REG-Halfords Group PLC Halfords Group PLC: Interim Results: Financial Year 2023
23/11/2022 07:15
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Halfords Group PLC (HFD)
Halfords Group PLC: Interim Results: Financial Year 2023
23-Nov-2022 / 07:00 GMT/BST
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23 November 2022
Halfords Group plc
Interim Results: Financial Year 2023
Resilient H1 performance, with Service-related sales now accounting for 48%
of pro forma1 Group revenues vs 23% in FY20.
Increase in services demand means we are announcing a recruitment drive to
fill 1,000 new automotive technician roles in the next 12 months.
Halfords Group plc (“Halfords” or the “Group”), the UK’s leading provider
of Motoring and Cycling services and products, today announces its interim
results for the 26 weeks to 30 September 2022 (“the period”).
To provide a better understanding of underlying performance, financial
comparisons will primarily be made relative to FY20, that is, on a
three-year basis, unless otherwise stated. The disruption from COVID-19 to
both FY21 and FY22 means that comparators against these years are more
difficult to interpret. All numbers shown are on a post-IFRS 16 basis and
before non-underlying items, unless otherwise stated.
Overview
H1 FY23
• Strong total revenue growth vs FY20, up +31.4%, or up +13.3% LFL. All
segments delivering LFL growth over three years, with Autocentres
+30.0%, Retail Motoring +10.2% and Cycling +8.6%.
• Total revenue growth of +10.2% and -1.5% LFL vs FY22 against strong
prior year comparatives (see figure 3), when sales benefitted from the
UK emerging from the final COVID-19 lockdown. Performance driven by the
strength of needs-based spend categories.
◦ Service-related sales represent 42.6% of Group revenues in the
period and are expected to reach c.48% of sales on an annualised
basis following the acquisition of Lodge Tyre. Over half of Group
sales expected to come from services in FY24.
◦ Our needs-based business has grown over +50% vs FY20 and now
accounts for the majority of our revenues.
• Strong strategic progress evidenced through Motoring Loyalty Club
membership numbers being above expectations, the acquisition of Lodge
Tyre, the expansion of Avayler (our unique, proprietary software
business) into Europe with ATU signed post period end, the rollout of a
capital efficient Fusion programme, and the continued integration of
National Tyres.
• Robust profit performance in the period, in-line with our expectations,
with Underlying Profit Before Tax (PBT) of £29.0m, -£1.2m vs. FY20 and
-£28.9m vs FY22 despite significant inflationary headwinds and low
customer confidence. FY22 includes business rates relief of £9.2m.
• Strong net cash, pre-lease debt of £32.3m and good stock availability.
• Net Debt : EBITDA (post IFRS 16) of 1.8x, within our target range. Our
£180m debt facility has been extended until December 2025.
• Interim dividend of 3p per share declared, to be paid in January 2023.
FY23 outlook
• Good visibility on H2 costs, with utilities fully purchased at costs in
line with FY22 and 98% of FY23 USD requirements hedged at $1.32. Cost
and efficiency programs will exceed £20m of savings vs last year, ahead
of the £15m target set out in our preliminary results.
• H2 trading to-date has continued to be strong in needs-based areas, but
the more discretionary areas have softened.
• Underlying profit before tax (“PBT”) expected to be at the lower end of
our £65m to £75m range.
Graham Stapleton, Chief Executive Officer, commented:
"This has been a period of strong strategic progress and resilient
financial performance for Halfords. In such a volatile macroeconomic
environment, our strategy of focusing on the kind of predictable and
recurring revenue that comes from motoring services and needs-based
products has never been more relevant. Once the acquisition of Lodge Tyre
has annualised, Service-related sales will account for over 48% of our
revenues and we expect this to grow to over 50% next year. Lodge Tyre will
also mean motoring represents around 77% of total sales.
The success of our Motoring Loyalty Club is exceeding our expectations, as
customers continue to be attracted by a range of discounts and offers that
are aimed at helping motorists across the UK with the rocketing cost of
running and maintaining a car. The club is playing a key role in the
rapidly growing demand that we are seeing for vehicle servicing, MOTs,
maintenance and repairs. In order to help meet that demand, we are today
launching a recruitment drive to fill 1,000 new automotive technician roles
over the next 12 months. In particular, we are hoping to attract retirees
back into the workforce, as well as increasing the number of women in
technician roles.”
Group financial summary (fig.1)
FY23 FY20 FY23 vs FY22 FY23 vs
£m
H1 H1 FY20 H1 FY22
Revenue 765.7 582.7 183.0 694.8 70.9
Retail 500.5 500.0 0.5 538.7 -38.2
Autocentres 265.2 82.7 182.5 156.1 109.1
Gross Margin 51.3% 50.1% +130bps 51.7% -39bps
Retail 50.2% 47.0% +320bps 50.6% -40bps
Autocentres 53.5% 68.6% -1500bps 55.6% -215bps
Underlying EBITDA 92.0 90.8 1.2 115.7 -23.7
Underlying Profit Before Tax (“PBT”) 29.0 30.2 -1.2 57.9 -28.9
Profit Before Tax 29.3 27.5 1.8 64.3 -35.0
Underlying Basic Earnings per Share 10.6p 12.2p -1.6p 24.0p -13.4p
Group revenue summary (fig.2)
3-Year vs. FY20 1-Year vs. FY22
Growth Growth
Total LFL Total LFL
Halfords Group +31.4% +13.3% +10.2% -1.5%
Autocentres +220.7% +30.0% +69.9% +14.3%
Retail +0.1% +10.4% -7.1% -6.0%
Motoring +3.7% +10.2% -2.4% -1.5%
Cycling -4.4% +8.6% -11.8% -12.5%
Group LFLs vs FY20 comparisons (fig.3)
LFL vs. FY20
H1 FY21 H1 FY22 H1 FY23
Halfords Group +6.7% +17.5% +13.3%
Autocentres -2.0% +15.5% +30.0%
Retail +8.1% +17.8% +10.4%
Motoring -23.7% +11.9% +10.2%
Cycling +54.4% +25.3% +8.6%
Group services (fig.4)
% Group % Group % Group % Group
As at H1 Close Revenue Revenue Revenue Revenue
FY20 FY21 FY22 FY23
Service-Related Sales 22.5% 23.8% 33.2% 42.6%
Product Sales 77.5% 76.2% 66.8% 57.4%
Group 100% 100% 100% 100%
H1 Summary:
Group Revenue
• Service-related sales of £326m, c.42.6% of Group, up from £230m (33.2%)
last year, have already exceeded service-related sales in the whole of
FY20.
• B2B sales of £201m, 26.3% of total Group, up from £139m (20.0%) last
year and above the whole of FY20.
Autocentres
• Resilient performance continued through the period with LFL performance
of +30.0% vs FY20 and +14.3% vs FY22 and gaining market share.
• Performance driven by improved productivity enabled by Avayler,
increased customer awareness from group-wide marketing and our Motoring
Loyalty Club.
• Total revenue growth of +69.9% vs FY22, trebling the size of the
business since FY20 from both LFL growth and acquisitions.
• Our Commercial business performed particularly well in the period with
sales up +84% vs FY22, underpinned by the strength of customer
relationships and the more predictable nature of revenues.
• A competitive labour market has led to capacity constraints. This
provides an opportunity through H2 as we further increase our focus on
the recruitment and retention of technicians. We are announcing today a
recruitment drive to fill 1,000 new automotive technician roles in the
next 12 months
• Tyre market share increased although the tyre market has not recovered
in line with expectations and remains significantly below pre-COVID
levels. This will continue to impact underlying trading in National
Tyres until the market recovers to normal levels.
Retail
• Trading in-line with expectations, with LFL performance of +10.4% vs
FY20 and -6.0% vs FY22. The decline versus FY22 is partly driven by the
strength of the comparative period (as evidenced by figure 3), as well
as the challenging economic environment in FY23.
• Motoring:
◦ Revenue +10.2% LFL vs FY20, reflecting increased market share from
our “Keep on Motoring for Less” pricing initiatives and the growth
of our Motoring Loyalty Club.
◦ Revenue -1.5% LFL vs FY22, with growth across needs-based
categories such as maintenance, offset by lower sales in higher
ticket discretionary categories.
◦ Our strategic price investment has performed well, delivering LFL
volume growth vs FY20, and has supported continued increase in
volume market share in the period across both needs-based and more
discretionary markets.
• Cycling:
◦ Revenue +8.6% LFL vs FY20 and –12.5% LFL vs FY22, as a result of
the strong FY22 H1 comparative (figure 3). Market share growth has
partially offset the impact of a softer market, caused by reduced
discretionary spend.
◦ Strong stock availability as we head into the Christmas trading
period.
◦ Our B2B Cycle2Work scheme is proving very resilient, up +7.9% vs
FY22.
Gross margin
• Group gross margin of 51.3% represents +130 basis point (bps)
improvement versus the 50.1% delivered in FY20. This is partly through
the mix of Group transitioning towards the higher margin Autocentres
business, alongside our Cycling optimisation since FY20.
◦ Autocentres margin has improved on an underlying basis since FY20,
but is diluted by the growth in tyre revenue through acquisition,
which is lower margin (%).
• Group gross margin declines -39bps versus FY22, in line with
expectations, following motoring price investment, cost of goods price
inflation, and the annualisation of National Tyres.
Cost and efficiency:
• Strong progress made on our cost and efficiency programme during the
period.
• H1 savings of £9.8m vs. last year with full year savings anticipated to
be +£20m, exceeding the full year target of £15m.
• FY23 utilities bought in full, with nil increase on last year. FY24
consumption is c.50% hedged which has locked in c.£5.5m of extra cost
year-on-year. Risk management strategy in place to optimise purchase of
remaining volume for FY24.
• FY23 USD requirements 98% hedged at an average rate of $1.318. 35% of
FY24 hedged at $1.237.
• We continue to competitively negotiate freight at or below spot rates,
and expect this to be a tailwind into FY24.
Strategic update
• Acquisition of Lodge Tyre in October 2022
◦ Halfords is now the largest Commercial Tyre provider in the UK.
◦ Acquisition delivers strategically important Motoring, Service and
B2B revenue streams, adding resilience through needs-based and
contracted revenues.
◦ Once Lodge is annualised, service-related sales will account for
c.48% of Group.
• Motoring Loyalty Club
◦ Over 980k members year-to-date, and therefore expecting to beat
500k to 1m full year target.
◦ 64k premium members year-to-date, with an expectation of reaching
the upper end of our full year target of 50k – 100k.
◦ Driving excellent cross-shop results, with 15% of club members
cross-shopping, compared with 4% across non-club members.
◦ Introduced 230k new customers to the Group, of which 82% are new
to Autocentres.
• Avayler Growth
◦ Continued growth in our unique, proprietary software business.
◦ Expansion into Europe following signing of third international
customer post period end.
◦ Signed ATU, part of the Mobivia group with the roll-out to start
in Germany through ATU’s mobile fleet.
• National Tyres
◦ Integration progressing well following the acquisition in December
2021, with all sites now operational on our Avayler garage
platform, “PACE”.
◦ MOT lane installation commenced, and re-branding being tested in
selected sites.
• Fusion
◦ Roll out of capital efficient programme to more towns.
◦ 17 towns have already received car park referral managers, new
technology and new operating processes, with a target of 30 towns
by year end.
◦ “Solution selling” training completed by over 95% of Retail
colleagues and almost 90% of Autocentre managers.
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
Results presentation
A pre-recorded webcast followed by a live Q&A call for analysts and
investors will be held today, starting at 08:00am UK time. Attendance is by
invitation only. A copy of the transcript of the call will be available at
1 www.halfordscompany.com in due course. For further details please
contact Powerscourt on the details above.
Next trading statement
On 12 January 2023 we will report our Q3 Trading Update for the period
ending 30 December 2022.
Notes to Editors
www.halfords.com 2 www.tredz.co.uk
3 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), 646 garages (trading as Halfords
Autocentres, McConechy’s, Universal, National Tyres and Lodge Tyres) and
have access to 268 mobile service vans (trading as Halfords Mobile Expert,
Tyres on the Drive and National) and 433 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.
Chief Executive’s Statement
The first half of FY23 has been a period of strong strategic progress and
resilient financial performance, despite the volatile economic backdrop.
Our Motoring Loyalty club will beat our full year targets, our Avayler
business has signed another large international client in November, the
integration of National and rollout of Fusion continues, and shortly after
the period closed we completed the acquisition of Lodge Tyre, a business
centred around our strategically important Motoring Services and B2B
markets.
Three years ago, we outlined a strategy to “evolve into a consumer and B2B
services-focused business, with a greater emphasis on motoring”. The
importance of this strategy has never been clearer given the volatile
macro-economic conditions that continue to impact the UK and global
economies. In periods of low consumer confidence and high inflation, the
benefits of predictable and recurring revenue derived from needs-based,
less discretionary areas have never been more valuable.
This strategic progress has enabled the Group to accelerate its transition
towards becoming a services-business, with service-related sales now
accounting for 43% of the Group in H1 FY23. This compares to 33% in the
same period last year and is already more, in absolute terms, than the full
year FY20 figure. Once annualised, the Lodge Tyre acquisition will expedite
this transition, with service-related sales projected to be c.48% of Group,
Motoring sales c.77%, and B2B sales c.22%. During FY24 we expect
service-related sales to exceed 50% of Group sales for the first time – a
significant milestone in the strategic evolution of our business.
Whilst this strategic transformation is not yet complete, the transition we
have made over the past few years is one of the key reasons for our robust
financial performance in the first half of FY23. Group underlying PBT in
the period of £29.0m was down just -4.1% versus FY20 and -49.9% on FY22
despite significant cost inflation, a reduction in consumer confidence and
the very strong first half trading performance of FY22 as the UK came out
of lockdown.
Group revenue
Revenue in the period demonstrated our growing resilience, delivering
strong LFL and total revenue growth across the Group. Group LFL revenues
were +13.3% vs FY20 and down only -1.5% vs FY22. Performance vs FY20
showcases the growth of the underlying business compared to the last normal
pre-COVID year, and with total growth of +31.4% after including our
acquisitions, the increased scale of the business is significant.
FY22 comparisons are also encouraging. H1 FY22 was a strong trading period,
with sales buoyed by the UK coming out of lockdown. In contrast H1 FY23 has
seen a significant decline in general consumer confidence. The LFL
performance and total growth of +10.2% therefore demonstrates the growing
resilience of our revenues, and our strategic progress.
Autocentres
Our growing Autocentres business performed very well over the period. Our
consumer garages and Halfords Mobile Experts both delivered strong revenue
growth, as did the B2B commercial operation of McConechy’s and Universal
Tyres. The continued growth of this strategically important B2B commercial
operation is covered in more detail in the “Strategic Review” section of
this statement.
Retail Motoring
Retail saw a resilient performance in Motoring, with overall sales +10.2%
LFL vs FY20 and -1.5% vs FY22, alongside increased market share in our
measured categories. This performance was underpinned by our “Keep on
Motoring for Less” campaign and strategic price investment that has seen
strong volume growth, partially offsetting the price investment and lower
sales of more discretionary, higher ticket, items such as technology. This
is a particularly strong performance as we anticipated it taking longer to
get to the levels of volume growth we are seeing within our invested
categories.
Retail Cycling
Our Cycling business has also performed well and proved to be more
resilient than initially anticipated. Whilst sales have declined -12.5% LFL
relative to the strong COVID-19 FY22 comparisons, the LFL business since
FY20 has performed well, growing +8.6% LFL whilst we have simultaneously
improved the profitability of the Cycling business through our store
rationalisation and product profitability.
Cycling however, has borne the brunt of many of the economic headwinds, as
a result of being higher ticket and more discretionary, and more exposed to
many of the inflationary impacts including raw materials, freight and a
weakening sterling to USD exchange rate. This has ultimately meant that
consumers have seen inflationary pressures passed through to prices and may
see further pressures into FY24, particularly with respect to foreign
exchange. Our B2B Cycle2Work business has proven to be resilient and offers
a significant opportunity to us due to the bigger savings available to end
consumers as they navigate the cost-of-living crisis and as we target a
greater share of SME businesses in H2.
More broadly, as market leaders in Cycling - with a successful range of
exclusive, own brand bikes - we also have options to negotiate with
suppliers and re-engineer ranges to meet customer specification and price
demands.
Strategic review
Acquisition of Lodge Tyre in October 2022
Like the existing Halfords businesses of Universal Tyres and McConechy’s
Tyres, Lodge Tyre is a commercial vehicle tyre and service specialist.
These businesses carry out tyre fitting, repair, and servicing on
commercial vehicles – large vans through to HGVs, tractors and plant.
Revenues are predominantly B2B and are therefore contracted or highly
predictable due to the importance of keeping a third-party company’s fleet
operational.
The acquisition of Lodge in October was perfectly aligned to our ongoing
strategy, with Lodge revenues being 100% Motoring, 100% Services, and over
90% B2B.
Equally as important was the completion of our national scale in the
commercial tyre market, with the Lodge locations (operating across the
Midlands from 50 garages, 240 mobile vans and 1 warehouse) perfectly
complementing our existing businesses of Universal Tyres and McConechy’s
Tyres. Halfords is now the largest commercial vehicle tyre services
business in the UK.
The combined strength of McConechy’s, Universal and Lodge offers a
significant opportunity to grow our B2B revenues in the future through
national fleet contracts, whilst simultaneously providing resilience
through needs-based revenue streams.
Avayler growth
Our SaaS platform “Avayler”, the unique digital operating model that
underpins our business, has already entered the US market with two large
automotive businesses, ATD and Tirebuyer. Shortly after the period closed,
Avayler also entered the Central European market having signed an agreement
with Mobivia, a large automotive conglomerate.
This is another exciting addition to our platform and demonstrates its
market leadership. Under the Mobivia organisation, ATU will be using
Avayler to underpin the launch of a market-first, mobile servicing fleet
across Germany.
Motoring Loyalty Club
March 2022 saw the launch of the Halfords Motoring Loyalty Club - the UK’s
first loyalty club centred around motoring. At our preliminary results we
described the rich dataset it would bring to the Group at the same time as
highlighting the significant financial opportunity as the club grows and
becomes optimised to customers’ needs. In June 2022, we stated an ambition
to have between 500k and 1m members by the end of FY23. The performance in
the year-to-date has exceeded our expectations, with over 980k members by
week 34.
We are therefore confident that the club will exceed our targets within its
first year, demonstrating the appeal of this proposition for customers.
More importantly though, the financial and customer performance has also
exceeded expectations. The club is delivering very strong cross-shop
results of 15% against a company average of 4%, with cross-shop to
Autocentres being particularly strong. We are attracting both new and
existing customers, and both groups are spending more than an average
Halfords customer.
We remain very excited about the opportunities that this customer
proposition brings us and see it as a key platform on which we can build
our future growth.
National Tyres integration
The integration of National Tyres, which we acquired in December 2021,
continues to progress well. We have now installed our Avayler garage
software “PACE” across the estate and have commenced the re-branding of
selected sites from “National Tyres” to “Halfords Autocentres”. We have
also made excellent progress on our synergy programme, with particularly
strong procurement savings. As noted at our 20-week update, the tyre market
is yet to recover to pre-COVID levels which is giving a short-term headwind
to underlying trading. That said, we remain confident in the market
recovering and are therefore still confident in our original business case
assumptions.
Fusion Programme
Our Fusion programme is the transformation of the Halfords customer
experience within a town. FY22 saw us bring this to life in two trial
towns – Colchester and Halifax – where we tested how optimal we could make
the customer experience.
Across both towns, we successfully delivered a seamless, convenient, and
consistent experience to our customers. We were able to highlight our
super-specialist credentials and our unique combination of stores, garages
and mobile experts, together with product advice and services delivered by
fantastic colleagues.
This year, the roll out of Fusions centres around the most capital
efficient elements, developing the customer proposition further, and
focusing on the most successful elements of the trial, delivering it to
more locations across the UK.
So far this year, we have trained 95% of our Retail colleagues, and almost
90% of our Garage managers in “selling solutions”. In our car parks, we
have deployed 17 colleagues as car park referral managers. This has been
constrained by the ongoing recruitment challenges across the sector, but we
expect to increase this number by the end of this year.
I remain excited about the long-term prospects for this programme, as we
rollout the very best of Fusion across our estate.
Operational review
Although the supply chain and lockdown challenges brought about by COVID-19
have almost entirely subsided, the operating environment continues to
remain very challenging, with the worst cost of living crisis in a
generation. Numerous new challenges have impacted the immediate operating
environment and have also added significant uncertainty as we look forward.
Most notably, the inflationary backdrop has been building globally since H2
FY22 but escalated significantly with the onset of the war in Ukraine.
Every business within the UK, directly or indirectly, will have been
exposed to large and unavoidable inflationary pressure through energy
costs, the appreciation of the USD, increases in National Minimum Wages
(“NMW”), raw material price increases, freight cost increases as well as
general inflationary pressure.
Whilst certain aspects of inflation have been unavoidable such as NMW and
the cost of raw materials, we have been very successful at mitigating and
minimising the impact of others through supplier negotiations, hedging
policies and tactical cost savings and efficiencies. Notwithstanding those
mitigations, as a Group we estimate that we have been exposed to over £30m
of headwinds vs last year. Consumers therefore have inevitably seen prices
of certain products increase, particularly those most exposed to
inflationary pressures.
Forward purchasing
Two of the most significant inflationary impacts facing UK businesses are
energy and USD purchases but we have very successfully managed both of
these impacts within FY23. Our entire FY23 energy requirements were fully
purchased by October 2021 resulting in a nil, year on year impact to the
Group. This was a significant achievement and testament to our
forward-looking purchasing policies which successfully mitigated
significant potential inflation relative to spot rates or purchases made
later last year.
Our USD hedging policy has been equally successful with the Group seeing an
average hedge rate of almost $1.37 through our cost of goods during H1. We
are now 98% hedged for the FY23 purchases at an average rate of almost
$1.32 - again, significantly ahead of current spot rates.
Whilst these two pressures look to be a headwind for FY24, we will continue
to manage and limit our exposure. Our Service led strategy means USD
denominated goods have fallen as a proportion of Group cost of goods to
less than 30%. This means that while we still see exposure to foreign
exchange volatility, the scale of impact it has on profits will continue to
reduce. We will also continue to monitor markets in order to make optimal
purchases and limit risks to the business.
Freight negotiations
Freight markets have been another, highly volatile and inflationary cost to
businesses over the last 18 months. During FY21 and FY22, freight markets
saw rates increase almost 10x at their peak as businesses fought to secure
supply and transportation of goods through some of the peak demand of the
COVID period. The scale and forward purchasing of goods by the Group
enabled us to stay below spot rates through the entire COVID period.
Recently however, as global demand has fallen, freight rates have also
begun to fall to levels in line with pre-COVID. Whilst the rates the Group
had secured for FY23 were competitive rates at the time, we have since
renegotiated with our providers to ensure we continue to pay rates at or
below spot markets during H2, as spot rates fall below our previously
contracted rates.
Cost and efficiency
The Group has an excellent track record of cost and efficiency delivered
through targeted store closures, increasing sales densities, product
profitability and general cost reduction. Over the last two years this has
enabled the Group to reinvest and grow the underlying business by creating
a digitally led, customer first business.
This year is no different and in June we set a target of £15m of in year
cost reductions. Whilst these savings will be used to offset inflation, the
importance of continuing to drive reductions remains. By the close of H1,
we had already achieved savings of c.£10m vs. last year and these will
exceed +£20m over the full year, beating our original target.
These savings have been achieved through rent reductions, organisational
design, efficiency improvements within our stores, garages and contact
centres, and general savings negotiated through our tendering process.
Financial strength and resilience
It is ultimately the Group’s strategy that has enabled both a resilient H1
performance and the strong PBT growth since FY20. Transforming into a
services-led business, targeting needs-based consumer spend, and being less
reliant and exposed to the volatility of more discretionary product markets
has been, and continues to be, key.
The Group remains financially secure with strong revenue resilience, cash
generation and capital discipline. At the end of H1, the business closed
with an underlying net cash position of £32.3m and with a lower stock
volume than at the start of the year as we continue to manage intake,
whilst maintaining strong availability for our customers.
Capital structure and dividend
Our capital allocation priorities remain unchanged:
1. Maintaining a prudent balance sheet
2. Investment for growth
3. M&A, focused on Autocentres
4. Progressive dividend policy
5. Surplus cash returned to shareholders
We ended the period in a positive net cash position (pre IFRS 16 lease
debt), with a Net Debt: EBITDA ratio (post IFRS 16) of 1.8x which is within
our targets of 1.8x pre-M&A or 2.3x post. Our £180m debt facility has
recently been extended to December 2025.
With a continued strong performance from our areas of strategic focus, we
will continue with our transformation plan, for which we will require
between £45m and £50m of capital expenditure in FY23, plus a further £15m
on National. Our growth plan has been complemented by the acquisition of
Lodge Tyre at the beginning of H2.
We understand the importance of the ordinary dividend to many of our
investors and we updated our dividend policy at our preliminary results in
June 2021, reinstating the ordinary dividend from FY22 at 9p per share,
intending this to be progressive. We have declared an FY23 interim dividend
of 3p per share to be paid on 20 January 2023 with the corresponding
ex-dividend date of 15 December 2022 and the record date of 16 December
2022.
Current trading and outlook
Since the period close, we’ve continued to see resilient trading in the
more needs-based categories, but there has been a softening in the more
discretionary areas. It remains challenging to predict consumer confidence
for the remainder of FY23, but we don’t expect the challenges that
businesses are facing to dissipate soon.
Whilst the macro-economic environment remains volatile, we continue to
focus on the things that are within our control. We have good visibility of
cost inflation in FY23, having bought early on FX and utilities and will
exceed our cost and efficiency targets for the full year.
Our transition towards a more resilient, needs-based, motoring services
business leaves us much better insulated from the potentially volatile and
softer demand for discretionary goods. Our focus on increasing capacity and
retention in our garages will ensure we meet the high customer demand for
our services and also provides an opportunity to further increase our share
within these markets.
We expect full year underlying profit before tax to be at the lower end of
our £65m and £75m range. With even the very bottom-end of this range
representing double-digit percentage growth on FY20, it is a testament to
our transformation and the increasing resilience of the business.
Graham Stapleton
Chief Executive Officer, Halfords Group plc
22 November 2022
Chief Financial Officer’s Report
Halfords Group plc (“the Group” or “Group”)
Reportable Segments
Halfords Group operates through two reportable business segments:
• Retail, operating in both the UK and Republic of Ireland; and
• Autocentres, operating primarily in the UK.
All references to Retail represent the consolidation of the Halfords
(“Halfords Retail”) and Cycle Republic businesses, Boardman Bikes Limited
and Boardman International Limited (together, “Boardman Bikes”), and
Performance Cycling Limited (together, “Tredz and Wheelies”) trading
entities. All references to Autocentres represent the consolidation of the
Autocentres, McConechy’s, Axle (“National Tyres”), Avayler and Universal
trading entities. All references to Group represent the consolidation of
the Retail and Autocentres segments.
The “H1 FY23” accounting period represents trading for the 26 weeks to 30
September 2022 (“the period”). The comparative periods “H1 FY22” and “H1
FY20” represent trading for the 26 weeks to 1 October 2021 (“the prior
period”) and to 27 September 2019 respectively.
To provide a better understanding of underlying performance, operating
performance comparisons (sales, margin, profitability) will also be made
relative to FY20, that is on a 3-year basis. The disruption to the last two
years (FY21 and FY22) from COVID-19 and the Ukraine war means that one-year
comparators are, in some instances, more difficult to interpret. All
numbers shown are on a post IFRS16 basis, unless otherwise stated.
Group Financial Results
Change Change
H1 FY23 H1 FY22 23 vs 22 H1 FY20 23 vs 20
£m £m % £m %
Group Revenue 765.7 694.8 10.2% 582.7 31.4%
Group Gross Profit 393.1 359.4 9.4% 291.7 34.8%
Gross Margin 51.3% 51.7% -0.8% 50.1% 2.4%
Group EBIT 34.4 63.7 -46.0% 36.8 -6.5%
Underlying EBITDA 92.0 115.7 -20.5% 90.8 1.3%
Net Finance Costs -5.4 -5.8 -6.9% -6.6 -18.2%
Underlying Profit Before Tax 29.0 57.9 -49.9% 30.2 -4.1%
Net non-underlying items 0.3 6.4 -95.3% -2.7 -111.1%
Profit Before Tax 29.3 64.3 -54.4% 27.5 6.5%
Basic Earnings per Share, before 10.6p 24.0p -55.8% 12.2p -13.1%
non-underlying items
Group revenue in H1 FY23, at £765.7m, is up +31.4% vs FY20 and +10.2% on H1
FY22. This comprised Retail revenue of £500.5m and Autocentres revenue of
£265.2m. Group gross profit at £393.1m (H1 FY20: £291.7m and H1 FY22
£359.4m) represented 51.3% of Group revenue (H1 FY20: 50.1%, H1 FY22
51.7%). The absolute gross profit growth vs FY20 has been driven by both
Retail and Autocentres, but most notably Autocentres growing by +£85m since
FY20. This is a result of growth in the LFL business and also the
acquisitions of National, Universal and McConechy’s, which were not part of
the business during H1 FY20.
Gross margin % has also grown, +130bps vs FY20, with Retail +320bps and
Autocentres -1500bps. Retail gross margin growth is a result of the Cycling
optimisation work through FY21, offset in part by an investment in price
within our Retail Motoring business. Autocentres has seen gross margin
improvements in each underlying business, but has seen margin dilution as a
result of acquisitions of lower margin tyre businesses.
Total operating costs before non-underlying items were 40.7% higher than H1
FY20 at £358.7m and 21.3% higher than H1 FY22 (H1 FY20: £254.9m and H1
FY22: £295.7m) of which Retail comprised £216.5m (H1 FY20: £201.1m and H1
FY22: £211.4m), Autocentres £139.8m (H1 FY20: £52.7m and H1 FY22: £83.1m)
and unallocated costs £2.4m (H1 FY20: £1.1m and H1 FY22: £1.2m). Within
FY22, the Group received business rates relief totalling £9.2m of which
£7.9m was within Retail and £1.3m in Autocentres. The significant increase
in operating costs within Autocentres primarily reflects the costs within
the acquired businesses of +£58.5m. Operating expenses also saw significant
inflationary pressures totalling approximately £12m. Unallocated costs
represent amortisation charges in respect of intangible assets acquired
through business combinations, namely the acquisition of Autocentres in
February 2010, Boardman Bikes in June 2014, Tredz and Wheelies in May 2016,
McConechy’s in November 2019, Universal in March 2021 and National in
December 2021, which arise on consolidation of the Group.
The overall EBIT performance of the Group declined -£29.3m vs H1 FY22 which
was a result of a softer trading performance in more discretionary Retail
products, annualising the business rates relief and significant inflation
within costs of goods and operating expenses. Whilst the Group has made
significant progress in mitigating inflation, the combination and speed of
onset of both inflation and softer Retail trading resulted in the EBIT
decline vs FY22. Performance vs H1 FY20 declined only -£2.4m which
demonstrates the significant strategic progress and growth of the Group
which has almost entirely offset the same pressures. Group Underlying
EBITDA decreased -20.5% from H1 FY22 to £92.0m (H1 FY22: £115.7m), whilst
net finance costs were £5.4m (H1 FY22: £5.8m).
Underlying Profit Before Tax for the period was down 4.0% on H1 FY20 at
£29.0m (H1 FY20: £30.2m and H1 FY22: £57.9m). The non-underlying credit of
£0.3m in the period (H1 FY20: debit £2.7m) relates principally to
adjustments to store and autocentre closure cost provisions, offset by
acquisition fees in prior years.
After non-underlying items, Group Profit Before Tax was £29.3m (H1 FY20:
£27.5m).
Retail
Change Change
H1 FY23 H1 FY22 23 vs 22 H1 FY20 23 vs 20
£m £m % £m %
Revenue 500.5 538.7 -7.1% 500.0 0.1%
Gross Profit 251.3 272.6 -7.8% 235.0 6.9%
Gross Margin 50.2% 50.6% -0.8% 47.0% 6.8%
Operating Costs -216.5 -211.4 2.4% -201.1 7.7%
EBIT before non-underlying items 34.8 61.2 -43.1% 33.9 2.7%
Non-underlying items 1.7 6.4 -73.4% -2.5 -168.0%
EBIT 36.5 67.6 -46.0% 31.4 16.2%
Underlying EBITDA 74.7 102.3 -27.0% 80.0 -6.6%
Revenue for the Retail business of £500.5m reflected, on a
constant-currency basis, a one-year like-for-like (LFL) sales decrease of
-6.0% and three-year LFL growth of +10.3%.
Please refer to the Retail Operational Review in the Chief Executive’s
Statement for further commentary on the trading performance in the period.
Like-for-like revenues and total sales revenue mix for the Retail business
are split by category below:
H1 FY23 vs H1 FY23 vs H1 FY23 H1 FY20 H1 FY22
FY22 FY20
Total sales Total sales Total sales
LFL (%) LFL (%) mix (%) mix (%) mix (%)
Motoring -1.5 10.2 59.4% 57.5 56.7
Cycling -12.5 8.1 40.6% 42.5 43.3
Total -6.0 10.3 100.0 100.0 100.0
Gross profit for the Retail business at £251.3m (H1 FY20: £235.0m and H1
FY22: £272.6m) represented 50.2% of sales, which is a decrease on previous
year but an increase on FY20 (H1 FY22: 50.6%, H1 FY20: 47.0%). The
year-on-year decrease in gross margin % is largely driven by inflationary
cost pressures, particularly in freight and the cost of goods sold, whereas
the growth since FY20 reflects favourable buying terms, component
rationalisation, more effective promotional pricing within the cycling
category and a sales increase in higher margin motoring categories vs
cycling despite the price investment in key categories that began in H2
FY22. Although the price investment has had a dilutive impact on Motoring
margins, volume growth and market share to date have been stronger than
anticipated having an overall positive effect on total Retail gross profit.
The table below shows the average exchange rate reflected in cost of sales,
along with the year-on-year movement. The Groups hedges US dollar cashflows
12 -18 months in advance and therefore the average exchange rate reflected
in cost of sales in the period reflects the prevailing rates at this time.
H1 FY20 H1 FY22 H1 FY23
$ $ $
Average USD: GBP rate reflected in cost of sales $1.33 $1.32 $1.37
A £4.5m credit (H1 FY22: £0.8m) has been recognised at the period end
relating to Derivative financial instruments that do not qualify for hedge
accounting under the rules of IFRS 9 in the context of the Group’s policy
to hedge its inventory purchases. The gain has therefore been recognised at
fair value through the income statement. A £9.0m credit (H1 FY22: £5.0m)
has also been recognised through Other Comprehensive Income relating to the
increase in fair value of Derivative financial instruments for which hedge
accounting has been applied.
Retail operating costs before non-underlying items increased by 2.4%
against H1 FY22 and 7.7% against H1 FY20 to £216.5m (H1 FY22: £211.4m and
H1 FY20: £201.1m). The 2.4% increase against H1 FY22 is predominantly due
to last year’s business rates relief of £7.9m not recurring in H1 FY23.
This was offset somewhat by benefits associated with our cost
transformation programme as well as a reduction in bonus accruals that were
made as a result of lower overall Group performance. The 7.7% 3-year
increase in cost supported the 10.3% LFL% sales growth, incorporating
increases in store payroll, warehouse and distribution and marketing costs.
Autocentres
Change Change
H1 FY23 H1 FY22 23 vs 22 H1 FY20 23 vs 20
£m £m % £m %
Revenue 265.2 156.1 69.9% 82.7 220.7%
Gross Profit 141.8 86.8 63.3% 56.7 150.1%
Gross Margin 53.5% 55.6% -3.8% 68.6% -22.0%
Operating Costs -139.8 -83.1 68.2% -52.7 165.3%
EBIT before non-underlying items 2.0 3.7 -45.9% 4.0 -50.0%
Non-underlying items -1.4 0.0 -100.0% -0.2 600.0%
EBIT 0.6 3.7 -83.8% 3.8 -84.2%
Underlying EBITDA 17.7 13.4 32.1% 11.0 60.9%
Autocentres generated total revenues of £265.2m (H1 FY22: £156.1m), an
increase of 69.9% on H1 FY22, with one-year LFL increase of 14.3%.
The increase in total revenue from FY22 was primarily due to the
acquisition of National, but the underlying Autocentre business also
performed strongly on a like-for-like basis with growth in all categories,
particularly services and tyres.
Gross profit at £141.8m (H1 FY22: £86.8m) represented a gross margin of
53.5%, a decrease from the 55.6% gross margin in H1 FY22, reflecting the
higher tyre mix because of the acquisition of National, which made up c33%
of sales in H1 but has a lower gross margin percentage. Excluding National,
gross margin was +1.7% year on year.
Autocentre EBIT of £0.6m was £3.1m below H1 FY22 and £3.2m below H1 FY20.
FY22 comparative EBIT is distorted by the partial closure of some of the
garages, furlough claims and business rates and therefore the more relevant
comparator is H1 FY20. The dip in profitability reflects the significant
shift of the MOT peak season into our second half. Autocentres operating
costs increased by £56.7m (+68.2%) primarily driven by the acquired
National business, totalling £37.6m. Of the remaining variance, £9.0m was
driven by an increase in wages and salaries due to increased headcount and
higher colleague variable pay. This was combined with additional costs in
travel, fuel, rent and rates.
Portfolio Management
The Retail store portfolio as at 30 September 2022 comprised 397 stores
(end of H1 FY22: 403; end of FY22: 403). No new Retail stores were opened
and 3 were closed during the period.
The Autocentres portfolio as at 30 September 2022 comprised 593 locations
(304 Halfords Autocentres, 42 McConechy’s, 231 National Garages, 14 HME
hubs & 2 HaveBike hubs). At the end of H1 FY22 there were 374 locations and
at the end of FY22 606.
As at 30 September 2022 there are a total of 482 vans in operation, 196 of
which are HME, 128 McConechy’s, 93 Universal and 65 National. At the end of
H1 FY22 there were 364 vans across the Group and at the end of FY22 445.
The following table outlines the changes in the Retail and Autocentres
store portfolio over the 26-week period:
Retail Autocentres
Relocations 0 0
Leases re-negotiated 13 9
Rightsized 0 0
Openings 0 0
Mergers 0 11
Closed 3 2
Net Non-Underlying items
The following table outlines the components of the non-underlying items
recognised in the period:
H1 FY23 H1 FY22
£m £m
Organisational restructure costs 0.5 0.3
Closure costs (2.8) (6.8)
Acquisition and investment related fees 1.6 -
Provision for expected settlement of an ongoing legal case - 0.1
Replacement of warehouse management system 0.4 -
Net non-underlying items (credit) (0.3) (6.4)
In prior period, organisational restructure costs related to a strategic
redesign of our instore operating model undertaken to better meet our
customers' expectations and deliver a consistent shopping experience across
our estate. Costs of £0.3m were incurred in the prior period to transition
to the new operating model. In the current period £0.5m of redundancy costs
were incurred in relation to further organisational design changes.
During FY20 and FY21 the group completed a strategic review of the
profitability of the physical estate and subsequently closed a number of
stores and garages. Assets were impaired and costs associated with the
ongoing onerous commitments under the lease agreements and other costs
associated with the property exits were provided for accordingly. In the
current period, a credit of £2.8m (HY22: £6.8m) relates to the release of
some of these provisions as the group continues to negotiate lease
disposals and review provisions held. These will continue to unwind as
property exits are negotiated with landlords and tenants and could result
in further amounts being released to the income statement due to the
significant estimation uncertainty over the timing of exits and the final
negotiated settlements.
Acquisition and investment related fees of £1.6m (HY22: £0.0m) in the
period comprise professional fees incurred in relation to National Tyres
and the post year end acquisition of Lodge Tyre Company.
Provision for expected settlement of an ongoing legal case in the prior
period of £0.1m relates to professional and redundancy fees incurred in
relation to the national minimum wage investigation which was settled in
the prior year, these amounted to £0.1m. A release of £2.2m was made in
FY22 as the case was fully settled and paid.
Costs relating to the replacement of the Warehouse Management system were
incurred during the current period and in H2 FY22. Under the new IFRIC
guidance regarding IAS 38 this cannot be capitalised and therefore, owing
to the nature of this cost, this is disclosed as a non-underlying expense.
Finance Expense
The net finance expense for the period was lower year-on-year at £5.4m (H1
FY22: £5.8m), as a result of a decrease in the level of IFRS 16 interest,
reflecting the ageing of the lease portfolio. Net finance costs pre IFRS 16
are in line with the prior year at £1.3m (H1 FY22: £1.3m).
Taxation
The taxation charge on profit for the financial period was £6.2m (H1 FY22:
£11.6m). The effective tax rate before non-underlying items of 20.2% (H1
FY21: 18.0%) differs from the UK corporation tax rate (19.0%) primarily as
a result of movement on share based payments. The rate increase is
partially offset by the effect of the 30% permanent element of the 130%
capital allowances super deduction on qualifying plant and machinery
additions.
The full year FY23 effective tax rate is expected to be around 21% which is
due in part to the share based payment charge in the period to 30 September
2022.
Earnings Per Share (“EPS”)
Underlying Basic EPS was 10.6 pence and after non-underlying items 10.6
pence (H1 FY22: 24.0 pence after non-underlying items, H1 FY22: 26.6
pence). Basic weighted-average shares in issue during the period were
217.2m (H1 FY22: 197.8m). The increase in the basic weighted-average shares
in issue during the period from H1 FY22 is due to the issue of additional
shares in H2 FY22 to fund the acquisition of the National Group.
Dividend (“DPS”)
The Board have declared an interim dividend of 3p per share in respect of
the period to 30 September 2022 (H1 FY22: 3p). The interim dividend will be
paid on 20 January 2023 to shareholders who are on the register of members,
with an ex-dividend date of 15 December 2022 and a record date of 16
December 2022.
Capital Expenditure
Capital investment in the period totalled £20.0m (H1 FY22: £22.8m)
£14.1m was spent in Retail, of which £6.5m related to various business
system improvements, £1.0m was invested in stores, the majority of which
related to on-going store improvements and maintenance projects. Investment
has also continued in IT systems £2.2m, covering the continuous development
and enhancement of the website. A balance of £1m was invested within Tredz
& Wheelies relating to software. H1 FY22 capital expenditure of £7.4m was
spent developing the website, £3.4m was spent on business system
improvements and £5.5m was invested in store improvement and maintenance
projects.
£5.9m was spent in Autocentres, of which £1.6m relates to IT software,
£2.5m was spent on asset replacement and £1m on support centre costs.
Within this spend, £1.7m is attributable to National integration, with both
the rollout of PACE and equipment renewals being the most significant
investments. H1 FY22 capital expenditure of £7.8m related to the purchase
of Halfords Mobile Expert vans, PACE (the underpinning system architecture
within the Autocentre business) development work and replacement of
fixtures and fittings.
Inventories
Group inventory held as at the period end was £255.3m (H1 FY22: £172.3m).
The FY22 year end balance was £222.1m and as such the H1 FY23 stock balance
represents a £33.2m increase on the year end position. This has been driven
by product and freight inflation, and investment in Autocentres to support
growth.
Retail inventory increased to £200.5m (H1 FY22: £151.6m, YE FY22: £182.9).
The increase vs H1 FY22 was largely driven by a significant recovery in
stock availability and the impact of inflation. The £17.6m increase vs the
FY22 year end position was driven by inflation in the cost of goods sold
(including the impact of higher freight rates). Overall stock volumes are
broadly flat compared to year end.
Tredz and Wheelies stock value was £13.2m (H1 FY22: £10.1m, YE FY22:
£11.6m) largely driven by rise in inflation, similar to retail, as well as
an increase in stock holding.
Autocentres’ inventory was £41.6m (H1 FY22: £10.6m, YE FY22 £27.6). The
increase in inventory vs H1 FY22 primarily relates to the acquisition of
National group and their stock holding of tyres. Within this stock balance,
Autocentres have £8.2m of stock held at a 3rd party location, of which
Halfords hold the legal rights to the stock.
Cashflow and Borrowings
Adjusted Operating Cash Flow during the period, was £84.8m (H1 FY22:
£108.1m). After acquisitions, taxation, capital expenditure, net finance
costs, and lease payments, Free Cash outflow of £0.1m (H1 FY22: £31.1m
inflow) was generated in the period. The decrease in Free Cash Flow of
£31.2m from H1 FY22 is primarily due to the reduction in the Group’s EBITDA
from H1 FY22.
Group net debt was £336.0m at the balance sheet date (H1 FY22: £232.7m, YE
FY22 344.9m) consisting of £78.0m of cash, £(11.5)m bank overdrafts,
£(34.2)m the Group’s revolving credit facility, and £(368.3)m of Lease
Liabilities. The decrease in the Group’s net debt from FY22 year end of
£8.9m relates to a decrease of £22.7m in Lease Liabilities, £20.4m cash
inflow, £0.6m of other non-cash movements, and a £34.2m drawdown on the
Group’s revolving credit facility to fund the acquisition of Lodge Trading
Holdings Limited after the period end.
Post period end the Group has also successfully extended its £180m debt
facility until December 2025.
Principal Risks and Uncertainties
The Board considers risk assessment, identification of mitigating actions
and internal control to be fundamental to achieving Halfords’ strategic
corporate objectives. In the Annual Report & Accounts the Board sets out
what it considers to be the principal commercial and financial risks to
achieving the Group’s objectives. The main areas of potential risk and
uncertainty in the balance of the financial year are described in the
Strategic Report on page 72 of the 2022 Annual Report and Accounts, and all
are considered relevant to the H1 FY23 reporting. These include:
• Business Strategy
◦ Capability and capacity to effect change
◦ Stakeholder support and confidence in strategy
◦ Value proposition
◦ Brand appeal and market share
◦ Climate change & electrification
• Financial
◦ Sustainable business model
• Compliance
◦ Regulatory and compliance
◦ Service quality
◦ Cyber security
• Operational
◦ Colleague engagement/culture
◦ Skills shortage
◦ IT infrastructure
◦ Disruption to end to end supply chain
Jo Hartley
Chief Financial Officer, 22 November 2022
Glossary of Alternative Performance Measures
In the reporting of financial information, the Directors have adopted
various Alternative Performance Measures (“APMs”). APMs should be
considered in addition to IFRS measurements, of which some are shown on
Page 1. The Directors believe that these APMs assist in providing useful
information on the underlying performance of the Group, enhance the
comparability of information between reporting periods, and are used
internally by the Directors to measure the Group’s performance, not
necessarily comparable to other entities APMs.
The key APMs that the Group focuses on are as follows:
1. Like-for-like (”L4L”) sales represent revenues from stores, centres and
websites that have been trading for at least a year (but excluding
prior year sales of stores and centres closed during the year) at
constant foreign exchange rates.
2. Underlying EBIT equates to results from operating activities before
non-underlying items, as shown in the Group Income Statement.
Underlying EBITDA further removes depreciation and amortisation.
3. Underlying Profit Before Tax is profit before income tax and
non-underlying items as shown in the Group Income Statement.
4. Underlying Earnings Per Share is profit after income tax before
non-underlying items as shown in the Group Income Statement, divided by
the number of shares in issue.
5. Net Debt is current and non-current borrowings less cash and cash
equivalents, both in-hand and at bank, as shown in the Consolidated
statement of financial position, as reconciled below:
H1 FY23 H1 FY22
£m £m
Cash and cash equivalents 78.0 92.1
Borrowings – current (45.7) (0.1)
Borrowings – non-curent - (0.4)
Lease liabilities – current (75.2) (55.9)
Lease liabilities – non-current (293.1) (268.4)
Net Debt (336.0) (232.7)
6. Net Debt to Underlying EBITDA ratio is represented by the ratio of Net
Debt to Underlying EBITDA (both of which are defined above).
7. Adjusted Operating Cash Flow is defined as EBITDA plus share-based
payment transactions and loss on disposal of property, plant and
equipment, less working capital movements and movements in provisions
(excluding post period end payment run adjustment), as reconciled
below:
H1 FY23 H1 FY22
£m £m
Underlying EBIT 34.4 63.7
Depreciation and Amortisation 57.6 52.0
Underlying EBITDA 92.0 115.7
Non-underlying operating income/(expenses) 0.3 6.4
EBITDA 92.3 122.1
Share-based payment transactions 0.4 4.2
Loss on disposal of property, plant & equipment 0.5 2.5
Profit on disposal of assets held for sale - (0.5)
Working capital movements (6.1) (12.1)
Provisions movement (2.3) (8.1)
Adjusted Operating Cash Flow 84.8 108.1
8. Free Cash Flow is defined as Adjusted Operating Cash Flow (as defined
above) less capital expenditure, net finance costs, taxation, exchange
movements, and capital lease payments; as reconciled below:
H1 FY23 H1 FY22
£m £m
Adjusted Operating Cash Flow 84.8 108.1
Capital expenditure (25.5) (27.3)
Net finance costs (5.0) (5.5)
Taxation (5.9) (5.3)
Exchange movements (9.6) (0.7)
Payment of Capital element of Leases (38.9) (38.2)
Free Cash Flow (0.1) 31.1
Halfords Group plc
Condensed consolidated income statement
For the 26 weeks to 30 September 2022
26 weeks to 26 weeks to 52 weeks to
30 September 1 October 1 April
2022 2021 2022
Unaudited Unaudited
Notes £m £m £m
Revenue 7 765.7 694.8 1,369.6
Cost of sales (372.6) (335.4) (647.9)
Gross profit 393.1 359.4 721.7
Operating expenses (358.7) (295.7) (620.6)
Operating profit before 34.4 63.7 101.1
non-underlying items
Net non-underlying operating 8 0.3 6.4 6.8
income
Results from operating 34.7 70.1 107.9
activities
Finance costs 9 (5.4) (5.8) (11.3)
Net finance costs (5.4) (5.8) (11.3)
Profit before tax and 29.0 57.9 89.8
non-underlying items
Net non-underlying operating 8 0.3 6.4 6.8
income
Profit before tax 29.3 64.3 96.6
Tax on underlying items 10 (6.0) (10.4) (17.2)
Tax on non-underlying items 8 (0.2) (1.2) (1.7)
Profit for the period
attributable to equity 23.1 52.7 77.7
shareholders
Earnings per share
Basic earnings per share 13 10.6p 26.6p 37.9p
Diluted earnings per share 13 10.3p 26.0p 36.4p
Basic underlying earnings per 13 10.6p 24.0p 35.5p
share
Diluted underlying earnings per 13 10.3p 23.4p 34.0p
share
A final dividend was paid for the 52 weeks to 1 April 2022 of 6 pence per
share (2022: 5 pence per share). The directors have declared an interim
dividend of 3 pence per share in respect of the 26 weeks to 30 September
2022 (2022: 3 pence per share).
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of comprehensive income
For the 26 weeks to 30 September 2022
26 weeks to 26 weeks to 52 weeks to
30 September 1 October 1 April
2022 2021 2022
Unaudited Unaudited
£m £m £m
Profit for the period 23.1 52.7 77.7
Other comprehensive income
Cash Flow hedges: fair value changes 9.0 5.0 (9.6)
in the period
Income tax on other comprehensive (0.9) (1.2) 1.6
income
Other comprehensive income for the
period, 8.1 3.8 (8.0)
net of tax
Total comprehensive income for the
period 31.2 56.5 45.2
attributable to equity shareholders
All items within the Consolidated statement of comprehensive income are
classified as items that are or may be recycled to the consolidated income
statement
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of financial position
As at 30 September 2022
As at As at As at
30 September
1 October 1 April
2022 2021 2022
Restated*
Unaudited
Unaudited
Notes £m £m £m
Assets
Non-current assets
Intangible assets 14 444.7 401.9 442.4
Property, plant and equipment 14 97.9 79.4 101.7
Right-of-use assets 14 329.8 271.2 350.2
Derivative financial instruments 0.7 0.7 -
Deferred tax asset 13.2 8.2 14.7
Total non-current assets 886.3 761.4 909.0
Current assets
Inventories 255.3 172.3 222.1
Trade and other receivables 122.4 85.0 92.6
Derivative financial instruments 15.7 3.0 4.2
Current tax assets - 0.5 3.9
Cash and cash equivalents 15 78.0 92.1 46.3
Total current assets 471.4 352.9 369.1
Total assets 1,357.7 1,114.3 1,278.1
Liabilities
Current liabilities
Borrowings 15 (45.7) (0.1) (0.2)
Derivative financial instruments (0.1) (1.5) (0.5)
Lease liabilities (75.2) (55.9) (74.5)
Trade and other payables (350.3) (280.6) (299.6)
Current tax liabilities (0.3) - (4.0)
Provisions (20.3) (19.2) (20.4)
Total current liabilities (491.9) (357.3) (399.3)
Net current liabilities (20.5) (4.4) (30.2)
Non-current liabilities
Borrowings 15 - (0.4) -
Lease liabilities (293.1) (268.4) (316.5)
Derivative financial instruments (0.1) (0.5) -
Trade and other payables (3.7) (5.1) (4.9)
Provisions (4.3) (12.2) (6.4)
Total non-current liabilities (301.2) (286.6) (327.8)
Total liabilities (793.1) (643.9) (727.1)
Net assets 564.6 470.4 551.0
Shareholders’ equity
Share capital 16 2.2 2.0 2.2
Share premium account 16 212.4 151.0 212.4
Investment in own shares (13.1) (9.1) (11.6)
Other reserves 7.1 1.7 2.0
Retained earnings 356.0 324.8 346.0
Total equity attributable to equity 564.6 470.4 551.0
holders of the Company
* Please refer to Note 20 for further details
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of changes in equity
For the 26 weeks to 30 September 2022
For the period ended 30 September 2022 (Unaudited)
Attributable to the equity holders of the Company
Other reserves
Share Investment Capital
Share premium in own redemption Hedging Retained Total
reserve reserve equity
capital account shares earnings
£m £m £m £m £m £m £m
Closing balance 2.2 212.4 (11.6) 0.3 1.7 346.0 551.0
at 1 April 2022
Total
comprehensive
income for the
period
Profit for the - - - - - 23.1 23.1
period
Other
comprehensive
income
Cash flow hedges:
fair value - - - - 9.0 - 9.0
changes in the
period
Income tax on
other - - - - (0.9) - (0.9)
comprehensive
income
Total other
comprehensive - - - - 8.1 - 8.1
income for the
period net of tax
Total
comprehensive - - - - 8.1 23.1 31.2
income for the
period
Hedging gains and
losses
transferred to - - - - (3.0) - (3.0)
the cost of
inventory
Transactions with
owners
Acquisition of - - (1.5) - - - (1.5)
Treasury Shares
Share options - - - - - - -
exercised
Share-based
payment - - - - - 0.4 0.4
transactions
Tax on
share-based - - - - - (0.5) (0.5)
payment
transactions
Dividends to - - - - - (13.0) (13.0)
equity holders
Total
transactions with - - (1.5) - - (13.1) (14.6)
owners
Balance at 30 2.2 212.4 (13.1) 0.3 6.8 356.0 564.6
September 2022
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of changes in equity (continued)
For the 26 weeks to 30 September 2022
For the period ended 1 October 2021 (Unaudited)
Attributable to the equity holders of the
Company
Other reserves
Share Investment Capital
Share premium in own redemption Hedging Retained Total
reserve
capital account shares reserve earnings equity
£m £m £m £m £m £m £m
Closing
balance at 2 2.0 151.0 (10.0) 0.3 (2.1) 276.6 417.8
April 2021
Total
comprehensive
income for
the period
Profit for - - - - - 52.7 52.7
the period
Other
comprehensive
income
Cash flow
hedges: fair - - - - 5.0 - 5.0
value changes
in the period
Income tax on
other - - - - (1.2) - (1.2)
comprehensive
income
Total other
comprehensive
income for - - - - 3.8 - 3.8
the period
net of tax
Total
comprehensive - - - - 3.8 52.7 56.5
income for
the period
Hedging gains
and losses
transferred - - - - (0.3) - (0.3)
to the cost
of inventory
Transactions
with owners
Share options - - 0.9 - - - 0.9
exercised
Share-based
payment - - - - - 4.2 4.2
transactions
Tax on
share-based - - - - - 1.2 1.2
payment
transactions
Dividends to
equity - - - - - (9.9) (9.9)
holders
Total
transactions - - 0.9 - (4.5) (3.6)
with owners
Balance at 1 2.0 151.0 (9.1) 0.3 1.4 324.8 470.4
October 2021
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of cash flows
For the 26 weeks to 30 September 2022
26 weeks to 26 weeks to 52 weeks
to
30 September 1 October 1 April
2022 2021 2022
Restated*
Unaudited
Unaudited
Notes £m £m £m
Cash Flows from operating
activities
Profit after tax for the period 23.0 47.5 72.6
before non-underlying items
Non-underlying items 8 0.1 5.2 5.1
Profit after tax for the period 23.1 52.7 77.7
Depreciation – property, plant and 10.2 11.5 20.6
equipment
Impairment/(reversal) – property, 0.6 0.3 (0.3)
plant and equipment
Amortisation of right-of-use assets 37.4 33.4 69.9
Amortisation – intangible assets 9.4 6.8 15.8
Net finance costs 5.4 5.8 11.3
Loss on disposal of property, plant 1.2 2.5 1.8
and equipment and intangibles
Profit on sale and lease back - (0.5) (0.4)
Gain on disposal of leases (0.7) - (6.6)
Equity-settled share-based payment 0.4 4.2 7.8
transactions
Exchange movement (9.6) (0.7) 0.9
Income tax expense 6.2 11.6 18.9
Increase in inventories (22.7) (30.3) (66.7)
Increase in trade and other (30.9) (10.9) 1.3
receivables
Increase/(decrease) in trade and 47.5 29.1 (4.6)
other payables
Decrease in provisions (2.3) (8.1) (14.7)
Corporation tax paid (5.9) (5.3) (12.2)
Net cash from operating activities 69.3 102.1 120.5
Cash Flows from investing
activities
Acquisition of subsidiary, net of - - (58.5)
cash acquired
Proceeds from sale of assets held - 7.5 7.5
for sale
Purchase of intangible assets (10.9) (10.4) (22.0)
Purchase of property, plant and (14.6) (16.9) (25.3)
equipment
Net cash used in investing (25.5) (19.8) (98.3)
activities
Cash Flows from financing
activities
Proceeds from issue of share - - 61.6
capital
Repurchase of treasury shares (1.5) - (3.0)
Proceeds from share options - 0.9 1.4
exercised
Finance costs paid (0.7) (5.5) (1.6)
Proceeds from loans, net of 35.0 - -
transaction costs
Interest paid on lease liabilities (4.3) (4.6) (9.0)
Payment of capital element of (38.9) (38.2) (76.0)
leases
Dividends paid 12 (13.0) (9.9) (16.5)
Net cash (used in)/generated from (23.4) (57.3) 43.1
financing activities
Net increase/(decrease) in cash and 15 20.4 25.0 (20.9)
bank overdrafts
Cash and cash equivalents at the 15 46.1 67.0 67.0
beginning of the period
Cash and cash equivalents at the 15 66.5 92.0 46.1
end of the period
*Please refer to Note 20 for further detail
Bank overdrafts are included within Cash and cash equivalents above, see
note 15 for further details.
The notes on pages 29 to 38 are an integral part of these condensed
consolidated interim financial statements.
Halfords Group plc
Notes to the condensed consolidated interim financial statements
For the 26 weeks to 30 September 2022
1. General information
The condensed consolidated interim financial statements of Halfords Group
plc (the “Company”) comprise the Company together with its subsidiary
undertakings (the “Group”).
The Company is a limited liability company incorporated, domiciled and
registered in England and Wales. Its registered office is Icknield Street
Drive, Washford West, Redditch, Worcestershire, B98 0DE.
The Company is listed on the London Stock Exchange.
These condensed consolidated interim financial statements were approved by
the Board of Directors on 22 November 2022.
2. Statement of compliance
These condensed consolidated interim financial statements for the 26 weeks
to 30 September 2022 have been prepared in accordance with IAS 34 ‘Interim
financial reporting’ as endorsed by the UKEB. They do not include all the
information required for full annual financial statements and should be
read in conjunction with the 2022 Annual Report and Accounts, which have
been prepared in accordance with UK adopted international accounting
standards.
The comparative figures for the financial period ended 1 April 2022 are not
the Group’s statutory accounts for that financial period. Those accounts
have been reported on by the Group’s auditors and delivered to the
registrar of companies. The report of the auditor was (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report, and (iii) did
not contain a statement under section 498 (2) or (3) of the Companies Act
2006.
3. Risks and uncertainties
The Directors consider that the principal risks and uncertainties which
could have a material impact on the Group’s performance in the remaining 26
weeks of the financial year remain the same as those stated on pages 72 to
77 of our Annual Report and Accounts for the 52 weeks to 1 April 2022,
which are available on our website www.halfordscompany.com. These are also
detailed in the CFO report on page 65.
4. Significant accounting policies
Going Concern
The directors have reviewed the current financial performance, liquidity
and forecasts of the business. Further details of the assessment are
provided on pages 78 to 79 of our Annual Report and Accounts for the 52
weeks to 1 April 2022, which are available on our website
www.halfordscompany.com. The directors have updated the financial forecasts
to reflect the actual performance of the business during H1 and a more
challenging economic environment in the UK. Stress tests have been
performed on these forecasts and no issues have been raised.
Having reviewed current performance and forecasts, the Directors consider
that the Group has adequate resources to remain in operation for the
foreseeable future and have therefore continued to adopt the going concern
basis in preparing the condensed consolidated interim financial statements.
The Group’s forecasts and projections, taking into account reasonably
possible changes in trading performance, show that the Group has adequate
resources to continue in operational existence and are compliant with all
covenants for a period of at least 12 months from the date of approval of
these financial statements.
Accounting Policies
As required by the Disclosure and Transparency Rules of the Financial
Conduct Authority, the condensed consolidated interim financial statements
have been prepared by applying the accounting policies and presentation
that were applied in the preparation of the 2022 Annual Reports and
Accounts, which are published on the Halfords Group website,
4 www.halfordscompany.com.
The accounting policies adopted in the preparation of the interim financial
statements are the same as those set out in the Group’s annual financial
statements for the 52 weeks ended 1 April 2022.
5. Estimates and judgements
The significant judgements made by management in applying the Group’s
accounting policies and the key sources of estimation uncertainty were the
same as those applied to the consolidated financial statements as at and
for the 52-week period ended 1 April 2022 and the 26 weeks ended 1 October
2021.
6. Operating segments
The Group has two reportable segments, Retail and Car Servicing, which are
the Group’s strategic business units. Car Servicing became a reporting
segment of the Group as a result of the acquisition of Nationwide
Autocentres on 17 February 2010. The strategic business units offer
different products and services, and are managed separately because they
require different operational, technological and marketing strategies.
The operations of the Retail reporting segment comprise the retailing of
automotive, leisure and cycling products and services through retail stores
and online platforms. The operations of the Car Servicing reporting segment
comprise car servicing and repair performed from Autocentres, commercial
vehicles, and mobile customer vans through Halfords Mobile Expert.
The Chief Operating Decision Maker is the Executive Directors. Internal
management reports for each of the segments are reviewed by the Executive
Directors on a monthly basis. Key measures used to evaluate performance are
Revenue and Operating Profit. Management believe that these measures are
the most relevant in evaluating the performance of the segment and for
making resource allocation decisions.
The following summary describes the operations in each of the Group’s
reportable segments. Performance is measured based on segment operating
profit, as included in the management reports reviewed by the Executive
Directors. The segmental reporting disclosures are prepared in accordance
with IFRS accounting policies.
All material operations of the reportable segments are carried out in the
UK and all material non-current assets are in the UK. The Group’s revenue
is driven by the consolidation of individual small value transactions and
as a result Group revenue is not reliant on a major customer or group of
customers. All revenue is from external customers. Since H1 FY22 National
Tyres has been acquired by Halfords group and due to the synergies this
represents, it has been consolidated within the Car Servicing segment.
26 weeks to
Retail 30 September 2022
Income statement Car Servicing £m
£m Total Unaudited
£m
Revenue 500.5 265.2 765.7
Segment result before 34.8 2.0 36.8
non-underlying items
Non-underlying items 1.7 (1.4) 0.3
Segment result 36.5 0.6 37.1
Unallocated expenses1 (2.4)
Operating profit 34.7
Net financing expense (5.4)
Profit before tax 29.3
Taxation (6.2)
Profit after tax 23.1
26 weeks to
Retail 1 October 2021
Income statement Car Servicing £m
£m Total Unaudited
£m
Revenue 538.7 156.1 694.8
Segment result before 61.2 3.7 64.9
non-underlying items
Non-underlying items 6.4 - 6.4
Segment result 67.6 3.7 71.3
Unallocated expenses1 (1.2)
Operating profit 70.1
Net financing expense (5.8)
Profit before tax 64.3
Taxation (11.6)
Profit after tax 52.7
1 Unallocated expenses have been disclosed to reflect the format of the
internal management reports reviewed by the Chief Operating Decision maker
and include an amortisation charge of £2.4m in respect of assets acquired
through business combinations (2021: £1.2m).
52 weeks to
1 April
Retail
Income statement Car Servicing £m 2022
£m
Total
£m
Revenue 1,001.6 368.0 1,369.6
Segment result before non-underlying 89.8 14.4 104.2
items
Non-underlying items 8.9 (2.1) 6.8
Segment result 98.7 12.3 111.0
Unallocated expenses1 (3.1)
Operating profit 107.9
Net financing expense (11.3)
Profit before tax 96.6
Taxation (18.9)
Profit after tax 77.7
1 Unallocated expenses have been disclosed to reflect the format of the
internal management reports reviewed by the Chief Operating Decision maker
and include an amortisation charge of £3.1m in respect of assets acquired
through business combinations (2021: £2.3m).
26 weeks to
Retail 30 September 2022
Other segment items: Car Servicing £m
£m Total Unaudited
£m
Capital expenditure 14.1 5.9 20.0
Depreciation expense 8.0 2.8 10.8
Amortisation of 26.7 11.2 37.9
right-of-use asset
Impairment/ (Impairment
reversal) of (0.8) 0.3 (0.5)
right-of-use asset
Amortisation expense 6.0 1.4 7.4
26 weeks to
1 October
Retail 2021
Other segment items: Car Servicing £m
£m Total
Unaudited
£m
Capital expenditure 16.1 6.7 22.8
Depreciation expense 8.0 3.5 11.5
Amortisation of 25.9 7.5 33.4
right-of-use asset
Impairment of 0.3 - 0.3
right-of-use asset
Amortisation expense 6.1 0.7 6.8
52 weeks to
1 April
Retail
Other segment items: Car Servicing £m 2022
£m
Total
£m
Capital expenditure 31.1 18.1 49.2
Depreciation and 13.1 7.2 20.3
impairment expense
Amortisation of 54.1 15.8 69.9
right-of-use asset
Amortisation expense 14.2 1.6 15.8
There have been no significant transactions between segments in the 26
weeks ended 30 September 2022 (2022: £nil).
7. Revenue
A. Revenue streams and location
The Group’s operations and main revenue streams are those described in the
last annual financial statements. The Group’s revenue is derived from
transactions with customers.
Revenue split by the Group’s operating segments are shown in Note 6.
All significant revenue is recognised in the United Kingdom and Republic of
Ireland.
B. Seasonality of operations
At the Group level, Revenue is not materially seasonal, but this hides some
underlying seasonality in certain categories. For example, sales of adult
cycles tend to peak in the spring and summer months whilst sales of
children’s cycles peak in the festive season. Conversely, MOT activity is
weighted towards our second half of the year whilst motoring products also
tend to exhibit stronger demand in the winter months. With motoring
products and services tending to generate higher profits than cycling, the
Group’s profit is expected to be weighted towards the second half.
8. Non-underlying items
26 weeks to 26 weeks to 53 weeks to
30 September 1 April
1 October 2021
2022 2022
Unaudited Unaudited
£m £m £m
Non-underlying operating expenses:
Organisational restructure costs 0.5 0.3 0.3
(a)
Closure costs (b) (2.8) (6.8) (8.5)
Acquisition and investment-related 1.6 - 2.8
fees (c)
Provision for expected settlement 0.1 (2.2)
of an ongoing legal case (d) -
Replacement of warehouse management 0.4 - 0.8
system (e)
Non-underlying items before tax (0.3) (6.4) (6.8)
Tax on non-underlying items (f) 0.2 1.2 1.7
Non-underlying items after tax (0.1) (5.2) (5.1)
Non-underlying items are those items that are unusual because of their
size, nature (one-off, non-trading costs) or incidence. The Group’s
management considers that these items should be separately identified
within their relevant income statement category to enable a full
understanding of the Group’s results.
a. In prior period, costs related to a strategic redesign of our instore
operating model undertaken to better meet our customers' expectations
and deliver a consistent shopping experience across our estate.
Redundancy costs of £0.3m were incurred in the prior period to
transition to the new operating model. In the current period £0.5m of
redundancy costs were incurred in relation to further organisational
design changes.
b. During FY20 and FY21 the group completed a strategic review of the
profitability of the physical estate and subsequently closed a number
of stores and garages. Assets were impaired and costs associated with
the ongoing onerous commitments under the lease agreements and other
costs associated with the property exits were provided for accordingly.
In the current period, a balance of £2.8m (H1 FY22: £6.8m) relates to
the release of some of these provisions as the group continues to
negotiate lease disposals and review provisions held in place. These
will continue to unwind as property exits are negotiated with landlords
and tenants and could result in further amounts being released to the
income statement due to the significant estimation uncertainty over the
timing of exits and the final negotiated settlements.
c. During the current period, management incurred professional fees in
relation to the post year end acquisition of Lodge Tyre Company and the
ongoing integration of the National Tyres business.
d. During the prior period, management incurred professional and
redundancy fees in relation to the national minimum wage investigation
which was settled in the prior year, these amounted to £0.1m. A release
of £2.2m was made in FY22 as the case was fully settled and paid.
e. During the current and prior period, management incurred costs as a
result of the replacement of the Warehouse Management System. Under the
new IFRIC guidance regarding IAS 38 this cannot be capitalised and
therefore, owing to the nature of this cost (non-trading cost), this is
disclosed as a non-underlying expense.
f. The tax charge in H1 FY23 represents a tax rate of 62.9% applied to
non-underlying items (H1 FY22: Credit, 18.8%, FY22 full year: Credit,
26.4%). The effective tax rate differs from the UK corporation tax rate
(19%) due to non deductible expenditure in the current year.
9. Net Finance Costs
26 weeks to 26 weeks to 52 weeks
to
30 September 1 October 1 April
2022 2021
2022
Unaudited Unaudited
£m £m £m
Finance costs:
Bank borrowings - (0.2) (0.1)
Amortisation of issue costs (0.4) (0.3) (0.7)
on loans
Commitment and guarantee (0.7) (0.8) (1.5)
fees
Interest payable on lease (4.3) (4.5) (9.0)
liabilities
Finance costs (5.4) (5.8) (11.3)
10. Income tax expense
Income tax expense is recognised based on management’s best estimate of the
weighted average annual income tax rate expected for the full financial
year, applied to the pre-tax income of the interim period.
The taxation charge on profit for the financial period was £6.2m (H1 FY22:
£11.6m). The effective tax rate before non-underlying items of 20.7% (H1
FY22: 18%) differs from the UK corporation tax rate (19%) primarily as a
result of movement on share based payments. The rate increase is partially
offset by the effect of the 30% permanent element of the 130% capital
allowances super deduction on qualifying plant and machinery additions.
The corporation tax rate is scheduled to rise to 25% from 1 April 2023, the
closing deferred tax balances as at 30 September 2022 are already being
recognised at 25%.
11. Financial Instruments and Related Disclosures
Accounting classifications and fair values
The following table shows the carrying amounts and fair values of financial
assets and liabilities, including their levels in the fair value hierarchy.
It does not include fair value information for financial assets and
financial liabilities not measured at fair value if the carrying amount is
a reasonable approximation of fair value.
Fair Value – Other Total
hedging Amortised financial
30 September 2022 instruments cost liabilities carrying
amount
£m £m £m
£m
Financial assets measured at
fair value
Forward exchange contracts 16.4 - - 16.4
used for hedging
16.4 - - 16.4
Financial assets not
measured at fair value
Trade and other receivables* - 95.4 - 95.4
Cash and cash equivalents - 78.0 - 78.0
- 173.4 - 173.4
Financial liabilities
measured at fair value
Forward exchange contracts (0.2) - - (0.2)
used for hedging
(0.2) - - (0.2)
Financial liabilities not
measured at fair value
Borrowings - - (45.7) (45.7)
Lease liabilities - - (368.4) (368.4)
Trade and other payables** - - (301.8) (301.8)
- - (715.9) (715.9)
*Prepayments and accrued income of £27.0m are not included as a financial
asset.
** Other taxation and social security payables of £21.3m, deferred income
of £9.2m and other payables of £21.7m are not included as a financial
liability.
Fair Value – Amortised Other Total
hedging carrying
1 October 2021 instruments cost financial amount
liabilities
£m £m £m
£m
Financial assets measured at
fair value
Forward exchange contracts 3.7 - - 3.7
used for hedging
3.7 - - 3.7
Financial assets not measured
at fair value
Trade and other receivables* - 89.4 - 89.4
Cash and cash equivalents - 92.1 - 92.1
- 181.5 - 181.5
Financial liabilities
measured at fair value
Forward exchange contracts (2.0) - - (2.0)
used for hedging
(2.0) - - (2.0)
Financial liabilities not
measured at fair value
Borrowings - - (0.5) (0.5)
Lease liabilities - - (324.3) (324.3)
Trade and other payables** - - (171.0) (171.0)
- - (495.8) (495.8)
*Prepayments and accrued income of £8.9m are not included as a financial
asset.
** Other taxation and social security payables of £22.9m deferred income of
£1.4m, accruals of £84.9m and other payables of £18.4m are not included as
a financial liability.
Measurement of fair values
The fair values of each class of financial assets and liabilities is the
carrying amount, based on the following assumptions:
Trade receivables, trade The fair value approximates to the carrying
payables and lease amount because of the short
obligations, short-term maturity of these instruments
deposits and borrowings
The fair value of bank loans and other loans
approximates to the carrying value reported in
Long-term borrowings the statement of financial position as the
majority are floating rate where payments are
reset to market rates at intervals of less than
one year.
The fair value is determined using the market
Forward currency contracts forward rates at the reporting
date and the outright contract rate.
Financial instruments carried at fair value are required to be measured by
reference to the following levels:
• Level 1: quoted prices in active markets for identical assets or
liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e., as
prices) or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
All financial instruments carried at fair value have been measured by a
Level 2 valuation method. There have been no changes to classifications in
the current or prior period.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group’s receivables from
customers.
The Group does not have any individually significant customers and so no
significant concentration of credit risk. The majority of the Group’s sales
are paid in cash at point of sale which further limits the Group’s
exposure. The Group’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The Board of Directors has
established a credit policy under which each new customer is analysed
individually for creditworthiness before the Group’s standard payment terms
and conditions are offered. The Group limits its exposure to credit risk
from trade receivables by establishing a maximum payment period of one
month for customers. All trade receivables are based in the United Kingdom.
The Group has taken into account the historic credit losses incurred on
trade receivables and adjusted it for forward looking estimates. The
movement in the allowance for impairment in respect of trade receivables
during the period was £0.3m.
12. Dividends
The Directors paid a final dividend of 6 pence per share in respect of the
financial period ended 1 April 2022 (FY21: 5p per share).
The Directors have declared an interim dividend for the 26 weeks to 30
September 2022 of 3 pence per share (2022: 3p per share). The interim
dividend will be paid on 20 January 2023 to shareholders who are on the
register of members, with an ex-dividend date of 15 December 2022 and a
record date of 16 December 2022.
13. Earnings Per Share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period. The weighted average number of
shares excludes shares held by the Employee Benefit Trust and has been
adjusted for the issue/repurchase of shares during the period.
For diluted earnings per share the weighted average number of ordinary
shares in issue is adjusted to assume conversion of all dilutive potential
ordinary shares. These represent share options granted to employees where
the exercise price is less than the average market price of the Company’s
ordinary shares during the 26 weeks to 30 September 2022.
26 weeks to 26 weeks to 52 weeks
to
30 September 1 October 1 April
2022 2021
2022
Unaudited Unaudited
Number Number Number
m m m
Weighted average number of 218.9 199.1 205.7
shares in issue
Less: shares held by the (1.7) (1.3) (1.0)
Employee Benefit Trust
Weighted average number of
shares for calculating 217.2 197.8 204.7
basic earnings per share
Weighted average number of 7.0 4.9 9.0
dilutive share options
Weighted number of shares
for calculating diluted 224.2 202.7 213.7
earnings per share
26 weeks to 26 weeks to 52 weeks
to
30 September 1 October 1 April
2022 2021
2022
Unaudited Unaudited
£m £m £m
Earnings attributable to 23.1 52.7 77.7
equity shareholders
Non-underlying items:
Operating expenses (0.3) (6.4) (6.8)
Tax income on 0.2 1.2 1.7
non-underlying items
Underlying earnings before 23.0 47.5 72.6
non-underlying items
Basic earnings per share 10.6p 26.6p 37.9p
Diluted earnings per share 10.3p 26.0p 36.4p
Basic underlying earnings 10.6p 24.0p 35.5p
per share
Diluted underlying earnings 10.3p 23.4p 34.0p
per share
The alternative measure of earnings per share is provided because it
reflects the Group’s underlying performance by excluding the effect of
non-underlying items.
14. Capital Expenditure – Tangible, Intangible, Assets held for
sale & Right-of-Use Assets
Tangible and Right-of-use assets
Intangible Assets
Unaudited
Unaudited
£m £m
Net book value at 2 April 479.6 282.8
2021
Additions 22.8 23.3
Sale and leaseback adjustment - (1.4)
Disposals (2.5) (0.1)
Depreciation, amortisation (18.6) (33.4)
and impairment
Net book value at 1 October 481.3 271.2
2021
Tangible and Right-of-use assets
Intangible Assets
Unaudited
Unaudited
£m £m
Net book value at 1 April 544.1 350.2
2022
Additions 20.0 14.8
Disposals (1.3) -
Effect of modification of - 2.2
lease
Depreciation, amortisation (20.2) (37.4)
and impairment
Net book value at 30 542.6 329.8
September 2022
During FY21 there was a balance of £6m held within current assets relating
to an asset held for sale. This related to seven buildings acquired as part
of the acquisition of The Universal Tyre Services (Deptford) Limited. On 26
May 2021, six of these properties were sold to third parties and then
leased back to Halfords Autocentres Limited. The transaction has been
accounted for as a sale and leaseback transaction in the Group under IFRS
16 ‘Leases’. The total proceeds of the sale were £7.5m and a net gain of
£0.5m was recognised for the transaction within the income statement.
15. Analysis of Movements in the Group’s Net Debt in the Period
At
Other non-cash
At Cash Flow changes 30 September
2022
1 April
2022 Unaudited Unaudited Unaudited
£m £m £m £m
Cash and cash equivalents
(condensed consolidated 46.3 31.7 - 78.0
statement of financial
position)
Bank Overdrafts (0.2) (11.3) - (11.5)
Cash and cash equivalents
(condensed consolidated 46.1 20.4 - 66.5
statement of cash flows)
Debt due in less than one - (35.0) 0.8 (34.2)
year
Debt due after one year - - - -
Total net debt excluding 46.1 (14.6) 0.8 32.3
leases
Current lease liabilities (74.5) 43.2 (43.9) (75.2)
Non-current lease liabilities (316.5) - 23.4 (293.1)
Total lease liabilities (391.0) 43.2 (20.5) (368.3)
Total net debt (344.9) 28.6 (19.7) (336.0)
Non-cash changes comprise finance costs in relation to the amortisation of
capitalised debt issue costs of £0.8m (H1 FY22: £0.4m), and movements in
leases.
Cash and cash equivalents at the period end consist of £75.1m (H1 FY22:
£86.0m) of liquid assets, £2.9m (H1 FY22: £5.1m) of cash held in Trust and
£11.5m (H1 FY22: £0.1m) of bank overdrafts.
Cashflow movements in Debt relate to the drawdown of funds from the Groups’
revolving credit facility to fund the acquisition of LTC Trading Holdings
Limited, see note 19 for further details.
At
Other non-cash
At Cash Flow changes 2 October
2 April 2021
2021 Unaudited Unaudited Unaudited
£m £m £m £m
Cash in hand and at bank 67.0 25.0 - 92.0
Debt due after one year - - (0.4) (0.4)
Total net debt excluding 67.0 25.0 (0.4) 91.6
leases
Current lease liabilities (63.4) 42.8 (35.3) (55.9)
Non-current lease (280.8) - 12.4 (268.4)
liabilities
Total lease liabilities (344.2) 42.8 (22.9) (324.3)
Total net debt (277.2) 67.8 (23.3) (232.7)
16. Share Capital
Share
Share
Number of shares premium
capital
m account
£m
£m
As at 2 April 2021 and 1 October 2021 199.1 2.0 151.0
Share
Share
Number of shares premium
capital
m account
£m
£m
As at 1 April 2022 and 30 September 2022 218.9 2.2 212.4
During the 26 weeks to 30 September 2022 and 1 October 2021, there were no
movements in company share capital. The shares held in treasury are used to
meet options under the Company's share options schemes.
The parent company issued 19,812,104 new ordinary shares with a par value
of 1p per share on 2 December 2021.
In FY22, proceeds from the share issue recognised within Share Premium
totalled £61.4m, net of transaction costs of £1.8m.
17. Contingent liability
The Group’s banking arrangements include the facility for the bank to
provide a number of guarantees in respect of liabilities owed by the Group
during the course of its trading. In the event of any amount being
immediately payable under the guarantee, the bank has the right to recover
the sum in full from the Group. The total amount of guarantees in place at
30 September 2022 amounted to £0.4m (2022: £1.5m).
Where right of set off is included within the Group’s banking arrangements,
credit balances may be offset against the indebtedness of other Group
companies.
18. Related Party Transactions
The key management personnel of the Group comprise the Executive and
Non-Executive Directors and the Halfords Limited and Halfords Autocentres
management boards. The details of the remuneration, long-term incentive
plans, shareholdings and share option entitlements of individual Directors
are included in the Directors’ Remuneration Report on pages 130 to 149 of
the Group 2022 Annual Report and Accounts.
During the period no share options (H1 FY22: none) were granted to
directors in relation to the Performance Share Plan (“PSP”) and no share
options (H1 FY22: none) were granted in relation to the Deferred Bonus Plan
(“DBP”).
19. Post Balance Sheet Events
After the balance sheet date Halfords Autocentres limited acquired 100% of
the share capital of LTC Trading Holdings Limited on 4th of October 2022
for cash consideration of £37.2m. Of this consideration, £33.2m was paid
upfront, with a further amount up to £4m deferred until March 2024 and
contingent on profits made by the Group's Commercial tyre business. The
acquisition increases our garages footprint by 50 sites and 300 vans
establishing strong commercial coverage in the Midlands.
Linked to this transaction The Universal Tyre Company (Deptford) Limited
acquired the remaining 52% of the share capital of Fit4Fleet Holdings
Limited and its 2 wholly owned subsidiaries on 4th of October 2022 for
immaterial cash consideration. The Group previously held 48% of the shares
of the business and following this transaction owns 100%. Fit4Fleet offers
Commercial Tyre customers a 24/7 contact centre service for breakdown and
recoveries, using a network of tyre businesses, including Lodge,
McConechy’s and Universal, to provide the actual breakdown or recovery
service to the customer.
Both acquisitions will progress our Commercial Tyre (and therefore overall
B2B) business significantly with the intention of the Group being the
number one Commercial Tyre business in the UK.
The initial accounting for these business combinations, including goodwill
and fair value calculations for all relevant assets and liabilities, has
not been completed at the time of issue of these financial statements due
to the proximity of the business combination to the release date. Full
disclosures will be made on the impact of these acquisitions in the Group’s
annual report and accounts. The net value of goodwill and intangibles
expected to be recognised on the acquisition of LTC Trading Holdings
Limited is £24m-£25m. The impact of the acquisition of Fit4Fleet Holdings
Limited is expected to be immaterial.
20. Prior Period Adjustment
During the preparation of the annual report and accounts for the 52 week
period ending 1 April 2022, a mapping error was identified relating to the
reduction in the Cycle to Work contract liability in respect of expected
breakage. This reduction in the liability had in previous years (both
period end and half period end) been mapped to Prepayments and Accrued
Income in the financial statements rather than being mapped to the Cycle to
Work liability in Accruals and Deferred Income.
£12.8m was incorrectly included in Prepayments and Accrued Income as at the
prior period end of 1 October 2021. The error at the period end of 2 April
2021 is £12.0m, as previously disclosed in the annual report and accounts
for the 52 week period ending 01 April 2022.
To correct for this error, in the Consolidated Statement of Financial
Position, Trade and other receivables at 1 October 2021 have been reduced
by £12.8m with a corresponding adjustment to Trade and other payables.
Within net cash from operating activities in the Consolidated Statement of
Cash Flows, ‘Increase in trade and other receivables’ has decreased by
£0.8m with a corresponding adjustment to ‘Increase in trade and other
payables’.
In correcting this error there is no impact on the Consolidated Income
Statement or Net Assets.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the
UKEB;
• the interim management report includes a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any
changes in the related party transactions described in the last annual
report that could do so.
By order of the Board
Jo Hartley, Chief Financial Officer
22 November 2022
Halfords Group plc
Independent review report to Halfords Group plc
For the 26 weeks to 30 September 2022
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom’s Financial Conduct Authority.
We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six months
ended 30 September 2022 which comprises the condensed consolidated income
statement, the condensed consolidated statement of comprehensive income,
the condensed consolidated statement of financial position, the condensed
consolidated statement of changes in equity, the condensed consolidated
statement of cashflows and the related notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, “Review of Interim Financial Information Performed
by the Independent Auditor of the Entity” (“ISRE (UK) 2410”). A review of
interim financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in
scope than an audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted International Accounting Standards.
The condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, “Interim Financial Reporting.”
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those
performed in an audit as described in the Basis for conclusion section of
this report, nothing has come to our attention to suggest that the
directors have inappropriately adopted the going concern basis of
accounting or that the directors have identified material uncertainties
relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance
with ISRE (UK) 2410, however future events or conditions may cause the
group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial
report in accordance with the Disclosure Guidance and Transparency Rules of
the United Kingdom’s Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group and the company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to
the company a conclusion on the condensed set of financial statements in
the half-yearly financial report. Our conclusion, including our Conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph
of this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement
to assist the Company in meeting the requirements of the Disclosure
Guidance and Transparency Rules of the United Kingdom’s Financial Conduct
Authority and for no other purpose.
No person is entitled to rely on this report unless such a person is a
person entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do so by our
prior written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
22 November 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
═══════════════════════════════════════════════════════════════════════════
ISIN: GB00B012TP20
Category Code: IR
TIDM: HFD
LEI Code: 54930086FKBWWJIOBI79
OAM Categories: 1.2. Half yearly financial reports and audit
reports/limited reviews
2.2. Inside information
Sequence No.: 202565
EQS News ID: 1494131
End of Announcement EQS News Service
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