Caffyns : Preliminary Results for year end 31 March 2017

Caffyns plc

Preliminary Results for the year ended 31 March 2017

Summary

		2017	2016
		£'000	£'000
Continuing operations*:
Revenue		212,581	186,401
Underlying** EBITDA		4,158	3,591
Underlying** profit before tax		2,051	1,465
Profit before tax from sale of business		4,684	-
Profit before tax (including discontinued operations)		6,282	2,635
		p	p
Underlying** earnings per share	58.0		48.8
Earnings per share		186.3	90.1
Proposed final dividend per ordinary share		15.00	14.50
Dividend per share for the year		22.50	21.75
* Following a business disposal that occurred in April 2016, the 2017 results have been presented between continuing and discontinued operations. To allow for comparative information to be presented consistently, the 2016 results have been restated. Further detail is provided in the notes below. ** Underlying results exclude items that have non-trading attributes due to their size, nature or incidence.

Highlights

• Like-for-like new car unit sales up 9.3% against a 1.0% fall in our market sector
• Like-for-like used car unit sales up 15.9%
• Revenue from continuing operations up 14% to £212.6 million
• Underlying profit before tax up 40% to £2.05 million (2016: £1.47 million)

· Underlying earnings per share up 19% to 58.0p (2016: 48.8p) · Disposal of Land Rover business in Lewes, retaining its freehold premises, for cash consideration of £7.5 million and a pre-tax profit of £4.68 million

• Recommended dividend per ordinary share for the year increased by 3.4% to 22.5 pence
• Property portfolio revaluation as at 31 March 2017 showed a £10.1 million surplus to net book value (not recognised in the accounts)

Commenting on the results, Simon Caffyn, Chief Executive said:'I am delighted that we have grown our underlying profit before tax by 40%. Our businesses performed well in what was a challenging marketplace.'

Enquiries:

Caffyns plc	Simon Caffyn, Chief Executive	Tel:	01323 730201
	Mike Warren, Finance Director
HeadLand	Francesca Tuckett	Tel:	020 3805 4822

Operational and Business Review

I am pleased to report that Caffyns Plc (the 'Company') grew its underlying profit before tax for the year under review by 40% to £2.05 million (2016: £1.47 million). Our businesses performed well in what was a challenging marketplace.

Profit before tax (including the one-off gain on the disposal of the Land Rover business) increased to £6.28 million (2016: £2.64 million). Basic earnings per share were 186.3 pence against 90.1 pence in 2016. Underlying earnings per share for the year were up 19% to 58.0 pence (2016: 48.8 pence).

Revenue from continuing operations increased by 14.0% to £212.6 million (2016: £186.4 million). The Company reported like-for-like sales growth across all departments: new car unit sales, used car unit sales, service and parts.

At the beginning of this financial year, shareholders approved the sale of our Land Rover business in Lewes. We were very pleased to secure excellent terms, generating a profit on disposal, net of costs and before tax, of £4.68 million. The total cash consideration for the sale was £7.51 million.

The Company finished the year with cash reserves and low gearing and is well placed to exploit future business opportunities. The funds from the sale of the Land Rover business have already enabled us to invest in a new site to facilitate the relocation and expansion of our Audi business in Worthing and invest further in our in-house used car operation with the acquisition of 2.1 acres of land in Ashford. The Board continues to evaluate further investment opportunities.

New and used cars

Our new unit sales were up by 9.3% on a like-for-like basis in the year which compared very favorably with the total UK new car registrations increase of 2.6%. Within this, new car registrations in the private and small business sector in which we principally operate actually fell by 1.0%, so we again significantly outperformed our specific sector. Despite experiencing some pressure on new car margins, new car gross profits were up on last year.

Used car unit sales were up 15.9% on a like-for-like basis, building further on this key area of the business and with no dilution in unit used car margins.

In June 2016, we upgraded our website and this has significantly enhanced our customers' online searching capabilities, leading to an easier, more enjoyable car-buying experience. Over the last three-year period, the Company has recorded 34% like-for-like growth in the number of used cars sold. We continue to see this part of the business as providing a major opportunity for further future growth.

Aftersales

The growth in the UK new car market over the last four years has led to an increase in the number of one to three-year old cars in circulation. Our own strong sales of both new and used cars in that period has meant our three-year car parc has grown considerably. We are encouraged that our service revenues in the year have risen by 11.3% on a like-for-like basis as we continue to place great emphasis on our customer retention programmes. Our parts business also reported strong sales growth, up by 6.2% on a like-for-like basis over the comparative period.

Operations and redevelopment

The redevelopment of our Volkswagen dealership in Eastbourne was completed in April 2016 and now comprises a twelve-car showroom with extended used car display areas as well as a state of the art new workshop. This project was completed on schedule and to budget and is enabling the business to grow. More widely for the brand, the manufacturer commenced the roll-out of the remedial work for cars affected by the defeat-device issue. This work is being carried out at authorised Volkswagen dealerships and, although a carefully managed programme, the nature of the work passing through our service departments has been low margin and has involved certain added costs, such as extra courtesy cars. Therefore, in the year under review, it had a negative impact on service profitability. In addition, we saw some impact on our Volkswagen sales. Despite these challenges, we recorded 6% growth in our Volkswagen new car sales compared to a 5% fall in the manufacturer's own national registrations' performance. We remain confident that the strength of the Volkswagen Brand and the excellent model range will lead to further improvements in the trading performance of our Volkswagen operation.

Our Audi businesses again produced year-on-year growth and we secured planning approval to relocate our dealership in Worthing to a new, and significantly larger, nearby site to ensure this business can better fulfil its potential.

Our Volvo business in Eastbourne traded very strongly, assisted by new model launches. Both the new XC90 and, more recently, the S90, V90 and XC60 have been particularly well received by our customers. We are planning to invest in an expansion of our showroom facility to better accommodate these extra models and we expect the business to continue to grow in the future.

In Tunbridge Wells, our SEAT business has gained considerable extra traction, having more than doubled its new car sales over the comparative prior year period. Together with the adjacent Skoda business, the site has delivered significant improvements in profitability.

In April 2016, we sold our Land Rover business in Lewes for a cash consideration of £7.51 million which included a payment for goodwill of £5.5 million. The sale was approved by ordinary shareholders at a General Meeting on 21 April 2016.

Groupwide projects

We remain focused on generating further improvements in the three key areas of used car sales, used car finance and aftersales. These all contributed towards the increase in profits in the year under review, with particularly strong growth in used car and service labour sales. In addition, we continue to make very good progress utilising technology to enhance the customer-buying experiences from their first point of contact right through the showroom buying process, as well as improving aftersales retention.

Property

We operate primarily from freehold sites and our property portfolio provides additional stability to our business model. During the year, we incurred capital expenditure of £4.64 million (2016: £3.83 million). This included the purchase of freehold land in Ashford and Angmering as well as the finalisation of the upgrade to our Volkswagen dealership in Eastbourne.

In October 2016, we acquired 3.7 acres of land in Angmering, West Sussex to form the site for the relocation of our nearby Audi Worthingbusiness. We anticipate that construction will commence this summer and that the site will be open for business in the summer of 2018.

Also in October 2016, we acquired 2.1 acres of additional land adjacent to our used car centre in Ashford. This investment will almost double the footprint of our operations at Ashford and will enable us to further grow our exciting used car concept as well as our Vauxhall and Skoda operations at the site. This used car concept has been very well received by our customers who particularly value the Caffyns brand. The business has traded profitably since its inception in October 2014 and the purchase of the additional land is now allowing for a significant expansion of this operation.

As part of the sale of the Land Rover business, our freehold premises in Lewes have been leased for a minimum two-year period to April 2018, with a further one-year extension available at the leaseholder's option. We have recently marketed the freehold and have been encouraged by the indicative responses so far received. The Board continues to evaluate future opportunities for the site.

Our portfolio of freehold premises was revalued as at 31 March 2017 by chartered surveyors CBRE Limited based on an existing use valuation. The excess of the valuation over net book value of our freehold properties was £10.1 million. In accordance with our accounting policies (which reflect those generally utilised throughout the motor retail industry), this surplus has not been incorporated into our accounts.

Bank facilities

The Company's banking facilities with HSBC Bank comprise a four-year revolving credit facility of £7.5 million which commenced in September 2014 and an overdraft facility of £3.5 million. In addition, we have an overdraft facility of £7.0 million provided by Volkswagen Bank together with a term loan, originally of £5.0 million, which is repayable over the ten years to November 2023. Bank borrowings, net of cash balances, at 31 March 2017 were £8.6 million (2016: £11.2 million) and as a proportion of shareholders' funds at 31 March 2017 were 31% (2016: 42%). The reduction in gearing in the year was primarily the result of the cash inflow from the sale of the Land Rover business in April 2016.

Pension Scheme

The Company's defined benefit scheme was closed to future accrual in 2010. In common with many companies, the Board has little control over the key assumptions required by the accounting standards in the valuation calculations. The deficit at 31 March 2017 had increased to £8.55 million (2016: £4.98 million), primarily due to historically low levels of gilt and bond yields. The deficit, net of deferred tax, was £7.1 million (2016: £4.1 million).

The pension cost under IAS 19 continues to be charged as a non-underlying cost and in 2017 amounted to £199,000 (2016: £215,000).

In line with the recovery plan agreed with the trustees following the actuarial valuation as at 31 March 2014, the Company made a cash payment of £306,750 into the scheme in the year to 31 March 2017 (2016: £300,000). This recovery plan payment for the year ending 31 March 2018 will again increase by 2.25%. A tri-annual actuarial valuation of the scheme is being carried out as at 31 March 2017.
The Board, together with the independent pension fund trustees, continues to review options to reduce the cost of operating the scheme. Any additional actions that could further reduce the deficit over the medium and longer term will be considered.

People

I am very grateful for the dedication of our employees and the effort they apply to provide our customers with a first-class purchasing experience. In particular, our front-line staff have continued to work tirelessly to address potential customer concerns regarding the Volkswagen emissions issue. Across the Company the hard work and professional application of our employees has been rewarded with strong growth in both our sales and aftersales businesses.

In July 2016, after the Annual General Meeting, Mark Harrison retired from the Board and the Company. Mark played a hugely significant role in the Company since joining as Finance Director in April 2000 and, on behalf of the Board, I would like to thank him for his outstanding contribution throughout this period and wish him well for the future. In his place, we were pleased to appoint Mike Warren as Finance Director at the Annual General Meeting and to welcome him to the Board. Mike brings a wealth of experience to the position, having been Finance Director at the motor dealer H.R. Owen Plc between 2007 and 2015.

Apprenticeships

We have continued to invest in our apprenticeship programme and have seen the benefits flow through the business as more apprentices complete their training and become fully qualified. Our recruitment programme continues and we will be taking on an increasing complement in the coming year to further aid our growth.

Dividend

The Board has decided to recommend a final dividend of 15.0 pence per Ordinary share (2016: 14.5 pence). If approved at the Annual General Meeting, this will be paid on 4 August 2017 to ordinary shareholders on the register at close of business on 7 July 2017.

Together with the interim dividend of 7.50 pence per Ordinary share (2016: 7.25 pence) paid during the year, the total dividend for the year will be 22.50 pence per Ordinary share (2016: 21.75 pence).

Strategy

Our strategy to focus on representing premium and premium-volume franchises continues to prove successful. The significant proceeds from the sale of our Land Rover business in Lewes, coupled with our low gearing, has provided us with the flexibility to expand upon our recent successes, particularly in the used car arena, and to invest in future growth.

We are concentrating on larger business opportunities in stronger markets to deliver higher returns on capital from fewer but bigger sites. We are also more effective in being able to deliver performance improvement, although we remain dependent on the key months of September and March.

The focus on improving operational processes has resulted in an encouraging increase in used car sales and in aftersales. Our overall success in increasing our new and used sales coupled with our improved aftersales retention programmes will enable us to further enhance profitability.

In addition to investing in freehold land, in Ashford and Worthing, we are assessing opportunities to grow the Company's business and its underlying profitability.

Outlook

The year to 31 March 2017 has seen us deliver new car sales ahead of the market in addition to impressive growth in used car sales and aftersales. Low interest rates and attractive marketing offers have continued to underpin the motor retail sector with most cars now being sold under contracts rather than by outright purchase. However, the UK's decision to leave the European Union, coupled with the wider challenge to the UK economy from the weakness of sterling, means that the Board remains cautious for the coming year, particularly given the market consensus for a smaller new car market in 2017. We are well placed for organic growth and with low gearing and cash reserves, the Company is also in a position to exploit future business opportunities.

S G M Caffyn
Chief Executive
25 May 2017

Group Income Statement
for the year ended 31 March 2017

	Notes	2017	Restated 2016
		£'000	£'000
Continuing operations:
Revenue		212,581	186,401
Cost of sales		(187,971)	(164,057)
Gross profit		24,610	22,344
Operating expenses
Distribution costs		(15,014)	(13,088)
Administration expenses		(7,386)	(7,102)
Operating profit before other income		2,210	2,154
Other income (net)		541	341
Operating profit		2,751	2,495
Operating profit before non-underlying items		2,981	2,544
Non-underlying items within operating profit		(230)	(49)
Operating profit		2,751	2,495
Finance expense	6	(930)	(1,079)
Finance expense on pension scheme		(162)	(173)
Net finance expense		(1,092)	(1,252)
Profit before taxation		1,659	1,243
Profit before tax and non-underlying items		2,051	1,465
Non-underlying items within operating profit		(230)	(49)
Non-underlying items within finance expense on pension scheme		(162)	(173)
Profit before taxation		1,659	1,243
Taxation	8	(375)	(70)
Profit for the year from continuing operations		1,284	1,173
Profit for the year from discontinued operations	7	3,839	1,314
Profit for the year		5,123	2,487
Earnings per share
Basic	9	186.3p	90.1p
Diluted	9	186.3p	88.7p
Non-GAAP measure
Basic	9	58.0p	48.8p
Diluted	9	58.0p	48.0p

Group Statement of Comprehensive Incomefor the year ended 31 March 2017

			2017		2016
			£'000		£'000
Profit for the year			5,123		2,487
Items that will never be reclassified to profit and loss:
Remeasurement of net defined benefit liability			(3,725)		296
Deferred tax on remeasurement			633		(59)
Total other comprehensive income, net of taxation			(3,092)		237
Total comprehensive income for the year			2,031		2,724

Group Statement of Financial Position
at 31 March 2017

						2017 £'000		2016 £'000
Non-current assets
Property, plant and equipment							35,623		38,218
Investment property							6,986		1,167
Goodwill							286		286
							42,895		39,671
Current assets
Inventories							29,904		32,925
Trade and other receivables							7,838		8,449
Cash and cash equivalents							2,321		219
							40,063		41,593
Total assets							82,958		81,264
Current liabilities
Interest bearing loans and borrowings							500		500
Trade and other payables							34,179		36,368
Current tax payable							197		416
							34,876		37,284
Net current assets							5,187		4,309
Non-current liabilities
Interest bearing loans and borrowings							10,375		10,875
Preference shares							812		812
Deferred tax liability							805		617
Retirement benefit obligations							8,554		4,980
							20,546		17,284
Total liabilities							55,422		54,568
Net assets							27,536		26,696
Capital and reserves
Share capital							1,439		1,439
Share premium account							272		272
Capital redemption reserve							707		707
Non-distributable reserve							1,724		1,724
Other reserve							-		132
Retained earnings							23,394		22,422
Total equity attributable to shareholders of Caffyns plc							27,536		26,696

Group Statement of Changes in Equity
for the year ended 31 March 2017

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Non-distributable reserve £'000	Other reserve £'000	Retained earnings £'000	Total £'000
At 1 April 2016	1,439	272	707	1,724	132	22,422	26,696
Total comprehensive income
Profit for the year	-	-	-	-	-	5,123	5,123
Other comprehensive income	-	-	-	-	-	(3,092)	(3,092)
Total comprehensive income for the year	-	-	-	-	-	2,031	2,031
Transactions with owners:
Dividends	-	-	-	-	-	(603)	(603)
Purchase of own shares for treasury	-	-	-	-	-	(919)	(919)
Issue of shares - SAYE scheme	-	-	-	-	-	310	310
Share-based payment	-	-	-	-	21	-	21
Transfer - SAYE scheme	-	-	-	-	(153)	153	-
At 31 March 2017	1,439	272	707	1,724	-	23,394	27,536

for the year ended 31 March 2016

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Non-distributable reserve £'000	Other reserve £'000	Retained earnings £'000	Total £'000
At 1 April 2015	1,439	272	282	1,724	81	20,696	24,494
Total comprehensive income
Profit for the year	-	-	-	-	-	2,487	2,487
Other comprehensive income	-	-	-	-	-	237	237
Total comprehensive income for the year	-	-	-	-	-	2,724	2,724
Transactions with owners:
Dividends	-	-	-	-	-	(573)	(573)
Preference shares bought back	-	-	425	-	-	(425)	-
Share-based payment	-	-	-	-	51	-	51
At 31 March 2016	1,439	272	707	1,724	132	22,422	26,696

Group Cash Flow Statement
for the year ended 31 March 2017

	Note		2017		2016
			£'000		£'000
Net cash inflow from operating activities	11		1,743		1,352
Investing activities
Proceeds on disposal of property, plant and equipment			-		2,736
Proceeds generated on sale of Land Rover business, net of costs	7		6,707		-
Purchases of property, plant and equipment and investment property			(4,636)		(3,825)
Net cash inflow/(outflow) from investing activities			2,071		(1,089)
Financing activities
Secured loans repaid			(500)		(500)
Purchase of own preference shares			-		(717)
Purchase of own shares for treasury			(919)		-
Issue of shares - SAYE scheme			310		-
Dividends paid			(603)		(573)
Net cash outflow from financing activities			(1,712)		(1,790)
Net increase/(decrease) in cash and cash equivalents			2,102		(1,527)
Cash and cash equivalents at beginning of year			219		1,746
Cash and cash equivalents at end of year			2,321		219
			2017		2016
			£'000		£'000
Cash and cash equivalents			2,321		219

Notes
for the year ended 31 March 2017

1. GENERAL INFORMATION

Caffyns plc is a company domiciled in the United Kingdom. The address of the registered office is Saffrons Rooms, Meads Road, Eastbourne BN20 7DR. The registered number of the Company is 105664.

This financial information has been extracted from the consolidated financial statements which were approved by the Directors on 25 May 2017.

2. ACCOUNTING POLICIES

The financial information has been prepared under International Financial Reporting Standards (IFRSs) issued by the IASB and as adopted by the European Commission (EC). This financial information has been prepared on the same basis as in 2016.
Whilst the financial information included in this announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2017 or 2016, but is derived from those accounts. Statutory accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies and those for the year to 31 March 2017 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) Companies Act 2006 or equivalent preceding legislation.
A copy of the annual report for the year ended 31 March 2017 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 26 June 2017.

Segmental reporting

Based upon the management information reported to the chief operating decision maker, the Chief Executive, in the opinion of the directors, the Company only has one reportable segment. There are no major customers amounting to 10% or more of the Company's revenue. All revenue and non-current assets derive from, or are based in, the United Kingdom.

3. GOING CONCERN

The financial statements have been prepared on a going concern basis which the directors consider appropriate for the reasons set out below.

The Company meets its day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities. At the year-end, the medium-term banking facilities included a revolving credit facility of up to £7.5 million, renewable in September 2018, and short-term overdraft facilities of £10.5 million which is renewed annually in August. The directors have every expectation that these facilities will be renewed based on its current discussions with the bank. The Company also has a 10-year term loan with a balance outstanding at 31 March 2017 of £3.375 million. In the opinion of the directors, there is a reasonable expectation that all facilities will be renewed. The overdraft and revolving credit facilities include certain covenant tests which were passed at 31 March 2017. The failure of a covenant test would render these facilities repayable on demand at the option of the lenders.

The directors have undertaken a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of this Annual Report which projects that the facility limits are not exceeded over the duration of the forecasts. These forecasts have made assumptions in respect of future trading conditions, particularly volumes and margins of new and used car sales, aftersales and operational improvements together with the timing of capital expenditure. The forecasts take into account these factors to an extent which the directors consider to be reasonable, based on the information that is available to them at the time of approval of these financial statements. These forecasts indicate that the Company will be able to operate within the financing facilities that are available to it and meet the covenant tests with sufficient margin for reasonable adverse movements in expected trading conditions.
The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing this Annual Report.

4. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the consolidated financial statements, the significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2016, with the addition of the following:

Disposal of Land Rover
The directors have considered IFRS 5 in relation to the classification of the trading performance and disposal of the Land Rover business which completed on 29 April 2016. The sale of the business was conditional upon shareholder approval on 21 April 2016 and as such, at 31 March 2016, the directors did not know the outcome of this vote. The directors were unable to determine that it was highly probable that the vote would approve the disposal as at 31 March 2016 and accordingly continued to classify the dealership's results as continuing operations within their 2016 financial results. Following completion, the business has been treated as a discontinued operation which has resulted in a restatement of the 2016 results to show these separately within the Income Statement.

5. NON-UNDERLYING ITEMS

	2017 £'000		Restated 2016 £'000
Net (loss)/profit on disposal of property, plant and equipment	(1)		317
Other income (net)	(1)		317
Within operating expenses:
Service cost on pension scheme	(37)		(42)
Redundancy costs	(43)		(32)
Dilapidation provision	(149)		-
Preference share premium paid on redemption	-		(156)
Preference share redemption costs	-		(136)
	(229)		(366)
Non-underlying items within operating profit	(230)		(49)
Net finance expense on pension scheme	(162)		(173)
Non-underlying items within net finance income	(162)		(173)
Total non-underlying items before taxation	(392)		(222)
Taxation credit on non-underlying items	80		49
Total after tax	(312)		(173)

The following amounts have been presented as non-underlying items in these financial statements:

There were branch specific redundancy costs of £43,000 (2016: £32,000).

The Company is due to exercise a break clause of its lease for a site in Tonbridge in June 2017. A provision for remedial work on the property and professional fees associated with the break have been estimated at £149,000.

In the prior year, the Company sold most of its freehold property in Upperton Road, Eastbourne for £1,581,000 and land in Goring Road, Worthing for £360,000 generating net gains of £281,000 and £71,000 respectively. Other losses on disposal totalled £35,000.

On 8 February 2016, the Company purchased 218,268 First Preference Shares for 108 pence each and 206,664 New Preference Shares for 167 pence each pursuant to a Redemption Option offered to shareholders. Given the nature of the transaction, the associated legal and professional costs of this purchase have been treated as non-underlying together with the premium paid on redemption.

6. FINANCE EXPENSE

	2017 £'000		Restated 2016 £'000
Interest payable on bank borrowings	190		292
Vehicle stocking plan interest	569		596
Financing costs amortised	99		104
Preference dividends (see note 10)	72		87
Finance expense	930		1,079
Interest payable on bank borrowings is after capitalising interest on additions to freehold properties of £45,000 at a rate of 2.3% (2016: £22,000, rate: 3.5%).

7. DISCONTINUED OPERATIONS

In April 2016, the Company sold the business and assets (excluding the freehold property) of its Land Rover business to Harwoods Limited ('Harwoods'). Cash consideration of £7.5 million comprised £5.5 million for goodwill together with £0.2 million for property, plant and equipment and £1.9 million for inventories less £0.1 million in respect of liabilities transferred. The total consideration was received at completion on 29 April 2016. Ownership of the freehold property in Lewes from which Harwoods continues to operate the Land Rover business remains with the Company, and is being leased to Harwoods for a period of up to three years from 29 April 2016 subject to a two-year tenant-only break clause.
As a result of this transaction, the operating activities attributed to that business, as set out below, have been disclosed as a discontinued operation.

	2017 £'000	2016 £'000
Revenue	5,828	46,089
Cost of sales	(5,516)	(41,169)
Gross profit	312	4,920
Operating expenses	(370)	(3,473)
Operating (loss)/profit	(58)	1,447
Finance expense	(3)	(55)
(Loss)/profit before taxation	(61)	1,392
Taxation credit/(expense)	12	(78)
(Loss)/profit attributed to discontinued operations	(49)	1,314
Profit on sale of business net of deferred tax	3,888	-
Profit for the period from discontinued operations	3,839	1,314

The results of the business shown above represent its trading from the start of the financial year under review until disposal on 29 April 2016. Depreciation charged in arriving at these results was £19,000 (2016: £101,000).

The carrying value of assets and liabilities on disposal are shown below.

	2017 £'000	2016 £'000
Proceeds generated on sale of business	7,512	-
Sale of property, plant and equipment	(218)	-
Transfer of inventories	(1,921)	-
Transfer of liabilities	116	-
	5,489	-
Associated transaction costs:
Professional fees	(470)	-
Adjustments arising on completion	(230)	-
Provision for onerous costs	(105)	-
Net transaction costs	(805)	-
Net gain on sale of business	4,684	-
Deferred tax expense	(796)	-
Profit on sale of business net of deferred tax	3,888	-

8. TAXATION

				2017 £'000		2016 £'000
	Current tax
			UK corporation tax	(338)		(415)
			Adjustments recognised in the period for current tax of prior periods	-		121
	Total			(338)		(294)
	Deferred tax
			Origination and reversal of temporary differences	(919)		(87)
			Adjustments recognised in the period due to change in rate of corporation tax	98		184
			Adjustments recognised in the period for deferred tax of prior periods	-		49
		Total		(821)		146
	Total tax charged in the Income Statement			(1,159)		(148)
	The tax charge arises as follows:			2017 £'000		Restated 2016 £'000
	On normal trading			(455)		(119)
	On Non-underlying items (see note 5)			80		49
	On Continuing operations			(375)		(70)
	On Discontinued operations (see note 7)			(784)		(78)
				(1,159)		(148)

	The charge for the year can be reconciled to the profit per the Income Statement as follows:
		2017 £'000		2016 £'000
	Profit before tax	6,282		2,635
	Tax at the UK corporation tax rate of 20% (2016: 20%)	(1,256)		(527)
	Tax effect of expenses that are not deductible in determining taxable profit	(63)		(23)
	Accounting depreciation/impairment for which no tax relief is due	-		(107)
	Difference between accounts profits and taxable profits on capital asset disposals	112		108
	Other differences between accounts profits and taxable profits	(48)		-
	Movement in rolled over and held over gains	(2)		47
	Re-measurement of deferred tax due to change in rate of corporation tax	98		184
	Adjustments to tax charge in respect of prior years	-		170
	Tax charge for the year	(1,159)		(148)

9. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Treasury shares are treated as cancelled for the purposes of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post-tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares. Reconciliations of earnings and weighted average number of shares used in the calculations are set out below:
		Adjusted							Basic
	2017 £'000			Restated 2016 £'000		2017 £'000				Restated 2016 £'000
Profit before tax	6,282			2,635		6,282				2,635
Adjustments:
Profit before tax relating to discontinued operations	(4,623)			(1,392)		-				-
Non-underlying items (note 5)	392			222		-				-
Adjusted profit before tax	2,051			1,465		6,282				2,635
Taxation	(455)			(119)		(1,159)				(148)
Earnings	1,596			1,346		5,123				2,487
Earnings per share	58.0p			48.8p		186.3p				90.1p
Diluted earnings per share	58.0p			48.0p		186.3p				88.7p

	2017 £'000	2016 £'000
Continuing operations:
Underlying earnings from continuing operations	1,596	1,346
Earnings per share	58.0p	48.8p
Diluted earnings per share	58.0p	48.0p
Non-underlying losses from continuing operations	(312)	(173)
Losses per share	(11.3p)	(6.3p)
Diluted losses per share	(11.3p)	(6.2p)
Total earnings from continuing operations	1,284	1,173
Earnings per share	46.7p	42.5p
Diluted earnings per share	46.7p	41.8p
Discontinued operations:
Earnings from discontinued operations Earnings per share Diluted earnings per share	3,839 139.6p 139.6p	1,314 47.6p 46.9p

The number of fully paid ordinary shares in circulation at the year-end was 2,694,790 (2016: 2,763,071). The weighted average shares in issue for the purposes of the earnings per share calculation were 2,750,015 (2016: 2,759,371). The shares granted under the Company's SAYE scheme are dilutive. All outstanding shares under option at the start of the year were either exercised or became lapsed during the year. In the prior year the weighted average number of dilutive shares under option at fair value was 45,703 giving a total diluted weighted average number of shares of 2,805,074.

10. DIVIDENDS

Paid	2017		2016
	£'000		£'000
Preference
7% Cumulative First Preference*	12		18
11% Cumulative Preference*	48		57
6% Cumulative Second Preference	12		12
Included in finance expense (see note 5)	72		87
Ordinary
Interim dividend paid in respect of the current year of 7.5p (2016: 7.25p)	202		200
Final dividend paid in respect of the March 2016 year end of 14.5p (2015: 13.5p)	401		373
	603		573
Proposed
In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2017 of 15.0 pence per share which will absorb £404,000 of shareholders' funds (2016: 14.5p per share absorbing £401,000). The proposed final dividend is subject to approval by shareholders at the forthcoming Annual General Meeting and has not been included as a liability in these financial statements.
*Redemption of preference shares and change to coupon rate
On 8 February 2016, the Company repurchased 218,268 6.5% Cumulative First Preference shares and 206,664 10% Cumulative Preference shares. The voting rights attributable to the 10% Cumulative Preference shares have been removed and at the same time the coupon rates were raised from 6.5% to 7% and from 10% to 11% respectively.

11. NOTES TO THE CASH FLOW STATEMENT

		2017 £'000		Restated 2016 £'000
	Profit before taxation for continuing operations	1,659		1,243
	(Loss)/profit before tax for discontinued operations (note 8)	(61)		1,392
	Profit before tax for the year	1,598		2,635
	Adjustment for share redemption premium and costs	-		292
	Adjustment for net finance expense	1,092		1,350
		2,690		4,277
	Adjustments for:
	Depreciation of property, plant and equipment and investment properties	1,196		1,148
	Change in retirement benefit obligations	(350)		(324)
	Loss/(gain) on disposal of property, plant and equipment	1		(317)
	Share-based payments	21		51
	Operating cash flows before movements in working capital	3,558		4,835
	Decrease/(increase) in inventories	1,100		(1,029)
	Decrease/(increase) in receivables	611		(1,235)
	(Decrease)/increase in payables	(2,034)		241
	Cash generated by operations	3,235		2,812
	Tax paid	(557)		(325)
	Interest paid	(935)		(1,135)
	Net cash derived from operating activities	1,743		1,352

Included within the amount of net cash derived from operating activities is cash inflow of £664,000 (2016: £1,574,000) attributable to discontinued operations. Accordingly, the net cash from operating activities in respect of continuing operations during the year was £1,079,000 (2016: £222,000 outflow).

Added: 26 May 2017