is difficult and the Board notes that the second half of the financial year was more challenging than the strong first half that the Group experienced. The Board is able to report that September trading has been acceptable, with profits broadly in line with business plan but behind the strong performance experienced in the previous year’s trading. There are obvious challenges in the consumer environment. Economic times remain uncertain and UK consumer confidence remains fragile: combined with exchange rate pressures and inflationary pressures these lead the Board to be cautious about the trading outlook for the current financial year. 12 Operating and Financial Review (continued) Outlook (continued) The Board is being pro-active in ensuring that the cost base is fit for it’s expectation that the trading environment will continue to be difficult, and is intending to rationalise the existing cost base appropriately. In addition, there are still opportunities to improve performance in our existing businesses that are all at different stages of maturity and development. The Group’s Guest Connect Programme, encompassing Cambria Digital and Service & MOT Reminder, Electronic Vehicle Health Check and Service Plans, was launched last year and we believe it has the potential to be an industry leading GRM process (Guest Relationship Management). We continue to strive to provide world class service within our individual business units and have made progress in improving customer satisfaction scores. The three prong strategy of acquisition, integration and operation will continue to be driven with the Group well placed to take advantage of acquisition opportunities that will arise in these difficult economic times. The Group has continued to drive profit in tough trading conditions; and this has, through tight cost control and cash management, put the Group in a position with only £1m of net debt and significant financing facilities available for investment in acquisitions. The Board continues to review acquisition opportunities with both existing and new franchise partners, and intends to capitalise on the opportunities presented by the challenging market to expand the Group. The acquisition of the Vauxhall business in Southampton opens a new relationship with the second largest volume franchise in the UK market, and we look forward to developing that relationship. 2011 Revenue 2011 Revenue mix £m 146.5 184.0 51.4 (8.6) % 39.2 49.3 13.8 (2.3) 373.3 100.0 2011 Gross Profit £m 10.5 15.1 22.0 47.6 (41.9) 5.7 (0.2) 5.5 2011 Margin 2010 Revenue 2010 Revenue mix % 7.2 8.2 42.8 £m 158.6 190.4 51.5 (8.4) % 40.4 48.6 13.1 (2.1) 12.7 392.1 100.0 1.5 2010 Gross Profit £m 10.9 15.4 21.8 48.1 (43.4 ) 4.7 (1.5) 3.2 2010 Margin % 6.9 8.1 42.3 12.3 0.8 2011 total 2010 total Year on year growth 8,155 8,155 9,163 (1,666) 7,497 14,217 14,034 279,523 273,345 (11%) 9% 1% 2% New Car Used Car Aftersales Internal sales Total Operating expenses Operating profit before flotation and transaction expenses Non-underlying expenses Operating profit New units Scrappage units New units excluding Scrappage Used units Service hours Mark Lavery Chief Executive 13 Operating and Financial Review (continued) Finance Director’s Report Overview Total revenues in the period decreased 4.8% to £373.3m from £392.1m in the prior year. The majority of the reduction was from new vehicle sales where unit volumes were down 11% and revenues down 7.6%. Whilst used car unit sales increased 1% the average sales price reduced and overall revenues reduced by 3.4%. Revenues from the aftersales businesses remained in line with the previous year. Total gross profit decreased by £0.5m (1%) from £48.1m to £47.6m in the year following the reduced new car volumes which accounted for £0.4m of the reduction. Gross profit margin across the Group improved from 12.3% to 12.7% reflecting the change in revenue mix with the reduction in new car sales post scrappage, but at better margins. The used vehicle margin remained resilient at 8.2%. The aftersales operations contributed 46.2% of the total gross profit for the Group compared to 45.3% in the previous period, at a gross profit margin of 42.8%. Underlying operating expenses continue to be well managed, and as a result of Group initiatives that were put in place at the business planning stage for the year, underlying operating expenses reduced to £41.9m from £43.4m. During the financial year, the Group incurred non-underlying expenses of £0.17m in relation to aborted transaction costs and opening new franchises, and £0.06m in relation to redundancy costs associated with the cost rationalisation initiatives. The prior year non underlying expenses were in relation to the one off expenses associated with the listing on AIM which were £1.47m, and the transaction costs associated to the acquisition of new businesses in 2010 were £0.07m resulting in a total of £1.54m of non recurring costs. The underlying EBITDA in the period rose to £7.2m from £6.1m in the previous year. Underlying operating profit was £5.7m compared to £4.7m in the previous year, resulting in an operating margin of 1.5% (2010: 1.2%). Following the conversion to IFRS there are no amortisation charges relating to goodwill in the year or prior year. Net finance expenses increased to £0.8m from £0.6m in the previous year primarily due to interest on the consignment stock as a result of the reduced new vehicle units sold. The Group’s underlying profit before tax was £4.9m in comparison with £4.2m in the previous year, a 16.6% increase. The underlying earnings per share were 3.63p (2010: 3.06p). Basic earnings per share were 3.46p (2010: 1.95p), and the Groups underlying return on shareholders’ funds for the year was 22.7% (2010: 21.7%). Taxation The Group tax charge was £1.2m in the period (2010: £0.6m) representing an effective rate of tax of 25.6% (2010: 25.2%) on the profit before tax of £4.7m (2010: £2.6m). Financial Position The Group has a robust balance sheet with a net asset position of £19.5m under-pinned by £22.6m of freehold and long leasehold property. Reflecting our prudent approach to financial management the Group has only £0.3m of goodwill on the balance sheet. Secured against the freehold and long leasehold property are mortgages amounting to £12.7m, each of the loans have different repayment profiles between seven and ten years, and bear interest at between base plus 1.25% and LIBOR plus 3%. During the financial year the Group comfortably met the bank covenants attaching to these borrowings. The net debt of the Group as at 31 August 2011 was £1.0m (2010: £4.4m), reflecting a cash position of £11.7m (2010: £9.3m). The Group’s gearing at 31 August 2011 was 5.2%, reduced from 27.6% in 2010. The Group uses term loan facilities to fund the purchase of freehold and long leasehold properties, it utilises stocking loans to fund the acquisition of consignment, demonstrator and used vehicles and has a £4m overdraft facility which is used to manage seasonal fluctuations in working capital. The overdraft facilities are renewable annually and are next due in February 2012. During the course of the year, the Group arranged a £5m, three year Revolving Credit Facility which is available for draw down against new business acquisitions and freehold property purchases. This additional funding facility gives us significant liquidity to identify and approach acquisition targets. Total facilities available including cash reserves equate to £20m. 14 Operating and Financial Review (continued) Cashflow and Capital Expenditure The Group generated an operating cash inflow of £5.3m with working capital remaining similar year on year and invested a total of £1.5m in capital expenditure. Capital expenditure included the significant redevelopment of our Maidstone dealership which represents Honda and Mazda for £0.7m and the development of the new leasehold premises in Blackburn to add Alfa Romeo and Renault to the facility at a cost of £0.5m. During the year capital repayments of £1m were made against the total term loans outstanding. The capital repayments due in the financial year to 31 August 2012 are £1.35m. As a result of the net cash increase of £2.4m to £11.7m and gross debt decreasing by £1m to £12.7m, overall net debt reduced from £4.4m to £1m. Shareholders’ Funds There are 100,000,000 ordinary shares of 10p each with a resulting share premium of £0.8m. There were no new funds raised during the year therefore the share capital and share premium account remain at £10.8m consistent with prior year. All ordinary shares rank pari passu for both voting and dividend rights. Pension Schemes The Group does not operate any defined benefit pension schemes, and has no liability arising from a scheme. The Group made contributions amounting to £0.2m to defined contributions schemes for certain employees. Financial Instruments The Group does not have any contractual obligation under any financial instruments with respect to the hedging of interest rate risk. Dividends The Board is pleased to announce a maiden dividend for the year ended 31 August 2011 of 0.3p per share. If approved by shareholders at the Annual General Meeting to be held on 9 January 2012, the dividend will be payable on 16 January 2012 to those shareholders registered on 9 December 2011. The Board aims to maintain a progressive dividend policy but intends to ensure that the payment of dividend does not detract from its primary strategy to continue to “buy-and-build” and to organically grow the Group using existing resources. James Mullins Finance Director 15 Directors’ report The directors present their directors’ report and financial statements for the year ended 31 August 2011. Principal activities Cambria’s principal activities are the sale and servicing of motor vehicles and the provision of ancillary services. The Group operates from 27 sites with a total of 39 dealer franchises. Enhanced Business Review All details required are covered in the Chairman’s Statement and the Operating and Financial Review between pages 1 and 10. Cambria Business Philosophy Cambria’s culture – The Four Pillars The Group works hard to instil a group culture. This culture is built around four pillars which are: Pillar One - associate delight The Directors believe that associates are the Company’s most important asset and therefore members of the team are not referred to as members of staff or employees, but rather as “associates”. The Directors want all associates to be proud to be associated with the Group and to be given the autonomy to make decisions that affect the running of “their” business. The Directors promote internal development and foster a culture whereby associates feel they can achieve their career aspirations with Cambria. Equally, Cambria invests in its associates in order for them to achieve their full potential within the Group. Pillar Two - guest delight Cambria associates are encouraged to treat all customers at all times, in the way that they would treat a guest visiting their own home. The Directors believe that associate empowerment is key to achieving this goal and the Directors believe that the organisation must be transparent and open at all times generating empathy with the diverse guest base of the Group. Pillar Three - brand delight The Group’s goal is to become the retailer of choice for all of the automotive manufacturers that it represents. This pillar focuses on achieving the following goals: • brand vehicle sales objectives • brand part sales objectives • top half placing in brand customer satisfaction surveys • the development of a trusting relationship with brand personnel from the manufacturer partners Pillar Four - stakeholder delight The Group aims to provide satisfaction to its Stakeholders. It seeks to achieve this through: • disclosing timely and accurate information providing Stakeholders with a detailed understanding of business performance; and • communicating openly and transparently. Primary Risks The primary risk to the Group is the continuing decline in the UK economy and volatility in the new and used car markets and the changes made by our manufacturer brand partners to the pricing and margin structure on the new vehicles that we sell. Through implementing tight controls and building a strong operational Group infrastructure, the Directors believe they are taking all possible steps to protect the business. The Group also has exposure to movements in interest rate due to the variable nature of the term loans. 16 Directors’ report (continued) Proposed dividend The directors recommend the payment of a full and final dividend for the year ended 31 August 2011 of 0.3p per share which equates to £300,000 (2010: £nil). If approved by shareholders at the Annual General Meeting to be held on 9 January 2012, the dividend will be payable on 16 January 2012 to those shareholders registered on 9 December 2011. Directors The directors who held office during the year were as follows: W Scott M J J Lavery R P Smith M W Burt J A Mullins Sir P A Burt On 8 September 2011 Rodney Smith informed the Board of his intention to retire, and it was agreed that he would serve his notice until 30 November 2011. All directors benefited from qualifying third party indemnity provisions in place during the financial period. Associates The Group recognises the benefit of keeping associates informed of group affairs and the views of associates are given full consideration at regular meetings with their representatives. Full and fair consideration is given to the employment of disabled persons, who are treated no differently from other associates as regards recruiting, training, career development and promotion opportunities. For people who may become disabled, in the course of employment, the group will make every effort to accommodate them in suitable alternative employment. Political and charitable contributions Neither the Company nor any of its subsidiaries made any political or charitable donations or incurred any political expenditure during the year (2010: £nil). Disclosure of information to auditors The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. Auditors In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditors of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the board James Mullins Director Dorcan Way, Swindon, SN3 3RA 25 November 2011 17 Statement of directors’ responsibilities in respect of the Directors’ Report and the financial statements The directors are responsible for preparing the Directors’ Report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. As required by the AIM rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the directors must not approve the financial statements unless they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU • for the parent company financial statements state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. 18 KPMG Audit plc Arlington Business Park Reading Berkshire RG7 4SD Independent auditor’s report to the members of Cambria Automobiles plc We have audited the financial statements of Cambria Automobiles plc for the year ended 31 August 2011 which comprise the Group Statement of Financial Position and Parent Company Balance Sheet, the Group Statement of Comprehensive Income, the Group Statement of Changes in Equity, the Group Statement of Cash Flow, the Parent Company Reconciliation of Movements in Shareholders’ Funds and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRS) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s web-site at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 August 2011 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following. Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept, by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements 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. Derek McAllan (Senior Statutory Auditor) 25 November 2011 for and on behalf of KPMG Audit plc, Statutory Auditor Chartered Accountants 19 Consolidated Statement of comprehensive income for year ended 31 August 2011 Note 2011 £000 2010 £000 Revenue Continuing operations Cost of sales Continuing operations Gross Profit Continuing Operations Administrative expenses Continuing operations Results from operating activities Finance income Finance expenses Net finance expenses Profit before tax from continuing operations before non-underlying expenses Flotation expenses Non-underlying expenses Profit before tax Taxation Profit and total comprehensive income for the period 3 4 4 9 9 5 5 4 10 373,303 392,117 (325,748) (344,056) 47,555 48,061 (42,055) (44,878) 5,500 38 (882) (844) 4,887 (231) 4,656 (1,190) 3,466 3,183 12 (588) (576) 4,151 (1,474) (70) 2,607 (657) 1,950 1.95p Basic and diluted earnings per share 8 3.47p All comprehensive income is attributable to owners of the parent company 20 Consolidated Statement of changes in equity for year ended 31 August 2011 Balance at 31August 2009 Profit for the year Balance at 31August 2010 Profit for the year Balance at 31 August 2011 Share capital Share premium Retained earnings Total equity £000 £000 £000 £000 318 - 10,000 - 10,000 10,481 - 799 - 799 3,286 1,950 5,236 3,466 14,085 1,950 16,035 3,466 8,702 19,501 21 Consolidated Statement of financial position at 31 August 2011 Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Other interest-bearing loans and borrowings Trade and other payables Taxation Provisions Non-current liabilities Other interest-bearing loans and borrowings Provisions Other payables Total liabilities Net assets Equity attributable to equity holders of the parent Share capital Share premium Retained earnings Total equity Note 11 12 13 14 15 16 17 18 20 17 20 13 21 2011 £000 25,676 470 356 26,502 57,460 6,905 11,702 76,067 2010 £000 25,520 480 508 26,508 62,435 7,938 9,266 79,639 102,569 106,147 (1,352) (69,109) (652) (41) (71,154) (11,358) (95) (461) (11,914) (83,068) 19,501 10,000 799 8,702 19,501 (1,024) (74,896) (519) (342) (76,781) (12,672) (151) (508) (13,331) (90,112) 16,035 10,000 799 5,236 16,035 These financial statements were approved by the board of directors on 25 November 2011 and were signed on its behalf by: Mark Lavery Director 22 Company registered number: 05754547 Consolidated Cash Flow Statement for year ended 31 August 2011 Note 2011 £000 Cash flows from operating activities Profit for the year Adjustments for: Depreciation, amortisation and impairment 11/12 Financial income Financial expense Loss on sale of property, plant and equipment Taxation Non-underlying expenses Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories (Decrease)/increase in trade and other payables Decrease in provisions Interest paid Tax paid Non-underlying expenses Net cash from operating activities Cash flows from investing activities Interest received Acquisition of subsidiary Acquisition of property, plant and equipment Acquisition of other intangible assets Net cash from investing activities Cash flows from financing activities Proceeds from new loan Interest paid Repayment of borrowings Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 September Cash and cash equivalents at 31 August 9 9 10 5 5 2 16 16 3,466 1,422 (38) 882 1 1,190 231 7,154 1,033 4,975 (5,787) (357) 7,018 (531) (952) (231) 5,304 38 - (1,495) (74) (1,531) - (351) (986) (1,337) 2,436 9,266 11,702 2010 £000 1,950 1,338 (12) 588 1 657 1,544 6,066 (738) (17,609) 22,388 (195) 9,912 (233) - (1,544) 8,135 12 (5,082) (1,429) (57) (6,556) 2,655 (355) (390) 1,910 3,489 5,777 9,266 23 Notes (forming part of the financial statements) 1 Accounting policies Cambria Automobiles plc is a company which is quoted on the AIM Market of the London Stock Exchange plc and is incorporated and domiciled in the United Kingdom. The address of the registered office is Swindon Motor Park, Dorcan Way, Swindon, SN3 3RA. The registered number of the company is 05754547. These financial statements as at 31 August 2011 consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent company financial statements present information about the Company as a separate entity and not about its group. The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRS”). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP; and these are presented on pages 53 to 63. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the financial statements. Judgements made by the directors in the application of these 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 at the end of this note. Basis of preparation The financial statements are prepared under the historical cost convention. The directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements. Further information regarding the company’s business activities together with the factors likely to affect its future development, performance and position is set out in the Directors’ Report on pages 16 to 17. Basis of consolidation The financial statements consolidate the financial statements of the Company together with its trading subsidiary companies. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial information of subsidiaries is included from the date that control commences until the date that control ceases. All business combinations are accounted for by applying the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any minority interest. Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. The excess of the cost of an acquisition over the fair values of the Group’s share of identifiable assets and liabilities acquired is recognised as goodwill. If the fair value of identifiable assets and liabilities acquired (i.e. discount on acquisition) exceeds the cost of the business combination, the difference is recognised directly in profit or loss. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation. 24 Notes (continued) (forming part of the financial statements) Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. All revenue generated and non-current assets held are attributable to UK operations only. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and VAT. Sales of motor vehicles, parts and accessories are recognised when the significant risks and rewards of ownership have been transferred to the buyer. In general this occurs when vehicles or parts are delivered to the customer and title has passed. Manufacturer incentives are recognised as revenue when earned. Servicing and bodyshop sales, including warranty work, are recognised on completion of the agreed work. Finance commission revenue is recognised as the related vehicles are sold. Deposits received from customers Deposits received from customers prior to the completion of a sale (delivery of vehicle) are included in the accounts as creditors falling due within one year. Financing income and expenses Financing expenses comprise interest payable, finance charges on shares classified as liabilities, stocking interest charge on consignment and used vehicles and finance leases. Financing income comprises interest receivable on funds invested and interest credits received from manufacturers on stock management. Borrowing costs are recognised in the period in which they are incurred. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Operating profit Operating profit relates to profit before finance income, finance expense and income tax expense. 25 Notes (continued) (forming part of the financial statements) 1 Accounting policies (continued) Intangible assets Goodwill Goodwill represents the excess between the cost of an acquisition of a subsidiary compared to the net fair value of the identifiable assets, liabilities and contingent liabilities, and recognition of identifiable intangibles at the date of acquisition. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units of the acquiree which represent the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is not amortised but is tested annually for impairment. Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed. Other intangible assets Expenditure on internally generated goodwill and brands is recognised as an expense as incurred. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation Amortisation is charged on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each year. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Computer software 3 – 5 years Order book Customer list 6 months following date of acquisition 3 years following date of acquisition The fair value of customer lists on acquisition have been calculated using discounted cash flows. The fair value of the order book on acquisition has been calculated based on margins associated with deposits for future sales held at the date of acquisition. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is charged on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: • freehold buildings 50 years • leasehold properties over the lifetime of the lease • plant and machinery • fixtures and fittings • computer equipment 5 to 10 years 5 to 10 years 3 to 5 years Depreciation methods, useful lives, residual values and possible impairments have been reviewed at the year end. As a result of this review, no impairment charge has been deemed necessary for the period. 26 Notes (continued) (forming part of the financial statements) Impairment excluding inventories and deferred tax assets The carrying amounts of the Group’s assets, are reviewed at each year end to determine whether there is any indication of impairment; an asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each year end. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of trade and other receivables carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of goodwill is not reversed. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Inventories Inventories are stated at the lower of cost and net realisable value. In determining the cost of motor vehicles, the actual amount paid and payable to date for each vehicle is used, for spare parts and service items cost is based on the first-in first-out principle. An appropriate provision is made for obsolete or slow moving items. New vehicles on consignment from manufacturers are included in the Statement of Financial Position with a corresponding liability in creditors due within one year. This stock is considered to be under the control of the Group as it is considered that the Group bears all the risks and rewards or ownership, even though legal title has not yet passed. Consignment stock is held for a maximum period (which varies between manufacturers) before becoming due for payment. Part of the consignment period is interest free and the remaining periods are interest bearing (periods and charges vary between manufacturers but interest is generally linked to LIBOR). Used motor vehicles are stated at the lower of cost or net realisable value, by reference to Glass’s Guide or CAP data. Demonstrator vehicles are held within inventories at the lower of cost and net realisable value. Vehicle funding and stocking loans form part of the Group’s working capital and are recognised at the fair value of the amount due to the manufacturer. 27 Notes (continued) (forming part of the financial statements) 1 Accounting policies (continued) Financial Instruments Classification of financial instruments issued by the Group Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: a) they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the group; and b) where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company’s own shares, the amounts presented in the historical financial information for called up share capital and share premium account exclude amounts in relation to those shares. Non-derivative financial instruments Non-derivative financial instruments comprise, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost using the effective interest method. 28 Notes (continued) (forming part of the financial statements) Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense as incurred. Leasing Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are accounted for as described below. Operating lease payments Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense. Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Provisions A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. 29 Notes (continued) (forming part of the financial statements) 1 Accounting policies (continued) IFRS not yet applied The following IFRSs have been issued but have not been applied by the Group in these financial statements as they are yet to be endorsed by the EU. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated: • IFRS 9 issued to replace in phases IAS 39 in order to clarify the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Critical accounting judgements in applying the Group’s accounting policies Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Certain critical accounting judgements in applying the Group’s accounting policies are described below: Goodwill impairment The carrying value of goodwill is tested annually for impairment by using cash flow projections for each cash generating unit. Intangible assets On the acquisition of Grange Motors (Swindon) Limited in the period ended 31 August 2007, a third party valuation has been carried out on the intangible assets that are pertinent to the motor business. This included consideration of franchise rights, brand, and other intangible assets. The directors apply the principles of the external valuation of the intangibles on the Swindon acquisition to subsequent acquisitions and have concluded that intangibles arising on subsequent acquisitions are immaterial. Consignment inventories Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories in the Statement of Financial Position as the Group has the significant risks and rewards of ownership even though legal title has not yet passed, if the vehicles are not sold in the consignment period the group has the obligation to purchase. The corresponding liability is included in trade and other payables. Deferred tax Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income. Non-underlying expenses Non-underlying expenses are items which derive from events or transactions that are outside the normal course of business, and do not directly relate to the on-going operations, therefore have been separately disclosed in order for the financial statements to present a true and fair view. 30 Notes (continued) (forming part of the financial statements) 2 Acquisition of subsidiaries Effect of acquisitions in 2011 There were no acquisitions in 2011. Effect of acquisitions 2010 On 31 October 2009 the Group acquired the trade and assets of certain dealerships from the Administrators of Autohaus Limited for a cash consideration of £369,000. Transaction fees of £30,000 have been charged to operating expenses in the year. No goodwill arose on this transaction. In the 10 months to 31 August 2010 the businesses contributed a net loss of £161,000 to the consolidated net profit for the year. No further disclosures have been made in respect of this acquisition as the directors consider the amounts to be immaterial. On 4 January 2010 the Group began trading as a Fiat and Mazda dealer in Bolton following the acquisition of certain assets from the Administrator of Lythgoe Motors Limited for £22,500 on 23 December 2009. No goodwill arose on this transaction. In the 8 months to 31 August 2010 the business contributed a net loss of £170,000 to the consolidated net profit for the year. No further disclosures have been made in respect of this acquisition as the directors consider the amounts to be immaterial. On 25 February 2010, the Group acquired all of the ordinary shares in D & F Trading Limited (renamed Invicta Motors (Maidstone) Limited post acquisition) and two freehold properties from Drake and Fletcher Limited. The company was a motor dealership group based in Kent. In the 6 months to 31 August 2010 the subsidiary contributed net profit of £65,000 to the consolidated net profit for the year. The reason for the acquisition was to expand the Group’s representation in the Kent area with Mazda and the addition of the Honda franchise to the Group. The acquisition had the following effect on the Group’s assets and liabilities. Acquiree’s net assets at the acquisition date: Freehold property Plant and equipment Inventories Trade and other payables Net and identifiable assets and liabilities Goodwill on acquisition Consideration paid (note that transaction costs of £39,500 were written off to operating expenses in 2010), satisfied in cash Pre-acquisition carrying amount and Fair Value £000 3,738 150 1,303 (109) 5,082 - 5,082 32 Notes (continued) (forming part of the financial statements) 3 Revenue Sale of goods Aftersales services Total revenues 4 Segmental reporting 2011 £000 330,945 42,358 2010 £000 349,096 43,021 373,303 392,117 The Group has adopted IFRS 8 ‘Operating Segments’ which determines and presents operating segments based on information presented to the Groups Chief Operating Decision Maker (“CODM”), the Chief Executive Officer. The Group is operated and managed on a Dealership by Dealership basis. The CODM receives information both on a dealership basis and by revenue stream (New, Used, Aftersales). Given the number of dealerships, it was deemed most appropriate to present the information by revenue stream for the purposes of segmental analysis. 2011 Revenue 2011 Revenue mix 2011 Gross Profit 2011 Margin 2010 Revenue 2010 Revenue mix 2010 Gross Profit 2010 Margin £m 146.5 184.0 51.4 (8.6) % 39.2 49.3 13.8 (2.3) £m 10.5 15.1 22.0 - % 7.2 8.2 42.8 - £m 158.6 190.4 51.5 (8.4) % 40.4 48.6 13.1 (2.1) £m 10.9 15.4 21.8 - % 6.9 8.1 42.3 - New Car Used Car Aftersales Internal sales Total 373.3 100.0 47.6 12.7 392.1 100.0 48.1 12.3 Operating expenses Operating profit before flotation and transaction expenses Non-underlying expenses (41.9) 5.7 (0.2) (43.4) 4.7 (1.5) Operating profit 5.5 1.5 3.2 0.8 The CODM reviews the performance of the business in terms of both net profit before tax and EBITDA, as such the following table shows a reconciliation of the Profit before tax to EBITDA. 33 Notes (continued) (forming part of the financial statements) 4 Segmental reporting (continued) Profit Before Tax Non-underlying expenses (note 5) Underlying Profit Before Tax Net finance expense Depreciation and amortization Underlying EBITDA Non-underlying expenses EBITDA Revenue and non-current assets are attributable to United Kingdom operations only. 5 Non–underlying expenses Listing costs Transaction and new franchising costs Cost rationalisation programme 6 Expenses and auditors’ remuneration Included in profit are the following: Impairment loss (reversed)/recognised on other trade receivables and prepayments Auditors’ remuneration: Audit of these financial statements Audit of financial statements of subsidiaries pursuant to legislation Other services relating to taxation All other services 34 2011 £000 4,656 231 4,887 844 1,422 7,153 (231) 6,922 2011 £000 - 169 62 231 2011 £000 56 2011 £000 20 90 29 23 2010 £000 2,607 1,544 4,151 576 1,338 6,066 (1,544) 4,522 2010 £000 1,474 70 - 1,544 2010 £000 (261) 2010 £000 20 90 25 30 Notes (continued) (forming part of the financial statements) 7 Staff numbers and costs The average number of persons employed by the group (including directors) during the year, analysed by category, was as follows: Number of employees Sales Service Parts Administration The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Expenses related to defined contribution plans 2011 299 382 107 172 960 2011 £000 25,796 2,748 154 2010 281 339 165 161 946 2010 £000 26,761 2,860 161 28,698 29,782 8 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to equity shareholders by the number of ordinary shares in issue in the year. There is one class of ordinary share with 100,000,000 shares in issue. There are no dilutive share options in issue. Profit attributable to shareholders Non-underlying expenses (Note 5) Tax on adjustments (at 27.16% (2010:28%)) Adjusted profit attributable to equity shareholders 2011 £000 3,466 231 (63) 3,634 2010 £000 1,950 1,544 (432) 3,062 Number of shares in issue (‘000) 100,000 100,000 Basic earnings per share Adjusted earnings per share 3.47p 3.63p 1.95p 3.06p 35 Notes (continued) (forming part of the financial statements) 9 Finance income and expense Recognised in profit or loss Finance income Rent deposit interest Interest receivable Total finance income Finance expense Interest payable on bank borrowings Consignment and used stocking interest Total finance expense Total interest expense on financial liabilities held at amortised cost Total other interest expense 10 Taxation Recognised in the income statement Current tax expense Current year Deferred tax Utilisation of tax losses paid to previous owner of subsidiary undertaking Adjustment in respect of prior years Origination and reversal of temporary differences Change in tax rate of tax losses due to previous owner of subsidiary undertaking Total tax expense 36 2011 £000 2010 £000 8 30 38 351 531 882 351 531 882 2011 £000 1,040 1,040 150 - (45) 45 150 1,190 - 12 12 355 233 588 355 233 588 2010 £000 519 519 215 (77) - - 138 657 Notes (continued) (forming part of the financial statements) 10 Taxation (continued) Reconciliation of total tax Profit for the year Total tax expense Profit excluding taxation Tax using the UK corporation tax rate of 27.16 % (2010: 28%) Non-deductible expenses Accounting deprecation for which no tax relief is due Utilisation of tax losses Tax payment due to previous owners of subsidiary in relation to utilisation of pre- acquisition losses Change in tax rate in respect of deferred tax on utilisation of pre-acquisition losses due to previous owner of subsidiary Change in tax rate Adjustment in respect of prior years deferred tax* Total tax expense 2011 £000 3,466 1,190 4,656 1,265 25 156 - 150 45 216 (667) 1,190 2010 £000 1,950 657 2,607 730 168 144 (523) 215 - - (77) 657 *The 2011 adjustment in respect of prior years deferred tax is comprised of the following; recognising a deferred tax asset in respect of trading losses carried forward, reducing the deferred tax asset in respect of a capital loss, and other small differences in relation to accelerated capital allowances. The applicable tax rate for the current year is 27.16% following the reduction in the main rate of UK corporation tax from 28% to 26% with effect from 1 April 2011. On 23 March 2011 the Chancellor announced the reduction in the main rate of UK corporation tax to 26 per cent with effect from 1 April 2011 and a further reduction to 25 per cent with effect from 1 April 2012. These changes became substantively enacted on 29 March 2011 and 5 July 2011 respectively and therefore the effect of these rate reductions creates a reduction in the deferred tax asset which has been included in the figures above. 37 Notes (continued) (forming part of the financial statements) 11 Property, plant and equipment Freehold land & buildings Long leasehold land & buildings Short leasehold improvements Plant & Equipment Fixtures, fittings & computer equipment Total £000 £000 £000 £000 £000 £000 Cost Balance at 1 September 2009 Additions Acquired through business combinations Disposals 14,606 580 3,738 - Balance at 1 September 2010 18,924 5,058 Additions Disposals 463 - - - 5,058 3,654 2,825 6,329 32,472 - - - 82 - - 3,736 320 (161) 169 150 622 - 1,453 3,888 (445) (837) (1,282) 2,699 186 (284) 6,114 526 (172) 36,531 1,495 (617) Balance at 31 August 2011 19,387 5,058 3,895 2,601 6,468 37,409 Depreciation Balance at 1 September 2009 Charge for the year Disposals Balance at 1 September 2010 Depreciation charge for the year Disposals Balance at 31 August 2011 Net book value At 31 August 2010 836 256 - 1,092 241 - 1,333 318 83 - 401 75 - 476 2,530 184 - 2,714 268 (161) 2,359 280 (444) 2,195 239 (284) 4,963 481 (835) 4,609 515 (171) 11,006 1,284 (1,279) 11,011 1,338 (616) 2,821 2,150 4,953 11,733 At 31 August 2011 18,054 4,582 1,074 17,832 4,657 1,022 504 451 1,505 25,520 1,515 25,676 Security The title of all freehold and long leasehold properties have been pledged as security to the bank loans disclosed in note 17. Property, plant and equipment under construction At 31 August 2011 there were no assets in the course of construction (2010: £nil). 38 Notes (continued) (forming part of the financial statements) 12 Intangible assets Cost Balance at 1 September 2009 Other acquisitions – externally purchased Balance at 1 September 2010 Other acquisitions – externally purchased Balance at 31 August 2011 Amortisation and impairment Balance at 1 September 2009 Amortisation Balance at 1 September 2010 Amortisation for the year Balance at 31 August 2011 At 31 August 2010 and 1 September 2010 At 31 August 2011 Goodwill £000 Software £000 Other £000 346 - 346 - 346 - - - - - 346 346 589 57 646 74 720 458 54 512 84 596 134 124 176 - 176 - 176 176 - 176 - - - - Total £000 1,111 57 1,168 74 1,242 634 54 688 84 772 480 470 The undertakings included in the consolidated Group accounts are as follows: * Owned directly by Cambria Automobiles Acquisitions Limited ** Owned directly by Cambria Automobiles Group Limited *** Owned directly by Cambria Automobiles (South East) Limited Country of incorporation Principal activity Class and percentage of shares held Subsidiary undertakings Cambria Automobiles Group Limited England and Wales Holding Company Cambria Automobiles Acquisitions Limited ** England and Wales Investment Company 100% Ordinary 100% Ordinary Cambria Automobiles Property Limited ** England and Wales Property Company 100% Ordinary Cambria Automobiles (Swindon) Limited * England and Wales Grange Motors (Swindon) Limited * Thoranmart Limited * Cambria Vehicle Services Limited* England and Wales England and Wales England and Wales Cambria Automobiles (South East) Limited* England and Wales Grange Motors (Brentwood) Limited*** Invicta Motors Limited*** Deeslease Limited*** Dove Group Limited*** England and Wales England and Wales England and Wales England and Wales Translease Vehicle Management Limited*** England and Wales Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Dormant Dormant Dormant Invicta Motors (Maidstone) Limited* England and Wales Motor retailer 100% Ordinary & Preference 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary & Preference 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 39 Notes (continued) (forming part of the financial statements) 12 Intangible assets (continued) Amortisation charge The amortisation charge is recognised in the following line items in the income statement: Administrative expenses 2011 £000 84 2010 £000 54 Impairment loss and subsequent reversal Goodwill and indefinite life intangible assets considered significant in comparison to the Group’s total carrying amount of such assets have been allocated to cash generating units or groups of cash generating units as follows: Grange Motors (Swindon) Ltd and Cambria Automobiles (Swindon) Ltd Thoranmart Ltd Goodwill 2011 £000 261 85 346 2010 £000 261 85 346 The recoverable amount of each CGU has been calculated with reference to its value in use. The key assumptions of this calculation are a review of one year’s EBITDA. The value in use exceeds the above carrying values for each CGU, therefore no impairment is considered necessary. 40 Notes (continued) (forming part of the financial statements) 13 Deferred tax assets and liabilities Recognised deferred tax assets and liabilities The amount of temporary differences, unused tax losses and tax credits for which a deferred tax asset is recognised is set out below. The asset would be recovered if offset against future taxable profits of the group. The Group has an arrangement with the vendors of Cambria Automobiles (South East) Limited, which was acquired in the year ended 31 August 2008, under which an amount equal to any tax benefit received by the Group in relation to tax losses that existed at the date of acquisition must be paid to the vendors as additional consideration. At the date of acquisition, the utilisation of tax losses was not probable and therefore no deferred tax asset was recognised as part of the acquisition accounting, and the fair value of the liability for contingent consideration was immaterial. Subsequent to the acquisition, in the period to 31 August 2009, the utilisation of pre-acquisition losses became probable and, as a result, a deferred tax asset has been recognised. A liability for the contingent consideration payable to the vendors has been recognised at its fair value. Tax value of losses carry-forwards (pre-acquisition losses) Property, plant and equipment Provisions Tax value of loss carry-forwards Recognised net tax assets Assets 2011 £000 311 (846) 19 872 356 2010 £000 508 - - - 508 Unrecognised deferred tax assets and liabilities In the prior year, the deferred tax liability relating to plant, property and equipment and provisions had not been recognised as it was not material. Property, plant and equipment Provisions Tax value of loss carry-forwards Tax (liabilities)/assets Unrecognised net tax (liabilities)/assets Assets 2011 £000 - - - - - 2010 £000 (407) 132 261 (14) (14) On 23 March 2011 the Chancellor announced the reduction in the main rate of UK corporation tax to 26 per cent with effect from 1 April 2011 and a further reduction to 25 per cent with effect from 1 April 2012. These changes became substantively enacted on 29 March 2011 and 5 July 2011 respectively and therefore the effect of these rate reductions creates a reduction in the deferred tax asset which has been included in the figures above. The Chancellor proposed changes to further reduce the main rate of corporation tax by one per cent per annum to 23 per cent by 1 April 2014, but these changes have not yet been substantively enacted and therefore are not included in the figures above. The overall effect of the further reductions from 25 per cent to 23 per cent, if these applied to the deferred tax balance at 31 August 2011, would be to further reduce the deferred tax asset by approximately £28k. 41 Notes (continued) (forming part of the financial statements) 14 Inventories Vehicle consignment stock Motor vehicles Parts and other stock 2011 £000 33,747 21,621 2,092 57,460 2010 £000 40,040 20,044 2,351 62,435 Included within inventories is £nil (2009: £nil) expected to be recovered in more than 12 months. Raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales in the year amounted to £321 million (2010: £341 million). 15 Trade and other receivables Trade receivables Prepayments and other debtors 2011 £000 5,134 1,771 6,905 Included within trade and other receivables is £nil (2009: £nil) expected to be recovered in more than 12 months. 16 Cash and cash equivalents Cash and cash equivalents per balance sheet 2011 £000 11,702 2010 £000 5,443 2,495 7,938 2010 £000 9,266 Cash and cash equivalents per cash flow statement 11,702 9,266 42 Notes (continued) (forming part of the financial statements) 17 Other interest-bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate risk, see note 22. Non-current liabilities Secured bank loans Current liabilities Secured bank loans Terms and debt repayment schedule All debt is in GBP currency 2011 £000 2010 £000 11,358 12,672 1,352 1,024 Nominal interest rate Year of Maturity Face Value and Carrying Amount Face Value and Carrying Amount Loan 31/07/2006 Loan 01/08/2007 Loan 31/12/2007 Loan 01/03/2011 Bank of England Base Rate +1.25% Bank of England Base Rate +1.25% LIBOR +1.75% LIBOR +3.00% 2019 2020 2020 2017 Finance lease liabilities There were no finance lease liabilities at 31 August 2010 or 2011. 2011 £000 2,281 653 7,407 2,369 2010 £000 2,530 725 7,866 2,575 12,710 13,696 43 Notes (continued) (forming part of the financial statements) 18 Trade and other payables Current Vehicle consignment creditor Other trade payables Non-trade payables and accrued expenses Vehicle funding 2011 £000 39,644 8,350 7,159 13,956 69,109 2010 £000 46,148 8,881 7,820 12,047 74,896 Included within trade and other payables is £ nil (2010: £nil) expected to be settled in more than 12 months. 19 Employee benefits Pension plans Defined contribution plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was £154,000 (2010: £161,000). 20 Provisions Restructuring provision Balance at 1 September 2010 Provisions used during the year Balance at 31 August 2011 Current Non current Balance at 31 August 2010 Current Non current Balance at 31 August 2011 Onerous leases/ contracts £000 192 (56) 136 41 151 192 41 95 136 Staff costs £000 301 (301) - 301 - 301 - - - Total £000 493 (357) 136 342 151 493 41 95 136 The onerous lease provision is being released against the costs incurred on the relevant lease. The provision will be fully released by 2015. 44 Notes (continued) (forming part of the financial statements) 21 Capital and reserves Share capital Authorised Ordinary shares of 10 pence each Allotted, called up and fully paid Ordinary shares of 10 pence each Shares classified in shareholders funds 2011 £000 2010 £000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 All of the shares rank pari passu, and no shareholder enjoys different or enhanced voting rights from any other shareholder. All shares are eligible for dividends and rank equally for dividend payments. 45 Notes (continued) (forming part of the financial statements) 22 Financial instruments 22 (a) Fair values of financial instruments Trade and other receivables The fair value of trade and other receivables, is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Trade and other payables The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Cash and cash equivalents The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Interest-bearing borrowings Fair value, which after initial recognition is determined for disclosure purposes only, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. The interest rates used to discount estimated cash flows, where applicable are based on the weighted cost of capital and were as follows: Loans and borrowings Fair values 2011 % 2.2 2010 % 2.2 The fair values for each class of financial assets and financial liabilities together with their carrying amounts shown in the balance sheet are as follows: As at 31 August 2011 As at 31 August 2010 £000 £000 Financial assets Loans and receivables at amortised cost including cash and cash equivalents Trade receivables(net) (note 15) Other receivables (note 15) Cash and cash equivalents Total Financial assets Financial liabilities Financial liabilities at amortised cost Other interest-bearing loans and borrowings (note 17) Trade and other payables (note 18) Total financial liabilities 5,134 1,771 11,702 18,607 12,710 69,109 81,819 5,443 2,495 9,266 17,204 13,696 74,896 88,592 The Directors consider the carrying amount of the Group’s financial assets and financial liabilities, as detailed above, approximate their fair value. 46 Notes (continued) (forming part of the financial statements) 22 (b) Credit risk Credit risk management 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 risk coupled with the findings from external reference agencies. Credit risk arises in respect of amounts due from vehicle manufacturers in relation to bonuses and warranty receivables. This risk is mitigated by the number of manufacturers for which the group holds franchises, procedures to ensure timely collection of debts and management’s belief that it does not expect any manufacturer to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. Exposure to credit risk The carrying amount of trade receivables represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £5,134,000 (2010: £5,443,000) being the total of the carrying amount of financial assets, excluding equity investments, shown in the table below. The maximum exposure to credit risk for trade receivables at the balance sheet date by geographic region was: United Kingdom 2011 £000 5,134 The maximum exposure to credit risk for trade receivables at the balance sheet date by type of counterparty was: Vehicle debtors Non vehicle debtors Manufacturer debtors 2011 £000 1,999 2,246 889 5,134 2010 £000 5,443 2010 £000 2,475 2,029 939 5,443 Credit quality of financial assets and impairment losses The ageing of trade receivables at the balance sheet date is given below. The Group’s policy is to provide for all debts which are past due. The directors consider the balance to be recoverable based on credit terms and post balance sheet receipts. Trade receivables not past due Trade receivables past due Gross 2011 £000 5,134 46 5,180 Impairment 2011 £000 - 46 46 Gross 2010 £000 5,443 135 5,578 Impairment 2010 £000 - 135 135 47 Notes (continued) (forming part of the financial statements) 22 (b) Credit risk (continued) The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 31 August 2010 Impairment loss reversed Allowance for impairment utilised Balance at 31 August 2011 £000 135 56 (145) 46 The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly. 22 (c) Liquidity risk Liquidity risk management Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Liquidity is managed by the Group’s central treasury function within policy guidelines set by the Board with prime areas of focus being liquidity and interest rate exposure. The group is financed primarily by bank loans, vehicle stocking credit lines and operating cash flow. The directors have assessed the future funding requirements of the Group and compared them to the level of committed available borrowing facilities. These committed facilities are maintained at levels in excess of planned requirements and are in addition to short term uncommitted facilities that are also available to the Group. The assessment included a review of financial forecasts, financial instruments and cash flow projections. These forecasts and projections show that the Group, taking account of reasonably possible scenarios, should be able to operate within the level of its borrowing facilities for the foreseeable future. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of netting agreements: Interest is payable on loans of £2,934,000 (2010: £3,255,000) at Bank of England base rate plus 1.25%, loans of £7,407,000 (2010: £7,866,000) at LIBOR plus 1.75% and on loans of £2,369,000 (2010: £2,575,000) at LIBOR plus 3%. 2010 Carrying amount Contractual cash flows 1 year or less 1 to <2 years 2 to <5 years 5 years and over £000 £000 £000 £000 £000 £000 Non-derivative financial liabilities Secured bank loans 13,696 15,267 1,384 1,619 2,902 9,362 2011 Carrying amount Contractual cash flows 1 year or less 1 to <2 years 2 to <5 years 5 years and over £000 £000 £000 £000 £000 £000 Non-derivative financial liabilities Secured bank loans 12,710 14,205 1,358 1,591 3,024 8,232 48 Notes (continued) (forming part of the financial statements) 22 (d) Market risk Financial risk management Market risk is the risk that changes in market prices, such as interest rates will affect the Group’s income or the value of its holdings of financial instruments Market risk - Foreign currency risk The Group does not have any exposure to foreign currency risk Market risk – Interest rate risk Profile At the balance sheet date the interest rate profile of the Group’s interest-bearing financial instruments was: Variable rate instruments Cash and cash equivalents Vehicle funding Loans and overdrafts 2011 £000 11,702 (13,956) (12,710) 2010 £000 9,266 (12,047) (13,696) (14,964) (16,477) The objectives of the Group’s interest rate policy are to minimise interest costs. The Group does not actively manage cash flow interest risk as the directors believe that the retail sector in which the Group operates provides a natural hedge against interest rate movements. Consequently, it is Group policy to borrow on a floating rate basis. Whilst there are no hedging instruments, the Board reviews its hedging policy on a regular basis. Sensitivity analysis An increase of 0.5 basis points in interest rates at the balance sheet date would have decreased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect of financial instruments with variable interest rates, financial instrument at fair value through profit or loss or available for sale with fixed interest rates and the fixed rate element of interest rate swaps. The analysis is performed on the same basis for comparative periods. Equity Decrease Profit or loss Decrease 2011 £000 133 2010 £000 130 133 130 49 Notes (continued) (forming part of the financial statements) 22 (e) Capital management Prior to each acquisition, the Board considers its funding options and the appropriate mix of secured debt and equity. The Group’s primary objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits to other stakeholders. The Group must ensure that sufficient capital resources are available for working capital requirements and meeting principal and interest payment obligations as they fall due. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio, which is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as total shareholders’ equity. The gearing ratios for each year are as follows: Total borrowings Less: cash and cash equivalents Net debt Total equity Gearing ratio 23 Operating leases Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years More than five years As of 31 August 2011 As of 31 August 2010 £000 12,710 (11,702) 1,008 19,501 £000 13,696 (9,266) 4,430 16,035 5.2% 27.6% 2011 £000 2,533 7,885 24,769 35,187 2010 £000 2,434 8,197 25,617 36,248 The Group leases a number of motor dealership sites under operating leases. Land and buildings have been considered separately for lease classification. During the year £ 2,434,000 was recognised as an expense in the income statement in respect of operating leases (2010: £2,394,000). 50 Notes (continued) (forming part of the financial statements) 24 Contingencies The Group is jointly and severally liable in respect of value added tax liabilities arising in other group undertakings. The related fellow subsidiary undertakings and the parent company were is a repayment situation at 31 August 2010 and 2011. In recognition of the Cambria Automobiles plc group bank and used vehicle funding facilities, the following companies have entered into a joint agreement to guarantee liabilities with banks and finance houses of the motor manufacturers that provide new and used vehicles to the group: Cambria Automobiles plc, Cambria Automobiles Property Limited, Cambria Automobiles Group Limited, Cambria Automobiles Acquisitions Limited, Cambria Automobiles (Swindon) Limited, Grange Motors (Swindon) Limited, Thoranmart Limited, Cambria Automobiles (South East) Limited, Grange Motors (Brentwood) Limited, Invicta Motors Limited, Invicta Motors (Maidstone) Limited and Cambria Vehicle Services Limited. Intra-group guarantees are accounted for as insurance contracts. 25 Related parties Identity of related parties with which the Group has transacted Key management personnel are considered to be the board of directors for the purposes of this disclosure. Transactions with key management personnel At the year end, the Directors of the Company and their immediate relatives controlled 49.1% per cent of the voting shares of the Company. The compensation of key management personnel is as follows: Directors’ emoluments Salaries and consultancy fees Annual bonus Non-contractual bonuses The emoluments consist of: Directors’ emoluments James Mullins Rodney Smith Mark Lavery Warren Scott Sir Peter Burt Michael Burt 2011 £000 587 463 - 2010 £000 507 525 910 1,050 1,942 Salaries Consultancy Fees 2011 £000 125 50 300 25 25 25 550 2011 £000 - 37 - - - - 37 Bonus 2011 £000 88 - 375 - - - Total 2011 £000 213 87 675 25 25 25 Total 2010 £000 319 288 1,290 25 10 10 463 1,050 1,942 All directors benefited from qualifying third party indemnity provisions during the financial period. During the year Mark Lavery, James Mullins, Rodney Smith and Warren Scott each bought 4 vehicles from the Group and each sold 4 vehicles back to the Group. All transactions were carried out at arm’s length and there were no outstanding balances due to the Group at the year end. 51 Notes (continued) (forming part of the financial statements) 25 Related parties (continued) Other related party transactions The Company is quoted on the AIM Market. Promethean own 33% of the company. During the year the company paid £nil (2010: £44,000) in management fees to Promethean. 26 Ultimate parent company and parent company of larger group In the opinion of the directors, the distribution of the ordinary shares and the rights attributing themselves to them means that there is no overall controlling party of the company. 27 Post balance sheet events Acquisition On 1 September 2011, the Group acquired the trade and assets of the Vauxhall dealership in Southampton from Hartwell PLC. The total consideration payable for the business and assets acquired was £323,601 there was no goodwill payable on the acquisition. Dividend The Board is pleased to announce that it will make its maiden dividend payment in respect of the financial year to 31 August 2011 of 0.3p per share as a full and final dividend payment. 52 Company Balance Sheet At 31 August 2011 Note 2011 2010 £000 £000 £000 £000 Fixed assets Tangible Fixed Assets Investments Current assets Stock Debtors Cash at bank and in hand 5 6 7 8 Creditors: amounts falling due within one year 9 Net current assets Total assets less current liabilities Provisions for liabilities Net assets Capital and reserves Called up share capital Share premium account Profit and loss account Shareholders’ funds 10 11 12 12 218 666 550 376 14,606 15,532 (2,765) 202 666 884 868 339 290 11,987 12,616 (1,623) 12,767 13,651 - 13,651 10,000 799 2,852 13,651 10,993 11,861 - 11,861 10,000 799 1,062 11,861 These financial statements were approved by the board of directors on 25 November 2011 and were signed on its behalf by: Mark Lavery Director Company number: 05754547 53 Company Reconciliation of movements in shareholders’ funds for the year ended 31 August 2011 Note Company Company Profit for the financial year 12 Net increase to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2011 £000 1,790 1,790 11,861 13,651 2010 £000 1,267 1,267 10,594 11,861 54 Notes (continued) 1 Accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements. Going Concern The directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook The directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements Further information regarding the company’s business activities together with the factors likely to affect its future development, performance and position is set out in the Directors Report on page 11. Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules. Under section 408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and loss account. Under Financial Reporting Standard 1 the Company is exempt from the requirement to prepare a cash flow statement on the grounds that the Group financial statements include the Company in its own published consolidated financial statements. The Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with entities which form part of the group. Fixed assets and depreciation Depreciation is provided to write off the cost less the estimated residual value of tangible fixed assets by instalments over their estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: • freehold buildings 50 years • plant and machinery 5 to 10 years • fixtures and fittings 5 to 10 years • computer equipment 3 to 5 years No depreciation is provided on freehold land. Investments Investments in subsidiary undertakings are stated at cost less amounts written off. Stocks Stocks are stated at the lower of cost and net realisable value. In determining the cost of motor vehicles, the actual amount paid to date for each car is used, for spare parts and service items stocks are valued at invoiced cost on a FIFO basis. An appropriate provision is made for obsolete or slow moving items. New vehicles on consignment from manufacturers are included in the balance sheet where it is considered that the company bears the risks and rewards or ownership. Consignment stock is held for a maximum period (which varies between manufacturers) before becoming due for payment. Part of the consignment period is interest free and the remaining period are interest bearing (periods varies between manufacturers). 55 Notes (continued) Taxation The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19. Classification of financial instruments issued by the Group Following the adoption of FRS 25, financial instruments issued by the Group are treated as equity (i.e. forming part of shareholders’ funds) only to the extent that they meet the following two conditions: a) they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Finance payments associated with financial liabilities are dealt with as part of interest payable and similar charges. Finance payments associated with financial instruments that are classified as part of shareholders’ funds (see dividends policy), are dealt with as appropriations in the reconciliation of movements in shareholders’ funds. Dividends on shares presented within equity Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements. 56 Notes (continued) 2 Remuneration of directors Directors’ emoluments Salaries and consultancy fees Annual bonus Non-contractual bonuses The emoluments in respect of the highest paid director were: Directors’ emoluments Salaries Annual bonus Non-contractual bonuses All directors benefited from qualifying third party indemnity provisions during the financial period 2011 £000 587 463 - 1,050 2011 £000 300 375 - 675 2010 £000 507 525 910 1,942 2010 £000 270 360 660 1,290 57 Notes (continued) 3 Staff numbers and costs The average number of persons employed by the Company (including directors) during the period, analysed by category, was as follows: Number of employees Administration The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Non-recurring listing bonuses Non-recurring social security costs Other pension costs 4 Dividends The aggregate amount of dividends received compromises: Aggregate amount of dividends received in the financial year The aggregate amount of dividends proposed and not paid at the year end is £300,000 (2010: £nil). Company 2011 Company 2010 34 35 Company 2011 £000 2,741 352 - - 11 Company 2010 £000 2,724 291 1,025 131 10 3,104 4,181 2011 1,500 2010 2,610 58 Notes (continued) 5 Tangible fixed assets Company Cost At 1 September 2010 Additions At 31 August 2011 Depreciation At 1 September 2010 Charge for year At 31 August 2011 Net book value At 31 August 2011 31 August 2010 Computer equipment £000 Total £000 287 129 416 85 113 198 218 202 287 129 416 85 113 198 218 202 59 Notes (continued) 6 Fixed asset investments Company Cost and net book value At 1 September 2010 and 31 August 2011 Shares in group undertakings £000 666 The undertakings in which the Company’s interest at the year end is more than 20% are as follows: Country of incorporation Principal activity Class and percentage of shares held Subsidiary undertakings Cambria Automobiles Group Limited England and Wales Holding Company Cambria Automobiles Acquisitions Limited ** England and Wales Investment Company 100% Ordinary 100% Ordinary Cambria Automobiles Property Limited ** England and Wales Property Company 100% Ordinary Cambria Automobiles (Swindon) Limited * England and Wales Grange Motors (Swindon) Limited * Thoranmart Limited * Cambria Vehicle Services Limited* England and Wales England and Wales England and Wales Cambria Automobiles (South East) Limited* England and Wales Grange Motors (Brentwood) Limited*** Invicta Motors Limited*** Deeslease Limited*** Dove Group Limited*** England and Wales England and Wales England and Wales England and Wales Translease Vehicle Management Limited*** England and Wales Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Motor retailer Dormant Dormant Dormant Invicta Motors (Maidstone) Limited* England and Wales Motor retailer 100% Ordinary & Preference 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary & Preference 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary * Owned directly by Cambria Automobiles Acquisitions Limited ** Owned directly by Cambria Automobiles Group Limited *** Owned directly by Cambria Automobiles (South East) Limited 2011 £000 550 2010 £000 339 7 Stocks Motor vehicles 60 Notes (continued) 8 Debtors Trade debtors Amounts owed by group undertakings Prepayments and accrued income 9 Creditors: amounts falling due within one year Amounts owed to group undertakings Trade creditors Other taxation and social security Accruals and deferred income Corporation tax 2011 £000 8 40 328 376 2011 £000 356 654 269 1,360 126 2,765 2010 £000 77 40 173 290 2010 £000 306 494 - 823 - 1,623 61 Notes (continued) 10 Provisions for liabilities Deferred Taxation At 1 September 2010 Movement in period At 31 August 2011 The elements of deferred taxation are as follows: Difference between accumulated depreciation and capital allowances Total deferred tax Unrecognised deferred tax asset Recognised deferred tax asset 2011 £000 - - - - £000 Company - - - 2010 £000 11 11 (11) - The deferred tax asset not recognised in 2010, which consists primarily of tax losses carried forward, would be recovered if set off against future profits of the company. 62 Notes (continued) 11 Called up share capital Authorised Ordinary shares of 10 pence each Allotted, called up and fully paid Ordinary shares of 10 pence each Shares classified as liabilities Shares classified in shareholders funds 2011 £000 2010 £000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 - 10,000 10,000 10,000 - 10,000 10,000 All of the shares rank pari passu, and no shareholder enjoys different or enhanced voting rights from any other shareholder. All shares are eligible for dividends and rank equally for dividend payments. 12 Share premium and reserves At 1 September 2010 Profit for the year At 31 August 2011 13 Related party disclosures Share premium account Profit and loss account £000 799 - 799 £000 1,062 1,790 2,852 The Company is quoted on the AIM Market. Promethean own 33% of the Company. During the year the Company paid £nil (2010: £44,000) to Promethean. 14 Ultimate parent company and parent undertaking of larger group In the opinion of the directors, the distribution of the ordinary shares and the rights attributing themselves to them means that there is no overall controlling party of the Company. 63 

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