REG - Halfords Group PLC - Interim Results and Strategy Update <Origin Href="QuoteRef">HFD.L</Origin> - Part 2
12/11/2015 07:02
- Part 2: For the preceding part double click ID:nRSL4304Fa
Net Finance Costs (1.5) (1.8) -20.4%
Profit Before Tax and non-recurring items 46.4 49.4 -5.9%
Profit Before Tax, after non-recurring items 46.4 49.6 -6.3%
Basic Earnings per Share, before non-recurring items 19.2p 20.1p -4.5%
* EBIT denotes earnings before net finance costs, tax and non-recurring items
** EBITDA denotes earnings before net finance costs, tax, depreciation,
amortisation and non-recurring items
Group revenue in H1 FY16, at £533.5m, was up 1.8% and comprised Retail revenue
of £458.0m and Autocentres revenue of £75.5m. This compared to H1 FY15 Group
revenue of £524.1m, which comprised Retail revenue of £451.9m and Autocentres
revenue of £72.2m. Group gross profit at £279.2m (H1 FY15: £274.7m)
represented 52.3% of Group revenue (H1 FY15: 52.4%), reflecting a decrease in
the Retail gross margin of 29 basis points ("bps") to 50.3% and an increase in
the Autocentres gross margin of 76 bps to 64.6%.
Total Operating Costs before non-recurring items increased to £231.3m (H1
FY15: £223.5m) of which Retail represented £183.5m (H1 FY15: £178.4m),
Autocentres £47.2m (H1 FY15: £44.5m) and unallocated costs £0.6m (H1 FY15:
£0.6m). Unallocated costs represent amortisation charges in respect of
intangible assets acquired through business combinations, namely the
acquisitions of Nationwide Autocentres Limited in February 2010 and Boardman
Bikes Limited and Boardman International Limited ("Boardman Bikes") in June
2014, which arise on consolidation of the Group.
Group EBITDA before non-recurring items decreased 1.9% to £62.3m (H1 FY15:
£63.6m), whilst net finance costs were £1.5m (H1 FY15: £1.8m).
Group Profit Before Tax and non-recurring items for the year was down 5.9% at
£46.4m (H1 FY15: £49.4m).
There were no non-recurring costs during the period (H1 FY15: £0.2m income).
Group Profit Before Tax in the year after non-recurring items was £46.4m (H1
FY15: £49.6m).
Halfords Retail
H1 FY16 H1 FY15
£m £m Change
Revenue 458.0 451.9 +1.3%
Gross Profit 230.4 228.6 +0.8%
Gross Margin 50.3% 50.6% -29bps
Operating Costs (183.5) (178.4) +2.8%
EBIT before non-recurring items 46.9 50.2 -6.6%
Non-recurring income - 0.2 -
EBIT after non-recurring items 46.9 50.4 -7.0%
EBITDA before non-recurring items 58.4 60.2 -2.7%
Revenue for the Retail business of £458.0m reflected, on a constant-currency
basis, a like-for-like ("LFL") sales increase of 1.4%. Non-LFL stores,
including 7 brand new Cycle Republic store openings, since the prior period,
contributed £3.8m revenue in the period.
Cycling LFL revenues were down 2.9% in the first half. This was principally
driven by a challenging July and August for Mainstream Bikes, due to a number
of factors including particularly strong comparatives, poor weather and
discounting across the market. Mainstream Bikes LFL sales declined by 7.9% and
PACs LFL revenues were down 4.7% in the half. Premium Bikes continued to be
our best performing bike category with sales up 3.6% in the first half. The
investments in Cycle Repair in FY15 drove LFL sales up 24% in the first half.
Car Maintenance LFL revenues increased by 6.5%. Parts sales were in strong
growth, with the fitting of bulbs, blades and batteries ("3Bs") up 15.5%. The
other standout performer was our Workshop category reflecting the increasingly
popular Halfords Advanced range of toolsets.
Car Enhancement LFL revenues increased by 0.6%. Sat Nav sales continued to be
impacted by structurally-declining markets and car cleaning sales also
declined, with the big ticket items, such as pressure washers, being most
affected due to unfavourable weather. This was more than offset by growth in
sales of in-car connectivity equipment, dash cams and audio; the latter
growing as customers took advantage of our new products to upgrade to digital
or "connected" devices.
Travel Solutions LFL revenues were up 4.7%, driven by camping and child safety
seats, offsetting a decline in roof bars and boxes.
Revenues for the Retail business (including Boardman Bikes) are split by
category below:
H1 FY16 (%) H1 FY15(%)
Cycling 36.6 38.0
Car Maintenance 27.9 26.6
Car Enhancement 21.7 21.7
Travel Solutions 13.8 13.7
Total 100.0 100.0
Gross profit for the Retail business at £230.4m (H1 FY15: £228.6m) represented
50.3% of sales, 29bps down on the prior year (H1 FY15: 50.6%). The
margin-accretive factors principally comprised the mix benefit out of Cycling
into higher margin Car Maintenance along with the strong growth of in-store
service income. These were more than offset by greater promotional activity in
Cycling, including the pull forward of the end-of-summer sale, and increased
third-party-branded product mix, particularly in Car Enhancement.
Management continues to anticipate a 25-75 bps decrease in Retail gross margin
in FY16, reflecting a continued growth in third-party branded products and an
assumption of a better relative performance of Cycling compared to the first
half.
Operating Costs before non-recurring items were £183.5m (H1 FY15: £178.4m).
The breakdown is set out below:
H1 FY16£m H1 FY15£m Change
Store Staffing 52.1 49.2 +5.8%
Store Occupancy 69.8 68.6 +1.7%
Warehouse & Distribution 24.5 19.7 +24.4%
Support Costs 37.1 40.9 -9.3%
Total Operating Costs before non-recurring items 183.5 178.4 +2.8%
Store Staffing costs increased by 5.8%, principally due to an increase in
sales volumes, the planned Gears pay increments and the uplift in the national
minimum wage. The opening of 7 Cycle Republic stores since the first half of
last year also contributed to the increase.
Store Occupancy costs increased by 1.7%. Higher depreciation and lower
landlord premium income were partly offset by lower net rental charges.
Warehouse & Distribution costs increased by 24.4%. During the majority of the
period in-house 5-day-a-week delivery schedule was operating and this compared
to the mostly one-day outsourced model that was in place in the prior period.
In August 2015 the out-sourced 3-day-a-week delivery solution was implemented,
providing a more stable, flexible and cost effective platform.
Support Costs decreased by 9.3% with the impact of pay rises and increased
depreciation more than offset by lower bonus accruals and efficiencies within
marketing, including a rationalisation of the supplier base and a shift in the
mix of activity towards digital marketing. The prior period also included the
one-off transaction costs associated with the acquisition of Boardman Bikes.
Management anticipates an increase in Retail operating costs in FY16 of 2.5 to
3.5% compared to previous full year guidance of 4 to 5%. The decrease is
driven by lower than expected Cycling sales in the first half, lower store
change costs than originally expected and the realisation of targeted cost
savings. In addition, now that the 3-day delivery solution is in place we can
forecast with greater confidence the second-half cost impact.
Halfords Autocentres
H1 FY16£m H1 FY15£m Change
Revenue 75.5 72.2 +4.6%
Gross Profit 48.8 46.1 +5.9%
Gross Margin 64.6% 63.8% +76bps
Operating Costs (47.2) (44.5) +6.0%
EBIT 1.6 1.6 -
EBITDA 3.9 3.4 +12.1%
Autocentres generated total revenues of £75.5m (H1 FY15: £72.2m), an increase
of 4.6% on the prior period with a LFL revenue increase of 3.3%.
Online-booking revenues grew 12.9% in the period and represented 18% of
sales.
Gross profit at £48.8m (H1 FY15: £46.1m) represented a gross margin of 64.6%;
an increase of 76 bps on the prior period. The mix out of lower margin tyres,
whilst maintaining the strong margin on service, maintenance and repair work,
has driven the year-on-year improvement.
Autocentres' EBITDA of £3.9m was 12.1% higher than H1 FY15 (H1 FY15: £3.4m),
with the upside in gross profit being offset by continued cost investments as
part of the on-going growth strategy. EBIT was flat at £1.6m (H1 FY15:
£1.6m).
Management continues to anticipate Autocentres' EBITDA to increase by a low
double-digit % in FY16.
Portfolio Management
The Retail store portfolio at 2 October 2015 comprised 470 stores (end of H1
FY15: 465; end of FY15: 467).
The following table outlines the changes in the Retail store portfolio over
the 26 week period:
Number Stores
Relocations 2 Belfast (Connswater) & Biggleswade
Lease re-gears 13 Cardiff, Eastleigh, Fareham, Glasgow (Rutherglen), Hamilton, Hove, Loughton, Newhaven, Peterhead, Putney, Sheldon, Shoreham & Watford
Rightsizes 1 Luton
Openings 3 Bristol, Manchester & Nottingham
Four new Autocentres were opened and two (Tamworth and Slough) were closed in
the period, taking the total number of Autocentre locations to 307 as at 2
October 2015 (end of H1 FY15: 298).
With the exception of eight long leasehold and two freehold properties within
Autocentres, the Group's operating sites are occupied under operating leases,
the majority of which are on standard lease terms, typically with a 5 to
15-year term at inception and with an average lease length of c.7 years.
Management anticipates having around 10 Cycle Republic shops by the end of the
year and continues to anticipate opening 10-15 new Autocentres in FY16.
Net Non-Recurring expenses
The following table outlines the components of the non-recurring expenses
recognised in the year:
H1 FY16£m H1 FY15£m
Onerous lease provision release - (0.2)
Net non-recurring income - (0.2)
In FY13 an onerous lease provision of £1.2m was created for two Retail stores,
reflecting the challenging property market for vacant properties and the high
cost to exit lease agreements. This provision had previously been charged as a
non-recurring item. A final exit agreement in relation to the Wembley store
was reached in the prior period, resulting in a provision release of £0.2m.
The remaining £0.5m provision in relation to Wembley was utilised on exit of
the lease.
Finance Expense
The net finance expense for the year was £1.5m (H1 FY15: £1.8m). Lower
drawdowns and favourable interest rates following the amendment and extension
agreed in November 2014 contributed to the reduced charge.
Management continues to anticipate the net finance expense to be around £3.0m
in FY16.
Taxation
The taxation charge on profit for the financial year was £9.0m (H1 FY15:
£10.4m, including £0.1m charge in respect of non-recurring items). The
effective tax rate of 19.5% (H1 HY15: 21.0%) was lower than the UK corporation
tax rate (20.0%) principally due to overseas tax rates and prior year
adjustments.
Management continues to anticipate an effective tax rate of circa 20% in
FY16.
Earnings Per Share ("EPS")
Basic EPS before and after non-recurring items was 19.2 pence (H1 FY15: 20.1
pence before non-recurring, 20.2 pence after non-recurring), a 4.5% decrease
on the prior period. Basic weighted-average shares in issue during the period
were 194.4m (H1 FY15: 194.1m).
Dividend ("DPS")
The Board has approved an interim dividend of 5.66 pence per share (H1 FY15:
5.5 pence), an increase of 2.9% on the prior period. This will be paid on 22
January 2016 to shareholders on the register at the close of business on 18
December 2015.
The Board has agreed a new target, to grow the dividend every year with an
average cover of around 2 times over time.
Capital Expenditure
Capital investment in the period totalled £19.5m (H1 FY15: £12.5m) comprising
£16.9m in Retail and £2.6m in Autocentres. Consistent with prior years,
management has adopted a prudent approach with regard to capital investment
and focused on investments generating material returns in line with the Retail
and Autocentres strategies.
Within Retail, £8.5m (H1 FY15: £6.9m) was invested in stores, including 15
store refreshes, 3 of which were also store relocations or right-sizes, as
well as general capital spend relating to training rooms, roofing, flooring
and heating. By the end of H1 FY16, 87 stores were trading in the prevailing
refreshed format. Retail continued to roll out the Cycle Republic brand,
opening 3 dedicated stores in the period. Additional investments in Retail
infrastructure included an £8.3m investment in IT systems, such as continual
development of the online Retail proposition, the new Halfords Marketplace
solution, refresh of store tills, investment in Vehicle Recognition software,
tablets in store and investment in the underlying web platform.
The £2.6m (H1 FY15: £1.2m) investment in Autocentres comprised the opening of
4 centres in the year (FY15: 9) along with investment in refreshing existing
centres.
On a cash basis, total capital expenditure in the period was £17.5m (H1 FY15:
£15.3m).
Management now anticipates capital investment of c.£40m and c.£8m respectively
in Retail and Autocentres in FY16, which would be c.£95m and c.£20m
respectively for the three-year period ending FY16.
Inventories
Group inventory held at the period end was £159.0m (H1 FY15: £148.9m). Retail
inventory increased to £157.6m (H1 FY15: £147.6m). Autocentres' inventory was
£1.4m (H1 FY15: £1.3m). The Autocentres business model is such that only
modest levels of inventory are held within the centres, with most parts being
acquired on an as-needed basis.
Other Working Capital
The change in trade and other receivables and payables represented a cash
outflow of £5.0m (H1 FY15: £19.3m cash inflow) was £24.3m adverse to the same
period last year. This was a timing effect, mostly on VAT, because of the
change in period end date, which is expected to reverse in the second half.
Cashflow and Borrowings
Cash generated from operating activities during the period was £47.4m (H1
FY15: £86.1m). After taxation, capital expenditure and net finance costs,
free cashflow of £19.5m (H1 FY15: £47.1m) was generated in the period.
Group net debt was £62.4m (H1 FY15: £70.3m), with the 12-month net debt:
EBITDA ratio at 0.6:1.
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. The Directors consider that the principal risks and uncertainties
that could have a material impact on the Group's performance in the remaining
six months of FY16 are materially unchanged from those detailed in the section
entitled 'Principal risks and uncertainties' on pages 32 to 35 of the Annual
Report and Accounts for the year ended 3 April 2015. These include:
● Economic risk
● Business strategy risks
● Competitive risks
● Compliance
● Supply Chain Disruption
● Product and service quality
● Information technology systems and infrastructure
● Dependence on key management personnel
Specific risks associated with performance include Christmas trading, as well
as weather-sensitive sales, particularly within the Car Maintenance and
Cycling categories in the Retail business.
Jonny Mason
Chief Financial Officer, November 2015
HALFORDS GROUP PLC
Condensed consolidated income statement
For the 26 weeks to 2 October 2015
26 weeks to 26 weeks to 53 weeks to
2 October 26 September 3 April
2015 2014 2015
Unaudited Unaudited
Notes £m £m £m
Revenue 6 533.5 524.1 1,025.4
Cost of sales (254.3) (249.4) (479.1)
Gross profit 279.2 274.7 546.3
Operating expenses (231.3) (223.5) (458.7)
Operating profit before non-recurring items 47.9 51.2 87.6
Non-recurring operating income/(expenditure) 7 - 0.2 (0.3)
Results from operating activities 47.9 51.4 87.3
Finance costs 8 (1.5) (1.9) (3.6)
Finance income 8 - 0.1 0.1
Net finance costs (1.5) (1.8) (3.5)
Profit before tax and non-recurring items 46.4 49.4 84.1
Non-recurring operating income/(expenditure) 7 - 0.2 (0.3)
Profit before tax 46.4 49.6 83.8
Tax on recurring items 9 (9.0) (10.3) (17.9)
Tax on non-recurring items 7 - (0.1) (0.1)
Profit for the period attributable to equity shareholders 37.4 39.2 65.8
Earnings per share
Basic earnings per share 11 19.2p 20.2p 33.8p
Diluted earnings per share 11 19.1p 19.8p 33.3p
Basic earnings per share before non-recurring items 11 19.2p 20.1p 34.1p
Diluted earnings per share before non-recurring items 11 19.1p 19.7p 33.5p
A final dividend of 11.00 pence per share for the 53 weeks to 3 April 2015
(2014: 9.10 pence per share) was paid on 25 August 2015. The directors have
approved an interim dividend of 5.66 pence per share in respect of the 26
weeks to 2 October 2015 (2014: 5.50 pence per share).
HALFORDS GROUP PLC
Condensed consolidated statement of comprehensive income
For the 26 weeks to 2 October 2015
26 weeks to 26 weeks to 53 weeks to
2 October 26 September 3 April
2015 2014 2015
Unaudited Unaudited
£m £m £m
Profit for the period 37.4 39.2 65.8
Other comprehensive income
Cash flow hedges:
Fair value changes in the period (0.9) 1.9 7.9
Transfers to inventory 0.1 1.4 (1.4)
Transfers to net profit:
Cost of sales (0.7) (0.7) (3.4)
Tax on other comprehensive income 0.6 (0.8) (1.2)
Other comprehensive income for the period,net of tax (0.9) 1.8 1.9
Total comprehensive income for the periodattributable to equity shareholders 36.5 41.0 67.7
HALFORDS GROUP PLC
Condensed consolidated statement of financial position
For the 26 weeks to 2 October 2015
As at As at As at
2 October 26 September 3 April
2015 2014 2015
Notes Unaudited Unaudited
Assets £m £m £m
Non-current assets
Intangible assets 12 358.1 357.6 356.8
Property, plant and equipment 12 107.5 93.2 103.8
Deferred tax assets 2.6 3.2 4.1
Total non-current assets 468.2 454.0 464.7
Current assets
Inventories 159.0 148.9 149.3
Trade and other receivables 61.5 63.5 55.8
Derivative financial instruments 1.4 2.1 3.9
Cash and cash equivalents 13 23.2 3.7 22.4
Total current assets 245.1 218.2 231.4
Total assets 713.3 672.2 696.1
Liabilities
Current liabilities
Borrowings 13 (27.6) (31.4) (22.9)
Derivative financial instruments (0.6) - (0.1)
Trade and other payables (183.6) (185.2) (181.4)
Current tax liabilities (8.8) (13.9) (12.4)
Provisions (9.4) (10.0) (10.6)
Total current liabilities (230.0) (240.5) (227.4)
Net current assets/(liabilities) 15.1 (22.3) 4.0
Non-current liabilities
Borrowings 13 (58.0) (42.5) (61.3)
Accruals and deferred income - lease incentives (30.8) (30.0) (31.5)
Provisions (8.0) (8.6) (8.2)
Total non-current liabilities (96.8) (81.1) (101.0)
Total liabilities (326.8) (321.6) (328.4)
Net assets 386.5 350.6 367.7
Shareholders' equity
Share capital 14 2.0 2.0 2.0
Share premium account 14 151.0 151.0 151.0
Investment in own shares (11.0) (14.1) (13.6)
Other reserves 0.7 1.5 1.6
Retained earnings 243.8 210.2 226.7
Total equity attributable to equity holders of the Company 386.5 350.6 367.7
HALFORDS GROUP PLC
Condensed consolidated statement of changes in equity
For the 26 weeks to 2 October 2015
For the period ended 26 September 2014 (Unaudited)
Attributable to the equity holders of the Company
Other reserves
Share Investment Capital
Sharecapital premiumaccount in ownshares redemption reserve Hedgingreserve RetainedEarnings Totalequity
£m £m £m £m £m £m £m
Balance at 28 March 2014 2.0 151.0 (14.3) 0.3 (0.6) 187.7 326.1
Total comprehensive income for the period
Profit for the period - - - - - 39.2 39.2
Other comprehensive income
Cash flow hedges:
Fair value changes in the period - - - - 1.9 - 1.9
Transfers to inventory - - - - 1.4 - 1.4
Transfers to net profit:
Cost of sales - - - - (0.7) - (0.7)
Tax on other comprehensive income - - - - (0.8) - (0.8)
Total other comprehensive income for the period net of tax - - - - 1.8 39.2 41.0
Transactions with owners, recorded directly in equity
Share options exercised - - 0.2 - - - 0.2
Share-based payment transactions - - - - - 1.1 1.1
Purchase of own shares - - - - - - -
Tax on share-based payment transactions - - - - - (0.1) (0.1)
Dividends to equity holders - - - - - (17.7) (17.7)
Total transactions with owners - - - - (16.7) (16.5)
Balance at 26 September 2014 2.0 151.0 (14.1) 0.3 1.2 210.2 350.6
For the period ended 2 October 2015 (Unaudited)
Attributable to the equity holders of the Company
Other reserves
Share Investment Capital
Sharecapital premiumaccount in ownshares redemption reserve Hedgingreserve RetainedEarnings Totalequity
£m £m £m £m £m £m £m
Balance at 3 April 2015 2.0 151.0 (13.6) 0.3 1.3 226.7 367.7
Total comprehensive income for the period
Profit for the period - - - - - 37.4 37.4
Other comprehensive income
Cash flow hedges:
Fair value changes in the period - - - - (0.9) - (0.9)
Transfers to inventory - - - - 0.1 - 0.1
Transfers to net profit:
Cost of sales - - - - (0.7) - (0.7)
Tax on other comprehensive income - - - - 0.6 - 0.6
Total other comprehensive income for the period net of tax - - - - (0.9) 37.4 36.5
Transactions with owners, recorded directly in equity
Share options exercised - - 2.6 - - - 2.6
Share-based payment transactions - - - - - 1.1 1.1
Purchase of own shares - - - - - - -
Tax on share-based payment transactions - - - - - - -
Dividends to equity holders - - - - - (21.4) (21.4)
Total transactions with owners - - 2.6 - - (20.3) (17.7)
Balance at 2 October 2015 2.0 151.0 (11.0) 0.3 0.4 243.8 386.5
HALFORDS GROUP PLC
Condensed consolidated statement of cash flows
For the 26 weeks to 2 October 2015
26 weeks to 26 weeks to 53 weeks to
2 October 26 September 3 April
2015 2014 2015
Unaudited Unaudited
Notes £m £m £m
Cash flows from operating activities
Profit after tax for the period before non-recurring items 37.4 39.0 66.2
Non-recurring items - 0.2 (0.4)
Profit after tax for the period 37.4 39.2 65.8
Depreciation - property, plant and equipment 11.7 9.8 20.2
Impairment charge - - 0.7
Amortisation - intangible assets 2.7 2.6 5.5
Net finance costs 1.5 1.8 3.5
Loss on disposal of property, plant and equipment 0.1 0.5 1.7
Equity settled share based payment transactions 1.1 1.1 1.4
Fair value loss/(gain) on derivative financial instruments 0.3 (0.8) (2.0)
Corporation tax expense 9.0 10.4 18.0
(Increase)/decrease in inventories (9.7) 1.3 0.9
Increase in trade and other receivables (5.7) (10.7) (3.0)
Increase in trade and other payables 0.7 30.0 27.2
(Decrease)/increase in provisions (1.4) 0.3 0.5
Finance income received - 0.1 0.1
Finance costs paid (0.7) (1.7) (3.2)
Corporation tax paid (9.9) (7.4) (17.1)
Net cash from operating activities 37.1 76.5 120.2
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired - (14.0) (14.0)
Purchase of intangible assets (4.0) (4.1) (7.5)
Purchase of property, plant and equipment (13.5) (11.2) (32.1)
Net cash used in investing activities (17.5) (29.3) (53.6)
Cash flows from financing activities
Net proceeds from issue of ordinary shares 2.6 0.2 0.7
Proceeds from loans, net of transaction costs 110.0 91.0 220.2
Repayment of borrowings (114.0) (143.0) (254.0)
Payment of finance lease liabilities (0.7) (0.3) (0.3)
Dividends paid to shareholders 10 (21.4) (17.7) (28.4)
Net cash used in financing activities (23.5) (69.8) (61.8)
Net decrease in cash and bank overdrafts 13 (3.9) (22.6) 4.8
Cash and cash equivalents at the beginning of the period 13 0.1 (4.7) (4.7)
Cash and cash equivalents at the end of the period 13 (3.8) (27.3) 0.1
Notes to the condensed consolidated interim financial statements
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 11 November 2015.
2. Statement of compliance
These condensed consolidated interim financial statements for the 26 weeks to
2 October 2015 have been prepared in accordance with IAS 34 'Interim financial
reporting' as endorsed by the European Union. They do not include all of the
information required for full annual financial statements, and should be read
in conjunction with the 2015 Annual Report and Accounts, which have been
prepared in accordance with IFRSs as adopted by the European Union.
The comparative figures for the financial period ended 3 April 2015 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 32 to 35 of our
Annual Report and Accounts for the 53 weeks to 3 April 2015, which are
available on our website www.halfordscompany.com. The main areas of potential
risk and uncertainty facing the business for the remainder of the financial
year have not changed from the year end.
4. Significant 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 2015 Annual Reports and Accounts, which are
published on the Halfords Group website, www.halfordscompany.com.
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 for the foreseeable
future.
There are no new or amended standards effective in the period which have had a
material impact on the interim consolidated financial information.
5. Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from those estimates.
In preparing these condensed consolidated interim financial statements, 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 53 week
period ended 3 April 2015 and the 26 weeks ended 26 September 2014.
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 through retail stores and Boardman
Bikes. The operations of the Car Servicing reporting segment comprise car
servicing and repair performed from autocentres.
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 that are reviewed by the
Executive Directors. These internal reports are prepared in accordance with
IFRS accounting policies consistent with these Group Financial Statements.
All material operations of the reportable segments are carried out in the UK
and all material non-current assets are located 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.
Income statement RetailUnaudited£m Car ServicingUnaudited£m 26 weeks to2 October2015TotalUnaudited£m 26 weeks to26 September2014TotalUnaudited£m
Revenue 458.0 75.5 533.5 524.1
Segment result before non-recurring items 46.9 1.6 48.5 51.8
Non-recurring items - - - 0.2
Segment result 46.9 1.6 48.5 52.0
Unallocated expenses1 (0.6) (0.6)
Operating profit 47.9 51.4
Net financing expense (1.5) (1.8)
Profit before tax 46.4 49.6
Tax (9.0) (10.4)
Profit after tax 37.4 39.2
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 (£0.6m) in respect of assets acquired
through business combinations (2014: (£0.6m)).
Income statement Retail£m Car Servicing £m 53 weeks to3 April2015Total£m
Revenue 875.1 150.3 1,025.4
Segment result before non-recurring items 85.4 4.1 89.5
Non-recurring items (0.3) - (0.3)
Segment result 85.1 4.1 89.2
Unallocated expenses1 (1.9)
Operating profit 87.3
Net financing expense (3.5)
Profit before tax 83.8
Taxation (18.0)
Profit after tax 65.8
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 (£1.9m) in respect of assets acquired
through business combinations (2014: (£1.7m)).
Other segment items: RetailUnaudited£m Car ServicingUnaudited £m 26 weeks to 2 October 2015TotalUnaudited£m 26 weeks to 26 September 2014TotalUnaudited£m
Capital expenditure 16.9 2.6 19.5 12.5
Depreciation expense 9.4 2.3 11.7 9.8
Amortisation expense 2.1 - 2.1 2.0
Other segment items: Retail£m Car Servicing £m 53 weeks to 3 April 2015Total£m
Capital expenditure 30.7 6.8 37.5
Depreciation expense 16.4 3.8 20.2
Impairment expense 0.7 - 0.7
Amortisation expense 3.6 - 3.6
There have been no significant transactions between segments in the 26 weeks
ended 2 October 2015.
7. Non-recurring items
26 weeks to 26 weeks to 53 weeks to
2 October 2015 26 September 2014 3 April2015
Unaudited Unaudited
£m £m £m
Non-recurring operating expenses:
Lease guarantee provision1 - - (0.2)
Onerous lease provision2 - (0.2) (0.2)
Impairment of Property, Plant and Equipment3 - - 0.7
Non-recurring (income)/expense before tax - (0.2) 0.3
Tax on non-recurring items - 0.1 0.1
Non-recurring (income)/expense after tax - (0.1) 0.4
1A non-recurring expense of £7.5m was incurred in 2011. This expense related
to the creation of a provision for the potential liabilities arising from
lease guarantees provided by Halfords prior to July 1989. In prior years the
settlement of these obligations has resulted in a partial release of the
original amounts provided. There have been no further settlements in the
current period.
2A charge incurred in prior periods relating to stores where the present value
of expected future cash flows is deemed to be insufficient to cover the lower
of cost of exit or value-in-use. The release in the prior year was reflective
of a finalised deal to exit one of these stores, the cost of which was less
than the provision being maintained.
3Impairment charge in respect of property, plant and equipment where the
carrying amount of these assets has been deemed to exceed the recoverable
amount.
8. Net Finance Costs
26 weeks to 26 weeks to 53 weeks to
2 October 2015 26 September 2014 3 April2015
Unaudited Unaudited
£m £m £m
Finance costs:
Bank borrowings (0.4) (0.7) (1.3)
Amortisation of issue costs on loans (0.3) (0.3) (0.6)
Commitment and guarantee fees (0.3) (0.4) (0.8)
Cost of forward foreign exchange contracts (0.1) (0.1) (0.2)
Interest payable on finance leases (0.4) (0.4) (0.7)
Finance costs (1.5) (1.9) (3.6)
Finance income:
Bank and similar income - 0.1 0.1
Finance income - 0.1 0.1
Net finance costs (1.5) (1.8) (3.5)
9. 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 effective tax rate before non-recurring items for the 26 weeks to 2
October 2015 is 19.5% (HY15: 21.0%). This rate differs from the UK corporation
tax rate (20%) principally due to non-deductible depreciation charged on
capital expenditure, overseas tax rates and prior year adjustments.
A reduction in the UK corporation tax rate from 24% to 23% (effective 1 April
2013) was substantively enacted on 3 July 2012. Further reductions to 21%
(effective from 1 April 2014) and 20% (effective from 1 April 2015) were
substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the
Chancellor announced additional planned reductions to 18% by 2020. This will
reduce the Company's future current tax charge accordingly. The deferred tax
asset at 2 October 2015 has been calculated based on the rate of 20%
substantively enacted at the balance sheet date.
10. Dividends
During the period the Group paid a final dividend of 11.00 pence per share in
respect of the 53 weeks to 3 April 2015 (2014: 9.10 pence per share), which
absorbed £21.4m of shareholders' funds (2014: £17.7m).
The directors have approved an interim dividend of 5.66 pence per share for
the 26 weeks to 2 October
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