REG-Halfords Group PLC Halfords Group PLC: Acquisition of Lodge Tyre

HalfordsAnnouncement

05/10/2022 09:30

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   Halfords Group PLC (HFD)
   Halfords Group PLC: Acquisition of Lodge Tyre

   05-Oct-2022 / 07:00 GMT/BST
   Dissemination of a Regulatory Announcement, transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   5 October 2022

                               Halfords Group plc

                           Acquisition of Lodge Tyre

    

    Halfords is now the market leading, commercial tyre provider in the UK.

                                        

   Headlines

    

   Halfords Group plc (“Halfords” or the “Group”), the UK's largest provider
   of Motoring and Cycling products and services, today announces the
   acquisition of LTC Trading Holdings Limited and its subsidiary Lodge Tyre
   Company (The) ("Lodge Tyre") (the "Acquisition") (the “Company”) for total
   consideration of £37.2 million (the “Consideration”) with £33.2 million
   paid on completion and £4 million paid in FY25 subject to performance.

    

     • Lodge Tyre is a  well-established business in  the UK commercial  tyre
       market, providing automotive services to business-to-business  ("B2B”)
       customers from 50 garages and 248 mobile vans.
     • The Acquisition takes  the Halfords  garage services  business to  656
       garages, 253 consumer vans, 440 commercial vans and 9 warehouses.
     • The  directors  of  the  Group  (the  "Directors")  believe  that  the
       Acquisition  is   both  strategically   and  financially   compelling,
       delivering on Halfords' objective of further evolving into a  business
       more heavily weighted  towards motoring services,  which provide  more
       resilient, needs-based revenue streams.
     • Post completion, on an annualised basis, Services revenue will account
       for c.48% of Group revenues, up from 26% in FY20.
     • Halfords is already the UK’s market leading Motoring Service  provider
       to consumers, and  on completion  will also  be the  UK’s largest  B2B
       commercial tyre provider by revenue and national coverage.
     • Lodge Tyre generated pro forma EBITDA of £4.7 million on a pre-IFRS 16
       basis (1)  in the  year ending  31 March  2021. The  Group expects  to
       deliver incremental synergies worth £3.8 million (EBITDA) by year 5.
     • The deal will be EPS accretive in the first year of ownership and will
       deliver an  IRR  that  exceeds  the Group  weighted  average  cost  of
       capital.

   Graham Stapleton, Chief Executive Officer of Halfords, commented:

   "The acquisition  of  Lodge  Tyre  is yet  another  example  of  Halfords’
   strategic aim of becoming a  Motoring Services-focused business, and  will
   mean that Motoring accounts for over three quarters of our total  revenue.
   The current  trading environment  reinforces  the rationale  for  building
   ever-more resilient, needs-based  revenue streams, which  is exactly  what
   the Motoring category offers.  Within that, the  nature of the  commercial
   tyre market means  that it  is non-discretionary  and therefore  extremely
   well insulated against macroeconomic uncertainty.

    

   Lodge is an outstanding operation that perfectly complements our  existing
   commercial tyre businesses of McConechy’s  and Universal Tyres, and  gives
   us a  much  greater  reach  across  the UK.   We  were  already  the  UK’s
   market-leading  Motoring   Service  provider   to  consumers,   and   this
   acquisition will also make us  the UK’s largest commercial tyre  provider.
   We look forward to welcoming the Lodge team to the Halfords family.”

   Lodge Tyre overview

     • Lodge Tyre is  a highly  respected business  in the  tyre and  vehicle
       maintenance market, with a rich heritage dating back to 1935.
     • Employing over  400 highly  skilled colleagues,  it operates  from  50
       garages, 248 mobile tyre fitting vans, and a Warehouse in  Birmingham,
       providing on-demand and emergency  coverage across the Midlands,  East
       Anglia, North Wales and the North-West. The business headquarters  are
       in Stafford.
     • These  locations  are  highly  complementary  to  Halfords’   existing
       commercial tyres businesses of McConechy’s Tyres (located in  Scotland
       and Northern England) and Universal  Tyres (located in London and  the
       South-East of  England) therefore  providing much  greater  nationwide
       coverage of Halfords’ Commercial Fleet Service business.
     • Over 90%  of  Lodge  Tyre’s  sales  are  to  B2B  customers  operating
       commercial vehicles.

   Strategic benefits

     • The  Directors   believe  that   the  Acquisition   is   strategically
       compelling,  delivering  on  Halfords’   strategic  growth  plans   in
       Motoring,  Services  and   B2B  markets   and  unlocking   significant
       synergies.
     • Halfords is the UK’s largest  vehicle service, maintenance and  repair
       business. This  Acquisition further  consolidates this  position.  The
       addition of Lodge Tyre takes Halfords a significant step closer to its
       target of 500 Commercial vans and 800 garages.
     • The Acquisition further enhances the proportion of needs-based revenue
       across the Group. On an annualised basis:

          • Motoring revenues will account for c.77% of Group revenues, up
            from 65% in FY20.
          • Services revenues will account for c.48% of Group revenues, up
            from 26% in FY20.
          • B2B revenues will account for c.22% of Group revenues, up from
            15% in FY20.

     • Lodge Tyre infills areas of the UK where Halfords’ Commercial business
       has had less  representation. When coupled  with the Group’s  existing
       commercial businesses of McConechy’s and Universal, Halfords will have
       a scaled national network helping  to win larger, national  commercial
       contracts and unlocking significant synergies.
     • The scale of Halfords’ B2B business will enable it to further test and
       develop its Avayler platform for commercial businesses, increasing the
       opportunity of its SaaS business.
     • The increased scale  will create  an opportunity  to further  leverage
       Viking, Halfords’ wholesale, tyre distribution business.

   Acquisition Summary

     • Halfords has signed a share purchase agreement to purchase the  entire
       issued share capital of  Lodge Tyre on a  cash free, debt free  basis,
       for total consideration of £37.2 million, subject to an adjustment for
       normalised working capital.
     • £33.2 million of the Consideration will be paid in cash on completion,
       with the remaining  £4 million  paid in FY25  subject to  successfully
       achieving set profit performance criteria.
     • A further investment of up  to c.£6 million of  capex will be made  in
       the three years  post the  Acquisition to integrate  and optimise  the
       business.
     • In the year ending 31 March 2021 the Company had gross assets of £27.4
       million, delivered turnover of £68.2  million, EBITDA of £4.7  million
       and profit before tax of £2.9 million on a pre-IFRS 16 basis (1).
     • Targeted synergy benefits are  expected to deliver incremental  EBITDA
       of £3.8 million per annum by  year 5. The Consideration reflects a  4x
       multiple of year 5 EBITDA (post synergies).
     • Lodge Tyres’  existing shareholders  Andrew Martin  Christmas,  Martyn
       Joseph Lodge and Simon Peter Christmas will remain in the business  on
       employment contracts as members of the Lodge senior management team.

    

   (1) Figures reflect the Company’s last audited financial statements,  with
   pro forma  adjustments made  to  reflect the  differing structure  of  the
   business post completion. Adjustments include asset transfers,  management
   charges and property rental costs. All numbers are pre-IFRS16.

    

   Enquiries

   Investors & Analysts (Halfords) 

   Jo Hartley, Chief Financial Officer 

   Richard Guest, Corporate Finance Director  

   Andy Lynch, Head of Investor Relations +44 (0) 7483 457
   415                                                   

    

   Media (Powerscourt) +44 (0) 20 7250 1446

   Rob Greening halfords@powerscourt-group.com

   Nick Hayns

   Elizabeth Kittle

    

   Next trading statement

   On 23 November  2022 we  will report our  Interim results  for the  period
   ending 30 September 2022.

    

   Notes to Editors

    

   www.halfords.com                                       1 www.tredz.co.uk  
    2 www.halfordscompany.com                     

    

   Halfords is the UK's leading provider of motoring and cycling services and
   products. Customers shop  at 397  Halfords stores,  3 Performance  Cycling
   stores (trading  as Tredz  and Giant),  656 garages  (trading as  Halfords
   Autocentres, McConechy’s, Universal, National  Tyres and Lodge Tyres)  and
   have access to 253 mobile service vans (trading as Halfords Mobile Expert,
   Tyres on the Drive  and National) and 440  Commercial vans. Customers  can
   also shop at halfords.com and tredz.co.uk for pick up at their local store
   or direct home  delivery, as  well as  booking garage  services online  at
   halfords.com.

    

   Cautionary statement

   This report contains  certain forward-looking statements  with respect  to
   the financial condition, results of operations, and businesses of Halfords
   Group plc. These  statements and forecasts  involve risk, uncertainty  and
   assumptions because they  relate to events  and depend upon  circumstances
   that will occur in the  future. There are a  number of factors that  could
   cause actual  results  or developments  to  differ materially  from  those
   expressed  or   implied  by   these  forward-looking   statements.   These
   forward-looking  statements  are  made  only  as  at  the  date  of   this
   announcement. Nothing in this announcement should be construed as a profit
   forecast. Except as required by law, Halfords Group plc has no  obligation
   to update the  forward-looking statements or  to correct any  inaccuracies
   therein.

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   ISIN:           GB00B012TP20
   Category Code:  ACQ
   TIDM:           HFD
   LEI Code:       54930086FKBWWJIOBI79
   OAM Categories: 3.1. Additional regulated information required to be
                   disclosed under the laws of a Member State
   Sequence No.:   192401
   EQS News ID:    1456695


    
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