Fold out page for easy reference contents
we go the extra mile
we go the extra mile
we go the extra mile
Geared
for Growth
Halfords Group plc
Annual Report & Accounts for period ending 2 April 2010
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Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2010
halfords.annualreport2010.com
Online Annual Report 2009
halfords.annualreport2009.com
224
halfords.annualreport2010.com
Stock Code LON:HFD
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we go the extra mile
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
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See inside back cover for easy reference contents
About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
06
1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
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Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Financials
Statement of Directors’
Responsibilities
Consolidated Statement of Changes
93
in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Statement of
Cash Flows
Consolidated Income Statement
90
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
91
Accounting Policies
Notes to the Financial Statements 103
92
Company Balance Sheet
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130
131
94
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Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
135
135
136
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financialreport
Easy Reference
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
01
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02
04
05
About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
06
1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
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Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Financials
Statement of Directors’
Responsibilities
Consolidated Statement of Changes
93
in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Statement of
Cash Flows
Consolidated Income Statement
90
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
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Accounting Policies
Notes to the Financial Statements 103
92
Company Balance Sheet
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131
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Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com
Our Investment Proposition
Our Strategy
UK’s leading retailer of automotive
Organic growth plan:
and leisure products
Extending range and service
UK’s leading independent operator in
advantage
Investing in the Store Portfolio
Ongoing focus on cost control
Leveraging the Halfords brand in
multi-channel
Augmented by disciplined merger and
acquisition opportunities
garage servicing and auto repair
Consolidation opportunity in
attractive, fragmented markets
characterised by small independents
Brands and categories hold number
one sales positions
Strong competencies
– Unrivalled scale and national
coverage
– Leveraging brand equity and
maximising marketing opportunities
– Unique service proposition
– Multi-channel integration
– Agile international sourcing
Group Long-Term Vision
Grow earnings at a sustainable 15% CAGR
Maintain Halfords’ leading core retail position achieving earnings
growth 8% CAGR
Expand the Halfords brand into automotive aftercare
Leverage core capabilities in the retail sector
Increase multi-channel penetration and operating revenues
Identify and develop international opportunities
Maintain an efficient Balance Sheet across the financing cycle
Watch the overview video www.investinginhalfords.com
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Financial and Operational Highlights
Revenue
+2.7%
at £831.6m
(2009: £809.5m)
+9.1%
£744m
+7.2%
£797.4m
+1.5%
+2.7%
£809.5m
£831.6m
Operating Profit
before non-
recurring items
+15.1%
at £119.7m
+4.9%
£93.5m
+15.1%
+8.0%
+3.0%
£119.7m
£101m
£104m
(2009: £104m)
2007
2008
2009
2010
2007
2008
2009
2010
Operating profit was £112.3m (2009: £91.7m).
Profit
before tax
+41.5%
at £109.7m
(2009: £77.5m)
+41.5%
£109.7m
+5.1%
£80.9m
+11.5%
-14.1%
£90.2m
£77.5m
Profit before
tax and non-
recurring items
+24.0%
at £117.1m
+8.4%
£83.5m
+24.0%
£117.1m
+4.7%
£94.4m
+8.0%
£90.2m
(2009: £94.4m)
2007
2008
2009
2010
2007
2008
2009
2010
For comparative purposes, 2009 underlying earnings before tax (profit before tax
and non-recurring items adjusted for the 53rd week) were £92.4m.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com
Basic earnings
per share before
non-recurring
items
+22.2%
at 39.7p
+12.7%
26.6p
+22.2%
+10.9%
39.7p
+13.6%
29.3p
32.5p
Dividend per
ordinary share
+25.8%
at 20.0p
(2009: 15.9p)
+9.0%
+5.3%
15.1p
15.9p
+8.6%
13.85p
+25.8%
20.0p
(2009: 32.5p)
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2009
2010
2007
2008
2009
2010
Basic earnings per share was 36.8p (2009: 26.6p). For comparative purposes
2009, Basic earnings per share before non-recurring items adjusted for the 53rd
week were 31.8p.
Retail stores
462
Autocentres
224
n Autocentres
n Retail stores
224
+4.4%
426
+5.6%
450
+3.6%
-0.9%
466
462
wefit/werepair
jobs
’000s
+38.3%
+38.3%
2,350
+27.3%
+13.2%
1,699
+13.5%
1,179
1,335
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2008
2009
2010
2007
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2010
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462 Halfords stores now trading
Strategic supply chain optimisation from
Core Car Maintenance & Cycling categories
3 to 2 UK distribution centres
sales and market growth
Acquisition of 224 Nationwide Autocentres
Strong performance in Services (wefit uptake
+30% on 2009 figures)
Cost control measures implemented
halfords.com — Significant ‘Reserve & Collect’
growth. ‘Order & Collect’ launched
Closure of loss making European operations
announced
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How We Report
Stay up to date with what’s happening. Throughout the
year we publish a range of corporate reporting material to
ensure we remain open and transparent.
Our statements of material information are circulated
by regulatory announcement through a regulatory
information service approved by the FSA and are
shown on our corporate website. Our primary
audited annual statement is the Annual Report which
is reviewed by our Auditors. In conjuction with the
Annual Report we reproduce an online version which
contains the same core information as the printed
version but in addition has links to non-audited
supplementary information to help better explain the
Company and our strategic plans, this additional
information is clearly marked as unaudited.
As a contemporary source of information we update
our corporate website (www.halfordscompany.com)
with a range of information to inform and educate
a broad range of stakeholders in our activities,
management and social responsibility. The corporate
website has a dedicated area for investors which
contains our latest updates with links to online Annual
Reports and non-audited supplementary information.
Corporate / IR Website
Online Annual Report
Printed Annual Report
Our reporting media
Summary of financial
performance
Full Highlights
Full Highlights
Contemporary source of
strategic information
Point in time
strategic information
Point in time strategic
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annual report
Full review of the year
with video links
Full text of
business review
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risk management policy
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governance
Summary of corporate
governance
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annual report
Full accounts with
spreadsheet downloads
Full accounts
View www.halfordscompany.com
View halfords.annualreport2010.com
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com
Chairman’s Statement
I’m pleased to report a successful and exciting year
for Halfords delivering a strong financial performance
and our first acquisition as a listed company.
This has been a year of significant achievement for
Halfords. Revenue and profit growth was strong,
our strategic priorities were pursued vigorously
and our first major acquisition was completed. This
pleasing performance is testament to the strength
of the Halfords brand, our leading market positions
and unique and extensive product offerings and the
dedication of our colleagues.
On a comparable basis revenues grew by 4.6%
against the backdrop of a very challenging trading
environment. A healthy margin expansion was
achieved and proactive initiatives saw our cost
base reduce and productivity increase. As a result,
strong growth in both underlying earnings before tax
of 26.7% and in earnings per share of 24.8% was
achieved. Importantly, cash generation was strong
and the Group’s financial position remains very sound.
These results and confidence in the future prospects
for Halfords has enabled the board to maintain
its progressive dividend policy. A final dividend
of 14.0 pence per share has therefore been
recommended which would amount to a total of
20.0 pence for the year. This represents an increase
of 25.8% over the dividend of 15.90 pence paid
last year.
In February 2010, we completed the acquisition of
Nationwide Autocentres (“Nationwide”) for £75m,
effectively funded out of free cash flow generated in
the year. Nationwide has a network of 224 servicing
and repair centres throughout the UK. The intention
is to re-brand the business as “Halfords Autocentres”
and to continue the expansion of our servicing and
repair network by adding c.80 outlets over the next
three years. Acquisitions will be a key component of
our growth strategy.
After a thorough review, it was decided to close
our 7 Central European stores. The case for further
expansion into this region was considered to be
unattractive with weak end markets and severe
difficulty in sourcing the quality sites that would
be necessary to lay down a meaningful footprint.
Furthermore, it was felt that the Group’s resources
could be better employed by investment in our
activities in the UK market.
Another key element to the success of Halfords this
year has been the tight management of the supply
chain. Inventories have been reduced and sourcing
and availability has improved. A further initiative in
the year ahead will be the commissioning in July of
a new 320,000 sq.ft. warehouse and distribution
facility near Coventry. Significant cost savings will
be achieved and productivity and effectiveness
improved when fully operational.
David Wild, our Chief Executive Officer, and his
very experienced executive team have driven the
growth of Halfords in a year of significant change
and pursued our four point strategy with vigour and
precision. We will continue to do so and the aim of
this strategy is to deliver growth in earnings of 15%
per annum over the medium term. The marked
increase in shareholder value over the year is the
most cogent measure of our achievement and a
firm endorsement by our shareholders. I would like
to thank my board for their role in the continuing
success of Halfords and their support and counsel in
my first year as chairman.
On behalf of the board, I would also like to thank the
9,300 loyal and dedicated Halfords colleagues in the
store network, head office and distribution centres
who have responded so positively to the needs of our
customers and to the many initiatives implemented
this year. I extend a warm welcome to our 1,500
Nationwide colleagues and am heartened by their
dedication to service excellence. The excellent results
for the year just ended are testament to the hard work
and enthusiasm of the entire Halfords team.
Since the beginning of the new financial year, the
trading environment has remained challenging. The
recent change in UK government and the precise
nature and timing of their measures to reduce
government spending, and the impact this will have
on trading, is still uncertain. We have nonetheless
drawn up our plans on the assumption that conditions
will remain tough. Last year we faced similar
challenges and prospered — this year we will continue
to build on Halfords’ unique market-leading positions.
Dennis Millard
Chairman
10 June 2010
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Dennis Millard
Chairman
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Capability to drive value
Markets
and Brands
Page 8
Markets
Brands
Page 10
Products
and Services
Page 16
Car Maintenance
Car Enhancement
Page 18
Page 20
Channels
Page 26
Stores
Autocentres
Page 28
Page 30
Supply
Chain
Page 34
Colleagues
Systems
Page 36
Page 37
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Each element of our value chain is focused on consumer demand. Understanding the market allows us to
design products and services to support evidenced need. Our store formats, websites, autocentres and
in-store services promote, cross sell and accessorise the products we have economically and efficiently
sourced through our value-added supply chain.
Customers
Page 12
Page 14
Leisure
Page 22
In-store Services
Cycling
Travel Solutions
Page 23
Page 24
Online
Page 32
Sourcing
Distribution
Page 38
Page 39
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Markets
and Brands
224
Use your phones’ bar
code app and go directly
to the relevant page on
our website.
halfords.annualreport2010.com/markets
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Markets and Brands
Our Markets
The Halfords Brand
Branding and Marketing
Our Customers
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Our Markets
462
retail stores
UK and ROI
growing
female
and family
audience
£9bn
car
maintenance market
The UK & ROI are our core markets. Halfords continues to grow
market share in attractive markets and, through its unique service
proposition, differentiate itself from it’s competition.
United Kingdom (“UK”) and Republic of Ireland
(“ROI”) Summary
The UK has been the core market since the inception of the
Company in 1892 and the successful UK model has been largely
replicated in the ROI since 2006 with a similar mix of products
and services promoted through stores and a website.
Reportable segments
The Halfords Group operates through two reportable segments
or strategic business units — Retail and Car Servicing. The Car
Servicing segment covers the operations of the Nationwide
Autocentres business acquired in February 2010.
Retail
The Halfords retail business is split across “Car Maintenance”,
“Car Enhancement” and “Leisure” categories and includes in-
store services like wefit.
We retail from 462 stores in the UK and ROI, of which 403 are
“Superstores”, 26 are mid-sized “Compact” stores and 33 are
the smaller high street ‘Metro’ stores. Our formats of choice
are the larger “Superstore” and “Compact” store which carry
approximately 10,000 and 6,000 lines respectively. Ninety
percent of the UK population are within a 20 minute drive of one
our stores.
Our most comprehensive product presentation is now our UK and
ROI websites which currently display 12,000 product lines and
received 30 million visitors in the year to March 2010. Our web
traffic is growing at an annual rate of almost 40% and our industry
leading Reserve and Collect offer successfully drives 80% of online
customers to stores. This enhances the customer relationship and
allows us to improve sales of related products and accessories
(attachment rates). In addition, the web attracts new customers,
with a higher ratio of female buyers than is seen in stores.
Of the product categories, Car Maintenance is market-led
where the consumer generally makes a purchase based upon
a need to meet legislative, manufacturer guidelines or safety
concerns. The market has relatively robust demand. Car
Enhancement is more product led and thus susceptible to
changes in discretionary income and to a degree fashion and
technology led innovations. Leisure covers a wide range, of
which cycling is the largest proportion but also includes travel
solutions, child safety and camping products where we drive
business through both awareness and promotional activities.
Car servicing
Our Autocentres operation is the largest independent car
service agent in the country, comprising 224 garages. The car
maintenance market is worth approximately £9bn annually,
of which Nationwide has approximately 1% market share.
The market is fragmented: at one end the more expensive
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
franchised dealers and at the other small independent garages.
Being market-led and needs driven, our activity is split between
broadscale awareness campaigns and more proactive customer
relationship management.
Fleet customers, which are a growing proportion of revenue,
tend to operate cars under three years old and recognise the
cost saving benefits of a non-franchised, high quality, national
organisation.
The majority of the business is from direct retail clients where
most of the cars are over three years old. Advanced client
relationship systems manage the retention of this type of
business and our brand is expected to add further value to an
already successful service offer.
Range Identification Process
Consumer Trends
Our contributions towards, and feedback from, product segment audits coupled with an array of
economic data allow trends to be identified for further investigation.
Analysis of Behaviours
Many of our product and service strategies are impacted by consumer behaviour. For example, the
increasing complexity of cars has driven consumers to become less involved in complex car service.
This has highlighted opportunities for our wefit service and our Autocentres acquisition.
Growth Potential
We operate in large markets and we analyse the potential for future expansion, whether through organic
growth of the market or our growth in market share.
Sustainability
The sustainability of product categories has a significant impact on shareholder value; consequently, we
are developing deep insight and working practices. Increasingly our expertise in managing fast moving
technological change (e.g. SatNav life cycle) has value generation benefits when managed well.
Product Selection and Service Design
Once an opportunity has been identified our category managers develop contingent specification
and key characteristics for the products and services. These can then be sourced with the extensive
knowledge of our UK and Far East-based teams.
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The Halfords Brand
Trading as
Halfords since
1902
1st
choice in core
markets
* Data from ABA Brand Tracking Dec 2009
Over
5,000
own brand SKU’s
Over the past 108 years we have developed
one of the most recognised UK retail brands.
We go the extra mile
Our brand and its values serve the Company both internally and
externally. With 108 years of heritage our brand began as being
associated with bikes. Through development our offer is now
accepted and synonymous as a broader trusted retailer. Recent
research has identified the following characteristics:
■ Halfords is seen as unique given its combination of products
sold — there is nowhere else like Halfords.
■ For many markets, e.g. car parts, car accessories, kids and
family bikes, Halfords is clearly the number one choice.
■ Most will recognise that Halfords offers “car and bike bits”.
When fully probed then a connection with personal transport,
or journeys emerges and with camping the connection with
outdoor leisure or great trips.
Products and services
Brand perception research has enabled us to position our brand
to products from every category, and across our good, better,
best placement strategy.
Using our own brand customised as “Halfords Value”, “Halfords”
and “Halfords Advanced” has proved successful in lifting average
transaction values.
Building the brand requires a combination of promotion,
customer service and product quality. The scale and scope
of our store operations has also contributed to our category
successes where the blend of trust, competence, accessibility
and range has taken us to the No.1 sales positions in many of
our product categories.
Extending the brand
In-store our branded services like wefit have garnered more
rapid acceptance through the strength of our brand and the
competence to package an idea effectively and rapidly.
Autocentres
Our brand values lend themselves to extension into adjacent
markets where there is a demand for reliability and trust. Car
servicing therefore is a natural fit and should allow us to build
upon another market-leading offer.
“Retail marketing is a tough environment, our service
offer gives us a competitive advantage in almost all
product categories”
Head of Marketing
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Branding and Marketing
No.1*
UK Bike Brand
Apollo
* Data from GFK NOP Consumer Research
Own label products
40%
of revenue FY10
Exclusive
distribution of
Boardman
Brand in UK
Competence in brand management and marketing is a key factor in
retailing. We have successfully developed brands and campaigns
which appeal to strategically targeted market segments.
Our marketing competence not only tells us what we can do with
the brand but, as importantly, what we should not. Managing
brand values means keeping a watchful eye on where brand
extension becomes a stretch too far. This has the potential to
dilute the clarity of brand values and to limit sales in the target
market.
Our sub-brands
As an example, in the cycles category, using our “good, better,
best” strategy we have Apollo (good), Carrera (better) and
Boardman (best). For the largest mainstream sector, where
families enjoy cycling as part of family leisure, we created Apollo,
which has developed as our “good” cycle brand. For the more
discerning, we have created Carrera, which, both in styling and
components, raises standards. At the top end, where it is likely
the consumer will have researched the buying decision, we have
the exclusive UK distribution licence for Boardman branded
bikes. Boardman, by association with Olympic performance
and exemplary components, allows us to raise transaction value
further, indeed up to ten times that of a “good” branded bike.
This use of brands to attract a broader audience and drive value
is evidenced in the fact that Apollo is now the best selling UK
bike brand.
Value in branding
In summary, we have built a competence and consumer
behaviour model which can be used across many types of retail
categories. A powerful value add both in existing business and
future growth opportunities.
OWN BRANdS
ExCLUSIvE dISTRIBUTION BRANdS
SOME OF OUR PARTNER BRANdS
17399
14/06/2010
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Our Customers
“Usually, I am
lost when I go into
large stores”
I visited your store in the Old Kent
Road London SE1 earlier this
morning and was delighted by the
courteous and knowledgeable advice
I received from the Sales Assistant in
the Bicycle Department.
I was looking for a Schrader valve
inner tube and a 28" tyre and the
assistant, who was also a mechanic,
kindly stopped what he was doing to
pick the items for me.
Usually, I am lost when I go into large
stores, but the help shown by your
member of staff today has confirmed
that I shall be using Halfords in future:
for price, for quality and above all, for
the stress-free service that came free
with the purchase.
Anthony Dennis on
Customer Service
“The repairs were
carried out promptly
and efficiently”
Last week I had occasion to take
my daughter’s bike into your
Rickmansworth cycle branch for a
check and service. I am delighted
to say that the service I received
was exemplary: the repairs were
carried out promptly and efficiently
and I was immediately informed by
phone. Moreover, the gentleman
who carried out the work provided
me with some invaluable advice
concerning bike maintenance,
taking time to ensure that I fully
understood.
He is clearly someone who really
enjoys his job and takes great pride
in providing excellent customer
service. Needless to say, I will be
returning there!
Bill Grimwood on Bikes
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
“She was passionate
about the benefits
and delights of
Satellite Navigation”
I just wanted to take a few minutes to
let you know what a refreshing shopping
experience I had before Christmas.
My wife was deciding what to buy me
for Christmas so I opted for a Sat Nav
device. We knew nothing about Sat
Navs and the Store Manager quickly
spotted us staring aimlessly at the
devices on offer at your Macclesfield
store.
Her product knowledge was first rate
and it was pretty obvious that she was
passionate about the benefits and
delights of Satellite Navigation. By the
end of the discussion, not only had we
decided on which device to purchase (a
Garmin), but I too now consider myself
to be a Sat Nav expert.
Excellent product knowledge, first-class
customer engagement and a great
shopping experience.
Peter Morgan on
In-Car Technology
“A job well done
and all for a
modest £6.68”
I telephoned your branch on Queens
Road, Sheffield yesterday to check
stock and fitting of a brake light for my
Citroën. The assistant I spoke to was
most helpful, polite and patient.
I visited the store today and received
equally great customer service. A
member of staff promptly attended to
my brake light, a new bulb fitted and
working in no time. Fantastic. Excellent
customer service, great advice, a job
well done and all for a modest £6.68.
Without any doubt, I’ll return there as
and when needed and recommend
Halfords to family and friends.
Marie Collinson-Wallace
on wefit
17399
14/06/2010
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Products and Services
halfords.annualreport2010.com/products
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Products and Services
Car Maintenance
Car Enhancement
Leisure: Cycling
Leisure: Travel Solutions
In-store Services
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14/06/2010
Proof 7
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Car Maintenance
Blades stocked for
96%
of UK car parc
Bulbs stocked for
98%
of UK car parc
UK sales
No.1*
for engine oil
* Data from GFK Panel Market
As the leading UK retailer of car maintenance products we have
seen value growth from both our 3Bs (bulbs, blades and batteries)
offer and our good, better, best range strategy.
Market
Offer
Much of the car maintenance business is market-led which is
in response to needs driven purchasing. Given the nature of
consumer behaviour, we need to meet this demand with easy
access, comprehensive ranges and a hassle-free experience.
Needs driven purchasing has a positive impact given its limited
exposure to changes in disposable income and cyclical trends.
Using our retailing competencies, our large ranges follow a good,
better, best positioning strategy and in particular our 3Bs (bulbs,
blades and batteries) offer has seen an uplift in transaction value.
Clearly labelled benefits allow customers to select upgraded
product performance, and attachment rates for services are
also growing.
The competition in car maintenance is fragmented with no
nationally equivalent service provider. Geographically the
supermarkets have a national network of outlets but have limited
product scope. Competing smaller car parts suppliers lack
our brand strength and national accessibility, providing us with
significant competitive advantage.
Alignment with strategy
Car maintenance is a core element to our product retail offer
and not only contributes in margin terms but also drives footfall
and thus our ability to promote other ranges. The Halfords brand
also has a heritage in car maintenance and allows us to leverage
margin from the trust that ‘we go the extra mile’.
Sustainability
The evolution of vehicle maintenance and complexity of repair in
modern vehicles has meant the reduced long-term demand for
heavy parts where consumers are driven to use service agents.
These trends have also allowed us to build a service backed
product range to meet the demand for the more consumable
items. This allows our customers to save cost and experience
improved convenience.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
No.1*
Sales position for
wiper blades
* Industry sources
Own brand is
82%
of 3Bs sales
(Bulbs, Blades and Batteries)
New
‘Flat Blade’
Technology sets
now in store
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Key Product Groups
Key Brands
Halfords (Value, Core & Advanced), Bosch, Castrol, Mobil,
Redex, WD40, Haynes, Loctite, Davids, Hammerite, NGK,
Champion, Ferodo, Stanley,
Winter
Tools
Metal storage
Lifting
Blades
Bulbs
Batteries
Oils
Spark plugs
Panel sprays, rust repair
Haynes manuals
“Selling millions of wiper blades every year, the
wefit offer was a logical extension and is particularly
attractive to the customer that would otherwise have
gone to a main dealer”
Category Manager
17399
14/06/2010
Proof 7
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Car Enhancement
No.1*
Sat Nav retailer
* Data from GFK Panel Market
Car Audio
No.1*
retailer
* Data from GFK Panel Market
Sat Nav Accessories
sales attachment
increased by 50%
FY10
As the leading retailer in car enhancement, from car audio to car mats and from
alloy wheels to car cleaning, our market position is defensively maintained by
sheer scale, scope, multi-channel availability and the knowledge of our colleagues.
Market
Offer
As a product led market, car enhancement contains the highest
proportion of items affected by levels of discretionary spend.
With the range stretching from cleaning products to technology
solutions, our promotional activity, inventory and services need to
be dynamic and contemporary.
Product maturity is the norm in technology markets as features
appear and products merge functionality. Conversely these
new features and technologies also create new ranges and the
market has many innovations launching over the next few years
such as DAB digital radio.
Sustainability
Technological innovation creates constant streams of sales
opportunities and lifestyle challenges. The evolution of products
and features in core markets like CD Audio and Sat Nav provide
upgrade sales well before products mature in a traditional sense.
This is countered, however, by increased competition in some
ranges where online price comparison can become the norm.
We have developed a series of responses to these market
challenges, learning fast and adapting ranges and services.
Product led categories like car enhancement inherently get
more space in most of our advertising media. In stores we have
comprehensive range displays and fully trained colleagues to
ensure customers get the product they need. Online provides
an ideal opportunity to present both our detailed product
information and to drive sales through our “Reserve and Collect”
and “Order and Collect” (page 32).
Value contribution
The sustainability of the car enhancement category adds
value to our broader product portfolio, driving footfall from our
promotional activity on high profile technology, combined with
the strong margin contribution of accessories and car cleaning.
The scale and breadth of the ranges ensures we are the natural
destination for the motorist.
Alignment with strategy
Car Enhancement products are well aligned with our core
maintenance products and the Halfords brand is a recognised
participant in the category contributing to our No.1 market
position in several product areas.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
3.5m+
Car Air Fresheners
sold FY10
Car Accessories
Store of
First Choice
ABA Brand Tracking
Car cleaning
No.1*
position
* Data from GFK Panel Market
Key Product Groups
Sat Nav and accessories
Car Accessories —
In-car DVD players
l seat covers & mats,
Audio — includes
l air fresheners,
Key Brands
Technology:
l CD audio/speakers/
accessories/system
building,
l portable media devices
(FM transmitters), and
l Bluetooth hands
free range
l wheel trims,
l internal and external
accessories
Performance styling —
l exterior styling,
l gear knobs,
l alloy wheels,
l graphics and lighting
Car polish
Car shampoo
Pressure washers
Alloy wheel cleaners
Tom Tom, Garmin, Sony, JVC, Kenwood, Sendai, Ripspeed
Car Accessories and Performance Styling:
Type S, Airwick, Magic Tree, Hello Kitty,
Prism lighting, Me to You
“We are experts at set-up and demo, and focus on clear
explanation of products and benefits to ensure the customer
walks away with the product that best suits their needs”
Category Manager
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14/06/2010
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Leisure: Cycling
1m+
bikes sold
Cycle accessories
8m+
sold
UK bikes
30%*
share
* Data from GFK NOP Consumer Panel
Cycling is a significant category for Halfords where we sell one in
three of all the cycles sold in the UK. Our range continues to expand
particularly in the premium and childrens ranges.
Market
Sustainability
The Leisure category comprises two core groups, cycles and
travel solutions. In cycling we hold the number one position
selling one in three of all bikes in the UK.
Cycling has seen many positive, social, economic and
environmental drivers accelerate sales in recent times. With
each of these drivers our retail offer has been expanded to
accommodate demand. Supporting this demand has been the
political moves to support both health and environment through
the Cycle2Work scheme.
Through sponsorship and expanded promotion we are
expanding our core strengths in mainstream cycling to both
children’s ranges and the range topping Boardman cycles. We
have a track record for the creation of complementary services
like webuild, werepair and weservice, which not only add
transaction value but increase footfall and brand loyalty.
Underlying consumer trends towards health, leisure and
environmental concern make cycling ranges a category with
potential to not only sustain into the medium term but offer
attractive growth potential.
Offer
Cycles have a strong presence in stores, on the website and in
many of our media campaigns. Sales offers are carefully created
to draw customers and maintain strong margin contribution.
Overall margin contribution is enhanced when combined with
repair and maintenance service options.
“Our build and service plans continue to differentiate
Halfords in the mid market, while character bikes have
improved our sales of kids bikes”
Category Manager
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Leisure: Travel Solutions
No.1
in roof bars
* Data from Mont Blanc
3.5m
units sold
across the Travel
Solutions category
51,000
tent packs sold
FY10
Underlying trends have made the leisure market increasingly attractive.
We continue to develop our offer towards being the front of mind
destination for those on the move.
Market
Sustainability
In travel solutions we participate in product ranges to facilitate
journeys, camping, child travel solutions and more recently
mobility products.
General travel products include ranges from safety vests to
vehicle trailers. These products facilitate convenience and
safety whilst on the move. Our roofboxes, for example, have
seen improvements in design to reduce drag and thus fuel
consumption whilst retaining a strong visual appeal, attracting
consumers on an increased aesthetic and environmental basis.
Camping has been supported by an increased trend to holiday
closer to home which is economically attractive. As our range
develops our retail offer is designed to increase attachment rates.
In addition, the seasonal nature of holiday solutions adds balance
to our product portfolio.
Child Travel products invoke a parental response which resonates
with our ability to not only specify the correct solution but also to
use our accredited free fitting service for peace of mind.
Underlying consumer trends towards leisure, safety and
economy make our Travel Solutions ranges a category with
attractive growth potential. Our brand association continues to
grow from core products like roof boxes and cycle carriers, to
camping and mobility.
Offer
Travel Solutions is also promoted through our multichannel
offer. From both our stores and websites, customers can
obtain a breadth of information and accessory options; with the
benefit of having many of the products, assembled, fitted and
demonstrated by our professionally trained staff.
“Parents get that confidence when child safety products
are specified by professionals then fitted and
demonstrated to ensure correct use”
Product Manager
17399
14/06/2010
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In-store Services
£11.7m
revenue from in-
store services
2.35m
wefit/werepair
jobs. An increase
of 38.3%
212,000
Bike Care Plans
sold, up 71.5%
on FY09
The fastest growing area of our business has been in-store services.
Cost-effective, fast and professional service meets consumer needs
and allows us to recommend related products and accessories.
Year on year we have seen growth in the
wefit offer. The offer allows a close contact
relationship with the customer to be fostered.
It improves safety for the consumer by having parts
professionally fitted, it builds loyalty to the brand and it allows our
colleagues to enhance the customer experience by
recommending related products as issues are discovered in the
fitting process. For example, demonstration and fitting of our
child safety products provides peace of mind to parents and the
more complex audio systems frequently require professional
fitting; so in both cases, our offer adds value to the customer.
The build and
assembly of products
is another key
differentiator, especially where safety and complexity is
concerned. Cycles and trailers are examples of product groups
where the assembly and testing service enhances the customer
experience.
Services
We have built a compelling service offer to create competitive
advantage across a wide range of product categories.
In each case the level of support and service provision required
by the customer varies by customer competence, confidence
and desire to get involved and by the product complexity
and safety needs. We continue to develop a compelling and
comprehensive range of support services which make us
the natural destination and create a sustainable competitive
advantage.
On the following pages we outline many of these service
innovations. Our experience in growing the wefit service offer has
secured not only increased transaction values but has attracted
new consumer groups to Halfords.
Our services have grown in response to social and technological
trends, and have in part been designed to complement our
growing product portfolio. Our services offer is both a strategic
defence and a growth driver.
Strategic defence
Competition from online players, supermarkets, independent
product suppliers and car dealers is countered to a significant
degree by our service offer. The combination of our geographic
reach and product range is complemented by a cost-effective
and convenient range of services which check, demo, fit and
service many of our products.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
1.3m
3Bs fittings
2,430
RoSPA trained
car seat fitters
Child travel
72,000
child seats fitted
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wecheck is a service most
commonly provided free of charge
which allows all customers to
ensure the part required is not only in need of replacement, but
also to ensure the correct part is supplied. It forms a wider role in
expanding the audience we see visiting our stores. The increased
audience from a wider family group are reassured in the
knowledge that our colleagues help them every step of the way;
whether checking screen wash or oil level, we help keep them on
the move.
Our werepair offer is perhaps the
most under-utilised area of
service, but one which has
potential to grow significantly as customers become more aware
of what can be delivered by our store colleagues. From cycle
repairs and maintenance to the car scratch and dent service
many of our colleagues have been trained to deliver to high
standards of quality and safety.
Cycles has seen the most
significant implementation of
our maintenance offer. When
purchasing a cycle or at the free six week check stage,
customers can purchase a plan to have the labour element of
regular maintenance covered. Policies are issued lasting
between one and three years. The customer gets peace of mind
and a higher level of safety in the product usage, our stores get
increased footfall, product sales for the consumable items used
and a higher level of customer loyalty. It is also a service not
offered by online and supermarket competitors so has growth
and defensive potential
“Being increasingly time pressured, the ‘do it for me’
group of consumers are increasingly attracted to
Halfords with our wide service offer”
Andy Torrance
Director — Store Ops
and Logistics
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Channels
224
halfords.annualreport2010.com/channels
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Channels
Stores
Autocentres
Online
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Stores
462
stores
23
ROI Stores
located
20 min
from 90% of the
UK population
Our retail stores remain the backbone of our product and
service offer, with national coverage and optimised formats.
We are within 20 minutes’ drive of 90% of the UK population.
Location, Location, Location
Compact stores
Halfords operates 462 stores which include 403 superstores, 26
compact stores and 33 metro stores.
Central to our retail offer, the physical stores not only allow us to
present goods in prime locations but serve as the consolidation
point drawing in web customers with the Reserve and Collect
and Order and Collect services. They also facilitate our range of
retail services for checking, building and fitting products.
Our stores are within 20 minutes’ travelling time of 90% of the
UK population. We have consolidated store operations in the UK
and ROI.
Superstores
Our superstores are typically
7,500–10,000 sq.ft. of retail
space located on out of town
retail shopping parks. Of the
403 superstores, 240 have a
mezzanine floor. On average
superstores employ 20
colleagues with speciality training across most areas of service.
A superstore has a typical range of 10,000 products.
Our 26 compact stores
(formerly neighbourhood) are
designed to service smaller
catchment areas where a
superstore would not be
viable. With typically
4,000 sq.ft. of retail space
the compact stores carry around 6,000 product lines and employ
20 colleagues and cover all of our key service areas.
Metro stores
Our 33 Metro stores are
the smallest format and are
created only where there
is edge of town alternative.
Typically carrying 4,200
product lines our metro stores
provide both a local footprint
and a local ability to leverage our Reserve and Collect and Order
and Collect web offer.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
3.8m
sq.ft. of retail
space
c.9,300
in-store
colleagues
240
stores with
mezzanine
1
17 Superstores
1 Compact Store
2
16 Superstores
2 Compact Store
3
22 Superstores
4
21 Superstores
1 Compact Store
1 Metro Store
5
20 Superstores
1 Compact Store
6
20 Superstores
1 Compact Store
7
18 Superstores
2 Compact Stores
8
19 Superstores
1 Compact Store
2 Metro Stores
*
9
14 Superstores
4 Compact Stores
10
18 Superstores
1 Compact Stores
11
18 Superstores
2 Compact Stores
13
19 Superstores
2 Compact Stores
14
16 Superstores
1 Compact Store
15
16 Superstores
4 Compact Stores
16
12 Superstores
4 Compact Stores
4 Metro Stores
17
18 Superstores
2 Metro Stores
* Includes 3 superstores and 1 compact store situated in ROI.
18
22 Superstores
1 Metro Store
21
18 Superstores
3 Metro Stores
22
17 Superstores
4 Metro Stores
23
14 Superstores
5 Metro Stores
24
13 Superstores
6 Metro Stores
25
15 Superstores
3 Metro Stores
26
20 Superstores
1 Metro Store
Store Locations
462
Stores
9
10
2
1
5
4
3
14
13
6
7
11
15
21
16
22
24
8
23
26
17
18
25
“When a ‘Reserve & Collect’ order arrives our store
colleagues respond as if the client was in-store, calling
to check suitability and ancillary requirements”
Andy Torrance
Director — Store Ops
and Logistics
17399
14/06/2010
Proof 7
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Autocentres
Pictured:
Unit 1, Saxondale Park, London Road, Derby.
Pictured:
Unit 7, Wyvern Way, Wyvern Retail Park, Derby.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Largest
independent
garage network
in UK
224
Autocentres
667,000
appointments
in FY10
With only 1% market share of an estimated £9bn industry, our brand and financial
strength will allow us to expand rapidly, meeting consumer needs for a trusted
garage providing great service and value, located within easy reach.
Market
Our offer
As our cars become more technologically complex, the owners’
ability to service and maintain them at more than a superficial level
diminishes. Whilst modern cars have become more reliable and
service intervals extended, the cost of those services has increased.
Nobody would choose to service their car were there no
warranty, reliability and resale consequences. In short, it is needs
driven. This provides service agents with a market estimated to
be worth £9bn annually and customers select them based upon
a range of convenience factors. These include level of disruption,
cost and location.
The service market consists of three broad segments. At one
extreme are the franchised dealers; slick, credible and trusted
but very costly and prepared to operate only at their own
pace. At the other extreme are the small private garages and
mechanics, a generally less polished experience and frequently
without the security of a large organisation’s resources, but the
costs are lower.
Halfords Autocentres are the perfect balance. We are always
more competitive than the franchised dealers. We have the brand
and reputation to put customers at ease, and the diagnostic
computer technology to maintain most cars and without affecting
warranties. All packaged up with our high standards of customer
service.
This balance of franchise quality service and competitive price is
attractive to both retail customers and fleet operators alike and
we deal very effectively with a number of very large fleets.
Sustainability
With a growing and ageing car parc and cars lasting longer than
ever, the need for car service is assured in the medium to long
term. We are experienced at consolidating the requirements in
fragmented markets and with a long heritage of dealing with retail
customers, we are uniquely aligned to take advantage.
“In common with the Halfords retail offer Autocentres
have been successful in providing a service which is
good value with excellent customer service”
Duncan Wilkes
Autocentres — Chief Executive
17399
14/06/2010
Proof 7
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Online
30m
visitors in
FY10
Online sales up
35%
in FY10
Upto
12,000
products available
online
Our broadest product offer is provided online, supported by detailed
product specification, video enhancements and customer testimonials.
Uniquely Halfords drives 80% of web customers to our stores.
Our multi-channel strategy has followed the broader move
of many consumers to research and purchase goods online.
We benchmark our online performance with British Retail
Consortium figures for online performance and have consistently
outperformed average sales growth rates.
Market
The online market inevitably sets us against many competitors
whose key strategy is low cost, high volume and who have very
little overhead to support. We have a number of differentiating
characteristics which enable our online channel to not only
compete but to establish competitive advantage.
Depending on the level of support required and the set-up needs
of the product, our other service offers like fitting, demo and
assembly can prove persuasive reasons for buying from Halfords.
In many other cases the consequence of using our Reserve and
Collect service from one of 462 stores is also beneficial. On top
of both of these service features is our brand value, customers
like the trust and reliability which comes from using a well-known
company for online transactions.
Product range
The online offer also contributes to the store offer with our free
Order & Collect service. By allowing customers to select from
many thousands of products available on the website, way
beyond what even the superstores can stock, we leverage all
of our store formats. We can then rapidly supply the local store
using our distribution network.
Getting customers into store is our preferred option, allowing
us to improve attachment rates through upgrades and
accessorisation. In addition, we provide our build and fit services
to ensure safe and appropriate product usage. In cases where
customers want delivery to home or work, we can also provide a
prompt and efficient service.
New technology and social media
To further leverage and convert browsers into customers we
have a range of programmes to enhance the experience. From
peer reviews, which has proved very compelling, to video on
product pages. Our presence on Twitter and Facebook also
seeks to keep the more social media savvy customers informed,
engaged and listened to.
224
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
80%
of web customers
visit store
Text and Reserve
service
launched in
2009
c.33,000
product reviews
online
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Urban Escape product video on halfords.com
Customer Review example
Halfords YouTube Channel
Halfords Twitter Account
“We’re seeing solid increase in conversion through
customer reviews, we now have close to 33,000 reviews.
Often users sort listings by average customer rating”
Head of Multi-Channel
17399
14/06/2010
Proof 7
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Supply Chain
224
halfords.annualreport2010.com/supplychain
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Supply Chain
Colleagues
Systems
Sourcing
Distribution
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17399
14/06/2010
Proof 7
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Colleagues
c.10,800
colleagues
c.4,000
of our retail staff hold
accredited fitting
qualifications
Colleague turnover
rates have fallen by
21%
in the last four years
delivering development programmes for all colleagues is a valuable
competence in retail, we optimise talent in all elements of the value
chain to deliver our strategic aims and objectives.
To compete in retail the pace is fast, the targets tough and the
need to evolve is constant. Behind the scenes of the retail stores
are a core of people monitoring, analysing, communicating,
testing, moving, sourcing, negotiating, motivating . . . the list
goes on. What is common is a passion to deliver in a relentless
competitive environment month in and month out.
This focus and commitment is guided by our clear strategies and
most importantly our skills in execution. Our ability to recruit, train
and manage thousands of our colleagues is a competence in itself.
Communication
Communication is vital and we have implemented many revised
systems both technological and conventional to ensure the goals
and objectives of the Group are understood and co-operatively
delivered throughout the Company.
Training
to continually develop their skills and capability. In the last year,
we have invested in learning and development, to enable line
managers to constantly improve the performance of the people
in their teams. This has included:
■ The Halfords Competency Framework — a clear articulation
of what we need to drive forward our brand and deliver the
very best performance.
■ Colleague Training — A suite of interactive training materials
to develop expertise across the complete customer offer and
provide our store management teams with a more flexible,
talented resource.
■ Active Selling Training — Training all colleagues in how
to deliver complete solutions to our customers. Driving
additional sales and margin through accessory attachment,
fitting services and care plans.
Key to maintaining our relentless drive for delivering a
genuine service differential to our customers is ensuring that
all colleagues, whether on the shop floor, in the distribution
centres, or in the head office, have the opportunities and tools
■ Accredited Fitting Training — A range of technical fitting
qualifications, developed with industry bodies such as
RoSPA, Cytec & IMI, to provide the very best levels of service
that is safe, industry leading and of high quality.
“Through training we’ve seen an increase in Customers
being approached by 8%, together with Customers being
offered accessories up by 10%”
Jane Saint
Director — Human Resources
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Systems
1.7m
Reserve & Collect
transactions
to date
Order & Collect
launched January
2010
Over
400,000
items available to
order in store
The technology to drive an increasingly complex multi-channel offer
and improve operating efficiencies across the business remains a key
area of focus and investment.
Multi-channel support
Multi-channel support has been a key area of development.
Improving an infrastructure which can now show our product
availability per store to web users has supported the increased
demand for Reserve and Collect. It also creates a seamless
experience where a customer orders non-stock items for
collection at the local store. Our logistics and in-store processes
are designed to be easily managed and allow colleagues in-store
to add value through accessories or services.
Over the past five years Halfords has invested in a core suite
of systems, that provide the backbone of our business. Such
investments have replaced our point of sale, warehousing, multi-
channel and head office systems.
Recognising our risk appetite in the area, we don’t look to lead,
but to mirror the best in class infrastructure already established in
the marketplace.
Our key focus at this time is on a further enhancing of our in-
store point of sale experience and further integrating our multi-
channel proposition.
Point of sale experience
For point of sale we have two categories of purchase. First, that
which you can take from the shelf and pay at the till. Second,
that which needs to be cross-referenced to ensure the part
is correctly selected. The latter is supported by our market
leading product look-up databases supplemented by customer
product references and this continues to improve the customer
experience.
“The importance of joined up systems has never been greater;
our ability to deliver customer access to store inventory
information has proved invaluable”
17399
14/06/2010
Proof 7
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Sourcing
30%
of supply
managed direct
from Far East
99.8%
of products imported
have been audited to
our ethical standards
Direct trade with
9
countries
With almost a third of buying now directly from the Far East, our
sourcing strategy has benefited from investment in our Hong Kong and
Shanghai offices over the past five years.
Our successful retail strategy of strong own brands has
increased the need to source large quantities of own brand
products at a price structure and quality level to meet customer
expectations and brand positioning.
The majority of products are sourced through our UK-based
buying teams with mutually beneficial relationships across
manufacturers and distributors.
Ethics and quality
We have introduced our own code of conduct based upon
established international standards which are regularly audited.
In addition, most of the products are manufactured to EN, BS
and ISO standards like ISO 9001 and ISO 14001 which are
likewise audited by the international quality audit company BVQI.
The future
The Far East
A growing source of value has been our ability to deal more
directly with the Far East as an economic supply region. Our
new offices in China have proven invaluable, in investigating new
sources of supply in inland China, compared with our historic
sourcing in southern China.
We constantly monitor manufacturing migration trends
and capabilities of emerging origins as well as the growing
domestic demand within certain economies. This helps us
map the possible new leaders in manufacturing and export
competitiveness and shapes the strategy for future development
of our sourcing organisation.
“We’re Halfords’ eyes and ears in the region, enforcing quality
and ethical compliance whilst developing true commercial
partnerships with key suppliers for mutual benefit.”
Head of Far East Sourcing
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/abouthalfords
Distribution
320,000
sq.ft. of
new DC
CO2
1.6%
reduction in
2009/10
increase of
34%
pick rate
expected
A programme of improvements and investment in distribution centre
structure with modern management systems will deliver significant
returns from 2010.
Environmental impact
We have outlined our impact on the environment on page 84 and
shown how the steps we have taken will make our distribution
network more carbon efficient. We have sought to optimise both
the operation of the delivery fleet and the warehouse operations.
These include shorter, more efficient journeys and warehouse
zoned lighting which reduces lighting to 10% output when not
needed, but is able to be re-illuminated immediately by motion
sensor controls thereby minimising cost.
Servicing 462 stores in the UK & ROI carries a significant cost,
both financial and environmental. Our responsibility to our
shareholders and the broader community will see significant
improvements as investments in technology, rationalisation of
distribution centres, inventory management and logistics begin to
come to fruition.
2010
During 2010 the Group will migrate from its current three
distribution centres (“DC”) to two national distribution centres.
One DC, Redditch, will service all bike volumes whilst the new
Coventry DC will service all other demand. Through improved
location and investments in mechanisation, annualised savings of
c.£4m are anticipated.
Order collation
The efficiency of our colleagues in the distribution centres will be
improved through intelligent management systems, one feature
is the “pick by voice” feature which allows the movement of our
colleagues picking orders to be optimised as they are given live
instructions via headset by computer. This will enable not only
increased pick rates by better planned walks but also the ability
to pick for multiple stores concurrently.
“Computer driven voice instructions to colleagues in
Coventry will allow us to move from picking for a single
store to four stores concurrently”
Logistics Controller
17399
14/06/2010
Proof 7
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224
Business Review
halfords.annualreport2010.com/businessreview
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Business Review
Business Review
Finance Director’s Report
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14/06/2010
Proof 7
42
Business Review
“When combined with the growth opportunity provided through
Nationwide, we believe the business is well positioned to deliver
sustainable earnings growth, averaging 15% over the medium-term.”
The strong earnings growth delivered in 2010 reflects
a number of contributory factors. Revenue increases
were seen in the core categories of car maintenance
and cycling. Gross margin enrichment as a result
of mix, improved purchasing prices and a higher
participation of the Halfords service offer was also
evident. Finally, the successful implementation of a
series of initiatives reduced the cost base.
Acquisition activity has been firmly established
as an important component of the Group’s future
growth, following the purchase in February 2010 of
Nationwide Autocentres (“Nationwide”). Car servicing
and repair under the Halfords brand represents a
significant earnings opportunity for the Group.
The lack of quality retail sites to facilitate the rapid
scaling of our Central European operations led to the
decision to close these operations and signalled the
Group’s intention to focus its resources on UK growth
opportunities in the near term.
The core UK retail operations have generated sustained
high single digit operating profit growth, in the 5 years
following Halfords flotation on the London Stock
Exchange, despite changing consumer spending
patterns. We are confident that this can be maintained.
This confidence reflects the opportunity through our
leading positions in strong markets, and the continued
development of our multi-channel offer to grow like-
for-like sales. This is backed by active gross margin
management and tight cost control leading to increases
in operating profit ahead of revenue.
When combined with the growth opportunity provided
through Nationwide and from re-investing our strong
free cash flow in similar opportunities, we believe
the business is well positioned to deliver sustainable
earnings growth, averaging 15% over the medium-term.
Group strategy
The four elements of the Group’s organic growth
plan are:
1. Extending range and service advantage
2. Investing in the store portfolio
3. Ongoing focus on cost control
4. Leveraging the Halfords brand in multi-channel
The strength of the Group’s cash flows and balance
sheet allows us to augment the above organic
strategy through the acquisition of quality, adjacent,
domestic businesses.
1. ExTENDING RANGE AND SERVICE
ADVANTAGE
Halfords Retail maintains market-leading positions
across a unique blend of categories with ranges of
unrivalled breadth and depth. Halfords constantly
strives to enhance its position in each of its markets,
seeking out product innovation and new ranges.
To complement the product offer, store colleagues
are trained to provide expert customer advice and
deliver value-for-money wefit services. These factors
differentiate the offer from the competition and act as a
barrier to market entry.
David Wild
Chief Executive
Revenue
+2.7%
at £831.6m
(2009: £809.5m)
+7.2%
+1.5%
+2.7%
£797.4m
£809.5m
£831.6m
+9.1%
£744m
Operating Profit before
non-recurring items
+15.1%
at £119.7m
+4.9%
£93.5m
+8.0%
£101m
+15.1%
+3.0%
£119.7m
£104m
(2009: £104m)
2007
2008
2009
2010
2007
2008
2009
2010
Operating profit was £112.3m (2009: £91.7m)
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Pictured:
Our wefit service proposition continues to gain
traction with the customers.
43
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Our Tradecard offer continues to be taken up by
customers operating in the auto aftermarket trade.
These customers are incremental and high spending,
growing by a further 10% during 2010 to total
100,000.
The wefit service proposition continues to gain traction
with the consumer. Growing customer awareness
of Halfords fitting of the 3Bs and high levels of in-
store stock availability help to drive revenue, this was
particularly evident when the UK experienced the
sustained period of severe weather during December
and January. This period also saw winter-related
products such as anti-freeze, de-icer and scrapers sell
in record volumes. Our level of in-store preparation and
supply chain excellence helped us to meet customer
needs fulfilling the heightened demand.
Car Maintenance
Halfords is the UK’s number one parts retailer
and a destination store for “needs-driven” transactions
where customers are looking to purchase replacement
products such as car bulbs, windscreen wiper blades
and batteries (“3Bs”). Our strategy of introducing
greater value, choice and service to our ranges
has contributed to another successful year for this
category, that represents approximately 30% of total
revenue, with 8% growth in like-for-like sales and
increased market share.
Our scale provides a unique ability to develop
and source high quality, own brand alternatives
to branded ranges, and to bring the latest “new
car” technology quickly to the after sales market.
Innovations include brighter bulbs that use Xenon gas
technology and QR (quick response) brake lights that
enhance safety. In addition to the existing Halfords
three and four year warranty batteries, a top of the
range Bosch car battery that generates up to 50%
more starting power with a 5-year guarantee, has
increased sales and margin through a 25% value
premium to a standard battery.
17399
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Business Review
“. . . our exclusive ranges and unique “set-up and
demo” proposition provide a clear point of competitive
differentiation.”
Car Enhancement
This category covers staple products, such as car
cleaning and car accessories and larger ticket items
like car audio and portable satellite navigation devices.
Halfords is the market leader in in-car technology,
where our exclusive ranges and unique “set-up and
demo” proposition provide a clear point of competitive
differentiation. We firmly believe that the ongoing
innovation of new technologies for use in the car will
provide a constant source of new sales opportunities
but equally recognise the natural and relatively short
lifecycle of those products. Our revenue performance
reflects this trend with strong progress from newer
products such as hands-free devices, portable media
and in-car DVDs more than offset by declining satellite
navigation and CD Audio sales.
The market for satellite navigation devices is
mature and although manufacturers continue to
innovate, consumers have reduced spending on
such discretionary purchases, significantly reducing
sales volumes. Reduced revenues have been partly
compensated through a focus on significantly
increasing sales of higher margin satellite navigation
accessories. Overall attachment grew across the year
by 50%, with strong promotional activity around Sendai,
Halfords own brand accessories, further strengthening
margin as own brand grew to represent over 40% of
accessory sales.
As referred to above, technology innovation provides
a flow of important and high value products for
the car aftermarket and Halfords’ leadership in this
market means we can secure distribution from major
manufacturers to capitalise on the next wave of
development. Many see the introduction of digital (DAB)
radio as being the next big opportunity and we are
confident that Halfords will be well placed to serve this
market and lead to further sales and margin growth.
Leisure
The leisure category continued to grow strongly and
now accounts for almost 40% of total revenue, with
both Cycling and Travel solutions delivering strong
like-for-like sales growth during the year.
Cycling
Cycling is growing in popularity, powered by demand
for a healthier lifestyle, environmental concerns and
economic pressures. Our customers want to cycle
during their leisure time, as part of everyday life and,
supported by a government scheme providing tax
relief on bike purchases, by cycling to work.
Halfords’ success in the Cycling category, that
delivered 15% like-for-like growth in the year, is
underpinned by its market leading own brands,
including Apollo and Carrera, with Apollo remaining as
the biggest selling bike brand in the UK, strong before
and after sales service proposition and direct sourcing
capability from the Far East.
Basic earnings
per share before
non-recurring
items
+22.2%
at 39.7p
(2009: 32.5p)
+9.3%
25.8p
+22.2%
+10.9%
39.7p
+13.6%
29.3p
32.5p
Dividend per
ordinary share
+25.8%
at 20.0p
(2009: 15.9p)
+8.6%
13.85p
+25.8%
20.0p
+9.0%
15.1p
+5.3%
15.9p
Basic earnings per share was 36.8p (2009: 26.6p)
2007
2008
2009
2010
2007
2008
2009
2010
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Pictured:
Halfords’ success in the Cycling category has
delivered 15% like-for-like growth in the year.
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“Halfords had its best ever Christmas for cycle sales,
building and selling almost 250,000 bikes in this key
trading period.”
Halfords’ cycle service proposition continues to be
well received by customers, with more than 95% of
the bikes we sell being built in-house. All new bikes
purchased come with the offer of a free six-week
check-up and we aim to develop an ongoing service
and repair relationship through the sales of a Bike
Care Plan, providing customers with the certainty of
labour-free repairs. Sales of these plans increased by
over 50% during the year and have contributed to a
doubling of our service sales revenue.
Despite selling one in three bikes in the UK, this ratio
has not been achieved in the areas of premium and
children’s cycles. These two categories have been the
subject of management focus over the last two years
and have generated significant uplifts in cycle sales.
The Boardman range, designed by Olympic
Champion Chris Boardman, leads our premium bike
offer through an exclusivity agreement in the UK.
The Boardman range has been widely acclaimed
for its leading designs, construction and price
competitiveness, and is further endorsed through use
by World champion riders including Olympian Nicole
Cooke and by Alistair Brownlee, the reigning World
Triathlon champion. Sales have grown significantly
since the launch two and a half years ago, to 21,000
units over the past year, a level that we believe to be
in line with some of the more established premium
brands distributed via independents.
Halfords had its best ever Christmas for cycle sales,
building and selling almost 250,000 bikes in this key
trading period. Halfords continued to grow its share of
the children’s cycle market through an improved range
of licensed character bikes including Ben 10, Power
Rangers and Hello Kitty. Importantly, these cycles
were complemented by full ranges of similarly branded
accessories so children could personalise their bikes,
thereby increasing overall transaction values.
Travel Solutions
Halfords has established a reputation as the destination
store for travel solutions. Products such as roof boxes
and bars, cycle carriers and child seats help make our
customers’ journeys easier, while our camping range
means they can enjoy their leisure time more actively.
This fragmented market continues to expand through
the popularity of domestic holidays, where 5 million
families undertook a holiday in Britain in 2009, and
provides a continued sales opportunity.
Within the core travel equipment area, changes to
the price and range architecture for roof bars and
roof boxes encouraged sales growth and improved
profitability.
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Business Review
“Our direct sourcing capabilities allow us to provide customers
with great value offers like our market leading family tent
pack at £99.99.”
Camping had another successful year with record
sales in key lines enabling a clean stock exit and
achieving further gains in market share. Our direct
sourcing capabilities allow us to provide customers
with great value offers e.g. like our market leading
family tent pack at £99.99. In the current financial
year we are building on this success by doubling the
number of lines of outdoor leisure products stocked
both in-store and via halfords.com and with a further
range expansion with brands including Gelert and
Wild Country on offer.
In advance of driving awareness we invested in
colleague training, availability and visibility to ensure
customer fitting requirements were met in real
time. Our strategy to grow awareness of our fitting
capability ensured all advertising contains reference
to wefit, together with a dedicated Autumn radio
campaign. This holistic approach proved successful
with penetration uplifts of 50% in our core 3 Bs, such
that approximately 20% of all batteries, bulbs and
wiper blades that are sold are also fitted by Halfords
in-store colleagues.
The Group continues to grow its share in the child seat
market, through a clear focus on ranging the leading
brands and innovative products, such as ISOFIX seats.
This range breadth is further enhanced online and
supported, in store, by expert advice and fitting where
over 2,000 colleagues are professionally trained and
accredited by RoSPA to fit child seats to cars.
We have trialled and launched a new range of
mobility aids, including scooters, wheelchairs and
walking aids. The mobility market is valued at an
estimated £500m in the UK and is set to grow with
one in three people in the UK forecast to be over
60 years by 2024. In addition, there are currently 9
million permanently or temporarily disabled people in
Britain, many of whom also need mobility aids. With
a shortage of accessible retail outlets, selling mobility
products at competitive prices, this initiative has been
welcomed by customers and mobility represents a
further opportunity for Halfords as a natural extension
of our travel solution ranges.
Service
Expert knowledge, advice and service remain at the
heart of the Halfords customer offer and specifically
through fitting, differentiates and defends the Halfords
offer and generates attractive levels of return.
Recognising that the economic outlook in 2009
made such a value proposition more attractive, we
set stretching targets to increase awareness, uptake
and service revenue. While all product categories
include a core service element, for example Bike Care
Plan, Free Bike Build (webuild) and 6 week service
(wecheck) within cycling and “Set-up and Demo”
within technology, the foundation of the proposition
remains, wefit being the on-demand fitting of Car
Bulbs, Windscreen Blades and Batteries.
While we are encouraged by the annualised run rate
of c.1.7 million wefit jobs, we are confident in further
increasing fitting penetration. However, such progress
requires continued strategic investment across
the business to ensure that colleague capability is
maintained and has included in 2009 an intense
training programme for our 5,000 in-store experts —
to equip them with the latest technical/product details
and sales skills.
2. INVESTING IN THE STORE PORTFOLIO
The Group operates through two discrete store
chains:
(1) Halfords Retail
The quality and layout of Halfords Retail 462 store
estate is a key element of our customer proposition
and a source of competitive advantage. This national
scale also supports our position as the store of
first choice, as 90% of our customers are with a
20-minute journey of one of our stores.
Accordingly, the Group’s strategic focus remains in
the development and progressive refurbishment of the
two formats of choice, the superstore and the smaller
format Compact store. Compact stores provide a
comprehensive Halfords offer to smaller catchments,
carrying some 6,000 of the 10,000 lines available
within an average superstore.
(2) Nationwide
The Group also operates a national presence from
its 224 Autocentres where the strategic focus is on
expanding the chain.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Pictured:
Expert knowledge, advice and service remain at the
heart of the Halfords customer offer.
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“The Group remains confident that there is a long-term
opportunity to grow the retail store portfolio in the
UK and ROI.”
United Kingdom & Republic of Ireland
(“UK & ROI”)
Halfords Retail operates from 462 stores in the UK
and ROI including 403 superstores, 26 compact
stores, together with 33 small format Metro stores
located on busy high streets where no suitable edge
of town retail opportunity is locally available. During
the year, excluding the closure of bikehut stores, the
Group increased its UK and ROI portfolio by four
stores, having opened ten stores and closed six,
mainly Metro, stores.
At the end of the year 240 stores traded with a
mezzanine and we believe a further 100 stores
have potential for conversion. The mezzanine is a
highly cost-effective route to space expansion. It
also enhances the store environment by creating a
spacious, clearly defined area where we can display
our cycle ranges for maximum impact.
The Group is confident that there is a long-term
opportunity to grow the retail store portfolio in the
UK and ROI and our intention is to open five to ten
stores in the UK in the current financial year. The lack
of quality, new development and the poor quality of
recycled property, however, provides a challenge in
developing new store opportunities.
In addition to new stores, Halfords Retail continues
to invest in its existing estate to ensure that it remains
contemporary and reflects the latest store navigation
signposting and the latest product merchandising.
During the year 48 stores were refurbished.
With the acquisition of Nationwide the Group
operates garage servicing and auto repair from 224
autocentres. The Group has identified an opportunity
to expand the autocentre chain with a further
200 centres in the medium term, with 80 centres
anticipated to open in the next three years.
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Business Review
“We control costs, both through cross-functional initiatives as well
a culture of cost awareness that provides a constant stream
of improvement ideas.”
Central Europe
Following a strategic review, the Board decided to
close the seven Halfords stores in Central Europe,
the costs and impact of which are described in the
Finance Director’s report. Despite an improvement
in recent performance and the possibility that the
region could still prove attractive in the longer term,
the continuing recession has severely limited the
availability of suitable properties and therefore the
opportunity to move the operation to a viable scale in
the medium term.
Although an international strategy clearly represents
an opportunity for future growth, the Board has
decided that management time and financial resource
are better devoted, at the present time, to the growth
opportunities available in the core UK market.
3. ONGOING FOCUS ON COST CONTROL
We are committed to an ongoing focus on cost
control. This ensures efficient use of resources, the
correct operating base for the prevailing economic
environment and provides headroom to fund strategic
investments in future growth. We control costs, both
through cross-functional initiatives as well a culture of
cost awareness that provides a constant stream of
improvement ideas.
We continue to increase the level of products sourced
directly from manufacturers across Asia. Our Far
East team operate an agile sourcing model, moving
manufacture, of products designed by the Group’s
category management resource in the UK, between
regions and countries as cost and duty profiles
change. They also control all aspects of the supply
chain to eliminate unnecessary costs in transport,
shipping and stock holding and ensure a seamless
coordination with our store operations.
During 2009 the Group progressed a key initiative
to reconfigure its logistics infrastructure, replacing
our existing three Distribution Centres. Central to
the Group’s new infrastructure is a new 320,000 sq
ft national distribution centre (“DC”), at Coventry,
which is our centre of gravity. This facility will
commence operation in June 2010 and will become
fully operational in September. The new DC is
equipped with modern logistics technology such
as radio frequency scanning and will ensure more
efficient delivery of stock to Halfords stores. The
reconfiguration will deliver annualised cost savings
in excess of £4m, including rent savings, transport
reductions and labour efficiencies. The final element
of our revised logistics configuration will be a single
warehouse, in Redditch, dedicated to cycles.
Following the initial improvements made to store
colleague rotas in the final quarter of the 2009
financial year, a further efficiency programme in
stores has been implemented which will result in
improved colleague availability and better service for
our customers. These improvements will, however,
be achieved with a net reduction in colleague hours
as resource is removed from low footfall periods and
processes are made more efficient. The programme
has realigned store grades, rostering and schedules
across the store, week and network. The changes,
which have impacted, in some way, the majority of
store-based colleagues mean we can also provide
clearer career paths for colleagues, strengthening our
position in the recruitment market. These changes will
also differentiate us from our competitors so we are in
a strong position to further develop our business and
continue to grow sales and operating profit.
The reduced operating profit stimulus from the
slowdown in new store openings has been and
is anticipated to be mitigated in the future by the
favourable impact of rental negotiations at lease
renewal (‘regears’). From 2012 onward the Group
has lease maturities at an average of 25 per annum
where the strength of the Halfords covenant, together
with reduced demand for such space, provides
opportunity for either reduced headline rent or
landlord investment for example in the form of a rent
free period in order to secure continuity of tenure.
Naturally, our focus on cost control continues and we
have identified a number of further areas, including
the regear opportunity outlined above, that we plan to
target in the current financial year.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Pictured:
In leveraging the Halfords brand in multi-channel, our
strategy is to seamlessly integrate halfords.com with
our store network.
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“Our strong brand, leading internet site and focus on
developing this channel have led us to grow our online
business at twice the average market rate this year.”
4. LEVERAGING THE HALFORDS BRAND IN
MULTI-CHANNEL
To cater for all demands we have introduced 3 ways
to shop online
The Internet is changing the way that our customers
shop and providing us with new opportunities to grow
our business. Our strong brand, leading Internet site
and focus on developing this channel have led us to
grow our online business at twice the average market
rate this year. Our online sales currently represent
approximately 6% of Halfords Retail overall sales and
we have ambitious plans to increase this share.
Our strategy is to seamlessly integrate halfords.com
and store operations and, following the introduction
of a dedicated website in ROI in early 2009, all of
our retail territories are so structured. Whether for
normally ranged products or for our increasing
number of extended ranges held outside of stores,
this intent mirrors our customer feedback, which tells
us they like the convenience of buying online but
also want to visit our stores for expert advice and
recommendation and added value services such
as fitting.
1. Reserve and Collect— a service where products
researched online are reserved for collection at
a nearby store. Eighty per cent of online sales
now use this channel and more than 1.5 million
products have been sold via this route.
2. Order and Collect — allows customers to
order products from our more extensive online
catalogue and have it delivered to their local store
for collection free of charge.
3. Direct delivery — products ordered online are
delivered direct to customers’ homes.
In seeking to identify further innovative and convenient
ways in which customers can interact with Halfords
Retail, we also launched a Text and Reserve service
so customers can text their car registration to us, to
identify and reserve the correct replacement product
for their vehicle.
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Business Review
“Halfords has a clearly articulated acquisition strategy for assets
that can provide additional avenues for significant growth.”
Nationwide complements Halfords Retail closely
and builds on our growing car parts and wefit
service business. The acquisition creates the
largest specialised UK operator focused on the car
maintenance, servicing and car repair market. Car
aftercare is a large and highly attractive sector with a
value of £9bn. Capacity is shrinking as the number of
independent garages declines leading to increasing
demand from motorists for a reliable, quality
independent operator.
There is significant scope to grow the new Group and
we intend to double Nationwide’s operating profits
in the third year of ownership. Operational scale will
significantly increase by opening 200 further centres
in key towns over the next seven years. Further
growth opportunities exist from cross-marketing the
Group’s complementary customer base, increased
fleet penetration and there will also be cost and
purchasing synergies.
Nationwide’s business will continue to be driven by
their successful management team who have joined
the Halfords Group. The first new centres have been
launched under the Halfords Autocentre branding and
the whole estate will be rebranded during the current
year, after a trial to be conducted across May and June.
Enhancing our online offer and further extending our
multi-channel presence is a clear investment priority.
In line with market trends, we continue to increase the
amount of advertising dedicated to this medium and
this year have added 40,000 customer ratings and
reviews to the site together with an “Ask and Answer”
facility to allow customers to tap into the expertise
and experience of other users.
We have also extended significantly the range of
products we offer in areas like bike parts, car seats and
camping. In all we carry 2,000 more lines on halfords.
com than we do in store. Much of the extra inventory
is managed in partnership reducing stock costs and
obsolescence risk. This approach provides the model
for significant range extension going forward.
Acquisition
In addition to the significant organic growth
opportunity provided by the core UK and ROI
retail operation, Halfords has a clearly articulated
acquisition strategy for assets that can provide
additional avenues for significant growth. Our criteria
are for quality, domestic businesses in adjacent
markets where the Halfords brand would resonate
strongly or where we can apply our core capabilities.
Nationwide Autocentres
During this period Halfords made its first significant
acquisition, Nationwide Autocentres. Nationwide is a
market leading, growing business operating from 224
centres nationally and provides motorists with a full
range of auto servicing, MOTs and repairs for both the
consumer and fleet markets. Nationwide is the only
national operator that offers dealership quality service
at more affordable prices.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Pictured:
Loading bays, new Coventry DC.
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“We continue to augment such incremental margin,
through a continued focus on margin enhancement,
operating cost control and capital discipline.”
Summary and outlook
Halfords retains clear leadership in its core retail
markets of cycling and car maintenance, where it
is delivering good like-for-like sale increases and
growing market share. We continue to augment such
incremental margin, through a continued focus on
margin enhancement, operating cost control and
capital discipline. Together, these factors mean we
have continued to perform strongly, increasing profit
before tax and non-recurring items by 26.7%.
Our performance through this period of recession
emphasises the resilient quality and adaptability of
the business. We believe Halfords’ unique, market-
leading position provides strong potential for us to
consolidate further the fragmented markets in which
we operate.
We expect the consumer environment to remain
challenging, but we have demonstrated that our
business can make good progress in these conditions
and improve operating returns. However, our strong
market positions, ongoing actions to reduce costs
and strong cash flow characteristics provide a solid
platform for future sustainable earnings growth
through our core strategic growth initiatives and
acquisitions that meet our stringent criteria.
Through this focus on creating value for our
customers and active management of the business,
the Board believes the Group is well positioned to
deliver earnings growth. In the year ahead this is
anticipated to be in line with market expectations,
with sustainable growth across the medium term
anticipated to average approximately 15%.
The acquisition of Nationwide Autocentres gives
us a market leading entry point into a large and
unconsolidated market and opens another exciting
avenue of growth for Halfords.
David Wild
Chief Executive Officer
10 June 2010
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Finance Director’s Report
Nick Wharton
Finance Director
Halfords Group plc (“the Group” or “Group”)
On 17 February 2010 the Group acquired 100% of
the issued share capital of Nationwide Autocentres
Holdings Ltd (“Nationwide”) for cash consideration
of £74.9m. This Class 2 transaction has been
accounted for by the purchase method of accounting,
with the resultant goodwill arising on
the acquisition being attributable to the anticipated
future profitability and operating synergies from
the combination.
Nationwide, the parent company of a Group of
companies involved in car servicing and repair,
contributed £13.5m revenue and £0.3m to the Group’s
profit before tax for the period between the date of
acquisition and the Group’s balance sheet date.
All references to Group represent the consolidation of
the Halfords (“Retail”) and Nationwide trading entities.
Separate commentaries on the performance of the
individual entities are not provided as the Group
results are 99% attributable to the retail division.
Financial results
The “2010” accounting period represents trading for
the 52 weeks to 2 April 2010 with the comparative,
“2009”, data being for the 53 week financial period
to 3 April 2009. Last year’s 53rd week represented
£14.8m of revenue, £2.1m of operating profit and
£2.0m of profit before tax.
Group revenue for the 52 weeks to 2 April 2010 was
£831.6m which compares to a 2009 52-week basis
Group revenue of £794.7m. This increase of 4.6%,
represents a like-for-like sales increase of 1.3%,
where like-for-like sales represent those stores that
had traded, within the Group, for more than 365 days.
Gross profit at £452.7m (2009: £421.4m) represents
54.4% as a percentage of revenue and compares
to last year’s figure of 52.1%. The 230 basis points
(“bps”) accretion in gross profit margin reflects
trading strategies delivered by management within
each category, including improved penetration of the
Group’s fitting services, increased accessory sales,
and the flow-through of Far East sourcing benefits.
Margin has been further enhanced by a continued
beneficial mix effect delivered through the relative
sales growth in higher margin core categories, such
as car maintenance and cycling, compared to the
sales decline in lower margin categories, most notably
In-car technology.
This mix effect largely annualised during the third
quarter and will therefore have a smaller overall
impact in the financial year ended 1 April 2011
(“2011”). Despite the challenges provided by the
dissipation of the mix effect and cost of goods
pressures from the Group’s dollar denominated
purchases, we remain confident that the ongoing
benefits attainable through the self-help measures
noted above will contribute to margins being held
broadly flat, in percentage terms, in the forthcoming
financial year.
Operating expenses, excluding non-recurring costs,
represented 40.0% of revenue (2009: 39.2%). The
year-on-year increase of approximately 80 bps
largely reflects a reduced level of landlord surrender
payments, discussed later, together with the transition
costs associated with a further tranche of store labour
efficiencies executed in the fourth quarter of the year.
Underlying operating costs as a percentage of sales
were broadly flat year on year.
Profit
before tax
+41.5%
at £109.7m
(2009: £77.5m)
+41.5%
£109.7m
+11.5%
£90.2m
+5.1%
£80.9m
-14.1%
£77.5m
Profit before tax and
non-recurring items
+24.0%
at £117.1m
+8.4%
£83.5m
(2009: £94.4m)
+8.0%
£90.2m
+4.7%
£94.4m
+24.0%
£117.1m
2007
2008
2009
2010
2007
2008
2009
2010
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
The Group remains focused on controlling day-to-day
costs while delivering a number of strategic initiatives
that will reduce costs more materially. The cost
saving programmes announced in April 2009 have
been successful in driving operating cost efficiency
with headcount initiatives in both head office and
store operations delivering the scheduled £4m
annualised savings.
Specifically, in store, despite having increased
service related revenues that carry a higher cost
to serve, store labour costs as a percentage of
revenue reduced by 60 bps during 2010, totalling
10.5% of revenue over the period. During the fourth
quarter, store operations have undergone a further
review of working practices, labour scheduling, store
hierarchy and reward structures that will deliver cost
improvements, totalling £2m, in 2011, while providing
store colleagues with greater responsibility and
opportunities for career progression.
The Group’s year-long project to reconfigure its
existing warehousing and distribution infrastructure
remains on plan, with the new DC in Coventry
scheduled to commence operations in June 2010.
This significant project, which is being managed in
a manner which minimises disruption to the core
retail operation, is progressing in line with planned
milestones and is on track to deliver annualised
savings of £4.0m from the second half of 2011.
Net finance costs before non-recurring finance costs
for the period were £2.6m (2009: £9.6m). Finance
costs on bank borrowings were £6.7m lower than the
prior year reflecting a prevailing lower level of average
net debt and significantly lower LIBOR that followed
the Base Rate reductions last year. The costs of
forward exchange contracts are £1.1m lower than last
year reflecting the shortening of forward purchases
of US dollars, less volatile currency movements and
narrower interest rate differentials.
Profit before tax and non-recurring items for the 52
weeks to 2 April 2010 was £117.1m (2009: £94.4m)
On the more comparative period for the 52 weeks
to 27 March 2009, 2010 performance represents an
increase in profit before tax and non-recurring items
of 26.7%. Profit before tax and non-recurring items as
a percentage of revenue has increased by 250 bps to
14.1% from 11.6%.
Profit before tax for the 52 weeks to 2 April 2010 after
non-recurring items was £109.7m (2009: £77.5m).
Non-recurring items
As noted in the Business Review the decision was
taken and announced in March to close the Group’s
seven-store pilot within Central Europe. Although
international expansion remains on the Group’s
strategic agenda, the Board have stated that in the
short to medium term management and financial
resource will focus on the UK and Republic of Ireland
markets through retail offer expansion, both through
new stores and online, developing and delivering the
opportunity in garage servicing and identifying quality,
domestic businesses with either brand or capability
adjacencies for further value creating acquisitions.
The associated exit costs total £7.4m, of which
£4.1m are non-cash costs. The principal areas
of expenditure relate to asset write-off (£4.7m),
vacant property and property exit costs (£2.4m) and
redundancy costs (£0.4m).
The Central European operation, included within the
2010 Group Revenue Statement, generated revenues
of £5.9m and a loss before taxation of £2.5m, after
operating expenses of £4.7m. Consequently, the
closure will generate annualised net savings of
c.£2.8m, with the phased exit during the first quarter of
the new financial year resulting in an anticipated saving
of c.£2.0m impacting the Group’s 2011 results.
Portfolio management
The Group continues to actively manage its store
portfolio to maximise value creation through generating
cash, making profits and reducing ongoing rental
charges. However, the property market has proved
challenging in 2010, limiting opportunities to both open
new stores and to downsize stores where landlords will
provide incentives to return excess space.
With regard to new stores, the economic recession
has reduced fresh development, while overall market
capacity has increased as a result of business failures,
but not on the quality parks or locations that Halfords
is targeting for future expansion.
Portfolio transactions still represent a sustainable
opportunity for the Group, with in excess of 200
superstores located on A1 parks where demand
remains relatively high. However until the economic
recovery is more in evidence landlords are less
likely to undertake speculative development in
favour of back-to-back deals which, by their nature,
introduce delay in the contract exchange process.
Accordingly, landlord surrender payments from the
two transactions completed during the year totalled
£1.1m (2009: £2.7m) and management expect a
similar level of surrender payments in the forthcoming
financial year.
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Finance Director’s Report
Operating leases
With the exception of nine long leasehold and two
freehold properties within Nationwide, the Group’s
operating sites are occupied under operating leases,
the majority of which are on standard lease terms,
typically with a 15-year term at inception. The Group
has a total commitment under non-cancellable
operating leases of £811.5m (2009: £776.1m).
Taxation
The taxation charge on profit for the financial year
was £32.7m (2009: £21.7m), including a £1.4m
credit (2009: £4.6m) in respect of the tax on non-
recurring items, representing a full year effective tax
rate of 29.8% (2009: 28.0%). The underlying tax rate
was 29.4% (2009: 29.7%), principally due to the
non-deductibility of depreciation charged on capital
expenditure in respect of mezzanine floors and other
store infrastructure.
The increase in the Group’s effective tax rate, to a
level more in line with the Group’s underlying rate,
reflects the relatively low level of credit in respect of
favourable tax structures in place during the year. This
position is expected to reverse in 2011.
Earnings per share (“EPS”)
Basic EPS, excluding non-recurring items, was
39.7 pence (2009: 32.5 pence), a 22.2% increase on
the reported prior year value. On a more comparative
52-week basis, basic EPS, excluding non-recurring
items, increased by 23.8% from the prior year
position of 31.8 pence.
Basic EPS for the 52 weeks to 2 April 2010 was
36.8p pence, a 38.3% increase.
Capital expenditure
Capital investment in the period totalled £20.4m
(2009: £19.4m). During 2010 management have
continued to adopt a prudent approach with regard to
capital investment and have focused on investments
generating the highest returns.
Investment in new stores, where there has been a
marked decline in the supply of quality locations,
has reduced compared to recent years. However,
management also continue to invest in the existing
store portfolio to ensure it remains contemporary and
despite a smaller level of new store openings, the
Group has expended £7.4m on the store portfolio.
The largest single element of expenditure during
2010 has been the DC project, in which the Group
has invested, in line with the plan, £6.7m. The Group
continues to invest in its internal business systems,
ensuring that it has the infrastructure to support the
changing demands of the business and expanding
the functionality of the Halfords website, which saw
the successful introduction of the Order and Collect
proposition.
The forthcoming financial year will see the completion
of the DC project at an anticipated additional
investment of £2m and will see the execution of the
initial elements of the three-year plan to significantly
increase the scale of the Nationwide business. This
will include the re-branding to Halfords Autocentres
at a cost of c.£2.5m and the opening of between 12
and 15 centres.
Reflecting the capital “light” nature of Nationwide
expansion, Group capital expenditure is anticipated
to remain in line with historic norms at approximately
£25m.
Inventories
The Group continues to manage its stock holding to
ensure high levels of availability and range breadth,
and inventories at 2 April 2010 were £138.5m (2009:
£147.0m). Management has continued to implement
the inventory control programmes that were developed
in the previous financial year, and have achieved further
reductions in stock with a consequential improvement
in stock turn. Stock levels continue to be carefully
managed and have reduced year-on-year by 6.7%,
7.2% after inventory investment in new stores and
a limited investment in additional stock to ensure
availability during the period of changeover in supply to
the new distribution infrastructure.
Over the economic cycle the Group has stated its
intention to increase stocks at approximately 50% of
the rate of sales increase adjusted for the necessary
inventory investment in new stores.
Cash flow, net debt and capital structure
The Group’s debt facility comprises a £180m five-year
term non-amortising loan, falling due for repayment
in July 2011, together with a £120m revolving credit
facility, which also falls due for renewal in July 2011.
The Group continues to generate strong operational
net cash flows, which, in 2010, were £148.1m
(2009: £73.8m), representing 103.0% (2009: 57.2%)
of earnings before non-recurring items, interest,
tax, depreciation and amortisation (“EBITDA”). The
significant improvement in operational cash flow
reflects the increase in the Group’s profitability and
a working capital inflow of £33.1m (2009: Outflow
£19.0m), which reflects the inventory reduction and
an increase in trade creditors.
Total net bank debt at 2 April 2010 was £143.5m
(3 April 2009: £164.0m) and there are further
borrowings of £12.0m (2009: £12.2m) in respect of the
Head Office finance lease that in total generates net
debt at £155.5m (2009: £176.2m). This reduction in net
debt has been achieved after cash outflows totalling
£72.3m arising from the acquisition of Nationwide.
The Group is committed to both a progressive
dividend policy and continued investment in the
growth of the business, both through organic
development and other business development
opportunities as they might arise. It is also committed,
over the long term, to maintaining an efficient balance
sheet, returning any surplus capital not required to
fund Group growth, to its shareholders.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/businessreview
Competition (1,2,3)
The retail industry is highly competitive and dynamic.
The Group competes with a wide variety of retailers of
varying sizes and faces competition from UK retailers,
both in stores and online, as well as international
operators. Failure to compete with competitors on
areas including price, product range, quality and
service could have an adverse effect on the Group’s
financial results.
We aim to have a broad appeal in price, range and
store format in a way that allows us to compete in
different markets and to use service as a point of
differentiation in each market segment. We have
an established training infrastructure to ensure that
our colleagues receive ongoing product and service
training. We track performance against a broad
range of measures that customers tell us are critical
to their shopping experience, and monitor customer
perceptions of ourselves to ensure we can respond
quickly if required.
The Company adopts a granular approach to
its wide-ranging cost control activities to ensure
that significant opportunities for operational cost
management are complimented by a culture of cost
awareness.
Reputational risk (1,3)
The Halfords name is a key asset of the business and
as the largest operator in its markets, expectations
of the Group are high. Failure to protect the Group’s
reputation and brand could lead to a loss of trust
and confidence. This could result in a decline in the
customer base and affect the ability to recruit and
retain good people.
The Group has a Quality Assurance team and legal
and regulatory control processes, both in-house and
externally, to advise and take action on existing and
emerging risk management issues. We continually
monitor loyalty to the Halfords brand through
independent surveys and seek, through activities
such as Charity of the Year, to contribute to society
more widely. Our various Codes of Practice regulate
our behaviour in our dealings with all stakeholders
including customers, suppliers and colleagues and
the Corporate Social Responsibility report details
the Group’s attitudes toward such areas as the
environment and ethical trading.
Ultimately the protection of the Halfords brand and
position in its core markets will be sustained by a
high service based customer proposition, unique
and extensive product offerings and a multi-channel
approach to sales.
As part of this capital structure, management are
currently reviewing, with the Group’s brokers, the
optimal capital structure for the enlarged Group that
will provide the necessary flexible funding to deliver its
strategic agenda. Management envisage that renewed
debt facilities will be agreed and in place in the second
half of the financial year ended 1 April 2011.
Dividend
In line with the Group’s progressive dividend policy, the
Board is recommending a final dividend of 14.00 pence
per share (2009: 10.90 pence), which, in addition to
the interim dividend of 6.00 pence per share (2009:
5.00 pence), generates a total dividend of 20.00 pence
(2009: 15.90 pence), an increase of 25.8%.
Subject to shareholder approval at the Annual
General Meeting the final dividend will be paid on
6 August 2010 to shareholders on the register at the
close of business on 2 July 2010.
Principal risks and uncertainties
The Corporate Governance report on pages 66 to 70
describes the systems and internal control processes
through which the Directors identify, assess, manage
and mitigate risks. The Board recognises that
the nature and scope of risks can change and so
regularly reviews the risks faced by the Group as well
as the systems and processes to mitigate them.
The Board’s primary assessment of risk is against
the Group’s strategic corporate objectives that are
summarised below.
1) Extending range & service advantage.
2) Ongoing focus on cost control.
3) Leveraging the Halfords brand in multi-channel.
4) Investing in the store portfolio.
With reference to the strategic objectives, the Board
considers that the principal commercial and financial
risks to achieving its objectives are those identified
below.
(a) Commercial
Economic and market conditions (1,4)
The economy is a major influence on consumer
spending. Trends in employment, inflation, taxation,
consumer debt levels and interest rates impact
consumer expenditure in discretionary areas.
The Group constantly seeks to enhance its position
as store of first choice in each of the markets that it
serves. Halfords continues to invest in both its existing
estate to ensure that it remains contemporary and
in constant product innovation to meet customer
needs. In addition, the Group’s market leading wefit
proposition provides a range of services at a lower cost
to our customers than that provided by competitors.
Whilst many of the products that Halfords sell are
non-discretionary in their nature and predicting
future trends is difficult, Halfords reflects the latest
independently sourced estimates in its internal plans.
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Finance Director’s Report
Responsiveness to changing consumer
preferences (1)
Some of the products that Halfords sells, particularly
in the car enhancement category, are subject to
rapidly changing consumer preferences. Halfords
has recruited experienced, knowledgeable
colleagues who can identify and interpret trends and
consequently respond in a timely manner to changes
in consumer preferences. Some of the products
Halfords sells, such as children’s cycles, face
competition from alternative products (such as games
consoles) and our colleagues monitor developments
in these areas.
Reliance on foreign manufacturers (2)
Halfords sources a significant proportion of the
merchandise it sells in its stores from outside of
the UK, either directly or via third-party suppliers.
Consequently, the Group is subject to the risks
associated with international trade (particularly
those which are common in the import of goods
from developing countries) including, but not limited
to, inflation, currency fluctuation, the imposition of
taxes or other charges on imports and exposure to
different legal standards and the burden of complying
with a variety of foreign laws and changing foreign
government policies.
Extensive research is conducted before the Group
procures product from any new country or supplier. The
Group’s strong management team in the Far East has
been recruited from local nationals who understand the
local culture, market regulations and risks.
Information technology (“IT”) systems and
infrastructure (2)
In common with most businesses, Halfords is
reliant on the reliability and suitability of a number
of important IT systems where any sustained
performance problems, particularly with regard to
store or warehouse and distribution systems, could
potentially compromise our operational capability for a
period of time.
Extensive controls are in place to maintain the integrity
of our systems and to ensure that systems changes
are implemented in a controlled manner. Halfords’
key trading systems are hosted within a secure data
centre operated by a specialist company remote from
our Head Office. These systems are also supported
by a number of disaster recovery arrangements
including a comprehensive back-up strategy and
access to a further data centre elsewhere in the UK in
case of a major incident.
Furthermore, the ongoing project to reconfigure the
Group’s core distribution structure is a significant
and operationally complex change activity. Having
successfully replaced each of its core business
systems over the past six years, the Group has
significant experience in managing the risks
associated with such activities and is applying similar
governance processes. The project is firmly on track
to achieve occupation and commence operation in
the summer of 2010.
Dependence on key management personnel
(1,2,3,4)
The success of the Group’s business depends
upon its senior management closely supervising all
aspects of its business, in particular the operation of
its stores, autocentres and the design, procurement
and allocation of its merchandise. Retention of senior
management is especially important in the Group due
to the limited availability of experienced and talented
retail executives.
If the Group were to lose the services of members
of its senior management such as David Wild (Chief
Executive Officer), Nick Wharton (Finance Director) or
Paul McClenaghan (Commercial Director) and were
unable to employ suitable replacements in a timely
manner, its business could be adversely affected.
Our Remuneration Policy outlined on page 72 details
the strategies in place to ensure that high calibre
executives are attracted and retained. The Group
also operates a talent management process to help
individuals achieve their full potential within Halfords
and to ensure that appropriate succession plans are
in place to meet the future needs of the business.
(b) Financial
Treasury policy
The Group’s treasury department’s main
responsibilities are to:
■ Ensure adequate funding and liquidity for the
Group;
■ Manage the interest risk of the Group’s debt;
■
Invest surplus cash;
■ Manage the clearing bank operations of the
Group; and
■ Manage the foreign exchange risk of its non-
sterling cash flows.
Treasury activities are delegated by the Board to
the Finance Director (“FD”). The FD controls policy
and performance through the line management
structure to the Group Treasurer and by reference to
the Treasury Committee. The Treasury Committee
meets regularly to monitor the performance of the
Treasury function. Monthly Treasury Reports provide
management information relating to treasury activity.
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Annual Report & Accounts for period ended 2 April 2010
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halfords.annualreport2010.com/businessreview
Liquidity risk
The Group ensures that it has sufficient cash or loan
facilities to meet all its commitments when required.
The Group ensures that there is sufficient cash or
working capital facilities to meet the cash requirements
of the Group for the current Business Plan. The
minimum liquidity level is currently set at £30.0m.
Forecast liquidity is reviewed each month by the
Treasurer to determine whether there are sufficient
credit facilities to meet forecast requirements.
Covenants are monitored on a regular basis to ensure
there are no significant breaches, which would lead
to an “Event of Default”. Calculations are submitted at
least bi-annually to the syndication agent. Reporting
on covenant compliance forms part of the Treasury
Report. There have been no breaches of covenants
during the reported periods.
Capital risk management
The Group’s objectives when managing capital are to
safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure,
the Group may adjust the amount of dividends paid
to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt.
The Group manages capital by operating within debt
ratios. These ratios are lease adjusted net debt to
EBITDAR and fixed charge cover. Lease adjusted net
debt is calculated as net debt and leases capitalised
at eight times, as a multiple of EBITDA plus operating
lease charges. Fixed charge cover is calculated as
being EBITDA plus operating lease charges as a
multiple of interest and operating lease charges. As
a result of the current economic conditions and the
attitude towards debt, the Group has decided to
reduce the level of net debt and therefore operates
favourably to these target metrics.
Nick Wharton
Finance Director
10 June 2010
Policies for managing financial risks are governed by
Board approved policies and procedures, which are
reviewed on an annual basis.
The Group’s debt management policy is to provide an
appropriate level of funding to finance the Business
Plan over the medium term at a competitive cost
while ensuring flexibility to meet the changing needs
of the Group. The Group has a syndicated five-year
term facility totalling £300m that provides the Group
with committed bank facilities until July 2011.
The key risks that the Group faces from a treasury
perspective are as follows:
Financial risk
The Business Plan and cash flow forecasts are
subject to key assumptions such as interest rates and
the significance of these risks is dependent upon the
level of EBITDA and the strength of the balance sheet.
Interest rate risk
The Group’s policy is to manage the interest cost of
the Group within the constraints of the Business Plan
and its financial covenants. The Group’s borrowings
are currently subject to floating rate and the Group will
continue to monitor movements in the swap market.
Foreign currency risk
The Group has a significant transaction exposure
through direct sourced purchases of its supplies
from the Far East with most of the trade being in US
dollars. The Group does not hedge either economic
exposure or the translation exposure arising from the
profits, assets and liabilities of non-sterling businesses
whilst they remain immaterial.
During the 52 weeks to 2 April 2010, the foreign
exchange management policy was to hedge via
forward contract purchase between 75% and 80% of
the material foreign exchange transaction exposures
on a rolling 12-month basis. Hedging is performed
through the use of foreign currency bank accounts,
spot rates and forward foreign exchange contracts.
Credit risk
The Group’s policy is to minimise the risk that foreign
exchange and interest rate derivative counterparties,
the holders of surplus cash and the providers of
debt will be unable to fulfil their obligations and also,
in the case of lenders, unwilling to extend the loan
facilities when they expire. In executing this policy, the
Group ensures that such counterparties, who all sit
within the syndicated Group, that are used for credit
transactions and ancillary business held at least an A
credit rating at the time of syndication (July 2006).
The Treasurer is responsible for determining credit
worthiness of each counterparty, based on the overall
financial strength of the counterparty. The counterparty
credit risk is reviewed in the Treasury report, which
is forwarded to the Treasury Committee and the
Treasurer reviews credit exposure on a daily basis.
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Responsibilities
halfords.annualreport2010.com/responsibilities
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
60
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60
Executive Directors
dAvId WILd
Chief Executive Officer
NICK WHARTON
Finance Director
David was appointed Chief Executive Officer on 4
August 2008. Prior to joining Halfords David was
Senior Vice-President for New Business Development
at Wal-Mart US, a position he has held since January
2007. Prior to this appointment he was President
and Managing Director of Wal-Mart Germany.
Before joining Wal-Mart, David spent eighteen years
at Tesco, latterly as Group Supply Chain Director.
He spent the six years prior to this focused on the
Company’s Continental European expansion, both as
Chief Executive of Central Europe and, before that, as
European Corporate Development Director.
Nick was appointed as Finance Director in February
2007. He joined Halfords Limited as Finance and
Planning Director in March 2002, becoming Business
Development Director in 2003. Nick has also held
Board responsibility at Halfords Limited for Information
Systems and Human Resources. Prior to this Nick
held senior finance positions with Boots Opticians,
Boots Healthcare International, Do-It-All Limited and
also within Cadbury Schweppes. He is a Chartered
Accountant. On 14 August Nick was appointed to the
Board of Dunelm plc as a Non-Executive Director. He
also chairs the Audit Committee at Dunelm plc.
PAUL McCLENAGHAN
Commercial Director
Paul was appointed as Commercial Director
in March 2007. He joined Halfords Limited as
Director of Trading in May 2005. Prior to this Paul
worked for the Dixons Group, most recently as
Trading Director for its Vision and Audio division.
He also held the positions of Buying Director for
Brown Goods and Commercial Director for
Dixons Asia.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Non-Executive Directors
dENNIS MILLARd
Chairman
NIGEL WILSON
Non-Executive Director
Dennis joined the Board and was appointed
Chairman on 27 May 2009. Mr Millard is currently
non-executive Chairman of Smiths News plc and
non-executive Senior Independent Director and
Chairman of the Audit Committees of Debenhams
plc, Premier Farnell plc and Xchanging plc. He was
previously Finance Director of Cookson Group plc
from 1996 to 2005 and a non-executive Director of
Exel plc from 2003 to 2005.
Nigel joined the Board as a non-executive Director in
May 2004 and was appointed Senior Independent
Director on 1 April 2006. He is currently Chief
Financial Officer at Legal & General plc, having
previously been Deputy Chief Executive and Chief
Financial Officer of United Business Media. Other
previous appointments include Group Finance
Director and subsequent Managing Director of
Viridian Group plc, Group Finance Director at Waste
Management International, Head of Corporate
Finance and Group Commercial Director at Dixons
Group PLC and a consultant at McKinsey & Co.
He is also, currently, a non-executive Director at
Capita Group plc where he is the Senior Independent
Director.
BILL RONALd
Non-Executive Director
Bill joined the Board as a non-executive Director
in May 2004. He is currently also a non-executive
Director on the Boards of Dialight plc, Alfesca and
Bezier Group. Previously he was Chief Executive of
Uniq plc for three years, prior to which Bill spent 23
years in a variety of roles within the Mars Corporation.
His final positions there were Managing Director of
the UK confectionery operation and Vice-President of
Masterfoods Europe.
KEITH HARRIS
Non-Executive Director
Keith joined the Board as a non-executive Director
in May 2004. He has been Executive Chairman of
Seymour Pierce Limited since its acquisition from
Investment Management Holdings plc. Prior to this
Keith was Chairman of the Football League and Chief
Executive of HSBC Investment Bank plc. Keith is
currently on the Boards of Cooper Gay (Holdings)
Limited and Sellar Investments Limited.
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Directors’ Report
The directors present their report and the audited financial statements
of Halfords Group plc (the “Company”) together with its subsidiary
undertakings (the “Group”) for the 52 weeks to 2 April 2010.
Principal activities
Profits and dividends
Halfords Group plc is a public limited company incorporated in England,
registered number 04457314, with its registered office at Icknield Street
Drive, Washford West, Redditch, Worcestershire, B98 0DE.
The principal activities of the Group are the retailing of automotive,
leisure and cycling products, which it does from 469 retail stores (2009:
466) and car servicing and repair performed from 224 autocentres. The
principal activity of the Company is that of a holding company.
Business review
The Chairman’s statement on page 5, the Business Review on
pages 42 to 51 and the Finance Director’s report on pages 52 to
57 provide a review of the business and progress against its key
performance indicators during the year and descriptions of possible
future developments and the principal risks and uncertainties facing
the Group, and form part of this Directors’ Report. Environmental
considerations are reviewed within the Corporate Social Responsibility
Report on pages 81 to 85 and also form part of this Directors’ Report.
Corporate governance
The Corporate Governance report on pages 66 to 70 forms part of this
Directors’ Report.
The Group’s results for the year are set out in the Consolidated Income
Statement on page 90.
The profit before tax on ordinary activities was £109.7m (2009 £77.5m)
and the profit after tax amounted to £77.0m (2009: £55.8m).
The Directors propose that a final dividend of 14.0p per ordinary share
be paid on 6 August 2010 to shareholders whose names are on the
register of members at the close of business on 2 July 2010. This
payment, together with the interim dividend of 6.00p per ordinary share
paid on 25 January 2010, makes a total for the year of 20.0p pence
per ordinary share. The total final dividend payable to shareholders for
the year is estimated to be £29.3m. Lloyds TSB Offshore Trust Limited,
trustee of the Halfords Employee Share Trust, has waived its entitlement
to dividends.
Performance monitoring
The delivery of the Group’s strategic objectives is monitored by the
Board through Key Performance Indicators (“KPIs”) and the periodic
review of various aspects of the Group operations. The Board considers
the following KPIs as appropriate measures for the delivery of the
Group’s strategy.
Financial and operational
Definition
Revenue and like-for-like sales
Growth in revenue measures delivery against our store growth objectives and through like-for-like revenue,
the strength of our market positions and customer offer.
Operating profit
Continued growth of operating profits enables the Group to invest in its future and provide a return for
shareholders. Targets are set relative to expected market performance.
Number of store and centre openings
The Group is committed to bringing its products and servicing offering to as many consumers as possible
through the development of its property portfolio. This also contributes to revenue growth.
wefit/werepair jobs
Halfords’ unique service fitting proposition is key to maintaining our differentiation from more mainstream
operators. Fitting and repair jobs completed represents a good measure of awareness and execution of
this core proposition.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Donations
During the year the Group contributed £82,800 (2009: £26,000) to
charities in the UK, including donations to BEN, a charity supporting
individuals and families linked to the motor industry and associated
trades.
In May 2009 Halfords commenced a two-year partnership with
Macmillan Cancer Support. In the 52-week period to 2 April 2010 the
Company raised over £56,000 for the charity with stores selling carrier
bags and sweets, holding events and individual employees undertaking
fund-raising events ranging from running marathons to holding charity
auctions.
The Group’s policy is not to make any donations for political purposes.
However, the Companies Act 2006 defines the term “donations” very
widely and, as a result, certain expenses legitimately incurred as part
of the process of talking to Government at all levels and making the
Group’s position known, are now reportable. Although during the year
no such expenditure or political donations were made, resolutions were
passed at the 2009 Annual General Meeting (“AGM”) that provided for
limited authority for such expenditure, such authority remaining valid
until the earlier of 29 October 2010 or the conclusion of the AGM to be
held in 2010, and as such the Company will be asking for this limited
authority to be renewed at the AGM to be held on 27 July 2010.
Colleagues
The Board seeks to instil high standards of customer care and service
in the Group and the commitment of every colleague to this business
requirement is considered to be critical. The Group has established
a framework of communication for colleagues concerning business
performance and Company benefits. Group-wide training reinforces the
Group’s commitment to colleague involvement and development.
The Group is committed to the principle of equal opportunity in
employment and to ensuring that no applicant or colleague receives
less favourable treatment on the grounds of gender, marital status,
race, ethnic origin, religion, disability, sexuality, age, or is disadvantaged
by conditions or requirements which cannot be shown to be justified.
The Group applies employment policies which are fair and equitable
and which seek to promote entry into and progression within the
Group. Appointments are determined solely by application of job
criteria, personal ability and competency.
The Group gives full and fair consideration to applications for
employment made by disabled persons, having regard to their
particular aptitudes and abilities, wherever suitable opportunities exist,
and training and career development support are provided, where
appropriate. Should a colleague become disabled when working for the
Group, efforts are made to continue their employment and retraining is
provided, if necessary.
A “whistle-blowing” policy and procedure is in place and has been
notified to all retail colleagues. The policy enables them to report any
concerns on matters affecting the Group or their employment, without
fear of recrimination, and reduces the risk of things going wrong or of
malpractice taking place and remaining unreported. In addition, the
Group takes a zero-tolerance approach to matters of discrimination,
harassment and bullying in all aspects of its business operations,
whether they relate to sex, race, national origin, disability, age, religion
or sexual orientation, and policies and procedures are also in place for
reporting and dealing with these matters.
Owning shares in the Company is an important way of strengthening
colleagues’ involvement in the development of the Group’s business
and bringing together their and shareholders’ interests. The Group
therefore encourages the Group’s colleagues to participate in its
Sharesave Scheme.
Directors
The following persons were Directors during the 52 weeks to 2 April
2010 and at the date of this Report:
Dennis Millard (appointed 28 May 2009)
David Wild
Nick Wharton
Paul McClenaghan
Nigel Wilson
Keith Harris
Bill Ronald
In accordance with the Company’s Articles of Association, Nigel
Wilson, Senior Independent Director, Bill Ronald and Keith Harris are
retiring by rotation at the forthcoming AGM and, being eligible, will offer
themselves for re-election at that meeting.
Directors’ interests
The Directors’ interests in shares and options over shares in the
Company are shown in the Directors’ Remuneration Report on pages
71 to 80.
In response to the requirements of the Companies Act 2006 introduced
in October 2008, each Director has notified the Company of any
situation in which he or she has, or can have a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the
Company (a situational conflict). These interests were considered and
approved by the Board in accordance with the Company’s Articles of
Association and each Director was informed of the authorisation and
the terms on which it was given.
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Directors’ Report
Directors’ indemnities
Major Shareholders
Article 141 the Company’s Articles of Association provides that every
Director is entitled to be indemnified out of the assets of the Company
against all costs and liabilities incurred by him in the execution of his
duties or the exercise of his powers or otherwise in connection with
his duties, powers or office including any liability incurred by him in
defending any proceedings, civil or criminal, which relate to anything
done or omitted to have been done or omitted by him as an officer of
the Company and in which judgement is given in his favour or in which
he is acquitted.
During the year the Company maintained liability insurance for its
Directors and officers. The Directors of the Company, and the Directors
of each of the Company’s subsidiaries, have the benefit of an indemnity
provision in the Company’s Articles of Association. The indemnity
provision, which is a qualifying third-party indemnity provision as
defined by section 236 of the Companies Act 2006, has been in force
throughout the year.
Directors’ responsibilities
The statement of Directors’ responsibilities in preparing the Annual
Report and the Financial Statements can be found on page 88 of the
Annual Report.
Disclosure of information to Auditors
The Directors of the Group have taken all the steps that they ought
to have taken as Directors in order to make themselves aware of
any information needed by the Group’s Auditors in connection with
preparing their report and to establish that the Auditors are aware of
that information and so far as the Directors are aware there is no such
information of which the Group’s Auditors are unaware. The Directors
are responsible for maintaining the integrity of financial information
which includes the Annual Report, together with other financial
statements, presentations and announcements on the Group’s website
halfordscompany.com. Legislation in the UK concerning the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.
Supplier payment policy
The Group does not follow any formal code or standard on payment
practice, but agrees terms and conditions for its business transactions
when orders for goods and services are placed, and includes the
relevant terms in contracts, where appropriate. These arrangements
are adhered to when making payments, subject to the terms and
conditions being met by suppliers. The number of trade creditor days
outstanding at the period end for the Group was 49 days (2009: 39
days). The Company is a holding company and had no trade creditors
at the end of the financial year.
Contractual or other arrangements
The Directors consider that there are no contractual or other
arrangements, such as those with major suppliers, which are likely to
influence, directly or indirectly, the performance of the business and
its value.
At 30 April 2010, the Company’s share register of substantial
shareholdings showed the following interests in three per cent or more
of the Company’s issued ordinary shares:
Holder
Number of
% of
shares issued shares
16,071,282
Bank of New York Mellon
15,779,497
Artemis Investment Management Ltd.
11,833,108
M & G Investment Management Ltd.
10,297,666
BlackRock Advisors
8,817,100
Capital (Institutional Group)
Ameriprise Financial
8,614,568
L&G Investment Management Ltd. (UK) 8,262,839
Rathbone Investment Management Ltd. 8,080,177
6,956,301
Ignis Asset Management Limited
7.6%
7.5%
5.6%
4.9%
4.2%
4.1%
3.9%
3.8%
3.3%
The Takeover Directive
As at 2 April 2010 and 3 April 2009, the Company’s authorised share
capital was £2,950,000 divided into 295,000,000 ordinary shares of
1p each nominal value (“ordinary shares”). On 2 April 2010 there were
210,710,960 (2009: 209,786,251) ordinary shares in issue. These
ordinary shares are listed on the London Stock Exchange.
All ordinary shares rank equally with respect to voting rights and the
rights to receive dividends. Shares acquired through Company share
schemes and plans rank pari passu with the shares in issue and have
no special rights.
The holders of ordinary shares are entitled to receive the Company’s
Annual report and financial statements; to attend and speak at general
meetings of the Company; to appoint proxies and to exercise voting rights.
There are no restrictions on transfer or limitations on the holding of any
class of shares and no requirements for prior approval of any transfers.
None of the shares carry any special rights with regard to control of
the Company.
There are no known arrangements under which the financial rights are
held by a person other than the holder of the shares and no known
agreements on restrictions on share transfers or on voting rights.
The rules about the appointment and replacement of Directors are
contained in the Company’s Articles of Association. Directors may be
appointed by the Company by ordinary resolution or by the Board. A
Director appointed by the Board holds office only until the next AGM.
At each AGM one-third of the Directors (rounded down) will retire by
rotation and be eligible for re-election. The Directors to retire will be
those who wish to retire and those who have been longest in office
since their last appointment or reappointment, with the proviso that all
must retire within a three-year period. Following the publication of a
revised Combined Code on 28 May 2010, the Board has agreed that all
Directors will stand for re-election at the AGM on 27 July 2010.
Changes to the Articles of Association must be approved by the
shareholders in accordance with the legislation in force from time
to time.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Going concern
The Directors confirm that they are satisfied that the Group has
adequate resources to continue in business for the foreseeable future.
For this reason, they continue to adopt the going concern basis in
preparing the accounts.
Annual General Meeting
The AGM will be held at the Alveston Manor Hotel, Clopton Bridge,
Stratford-upon-Avon, Warwickshire, CV37 7HP, on Tuesday 27 July
2010. The notice of the AGM and explanatory notes regarding the
special business to be put to the meeting will be set out in a separate
circular to shareholders.
By order of the Board
Alex Henderson
Company Secretary
10 June 2010
The Company does not have agreements with any Director or
employee that would provide compensation for loss of office or
employment resulting from a takeover except that provisions of the
Company’s share schemes and plan may cause options and awards
granted to employees under such schemes and plans to vest on
a takeover.
The Company has Term and Revolving facilities and under the terms of
these credit facilities, the Company is required, in the event of a change
of control, to give notification to the facility agent and if so required by
the majority lenders the facilities may be cancelled.
Authority to purchase shares
At the AGM on 29 July 2009 shareholders approved a special resolution
authorising the Company to purchase a maximum of 20,983,577
shares, representing 10% of the Company’s issued share capital at
19 June 2009, such authority expiring at the conclusion of the AGM to
be held in 2010. The Directors intend to optimise the Group’s balance
sheet to enhance shareholder returns although at present the Board
has no intention of exercising the authority to purchase the Company’s
ordinary shares it will keep the position under review in light of it’s desire
to maintain an efficient capital structure and retain financial flexibility. In
the 52 weeks to 2 April 2010 the Company purchased no shares (2009:
4,687,816), representing a nominal value of £nil (2009: £46,878).
Auditors
At the AGM held on 29 July 2009 Pricewaterhouse Coopers resigned
and KPMG Audit Plc were appointed as the Company’s external
Auditors. KPMG Audit Plc has indicated its willingness to accept
reappointment as the external Auditor of the Company. A resolution
proposing its reappointment is contained in the Notice of the AGM and
will be put to shareholders at the meeting.
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Corporate Governance
The Board of Halfords Group plc is responsible for determining the
long-term direction and strategy of the Group in a framework of
sound and robust corporate governance. The Board is committed
to high standards of corporate governance not only in the areas of
accountability and risk management but also as a positive contribution
to its’ business strategy. The Board believes in conducting the Group’s
affairs in a fair and transparent manner and in maintaining the highest
ethical standards in its business dealings.
Statement of compliance with the Combined Code
The Directors consider that the Group has applied the principles and
complied with the provisions of Section 1 of the Combined Code
2006 (“the Code”) for the financial period to 2 April 2010. This report
describes how the Group has complied with the Code.
Board Structure, Directors and their interests
The Board is currently composed of seven members, consisting of
a non-executive chairman, three non-executive Directors and three
executive Directors. Dennis Millard was appointed Chairman on
28 May 2009, following an executive search process. Nigel Wilson as
the Company’s Senior Independent Director held the position of acting
Chairman from 22 August 2008 until 28 May 2009.
Dennis Millard was considered on appointment to meet the
independence criteria as set out in paragraph A.3.1 of the Code and
continued with his existing commitments (as disclosed on page 61).
The other non-executive Directors are considered by the Board to be
independent in character and judgement and within the definition of the
Code. Accordingly, no individual or group of individuals dominates the
Board’s decision-making and the requirement of the Combined Code
that at least half of the Board (excluding the Chairman) should comprise
independent non-executive Directors is satisfied. At the same time in
accordance with the Combined Code, separate individuals have been
appointed to the positions of Chairman and Chief Executive respectively
as described above and job descriptions delineating a clear division of
responsibilities between the two have been compiled and issued.
The Chairman and the non-executive Directors contribute external
expertise and experience in areas of importance to the Group such as
marketing, customer and consumer focus, corporate finance, general
finance and corporate governance. They also contribute independent
challenge and rigour to the Board’s deliberations, and assist in the
development of the Company’s strategy, scrutiny of the performance
of management in meeting agreed goals and targets and satisfying
themselves of the integrity of the Company’s internal controls and risk
management systems. The Board believes that all of the Directors
devote sufficient time and attention as is necessary in order to perform
their duties.
The following Directors held office during the financial period to 2 April
2010:
Non-executive Directors are appointed for specified terms (normally
three years) and their Terms and Conditions of Appointment are
available on the Group’s website halfordscompany.com. They are
subject to reappointment under the Company’s Articles of Association
and subject to the Companies Act provisions relating to the removal of
a Director.
The Board has formally adopted an induction programme for new
Directors, which will be tailored to each new Director who joins the
Board and includes briefings regarding the activities of the Group and
visits to operational sites. Documentation and training on their duties as
Directors are also available to all Directors. All Directors are members
of the Deloitte Academy, a training resource that provides support and
guidance to Boards, individual directors and company secretaries.
In addition, Directors are also informed regularly on relevant material
changes to laws and regulations affecting the Group’s business. All
Directors have access to the advice and services of the Company
Secretary, who is also responsible for advising the Board on all
governance matters.
The Company’s Articles of Association require Directors appointed
by the Board during the year to retire and offer themselves for
reappointment at the first AGM following their appointment. No
Directors have been appointed since the last AGM. The articles also
require that every Director must retire and seek re-election at least every
three years. Following the publication of the revised Combined Code
on 28 May 2010, the Board has agreed that all Directors will stand for
re-election at the AGM on 27 July 2010.
Details of the Directors’ service contracts, emoluments, the interests
of the Directors and their immediate families in the share capital of the
Company and options to subscribe for shares in the Company are
shown in the Directors’ Remuneration Report on pages 71 to 80. The
Directors have wide experience and expertise and their biographical
details are given on pages 60 and 61.
In response to the requirements of the Companies Act 2006 introduced
in October 2008, each Director has notified the Company of any
situation in which he or she has, or can have a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the
Company (a situational conflict). These interests were considered and
approved by the Board in accordance with the Company’s Articles of
Association and each Director was informed of the authorisation and
the terms on which it was given. All Directors are aware of the need
to consult with the Company Secretary regarding any further possible
situational conflict that may arise so that prior consideration can be
given by the Board to whether or not such conflict will be approved.
Dennis Millard
David Wild
Nick Wharton
Paul McClenaghan
Nigel Wilson
Keith Harris
Bill Ronald
Designation
Appointment/Reappointment date
Chairman
Chief Executive Officer
Finance Director
Commercial Director
Senior Independent Director
Non-executive Director
Non-executive Director
Appointed 28 May 2009
29 July 2009
29 July 2009
29 July 2009
23 July 2008
23 July 2008
29 July 2009
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Operation of the Board
The Board has a formal schedule of matters reserved for the Board,
which it has reviewed during the year and considered fit for purpose.
The Board’s primary role is to determine the long-term direction and
strategy of the Group, create value for shareholders, monitor the
achievement of business objectives, monitor risk and ensure that good
corporate governance is practised and that the Group meets its other
responsibilities to its shareholders, customers, employees and other
stakeholders.
The Board is also responsible for ensuring that appropriate processes
are in place in respect of succession planning for appointments to the
Board and to key senior management positions and to establish and
monitor the Group’s policies and performance in the area of corporate
social responsibility.
Meetings
The Board had nine scheduled meetings this year and others as
required. During 2009 three additional Board meetings were held
to consider the acquisition of Nationwide Autocentres. Whilst the
Board has specific responsibility for those matters reserved for its
consideration, in certain areas, specific responsibility is delegated to
committees of the Board within defined terms of reference.
During the year the Board committees, Audit, Nomination and
Remuneration, scheduled two, three and five meetings respectively.
Individual Director attendance is shown below.
Audit Nomination Remuneration
6
4*
2(1)
3
1*
2*
2*
Group
Board
12
Dennis Millard
12
David Wild
Nick Wharton
12
Paul McClenaghan 11
11
Nigel Wilson
10
Keith Harris
Bill Ronald
11
*
(1) Dennis Millard and Keith Harris attended all the Audit and
Indicates attendance by invitation.
2
2(1)
3
2
1
1
6
6
5
Where a Director has a concern over any unresolved business he is
entitled to require the Company Secretary to minute that concern.
Should that Director later resign over this issue, the Chairman will bring
it to the attention of the Board.
The Group is supportive of executive Directors who wish to take on
non-executive directorship with a company outside the Group, as
exposure to such duties can broaden experience and knowledge,
which will be to the benefit of the Group. Executive Directors may
retain any fees they receive. Nick Wharton, the Company’s Finance
Director, was appointed as a non-executive director to the Board of
Dunelm Group plc, on 14 August 2009, where he also chairs the
Audit Committee.
Evaluation of the Board and its committees
The Board has established a formal process for the annual evaluation
of the performance of the Board, its principal committees and individual
Directors. Questionnaires are drawn up, which provide the framework
for the evaluation process. Each member of the Board or appropriate
committee is invited to comment on the performance of the individual,
the Board, or the appropriate Committee and submits replies to the
questionnaires, which are then collated.
Within this evaluation process, the Senior Independent Director
discusses with the Chairman feedback on his annual performance,
whilst the Chairman discusses the non-executive Directors’
performance evaluation with the individual non-executive Directors.
Following a review of these responses by the Board or by the
appropriate Committee, appropriate action is taken to ensure that the
performance of the Board as a whole, its principal committees and
individual Directors is such that each can perform at the optimum level
for the benefit of the Company.
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Nomination Committee meetings they were entitled to attend.
To enable the Board to function effectively and assist Directors to
discharge their responsibilities, full and timely access is given to all
relevant information. In the case of Board meetings, this consists of
a comprehensive set of papers, including regular business progress
reports and discussion documents regarding specific matters. In
addition, individual Directors meet with senior management and
are encouraged to make periodic site visits. Senior managers are
regularly invited to Board meetings and make business presentations.
The Chairman, supported by the Company Secretary, maintains a
rolling twelve-month agenda for Board meetings to ensure all relevant
matters are planned in to the cycle of meetings and considered at the
appropriate time.
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Corporate Governance
The key actions taken to further enhance Board performance during the year and the principal observations from the recently completed Board
evaluation are summarised below:
2009 Performance Review
Observation
Action
Board Composition
Continually review the balance of the
Board to ensure that the Board has
the right composition and mix of
knowledge and skills to maximise
performance.
Succession Planning
A new Chairman was appointed in May 2009. The Board composition and skill sets were kept under
continual review during this appointment process.
Subsequent Board Evaluation confirmed that the structure, size and composition was appropriate but
would be subject to ongoing consideration to ensure the Board continued to possess skills that
complemented the Company’s strategy and allowed for orderly succession.
The Board received an annual update from the CEO on development of executive roles and senior
(i) Increase Board visibility and input
to succession planning for executive management positions, identifying areas of additional succession planning and capability requirements.
roles and key senior management
positions to ensure they adequately
reflect the challenges and opportunities
facing the Company and identify future
skills and expertise required by
the Group.
The CEO, assisted by the Chairman, conducts formal reviews of the development needs of
senior executives.
(ii) Increase the exposure of the
non-executive Directors to key senior
managers.
Governance
A mentoring programme is to be introduced, with each non-executive Director assigned a number of
key executives below Board level.
Ensure Board knowledge on key
governance topics remains
contemporary and relevant.
Seminars on Directors’ Conflicts of Interest and on M&A class transactions were held in 2009 and
the Remuneration Committee Chairman meet with shareholders and investors to discuss current
trends in executive remuneration.
2010 Performance Review
The key findings of the above performance evaluation process, which
will be the subject of focus in the forthcoming financial year, are as
follows:
n To align the Company with the recommendations made by
the Financial Reporting Council as a result of its review of the
Combined Code, the Board felt that the process for identifying,
reviewing and monitoring risk could be made more dynamic and
the Board’s “risk appetite” should be defined.
n Given the Company’s strategic objective of leveraging the Halfords
brand within its multi-channel offer, it was felt that the Board would
benefit from greater exposure to trends within this fast-moving
environment.
Board Committees
The Board has established an effective Committee structure to assist
in the discharge of its responsibilities. The terms of reference of the
Audit, Nomination and Remuneration Committees comply with the
provisions of the Combined Code and are available for inspection on
the Company’s website, halfordscompany.com.
The Company Secretary acts as secretary to the Audit, Nomination and
Remuneration Committees. Only the members of each Committee are
entitled to attend its meetings, although other Directors, professional
advisers and members of the senior management team attend
when invited to do so. The Audit Committee will invite the external
Auditor to certain of its meetings. In the cases of the Nomination and
Remuneration Committees, no member is present when business
pertinent to them is under discussion. A Treasury Committee,
composed of senior members of the finance and treasury teams and
chaired by the Finance Director, has been established to manage the
day-to-day treasury needs of the Group.
When the need arises, separate ad hoc committees may be set up by
the Board to consider specific issues.
Remuneration Committee
For the financial period to 2 April 2010, the Remuneration Committee
comprised Keith Harris (Chairman), Nigel Wilson, Bill Ronald and,
following his appointment as Chairman on 28 May 2009, Dennis Millard.
Keith Harris, Nigel Wilson and Bill Ronald are all independent non-
executive Directors.
Executive Directors attend Remuneration Committee meetings at the
invitation of the Committee Chairman.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
The Remuneration Committee has responsibility for making
recommendations to the Board on the Company’s policy on
remuneration of executive Directors, the Company Secretary and
senior managers. It also determines, within agreed terms of reference,
specific remuneration packages for each of the Chairman, the executive
Directors and Company Secretary of the Company and such members
of senior management as it is delegated to consider. This includes
pension rights; any compensation payments; and the implementation
of executive incentive schemes. In accordance with the Committee’s
terms of reference, no Director may participate in discussions relating to
their own terms and conditions of service or remuneration.
Further information on the activities of the Remuneration Committee is
set out in the Directors’ Remuneration Report on pages 71 to 80. The
Directors’ Remuneration Report sets out the status of the Company’s
compliance with the requirements of the Combined Code with regard
to remuneration matters and includes a statement on the Company’s
policy on Directors and senior managers’ remuneration, benefits,
share scheme entitlements and pension arrangements. A resolution
to approve the Directors’ Remuneration report will be proposed at the
forthcoming AGM.
Nomination Committee
The Nomination Committee comprised Dennis Millard, Keith Harris, Bill
Ronald, Nigel Wilson and David Wild. As acting Chairman, Nigel Wilson
chaired the committee until 28 May 2009 when Dennis Millard was
appointed Chairman of the Committee. Keith Harris, Nigel Wilson and
Bill Ronald are considered independent non-executive Directors. The
Combined Code states that the test of independence is not appropriate
in relation to the Chairman after his appointment and the Board feels it
is appropriate, as all non-executive Directors sit on the committee, that
the committee should be chaired by the Chairman of the Group. Senior
members of management and advisers are invited to attend meetings
as appropriate.
The Committee has responsibility for considering the size, structure
and composition of the Board of the Company, for reviewing senior
management succession plans, retirements and appointments
of additional and replacement Directors and making appropriate
recommendations so as to maintain an appropriate balance of skills
and experience on the Board.
The Nomination Committee has established a process for Board
appointments that it considers to be formal, rigorous and transparent
and involves the use of external executive recruitment agencies. This
process includes a review of the skills, experience and knowledge
of the existing Directors, to assess which of the potential shortlisted
candidates would most benefit the balance of the Board having regard
also to the need for succession planning. During the search for a new
Chairman, the committee used the services of the executive recruitment
agency Egon Zehnder.
In recommending Dennis Millard to be appointed Chairman of the
Group the Nomination Committee assessed the time commitment
required by the Chairman. In approving the appointment the Board took
this into account and also considered Dennis’s other commitments.
The Board concluded that he had enough time to fulfil his commitments
to the Group and his other commitments would not affect his ability to
carry out his duties and responsibilities effectively for the Group.
Audit Committee
For the financial period to 2 April 2010, the Audit Committee comprised
Nigel Wilson, Keith Harris and Bill Ronald, all of whom are independent
non-executive Directors. The Committee chairman is Nigel Wilson,
who, as Chief Financial Officer of Legal & General plc, is considered
by the Board to have recent and relevant financial experience. Each of
the other independent non-executive Directors on the Committee has,
through their other business activities, significant experience in financial
matters. Senior members of management and advisors are invited to
attend meetings as appropriate.
The Audit Committee meets according to the requirements of the
Company’s financial calendar. The meetings of the Audit Committee also
provide the opportunity for the independent non-executive Directors to
meet without the executive Directors present and also the opportunity to
raise any issues of concern with the Company’s external Auditor.
The Audit Committee is responsible for making recommendations
to the Board on the appointment of the external Auditors and their
remuneration, for reviewing the accounting principles, policies and
practices adopted in the preparation of the Interim Report and
Annual Report and Financial Statement and reviewing the scope and
findings of the audit. The Committee assists the Board in achieving its
obligations under the Combined Code in areas of risk management
and internal control, focusing particularly on compliance with legal
requirements, accounting standards and the Listing Rules, and ensures
that an effective system of internal financial and non-financial controls is
maintained. The ultimate responsibility for reviewing and approving the
Annual Report and Financial Statements remains with the Board.
The Committee will keep under review the external Auditors’
independence including any non-audit services that are to be
provided by the external Auditors. The Auditors are also requested
to confirm their independence at least annually. A formal policy has
been developed and implemented, which ensures that the nature
of the advice to be provided could not impair the objectivity of the
external Auditors’ opinion on the Group’s financial statements. The
policy incorporates a fee limit of £25,000, above which a formal tender
process must be undertaken and approval of the Committee obtained
prior to any proposed appointment.
The Committee has approved a formal whistle-blowing policy whereby
staff may, in confidence, disclose issues of concern about possible
malpractice or wrongdoings by any of the Group’s businesses or any
of its employees without fear of reprisal. This includes arrangements to
investigate such matters and for appropriate follow-up action, and the
rollout to our autocentre colleagues.
Relationships with shareholders
Nigel Wilson was the Senior Independent Director throughout the
period under review and acted as Chairman from 22 August 2008
until the appointment of Dennis Millard on 28 May 2009. The Senior
Independent Director is available to meet shareholders upon request
if they have concerns that contact through the normal channels of the
Chairman or the executive Directors has failed to resolve, or for which
such contact is inappropriate.
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Corporate Governance
The Board recognises the importance of establishing and maintaining
good relationships with all of the Company’s shareholders. During the
period under review the Chief Executive, Finance Director, Chairman
and Remuneration Committee Chairman have met with analysts
and institutional shareholders to keep them informed of significant
developments and report to the Board accordingly on the views of
these stakeholders. The Senior Independent Director is also available to
attend such meetings, if required.
Each of the other non-executive Directors is also offered the opportunity
to attend meetings with major shareholders and would do so if
requested by any major shareholder. The Company’s investor relations
programme includes formal presentations of full year and interim
results. Independent feedback from these meetings is provided to the
Board. The Company Secretary is also charged with bringing to the
attention of the Board any material matters of concern raised by the
Company’s shareholders, including private investors.
The Interim Report and the Annual Report and Financial Statements
are the primary means used by the Board for communicating
during the year with all of the Company’s shareholders. The Board
also recognises the importance of the Internet as a means of
communicating widely, quickly and cost-effectively and an investor
relations website (halfordscompany.com) has been developed to
facilitate communications with shareholders. Information available online
includes copies of the full and half-year financial statements, press
releases and Company news, corporate governance information and
statements and the terms of reference for the Audit, Nomination and
Remuneration Committees.
The Board is committed to the constructive use of the AGM as a forum
to meet with shareholders and to hear their views and answer their
questions about the Group and its business. The AGM of the Group
is to be held on Tuesday 27 July 2010 at The Alveston Manor Hotel,
Stratford-upon-Avon. The Chairmen of the Remuneration, Nomination
and Audit Committees will normally attend the meeting and will answer
questions that may be relevant to the work of those Committees. If
they are unable to attend they will appoint a deputy to attend in their
place. It is the Company’s practice to propose separate resolutions on
each substantially separate issue at the AGM. The Chairman will advise
shareholders on the proxy voting details at the meeting.
The Company’s financial calendar is set out on page 136.
Internal control and risk management
The Board has overall responsibility for the system of internal control
and for reviewing its effectiveness throughout the Group and ensuring
that there is a process in accordance with the guidelines laid down by
the Turnbull Report to identify, evaluate and manage any significant risks
that may affect the achievement of the Group’s strategic objectives.
The assessment of effectiveness has been carried out this year. The
system of internal control is designed to manage, rather than eliminate,
the risk of failing to achieve business objectives and can provide only
reasonable and not absolute assurance against material misstatement
or loss. The Board and the Audit Committee have reviewed the
effectiveness of the Group’s systems of internal control and risk
management in accordance with the Combined Code for the financial
period to 2 April 2010, and up to the date of approving the Annual
Report and Financial Statements.
The internal audit function provides internal audit reports to the
Board, via the Audit Committee. Whilst directed by Nick Wharton, the
Company’s Finance Director, it is independent in action and reporting,
and has a direct line of communication to the Audit Committee
Chairman. The principal role in fulfilling the internal audit function is to
review the effectiveness of the controls operating within the business
by undertaking an agreed schedule of independent audits each year.
The nature and scope of this annual audit programme is determined
by the Audit Committee at the beginning of each calendar year and
may be revised from time to time according to changing business
circumstances and requirements.
The findings of these audits are reported initially to executive
management and any necessary corrective actions are agreed.
Summaries of these reports are presented to, and discussed with,
the Audit Committee along with details of progress against action
plans as appropriate.
The Board considers risk assessment and control to be fundamental
to achieving its corporate objectives within an acceptable risk/reward
profile and there is an ongoing process for identifying and evaluating
the significant risks faced by the Group and the effectiveness of related
controls. The key elements of this process are:
n a comprehensive system of monthly reporting from key executives,
identifying performance against budget, analysis of variances,
major business issues, key performance indicators and regular
forecasting;
n well-defined policies governing appraisal and approval of capital
expenditure and treasury operations;
n reviews of key business risks and of management’s controls and
plans to mitigate these risks; and
n an annual corporate governance confirmation made to the Board
by all senior executives on the effectiveness of the identification of
major risks and of the monitoring of internal controls within their
areas of responsibility.
As part of the ongoing process for identifying, evaluating and
managing the key business risks faced by the Group, the Board has
established a Risk Management Group to oversee the implementation
of the risk management framework, co-ordinate risk management
activities throughout the business and to report to the Board and Audit
Committee on risk issues. The Risk Management Group is chaired
by the Company Secretary and includes senior managers from Store
Operations, Business Systems, Health & Safety, Human Resources,
Finance, Store Assurance, Business Services, Multi-channel, Logistics,
and Supply Chain functions. During the financial period to 2 April 2010
and up to the date of this report the Group considered the Company’s
Risk Register and its alignment with the Company’s key strategic
objectives.
Linked to the Group’s Strategy and through its normal business
operations, the Company is exposed to a number of commercial,
financial risks and other uncertainties which could impact on the results
of the Company, as described in the Finance Directors’ Report on
pages 52 to 57. This is not an exhaustive list and there may be other
risks that have not been considered or that the Board considers are
immaterial in nature.
By order of the Board
Alex Henderson
Company Secretary
10 June 2010
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Directors’ Remuneration Report
This report, prepared by the Remuneration Committee (“the
Committee”) on behalf of the Board, has been drawn up in accordance
with the Combined Code on Corporate Governance, Schedules 5 and
8 of the Large and Medium sized Companies and Groups (Accounts
and Reports) Regulations 2008 and the UK Listing Authority Listing
Rules.
The report has been approved both by the Remuneration Committee
and by the Board, and a resolution to approve the report will be
proposed at the Annual General Meeting (“AGM”) of the Company on
27 July 2010.
PART A — UNAUDITED INFORMATION
Remuneration Committee
Membership
The Committee comprised the following non-executive Directors during
the financial period to 2 April 2010:
Keith Harris (Committee Chairman)
Dennis Millard (Appointed 28 May 2009)
Bill Ronald
Nigel Wilson
Responsibilities
The Remuneration Committee’s core responsibilities include:
■ Reviewing and recommending the remuneration policy of executive
Directors and senior managers;
■ Within this policy agreeing individual remuneration packages for
the Chairman, executive Directors and senior executive managers,
including the Company Secretary;
■ Reviewing and recommending the terms and conditions to be
included in service agreements for executive Directors and senior
executive managers;
■ Reviewing and recommending any employee share-based incentive
schemes and any changes to the rules of such schemes;
■ Reviewing and recommending appropriate performance conditions
and targets for the variable element of remuneration packages for
the executive Directors and senior executive managers; and
■ Reviewing annual and long-term performance against targets to
determine the level of reward that should be delivered to executive
Directors and senior executive managers.
Details of non-executive Directors’ experience and their other roles
are set out in the Directors’ biography section on page 61. The Board
believes that these Directors have suitable experience to serve on the
Remuneration Committee.
During the year the Committee conducted an internal effectiveness
review and it was concluded that there were no items of concern
that needed to be considered by the Committee. The Committee will
continue to review effectiveness of an annual basis.
Meetings
Advisers
During the financial period to 2 April 2010 the Committee met on
six occasions. The executive Directors are invited to attend the
Committee’s meetings, when appropriate, but are not present when
their own remuneration is discussed. The Company Secretary is the
secretary to the Committee.
Role
The Board has delegated to the Remuneration Committee responsibility
for reviewing and recommending the pay and benefits and contractual
arrangements of the Chairman, executive Directors and the Company
Secretary and such other senior managers as the Board may designate
and for overseeing the Group’s share schemes.
The Remuneration Committee is committed to principles of
accountability and transparency to ensure that remuneration
arrangements demonstrate a clear link between reward and
performance. In its work, the Committee considers fully the principles
and provisions of the Combined Code on Corporate Governance
and its terms of reference are available on the Group’s website
halfordscompany.com.
During the year the Hay Group have continued to provide advice to
the Committee on matters relating to remuneration, including market
comparison data and best practice. Hay Group does not provide any
other services to the Group. The Committee also received advice from
Deloitte LLP on the design of the share-based long-term incentive
plans and other remuneration matters. Deloitte do not provide any
other services to the Group. The Committee is satisfied that the advice
received by Hay and Deloitte is independent.
During the year the Committee also consulted with the Chief Executive
and was supported by the Director of Human Resources and the
Company Secretary (who is secretary to the Committee).
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Directors’ Remuneration Report
Remuneration policy
The remuneration policy of the Committee and of the Board is to
provide remuneration packages for executive Directors and other senior
managers in the Group which:
■ Align management’s interests with those of shareholders by
incentivising management to deliver the Group’s long-term strategy
and enhance shareholder value.
■ Provide management with the opportunity to earn competitive
remuneration through variable based pay.
■ Provide upper quartile rewards compared to other general retail
companies of a similar size subject to above upper quartile
performance being delivered.
shareholder views on ensuring that remuneration arrangements do not
incentivise excessive risk taking. However, we believe that our Board
decision-making process ensures that there are sufficient safeguards to
prevent this.
In this context it is intended that an award “multiplier” will be introduced
to the Performance Share Plan (“PSP”). This will allow executives to
earn an incremental reward if performance is above upper quartile
levels. This is explained in more detail in the section relating to the
Performance Share Plan on page 75. The Company has discussed
these changes with its major shareholders and a resolution to amend
the rules of the Company’s PSP to incorporate this multiplier will be put
before the Company’s shareholders at the Annual General Meeting on
27 July 2010.
■ Enable the Group to attract and retain management of the calibre
required to run the business and drive exceptional shareholder
value creation.
In addition, during the year the Committee has also made changes
to the annual bonus arrangement for the CEO and to salary levels for
executive Directors. Further details are provided on page 74.
The Board reviews this policy annually and whether remuneration
arrangements appropriately reflect this policy. During the year the
Committee has worked with Deloitte LLP to review the current
remuneration arrangements to ensure that they reflect this policy and
our long-term business strategy. The Committee concluded that, while
a number of elements of the remuneration arrangements remained
appropriate, our current structure was not aligned with the philosophy
of delivering upper quartile remuneration to executives if they achieve
above upper quartile performance for our shareholders. A review of
market practice also indicated that the maximum total compensation
opportunity was not fully competitive, particularly at maximum levels,
when compared to our key retail comparators.
The Company is at a very important stage in its development and the
Company has the opportunity to achieve strong levels of growth and
generate significant shareholder value in the future. In this context,
the Committee believes that our policy of upper quartile pay for upper
quartile performance is therefore appropriate. We are mindful of
In determining the remuneration arrangements for executive Directors,
the Committee is sensitive to the pay and employment conditions
elsewhere in the Group, especially when determining base salary
increases.
The Committee will continue to monitor and review the remuneration
policy and remuneration arrangements to ensure that the structure and
associated performance measures remain appropriately aligned with
the Company’s strategic objectives. The individual salary, bonus and
benefit levels of the executive Directors are, and will continue to be,
reviewed annually by the Committee.
Balance of fixed vs. variable remuneration
It is the Company’s policy that a substantial proportion of the executive
Directors’ remuneration should be variable and performance related in order
to encourage and reward superior business performance and shareholder
returns and that remuneration should be linked to both individual and
Company performance. The following illustrates the balance between fixed
and variable remuneration based on the remuneration policy for 2010:
Chief Executive Officer — Target
51%
26%
51%
23%
Chief Executive Officer — Maximum
21%
32%
47%
Finance Director & Commercial
Director — Target
Finance Director & Commercial
Director — Maximum
56%
19%
25%
24%
23%
53%
0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Fixed
Bonus
LTIP
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Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Summary of remuneration
The Remuneration Committee selects performance measures that are designed to be aligned with the Group’s strategic goals and that are
transparent to Directors and shareholders. Each element of remuneration is designed to support the achievement of different corporate objectives as
outlined in the following table:
Element
Base salary
Purpose and link to
remuneration policy Maximum award
Changes for 2010
Key features
■ Reflects the
■ n/a
■
Increases in salary ■
In cash
competitive market
salary level for the
individual and
their roles
■ Takes account of
personal performance
and contribution to
corporate
performance
during the year to
reflect positioning
against market
■ Based on individual
contribution
■ Reviewed annually
practice
Annual Bonus
■ Rewards the
achievement of
annual earnings
targets
Performance Share Plan (“PSP”)
■ Aligns with
■ 120% of base
salary for CEO
■ 100% of base salary
for Finance Director
and Commercial
■ For 2010/11
■ Based on EBT and
increase in bonus
EPS performance
from 120% to 150% ■ Full bonus in cash
of base salary
for CEO
for Finance Director
and Commercial Director
Director
■ For the CEO,
previously all cash,
for 2010/11
one-third of bonus
deferred into shares
■ For CEO, two-thirds of
bonus in cash and
one-third of bonus
deferred into shares
for three years
■ Maximum core
award of 150%
of base salary
shareholder interests
through the delivery
of shares
■ Rewards growth in
shareholder value
and earnings
for three years
■ Performance
multiplier of up to
maximum of 1.5 5,
■ 50% TSR and 50%
EPS performance
(i.e. 225% of base salary),
introduced for the
delivery of exceptional
performance
■ The maximum core
award for the CEO
will be 150% of base
salary
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Scheme (“CSOS”)
■ Direct link to value ■
It is currently
■ No changes
■ Based on EPS performance
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price growth as major executive Directors
will not participate
objective
■ Aligns with shareholder in the CSOS
interests through the
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Further details are provided about each element of remuneration below.
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Directors’ Remuneration Report
Base salaries
Basic salary for executive Directors takes into account the individual’s
experience, roles, responsibilities and performance. This is normally
reviewed annually unless responsibilities change. For an executive
Director who is experienced and fully effective in his role, basic salary is
targeted at the retail market median for comparable roles.
During the year the Committee undertook a benchmarking review and
following this review it was agreed to increase executives’ salaries to
the following level with effect from 1 October 2009.
Role
Salary (with effect from 1 October 2009)
Chief Executive
Finance Director
Commercial Director
£507,500 (1.5% increase)
£300,000 (17% increase)
£285,000 (12% increase)
The Finance Director and the Commercial Director have been on
the Board for a number of years and are both very experienced and
valued executives. Their contribution, as joint Managing Directors of the
business, during the period of recruiting a new CEO (February 2008–
August 2008) was exceptional and during this period both executives
passed up any salary increases (their last increase in salary was with
effect from April 2008). The review of salaries showed, however, that their
salaries were substantially lower than those at other retail companies
of similar size and complexity. The Committee recognises that in the
current economic environment such increases are unusual but given
the experience and calibre of the incumbents and the performance
of the Company, the Committee considered that this approach was
appropriate. This increase brings salaries to approximately the median
when compared to other retailers of similar size and complexity. Base
salaries will next be reviewed in October 2010.
Annual bonus
Executive Directors may earn up to an additional 100% of their
basic salaries (150% of base salary for the CEO) as a performance
bonus. 80% of the entitlement is dependent upon Earnings before
Tax (“EBT”) targets and 20% is dependent upon Earnings per Share
targets (“EPS”). The Committee believes that these two measures
strike a good balance between providing line of sight for executives
and alignment with shareholder value creation. The target entry point
for the annual bonus is 97% of target which will elicit zero bonus
payment, with a straight-line determination to full payment at 106%.
The Committee calibrates targets to ensure that they are very stretching
and demanding, with the maximum bonus only being achievable for
exceptional performance. Bonuses are not pensionable.
After very careful consideration, the Remuneration Committee
concluded that it was appropriate to increase the bonus opportunity
for the CEO from 120% of salary to 150% of base salary given the
calibre of the incumbent, his performance to date and his overall
remuneration package relative to his peers in the retail sector. The
increased bonus opportunity will further incentivise the CEO to deliver
exceptional short-term performance. The Committee believes that it is
consistent with our remuneration policy of delivering median levels of
remuneration compared to our retail peers for target performance and
delivering upper quartile remuneration for exceptional performance.
The Committee, however, is mindful of the importance of striking an
appropriate balance between incentivising executives to deliver annual
performance and managing risk while creating long-term alignment
with shareholders. In light of this, one-third of any bonus earned by
the CEO will be delivered in Halfords’ shares which will be deferred
for a period of three years from the date of the award subject to
continued employment and other applicable terms. The maximum cash
opportunity will therefore be decreased from 120% of salary to 100%
of salary. The CEO’s bonus will continue to be based on the metrics
outlined above.
Remuneration for senior managers
As for executive Directors, it is the Company’s policy that a substantial
proportion of remuneration should be performance related in order to
encourage and reward superior business performance and shareholder
returns and that remuneration should be linked to both individual and
Company performance. Basic salary is targeted at the retail market
median for comparable roles and is benchmarked on a regular basis.
Bonuses of up to 100% of salary can be earned on the same basis as
the executive Directors.
Senior executives immediately below the Board also benefit from
participation in the PSP, with other key senior managers participating in
the CSOS.
Share plans
The Company has adopted three share plans. In May 2004 the
Company adopted the Halfords Company Share Option Scheme
(“CSOS”), a market value share option plan, and the Halfords
Sharesave Scheme and in July 2005 the Company adopted the
Performance Share Plan (“PSP”). The PSP is intended to be the
main incentive vehicle for executive Directors and senior executives
immediately below the Board, with awards generally made on an annual
basis. CSOS is used to reward employees below the Board and it is
not the current intention to grant awards under the CSOS to executive
Directors. The executive Directors are also eligible to participate in the
Halfords Sharesave Scheme, an all-employee SAYE scheme.
While committed to the use of equity-based performance-related
remuneration as a means of aligning Directors’ interests with those
of shareholders, the Committee is aware of shareholders’ concerns
on dilution through the issue of new shares to satisfy such awards.
Therefore, when reviewing remuneration arrangements, the Committee
takes into account the effects such arrangements may have on dilution.
Halfords intends to comply with the ABI guidelines relating to the
issue of new shares for equity incentive plans. The current ten years
shareholder dilution is 4.32%.
Halfords Company Share Option Scheme
Options are granted at an exercise price not less than market
value at the date of grant and may normally only be exercised if
performance conditions set at the time of grant have been achieved.
These performance conditions require EPS for the financial year last
preceding the third anniversary of the grant date to equal or exceed
the percentage growth in Retail Price Index (“RPI”) plus an additional
percentage determined as appropriate at the time of the grant. For
the last four annual awards the EPS target has been RPI + 3.5%. The
Committee believes that EPS is an appropriate performance target as it
incentivises senior executives to drive earnings performance.
As noted above, as the executive Directors primarily participate in the
PSP, it is currently intended that no further awards are made to them
under the Company Share Option Scheme. In the event that awards
are made under the CSOS to executive Directors, the Committee would
review the performance measures and would set targets which are
suitably stretching.
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Annual Report & Accounts for period ended 2 April 2010
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halfords.annualreport2010.com/responsibilities
Halfords Sharesave Scheme
During the year the Committee considered the principles behind
the establishment of the SAYE scheme in 2009 and concluded that
the current scheme remains appropriate. Options are granted at an
exercise price not less than 80% of market value at the date of grant.
Options may not normally be exercised until the option holder has
completed his or her savings contract (normally three or five years) from
the date of commencement of the savings contract. Executive Directors
may also join the Halfords Sharesave Scheme. During the year awards
were granted under the SAYE to participating eligible employees in the
United Kingdom, Ireland and Hong Kong.
Performance Share Plan
Under the PSP, conditional rights to receive shares or nil cost options
over shares are awarded to participants. PSP Awards have been made
in every year since 2005.
Awards under the PSP vest subject to the achievement of stretching
earnings per share (“EPS”) and total shareholder return (“TSR”)
targets. The vesting of 50% of the awards will be determined by the
Group’s relative TSR performance when measured against a general
retailers comparator group chosen from the FTSE 350. The vesting
of the other 50% will be determined by the Group’s absolute EPS
growth performance against RPI. The Committee believes that total
shareholder return and earnings per share remain appropriate measures
for the PSP as they are strongly aligned with shareholder interests.
Vesting for each measure is assessed independently. Thirty per cent
of the awards vests for achieving median TSR performance and EPS
growth of RPI plus 4% per annum. One hundred per cent of the award
vests for achieving upper quartile TSR and EPS growth of RPI plus 11%
per annum. Straight-line vesting applies between these points.
The companies included in the TSR comparator group for awards
granted in 2009 are as follows:
■ Brown Group
■ Game Group
■ Morrison
■ Carpetright
■ Greggs
■ Mothercare
■ Carphone Warehouse ■ HMV Group
■ Next
■ Debenhams
■ Home Retail Group ■ Sainsburys
■ Dignity
■ Kesa Eletrics
■ Sports Direct
■ DSG International
■ Kingfisher
■ Tesco
■ Dunelm Group
■ Marks & Spencer
■ WH Smith
The comparator group for awards in previous years was similar to the
above group but did not include food retailers.
Prior to 2009 the maximum award policy was 100% of base salary
(although the plan rules allowed for awards up to 200% of base salary).
In 2009 the Committee reviewed award levels and considered, after
consultations with shareholders, that it was appropriate to increase
award levels for the Finance Director and the Commercial Director to
150% of base salary. It had previously recommended to the Board
that the new Chief Executive Officer should receive an award of 200%
of salary in the first and second years of his tenure. This is in line with
the plan rules approved by shareholders. On the vesting of any of this
award David Wild will be encouraged to retain shares, so enabling him
to achieve the shareholding guidelines (see page 76) more quickly.
For 2009 awards onwards, the Committee also recommended the
reinvestment of dividends earned on award shares. This is in line
with best practice as contained in the ABI guidelines on executive
remuneration.
Amended operation of the Performance Share Plan for 2010
As noted above, during the year the Committee reviewed the structure
of the executive remuneration arrangements to ensure that they
continued effectively to incentivise and retain key executives in a
way which is aligned with our long-term strategy and the creation of
shareholder value.
Subject to shareholder approval at the AGM on 27 July 2010, for
awards granted in 2010 onwards, the core award for all executive
Directors will be 150% of base salary (representing a decrease in the
core award level for the CEO which is currently 200% of base salary).
In addition, there will be a vesting multiplier of up to 1.5 5 which will
be applied to the TSR and EPS elements of awards. The multiplier will
apply on a straight-line basis for performance between upper quartile
and upper decile. The maximum multiplier will only apply if performance
is at upper decile levels. The core award for all executives will be 150%
of base salary. The maximum possible award that can be earned will
therefore be 225% of base salary.
For the EPS element the multiplier will only apply if EPS growth exceeds
RPI plus 11% per annum, with the maximum multiplier only being
achieved if EPS growth equals RPI plus 16% per annum. These targets
are significantly in excess of current targets and the Committee believes
that these targets represent an appropriate level of stretch. The targets
are set out in the table below:
TSR Performance
Element
(50% of award)
EPS Performance
Element
(50% of award)
Award “Multiplier”
(up to 1.5 x initial award)
Core Award
(150% of salary)
1.5 x initial award vesting
Upper Decile performance
16% growth p.a. above RPI
Straight-line vesting
100% vesting
Straight-line vesting
30% vesting
0% vesting
Between Upper Quartile and
Upper Decile
Between 11% growth p.a. and 16%
growth p.a. above RPI
Upper Quartile performance
11% growth p.a. above RPI
Between Median and
Upper Quartile
Between 4% growth p.a. and 11%
growth p.a. above RPI
Median
4% growth p.a. above RPI
Below Median
Below 4% growth p.a. above RPI
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Directors’ Remuneration Report
TSR and EPS performance will continue to be assessed on an
independent basis. However, to ensure that the PSP continues to
support sustainable performance, the multiplier for one measure will
only be applied if performance is at least at the threshold level for the
other measure. For example, if TSR was above upper quartile the
TSR multiplier would generally only apply if EPS growth exceeded RPI
plus 4% per annum, unless the Remuneration Committee determined
otherwise.
The Committee recognises that a plan that incentivises higher levels
of performance involves a larger degree of inherent risk; however, the
Committee believes that the Board decision-making process provides
appropriate safeguards to ensure that this structure does not incentivise
executives to take an inappropriate level of risk.
The Company has consulted with key shareholders in relation to the
changes to remuneration arrangements and were pleased with the level
of support received. As noted above, a resolution to change the PSP
rules to incorporate the multiplier will be put for shareholder approval at
the AGM.
Details of options granted to executive Directors are set out on
page 80.
Shareholding
The shareholding guidelines require executive Directors to acquire and
retain shares to a value equal to 200% of their basic annual salary.
Newly appointed executive Directors will be appointed to retain shares
to a value equal to 100% of their basic salary over a five year period
following their appointment to the Board. The executive Directors’
shareholding at 2 April 2010 is shown on page 76.
Remuneration delivered in respect of performance in
2009/10
Halfords has performed strongly this year. Annual EBT and EPS
performance was significantly in excess of targets for the annual
performance bonus representing significant delivery of value for
shareholders. Given this performance, 100% of the maximum bonus in
respect of 2009/10 was paid. The bonus payments made in respect of
2009/10 are set out on page 78.
Performance for PSP awards granted in 2007 was tested in respect of
the financial year 2009/10. TSR performance was in the upper decile
(Halfords were ranked first) when compared to the comparator group
of selected other retail companies and EPS growth over the three-year
performance period of 40.8% exceeded RPI plus 11% per annum. This
performance represents significant earnings and total return growth for
shareholders. The PSP awards granted in 2007 therefore vested in full.
Performance for CSOS awards granted in 2007 to below Board
employees was also tested in respect of the financial year 2009/10.
The EPS growth target attached to this award were met and the
options vested in full. Participants will have a further seven years in
which to exercise these options.
Performance graph
The following graph shows the TSR performance of the Company
since May 2005, against the FTSE 350 General Retailers (which was
chosen because it represents a broad equity market index of which the
Company is a constituent).
TSR was calculated by reference to the growth in share price, as
adjusted for reinvested dividends.
Cumulative TSR Based to 100
250
200
150
100
50
0
01/04/2005
01/04/2006
01/04/2007
01/04/2008
01/04/2009
01/04/2010
Halfords Group plc
FTSE 350 Retailers
Directors’ interests in ordinary shares
The beneficial interests of Directors, serving at the end of the financial
period, in shares in Halfords Group plc were:
Fully paid
Ordinary Shares
of 1p each
As at
2 April 2010
As at
3 April 2009
Dennis Millard (Appointed 28 May 2009)
David Wild
Nick Wharton
Paul McClenaghan
Nigel Wilson
Keith Harris
Bill Ronald
25,000
100,000
270,100
124,744
41,333
3,846
11,538
—
40,000
237,812
26,679
20,396
3,846
11,538
Directors’ share interests include the interests of their spouses, civil
partners and infant children, or stepchildren as required by Section 822
of the Companies Act 2006. There were no changes in the beneficial
interests of the Directors in the Company’s shares between 2 April 2010
and 10 June 2010.
Pensions
During 2008/9 the Company changed its pension arrangements to
prepare for the Government’s introduction of Personal Accounts. The
Halfords Pension Plan moved from a defined contribution scheme to
a contract-based plan, where each member has their own individual
pension policy which they monitor independently, each member could
also benefit from salary sacrifice arrangements. Both schemes were
open to the executive Directors. The CEO and the Commercial Director
receive a pension contribution of 15% of base salary per annum. The
Finance Director receives a pension contribution of 26.25% of base
salary per annum reflecting his legacy contractual entitlements.
The Group’s contributions during the year are shown in the table on
page 78.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Other benefits
Executive Directors are entitled to be provided with a company car or
an equivalent allowance, contribution to a personal pension scheme,
permanent health insurance, life assurance cover, membership of a
private medical insurance scheme and travelling and other expenses.
Other Directorships
The Group is supportive of executive Directors who wish to take on a
non-executive Directorship with a publicly quoted company in order
to broaden their experience, they are entitled to retain any fees they
may receive. On 14 August 2009 Nick Wharton was appointed a non-
executive director of Dunelm Group plc, where he is also Chairman of
the Audit Committee. He received a fee of £18,000 during the year.
Service agreements
The Company’s policy in relation to contractual terms on termination,
and any payments made, is that they should be fair to the individual,
the Company and shareholders. Failure should not be rewarded
and the departing executive’s duty to mitigate loss should be fully
recognised. The Committee periodically reviews the Group’s policy on
the duration of Directors’ service agreements, and the notice periods
and termination provisions contained in those agreements. Whilst the
Company is aware that companies are encouraged to consider notice
periods of less than 12 months, the Committee believes that the current
policy, whereby notice periods contained in executive Directors’ service
contracts should be limited to 12 months (other than in exceptional
circumstances, such as for the purposes of recruitment) is more in line
with the Company’s overall remuneration policy that is designed to
attract and retain high calibre executives.
David Wild(1)
Nick Wharton
Paul McClenaghan
Date of Service
Agreement
19 June 2008
17 May 2004
9 May 2005
Notice
Period
12 months
12 months
12 months
No compensation would be payable if a service contract were to be
terminated by notice from an executive Director or for lawful early
termination by the Company.
The service contracts of executive Directors do not provide for
any enhanced payments in the event of a change of control of the
Company.
Details of individual Directors’ remuneration and share incentives are set
out on pages 78 to 80.
Non-executive Directors
The Board as a whole, following a recommendation by the Chief
Executive Officer, determines the fees of the non-executive Directors.
None of the non-executive Directors has an employment contract with
the Company. However, each has entered into a letter of appointment
with the Company confirming their appointment for a period of three
years, unless terminated by either party giving the other not less
than three months’ notice or by the Company on payment of fees
in lieu of notice. The appointments are subject to the provisions of
the Companies Act 1985 and 2006 and the Company’s Articles
of Association and in particular the need for periodic re-election.
Continuation of an individual non-executive Director’s appointment
is also contingent on that non-executive Director’s satisfactory
performance, which will be evaluated annually. No compensation
would be payable to a non-executive Director if his engagement were
terminated as a result of him retiring by rotation at an Annual General
Meeting, not being elected or re-elected at an Annual General Meeting
or otherwise ceasing to hold office under the provisions of the Articles
of Association of the Company.
In May 2010 fees for the Chairman and non-executive Directors were
reviewed and it was agreed that there would be no increases. It is
intended to review these fees again in April/May 2011. Halfords’ policy
in relation to non-executive Director fees is as follows:
(1) David Wild was appointed to the Board on 4 August 2008 and his
Role
Chairman
Senior Independent Director
Basic Fee
Additional fee for Chairmanship of the
Audit and Remuneration Committee
Fees
£165,000
£60,000
£45,000
£5,000
There are no provisions for compensation being payable upon early
termination of an appointment of a non-executive Director.
The Chairman and the other non-executive Directors are not eligible
to participate in the Company’s bonus arrangements, share incentive
plans or pension arrangements.
Service Agreement was effective from that date.
The Company may terminate any of the above service agreements by
giving not less than 12 months’ notice. In the event of early termination
(other than for a reason justifying summary termination in accordance
with the terms of the service agreement) the Company may (but is not
obliged to) pay to the executive Director, in lieu of notice, a sum equal
to the annual value of the executive Director’s then salary, benefits,
pension contributions and on-target bonus (calculated on a pro rata
daily basis) which he would have received during the contractual notice
period, the sum of which shall be payable in 12 monthly instalments. In
such instances the executive Director shall use their best endeavours
to secure an alternative source of remuneration, thus mitigating any
loss to the Company, via the provision of his services as expediently as
possible in the prevailing circumstances and shall provide the Board
with evidence of such endeavours upon their reasonable request. If the
Director fails to provide such evidence the Board may cease all further
payments of compensation. To the extent that the executive Director
receives any sums as a result of alternative employment or provision of
services while he is receiving such payments from the Company, the
payments shall be reduced by the amount of such sums.
77
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78
Directors’ Remuneration Report
Details of non-executive appointment periods appear below:
Date of
Date of
current
appointment reappointment Expiry date
Unexpired term
at the date of
this report
Dennis Millard
Nigel Wilson
Keith Harris
Bill Ronald
PART B: AUDITED INFORMATION
28 May 2009
17 May 2004
17 May 2004
17 May 2004
28 July 2009 27 May 2012
22 July 2011
23 July 2008
22 July 2011
23 July 2008
28 July 2012
29 July 2009
24 months
13 months
13 months
25 months
The following section provides details of the remuneration, pension and share interests of the Directors for the 52 weeks to 2 April 2010 and has
been audited.
Remuneration of executive Directors
Details of the payments made to executive Directors were as follows:
David Wild
Nick Wharton(1)
Paul McClenaghan(1)
Salary &
Fees
£’000
504
264
257
52 weeks to 2 April 2010
Bonuses
£’000
Benefits(2)
£’000
604
278
270
26
13
13
52
1,025
1,152
Total
£’000
1,134
555
540
2,229
2009
Total
£’000
799
384
383
1,566
(1) Nick Wharton and Paul McClenaghan joined the new Halfords Pension Plan and sacrificed some of their salary for like-for-like pension
contributions.
(2) Benefits include payments made in relation to private health insurance and the provision of a company car.
Pension entitlements
Pension contributions to defined contribution pension schemes made by the Group during the 52 weeks to 2 April 2010 in respect of executive
Directors were as follows:
David Wild(1)
Nick Wharton(2)
Paul McClenaghan(2)
52 Weeks to 53 Weeks to
3 April 2009
£’000
2 April 2010
£’000
75
86
53
214
50
69
40
159
(1) Payments made to David Wild are made into a personal fund, the purpose of which is to provide additional retirement benefits.
(2) As members of the Halfords Pension Plan 2009 Nick Wharton and Paul McClenaghan have sacrificed some of their salary for like-for-like pension
contributions.
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Remuneration of non-executive Directors
Details of the payments made to non-executive Directors are shown below:
Dennis Millard(1)
Nigel Wilson
Keith Harris
Bill Ronald
Richard Pym(2)
(1) Appointed 28 May 2009.
(2) Resigned 22 August 2008.
Directors’ interests in share options
52 weeks to 2 April 2010
Committee
Chairman’s
Fees
£’000
Fees
£’000
138
60
45
45
—
288
—
5
5
—
—
10
Total
£’000
138
65
50
45
—
298
2009
Total
£’000
—
65
50
45
65
225
At the beginning of the year and at 2 April 2010, the following Directors had options to subscribe for shares granted under the terms of the
Halfords SAYE.
Options
as at
3 April
2009
4,878
4,878
4,878
4,878
Nick Wharton
2008 SAYE
Total
Paul McClenaghan
2008 SAYE
Total
Granted
in the period
Exercised
in the period
Lapsed
in the period
—
—
—
—
—
—
—
—
—
—
—
—
Options
as at
2 April
2010
4,878
4,878
4,878
4,878
Exercise
Price
£
Exercisable
from
Exercisable
to
1.93
1 Oct 2011
1 April 2012
1.93
1 Oct 2011
1 April 2012
The SAYE scheme is open to all full-time Directors and employees with eligible employment service. Options may be exercised under the scheme at
the exercise price outlined above normally for a period of six months following the conclusion of the three-year saving contract.
At the beginning of the year and at 2 April 2010, no Directors had options to subscribe for shares granted under the terms of the Halfords CSOS.
The executive Directors have since 2005 participated in the PSP and it is currently intended that no further awards will be made to them under
the CSOS.
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80
Directors’ Remuneration Report
Performance Share Plan
The following table shows the executive Directors’ interests in shares awarded under the Performance Share Plan.
These figures represent the maximum potential award.
Mid-market
price
on date
of awards
£
Award
date
David Wild 7 August 2008
3 August 2009
Nick Wharton 11 July 2006
12 July 2007
7 August 2008
3 August 2009
Paul
11 July 2006
McClenaghan 12 July 2007
7 August 2008
3 August 2009
2.96
3.46
3.01
4.02
2.96
3.46
3.01
4.02
2.96
3.46
Awards
held
3 April
2009
337,643
—
50,000
54,726
86,099
—
60,465
109,452(3)
86,099
—
Awarded
during the
period
Lapsed
during the
Dividend
period Reinvestment(2)
Exercised
during the
period
held Performance
period
3 years to
2 April
2010
Awards
—
289,159
—
—
—
110,603
—
—
—
110,603
—
—
6,173
—
—
—
7,467
—
—
—
—
4,500
—
—
—
1,721
—
—
—
1,721
—
—
337,643 1 April 2011
293,659 1 April 2012
43,827(1)
54,726(4)
—
—
52,998(1)
109,452(4)
—
—
— 1 April 2009
— 1 April 2010
86,099 1 April 2011
112,324 1 April 2012
— 1 April 2009
— 1 April 2010
86,099 1 April 2011
112,324 1 April 2012
(1) After measurement of the performance conditions of the awards made in July 2006, 87.65% of the award vested in July 2009.
(2) Following the recommendation of the Committee to reinvest dividends earned on shares awarded in 2009, dividends of 6p per share were
reinvested in shares at a cost of £3.86 per share.
(3) Paul McClenaghan was appointed to the Board of Halfords Group plc on 31 March 2007. In order to more closely align him with shareholders
and with the equity participation of other current Board members, the Remuneration Committee decided to make a one-off award of 200% of
base annual salary under the PSP. On the vesting of any of this award Paul McClenaghan will be encouraged to retain shares, so enabling him to
achieve the shareholding guidelines, outlined on page 76, more quickly.
(4) The performance conditions of the awards made in July 2007, for which the performance period was the three financial years ended 2 April 2010
were measured in April 2010 and 100% of the award vested.
Gains made by Directors
The table below shows gains made by individual Directors from the exercise of share options during the financial period ended 2 April 2010. The
gains are calculated as at the exercise date, although the shares may not have been retained.
2005 PSP
Nick Wharton
Paul McClenaghan
2006 PSP
Nick Wharton
Paul McClenaghan
2007 PSP
Nick Wharton
Paul McClenaghan
Total gains on share options
2010
£000
—
—
146
177
260
520
1,103
2009
£000
51
61
—
—
—
—
112
The Register of Interests, which is open to inspection, contains full details of Directors’ shareholdings and options. No options have expired
unexercised during the financial year to 2 April 2010 and there were no changes in the options held by the Directors between 3 April 2009 and
10 June 2010.
On 2 April 2010 the market price of ordinary shares of Halfords Group plc was 482.40p and the range during the financial year was 294.75p to
483.90p. For details of the grant dates of options see Note 22 on page 126.
Keith Harris
Chairman of the Remuneration Committee
10 June 2010
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
Corporate Social Responsibility
Halfords’ corporate social responsibility (“CSR”) programme is
aligned with the Group’s business strategy, addresses the important
CSR issues that we face and informs appropriate management and
colleague behaviour.
We believe effective management of our CSR makes good business
sense. In doing so, we will seek to ensure that Halfords, which is
a household brand, has a positive impact on the communities and
environment in which we work, be it through our operations, products
and services or through our interactions with our customers, colleagues
and suppliers. We are proud of our business and we see CSR as a
core business consideration as it derives strategic, commercial and
reputational benefits. We aim to achieve standards of responsible care
across a number of key areas, including: customers, trading, health &
safety, the environment, employee welfare and the community.
We are concerned to ensure we do the right things and our aim is
to continually improve our management of the social, environmental
and economic issues within our control or influence these throughout
the business and our wider supply network. The Group has reviewed
its ongoing CSR policy to ensure it meets the needs of the markets
and communities in which it operates and that the associated Key
Performance Indicators (“KPIs”) accurately reflect the Group’s success
or otherwise in implementing its policy.
In 2009 Halfords engaged with Business in the Community (“BITC”) to
review and advise on the Group’s current CSR strategy and activities
with the view to driving continual improvement and integration within
the business. This will be reported on fully in next year’s Annual
Report. For the period to 2 April 2010 the Group continued to follow its
“ACTING RESPONSIBLY” policy.
The policy commitments are translated into actions and KPIs are used
to assess success against our internal targets. Paul McClenaghan,
Commercial Director, takes the lead in ensuring that the policy supports
the strategic objectives of the business. The Halfords Executive
monitors performance with regard to these objectives and targets via an
internal report. It is, however, the Board’s responsibility to ensure that
the Group operates in a responsible manner, and the Board reviews the
policy and our performance against that policy annually.
CSR OVERVIEW & KEy PERFORMANCE INDICATORS
CUSTOMERS
Stores & customer service
We market high quality products that we believe meet or exceed the
requirements of appropriate legislation, international conventions and
codes of practice. Where external guidance does not exist, we apply
our own exacting standards. With a complex product range of around
10,000 items, we talk with our customers every day to ensure that our
range meets their requirements and that they understand how to use
our products safely. Halfords has a large number of regular customers
who see their key drivers of satisfaction being choice of products and
brands, store environments and ease of shopping, knowledgeable
staff with a will-do attitude and competitive, value-for-money pricing.
Surveys are regularly carried out across our customer base, asking
customers to score certain questions, such “Would you definitely use
Halfords again?” or “How likely is it you would recommend Halfords to a
friend?” In 2009/10 59% of customers asked said they were very likely
or extremely likely to use Halfords again.
Percentage of customers who would “definitely use”
Halfords stores again
70
60
50
40
30
20
10
0
2008
2009
2010
aba: research
Our store network is extensive and we endeavour to locate a Halfords
store within 20 miles of any UK customer. At the time of writing 99% of
the UK population live within 20 (straight-line) miles of a Halfords store
and 90.4% live within a 20 minute drive of a store. Our store portfolio
continues to grow in quality and quantity.
Number of Halfords Stores in the UK and ROI
470
465
460
455
450
445
440
435
2008
2009
2010
This network is fully supported by a dedicated Customer Service
team based at our Head Office in Redditch where our customers are
able to contact us by phone, e-mail, letter or fax. This year, we have
consolidated our web and store contact centres giving our customers
and stores the opportunity to contact us through one single phone
number and e-mail address. This has enabled us to offer increased
support to our store colleagues and be more flexible to our customers’
needs.
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Corporate Social Responsibility
Accessibility
We treat our responsibilities under the Disability Discrimination Act
(“DDA”) very seriously and we recently introduced mobility products into
248 of our stores. We are committed to ensuring that both customers
and colleagues have access to our stores and we have taken various
actions in order to help us to fulfil our responsibilities, including training
our store colleagues in disability awareness, responding to some of the
physical obstacles in our stores and other access issues, and auditing
our website for ease of navigation. In 2009 we committed to annual
audits of all of our stores to ensure consistent levels of accessibility. The
most recent results are shown below.
At a time when the issues surrounding health and obesity have become
increasingly important, Halfords, as the largest retailer of cycling
products, actively encourages people to participate in this outdoor
activity. We currently stock 170 different models of bicycles, of which
73 are aimed at children between three and eight years of age. We
design these bikes with the customer in mind and our children’s bikes
are specifically designed for the measurements and stature of a child,
as the relative dimensions of the bike are very different from those of
an adult. In the year to 2 April 2010, we sold over a million bikes for the
third year running, approximately 1 out of 3 of all bikes sold in the UK.
Accessibility for disabled customers
Number of bicycle models stocked
Other
14%
Standard
door bells
4%
Automatic doors
31%
vandal-proof ddA
compliant door bells
34%
doors with
Push-Pad release
17%
PRODUCTS AND THE ENVIRONMENT
We continually assess the environmental impacts of our products,
packaging, procedures and services at all appropriate stages, e.g.
design, procurement, supply, sale, use and disposal. As our business
is strongly influenced by consumer choice, we promote good practice
in the provision of environmental communication to customers and
colleagues.
We also ensure, that, where possible, customers can contribute to
product recycling. As an example, customers returning old car batteries
to our stores for recycling by us are offered a £2 voucher to be spent
in the store to encourage recycling. In the period to 2 April 2010 our
customers returned 90,000 batteries, an increase of 2.3% over 2009.
Number of Batteries/Alternators returned by
Customers for recycling (’000s)
100
90
80
70
60
50
40
30
20
10
0
2008
2009
2010
200
180
160
140
120
100
80
60
40
20
0
2008
2009
2010
Total Bikes
Child Bikes
We continue to market “Cycle 2 Work” schemes that allow employers
to offer to their employees the use of a bicycle for work. The scheme
offers significant savings, making use of the Government backed
initiative to increase more sustainable means of transport to work. Over
the last three years, we have increased the number of schemes that we
manage on behalf of employers by over 113%, thereby allowing their
employees the opportunity to embrace a healthy, keep-fit lifestyle.
Number of “Cycle 2 Work” schemes managed
by Halfords
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2008
2009
2010
17399
14/06/2010
Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
SUPPLIERS
Ethical trading
We place great importance on the selection of our suppliers and,
where appropriate, will visit manufacturing sources to verify that
effective quality procedures are in place and that supply chain costs
are minimised. We are always striving for improvement and we believe
it is important that our suppliers are responsive to feedback from
our customers and store colleagues. Halfords recognises that the
development of close supplier partnerships is essential for the ongoing
provision of an innovative and “value-for-money” product offer. Halfords
has a Sourcing Code of Conduct (“the Code”), which can be viewed
on the Company’s website (halfordscompany.com). This is sent to all
potential new suppliers as part of the Supplier Questionnaire, before
orders are placed with the supplier. Compliance with the Code is
independently audited. The response to the questionnaire is reviewed
and, if the supplier does not provide an acceptable alternative
assessment report, an audit by an independent auditor such as Bureau
Veritas, is arranged. Over the last few years we have substantially
increased the supplier audit coverage in the Far East where a significant
amount of our products are now sourced. This ensures that the majority
of our sourced products are covered by such audits, both in line with
the growth of our business and our demand for greater compliance.
Far East Supplier Audits
160
140
120
100
80
60
40
20
0
2008
2009
2010
Number of audits undertaken
% of Supplies covered
Supply chain transportation
Given that so many of our products are imported we pay particular
attention to the carbon footprint that this could create. We continue to
monitor the air freighting of our products from suppliers, and only do so
in cases of extreme urgency.
Product Airfreighted (tonnes)
200
180
160
140
120
100
80
60
40
20
0
2007
2008
2009
2010
Since 2007 we have significantly reduced the weight of products
shipped in this way, although there are occasions that necessitate the
use of airfreight as an efficient and fast means of delivery to ensure
products are always available to our customers. In 2009/10 we
airfreighted more high value, core products as consumer demand out-
performed against our forecasts.
Generally, we concentrate on ensuring that containers that are delivered
into our distribution centres (“DCs”) are done so via sea deliveries for
onward transportation via road or rail. We work hard each year to
reduce our reliance on road transportation and, in 2009/10, 69% of all
containers delivered were moved by rail to a hub in the Midlands for
onward transportation to our DCs
Number of Containers moved by Rail
3,000
2,500
2,000
1,500
1,000
500
0
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008
2009
2010
Containers moved by Rail
% of Total containers moved
HUMAN RESOURCES
Employer of choice
Our growth in stores and turnover would not have been possible
without the unfailing support and commitment of our colleagues
employed across stores, distribution centres, and our head office
operations. Thus, we recognise that our colleagues are our single most
valuable asset and we are committed to a fair but robust approach to
equal opportunities in all areas of our business, with people gaining
promotion on merit. We have high expectations of all colleagues and
everyone is required to perform and deliver value. This creates an
environment that is challenging and rewarding, enabling colleagues to
develop quickly and pursue new opportunities. Our staff turnover rates
have fallen by 21% in the last four years.
We are committed to being seen as an employer of choice within the
communities in which we operate. We seek to employ people, who are
passionate about customers, love coming to work, strive to achieve
their best and enjoy dealing with customers. By ensuring colleagues
have interesting jobs, with real accountability, Halfords can provide
the opportunity to develop careers. We recognise and reward high
performance, with six different bonus schemes spread across the
business, and a range of competitive benefits and incentive schemes.
Our colleagues are people who consistently look for opportunities to
deliver a first-class service, going the extra mile for our customers.
Some 4,000 of our staff hold accredited fitting qualifications,
HEALTH AND SAFETy
Safety management
Halfords is committed to high standards of occupational health and
safety to minimise the risk of injuries and ill health to employees,
contractors, visitors and others who come into contact with the
business. The Group believes that effective occupational health and
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Corporate Social Responsibility
safety management is fundamental to a successful business and we
constantly review our procedures and risk management standards to
identify opportunities for further improvement.
We monitor our safety performance on a range of indicators including
our reportable accident statistics and accident rates arising from our
“focus hazards”. Our overall annual injury incident rate remains below
the industry benchmark at 190 per 100,000 employees (2009: 340).
This represents an improvement of 44% in 2010 and continues a
downtrend of the last few years.
(b) Minimising our use of natural resources — waste
We aim to prevent waste generation in our activities, including product
and packaging design, warehousing, distribution and sale and reuse
of materials, and to maximise recovery and recycling of waste prior
to disposal. We achieve this by increasing the quantity of cardboard,
paper and plastic waste we recycle in the business and reducing our
use of landfill sites.
As a result, the volumes of waste material recycled versus that sent to
landfill increased from 56.4% in 2007 to 74.5% in 2010.
Colleague major accidents per 100,000 colleagues
Landfill v Recycling 2008 %
500
400
300
200
100
0
4 0
60
20
0
8
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1
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0
2008
2009
2010
Industry Benchmark SPA
Halfords SRA
4 0
60
Landfill v Recycling 2009 %
ENVIRONMENT
Our stores, offices, and fleet of delivery vehicles have direct impacts on
the environment. We also understand that there are indirect impacts
caused by the production and use of our products. Our commitment
is to understand and to continually improve the performance and
management of our environmental impact throughout the Halfords
supply chain.
In managing our environmental responsibilities, our overall objectives
relate to the following key areas:
(a) Minimising our use of natural resources — water
We place emphasis on resource use, in order to understand and
improve the efficiency of our use of raw materials, energy and water
throughout Halfords’ operations. Our goal is to minimise our potential
for causing pollution to air, water and land.
Water consumption per store (cubic metres)
20
0
8
0
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1
0
0
Landfill v Recycling 2010 %
4 0
60
20
0
8
0
R
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a
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g
1
0
0
210
205
200
195
190
185
180
175
170
165
2007
2008
2009
2010
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/responsibilities
(c) Minimising our use of natural resources — Energy &
reducing CO2 emissions
For our stores, we are setting a challenging reduction target of
reducing our CO2 emissions by 15% to 20% over three years against
the baseline year of 2007. Individual store targets will be set once the
scope for savings has been identified and an action plan and a method
of monitoring performance agreed store by store. This target represents
a potential 7,000 tonnes of CO2 savings.
This year our total energy consumption has decreased by 13.9% as the
action plans and performance monitoring by store begin to take affect.
The following graph represents the energy used by our stores and our
head office and distribution centre.
Total Energy Usage (kWh millions)
120
100
80
60
40
20
0
2008
2008
2009
Electricity
2010
Gas
Energy Usage per Store (kWh 000’s)
300
250
200
150
100
50
0
2008
2008
2009
2010
(d) Fuel and transport fleet efficiency & reducing
carbon emissions
In line with European Emissions Directives, Euro 4 emission standards
for commercial vehicles were introduced in October 2006. This aims to
improve the levels of Carbon Monoxide, Hydrocarbon, Nitrogen Oxide
and particulate emissions that cause harm to the environment. Working
with DHL, our carrier, we ensure that all of the Halfords fleet complies
with Euro 3 emissions standard (introduced in October 2003), and new
vehicles delivered from September 2006 conform to the new Euro 4
standards.
To more fully understand our impact on Greenhouse Gas (“GHG”)
emissions, we have converted the transport fleet fuel usage to total CO2
emissions. In 2009/10, DHL drove, on our behalf, 9,393,452 kilometres,
a reduction of 2% on last year and we used 49,724 less litres of diesel.
The CO2 equivalent usage, calculated based on DEFRA ’s 2009 Freight
Transport conversion factor, shows a 1.6% improvement year on
year. The transfer to our new DC in Coventry provides us with further
opportunity to cut CO2 emissions.
2007
2008
2009
2010
Kilometres driven
9,491,422 9,786,649 9,571,380 9,393,452
CO2 equivalent (kg) 7,932,414 8,311,283 7,711,390 7,585,301
9,272
CO2kg/revenue (£m)
10,423
10,662
9,526
IN THE COMMUNITy
Overview
Our policy on charitable giving is to concentrate on supporting one
main charity and, in the year to 2 April 2010, we have worked with
Macmillan Cancer Support. We have supported a number of their
initiatives including the Macmillan Coffee Morning and the Macmillan
Big Picnic, as well as creating our own fund-raising activities. The
biggest event was a Halfords/Macmillan Cycle challenge, which saw
c.400 colleagues take part in a Cycle Relay linking our store in Elgin
with our store in Penzance via 50 of our stores. We are also committed
to supporting the communities we serve and individual stores also
support local initiatives. We will continue to support Macmillan Cancer
Support for the next financial year.
Industry forums
Halfords values opportunities to work closely with trade associations,
research institutes, standards authorities, universities and government
organisations to improve performance standards and safety.
Representatives from the Halfords Quality department are members
of British and International standards technical committees associated
with automotive accessories and cycles.
In the future
Halfords will continue to work towards improving its management of
the social, environmental and economic issues that are within its control
and will continue to work with BiTC to ensure that we focus on the core
areas of Corporate Responsibility whilst at the same time being proud
custodians of the Halfords brand and its impact on its stakeholders.
It makes good business sense that we ensure the right and proper
interaction between our Company, our stores and our products, and
our customers, their communities and their environment.
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Financial Report
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Financials
Statement of Directors’
Responsibilities
Notes to Consolidated
Statement of Cash Flows
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Income Statement
90
Accounting Policies
Notes to the Financial Statements 103
Company Balance Sheet
Consolidated Statement of
Comprehensive Income
91
Reconciliation of Movements
in Total Shareholders’ Funds
95
96
129
130
131
Consolidated Statement of Financial
Position
92
Consolidated Statement of Changes
93
in Shareholders’ Equity
Consolidated Statement of
Cash Flows
94
Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
135
135
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Statement of Directors’ Responsibilities in Respect
of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent Company financial statements in
accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).
Under Company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent Company and of their
profit or loss for that period. In preparing each of the Group and parent
Company financial statements, the Directors are required to:
■ select suitable accounting policies and then apply them consistently;
■ make judgments and estimates that are reasonable and prudent;
■ for the Group financial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the EU;
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They have
general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Directors’ Report, Directors’ Remuneration Report and
Corporate Governance Statement that complies with that law and those
regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement in respect of the annual
financial report
Each of the Directors, whose names and functions are listed on pages
60 and 61, confirms that, to the best of their knowledge:
■ for the parent Company financial statements, state whether
■ the Group and Parent Company financial statements in the Annual
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the parent
Company financial statements; and
■ prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and the parent Company
will continue in business.
Report, which have been prepared in accordance with applicable UK
law and with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit of
the Company and Group as a whole; and
■ the Business Review on pages 42 to 51 and the Finance Directors’
report on pages 52 to 57 and which forms part of the Directors’
Report contained within this Annual Report includes a fair review of
the development and performance of the business and the position
of the Group, together with a description of the principal risks and
uncertainties that it faces.
Approved by order of the Board
Denis Millard
10 June 2010
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Independent Auditors’ Report to
the Members of Halfords Group plc
We have audited the financial statements of Halfords Group plc
for the period ended 2 April 2010 set out on pages 90 to 134. The
financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU. The
financial reporting framework that has been applied in the preparation
of the parent Company financial statements is applicable law and UK
Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for
our audit work, for this report, or for the opinions we have formed.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
■ adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
■ the parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
■ certain disclosures of Directors’ remuneration specified by law are
not made; or
■ we have not received all the information and explanations we require
for our audit; or
Respective responsibilities of Directors and auditors
■ a Corporate Governance Statement has not been prepared by
the Company.
Under the Listing Rules we are required to review:
■ the Directors’ statement, set out on page 65, in relation to going
concern; and
■ the part of the Corporate Governance Statement on pages 66 to 70
relating to the Company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review.
G Watts (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
10 June 2010
As explained more fully in the Directors’ Responsibilities Statement
set out on page 88, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit the financial statements in
accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided
on the APB’s website at www.frc.org.uk/apb/scope/UKP.
Opinion on financial statements
In our opinion:
■ the financial statements give a true and fair view of the state of the
Group’s and of the parent Company’s affairs as at 2 April 2010 and
of the Group’s profit for the period then ended;
■ the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the EU;
■ the parent Company financial statements have been properly
prepared in accordance with UK Generally Accepted Accounting
Practice;
■ the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
■ the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006;
■ the information given in the Directors’ Report for the financial period
for which the financial statements are prepared is consistent with the
financial statements; and
■ the information given in the Corporate Governance Statement set
out on pages 66 to 70 with respect to internal control and risk
management systems in relation to financial reporting processes
and about share capital structures is consistent with the financial
statements.
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Consolidated Income Statement
For the period
52 weeks to 2 April 2010
53 weeks to 3 April 2009
Before Non-recurring
items
(Note 5)
£m
non-recurring
items
£m
Notes
non-recurring
items
£m
Before Non-recurring
items
(Note 5)
£m
Total
£m
831.6
(378.9)
452.7
(333.0)
119.7
(4.6)
2.0
(2.6)
117.1
(34.1)
—
—
—
(7.4)
(7.4)
—
—
—
(7.4)
1.4
831.6
(378.9)
452.7
(340.4)
112.3
(4.6)
2.0
(2.6)
109.7
(32.7)
809.5
(388.1)
421.4
(317.4)
104.0
(11.9)
2.3
(9.6)
94.4
(26.3)
—
—
—
(12.3)
(12.3)
(4.6)
—
(4.6)
(16.9)
4.6
Total
£m
809.5
(388.1)
421.4
(329.7)
91.7
(16.5)
2.3
(14.2)
77.5
(21.7)
83.0
(6.0)
77.0
68.1
(12.3)
55.8
Revenue
Cost of sales
Gross profit
Operating expenses
Results from operating activities
Finance costs
Finance income
Net finance expense
Profit before income tax
Income tax expense
1
1, 2
3
6
6
7
Profit for the financial period attributable
to equity shareholders
Earnings per share
Basic
Diluted
9
9
39.7p
39.4p
36.8p
36.6p
32.5p
32.5p
26.6p
26.6p
All results relate to continuing operations of the Group.
The notes on pages 103 to 128 are an integral part of these consolidated financial statements.
Download the excel spreadsheet http://halfords.annualreport2010.com/statements
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Consolidated Statement of Comprehensive Income
52 weeks to
2 April 2010
£m
Notes
53 weeks to
3 April 2009
£m
77.0
55.8
0.4
(5.1)
(7.3)
1.5
—
(0.6)
(11.1)
65.9
—
22.8
(11.8)
(5.0)
4.6
—
10.6
66.4
Profit for the period
Other comprehensive income
Foreign currency translation differences for foreign operations
Cash flow hedges:
Fair value changes in the period
Transfers to inventory
Transfers to net profit:
Cost of sales
Finance costs
Income tax on other comprehensive income
7
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period attributable to equity shareholders
The notes on pages 103 to 128 are an integral part of these consolidated financial statements.
Download the excel spreadsheet http://halfords.annualreport2010.com/statements
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Consolidated Statement of Financial Position
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Net current assets
Non-current liabilities
Borrowings
Derivative financial instruments
Accruals and deferred income — lease incentives
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity attributable to equity holders of the Company
The notes on pages 103 to 128 are an integral part of these consolidated financial statements.
2 April 2010
£m
3 April 2009
£m
Notes
10, 11
12
19
13
14
20
15
16
20
17
18
16
20
18
19
21
21
21
348.7
102.9
—
451.6
138.5
42.9
3.0
36.5
220.9
672.5
(0.2)
(0.8)
(131.5)
(17.5)
(20.4)
(170.4)
50.5
(191.8)
—
(28.0)
(3.3)
(0.5)
(223.6)
(394.0)
278.5
2.1
146.5
2.5
127.4
278.5
259.5
107.5
2.7
369.7
147.0
37.6
14.0
15.5
214.1
583.8
(0.2)
(0.3)
(87.8)
(12.2)
(14.3)
(114.8)
99.3
(191.5)
(0.4)
(28.3)
(4.4)
—
(224.6)
(339.4)
244.4
2.1
145.6
13.6
83.1
244.4
The financial statements on pages 90 to 128 were approved by the Board of Directors on 10 June 2010 and were signed on its behalf by:
David Wild
Chief Executive
Nick Wharton
Finance Director
Company Number 04457314
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Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Consolidated Statement of Changes in Shareholders’ Equity
Attributable to the equity holders of the Company
Other reserves
Share
capital
£m
Share
premium
account
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
0.2
2.8
71.0
Total
equity
£m
221.7
Balance at 28 March 2008
2.1
145.6
Total comprehensive income
for the period
Profit for the period
Other comprehensive income
Cash flow hedges:
Fair value gains in the period
Transfers to inventory
Transfers to net profit:
Cost of sales
Finance costs
Total other comprehensive income
for the period net of tax
Total comprehensive income for
the period
—
—
—
—
—
—
—
Transactions with owners, recorded
directly in equity
Purchase of own shares — share buy-back —
—
Share-based payment transactions
—
Dividends to equity holders
Total transactions with owners
Balance at 3 April 2009
—
2.1
Total comprehensive income for the period
—
Profit for the period
Other comprehensive income
Foreign currency translation
differences for foreign operations
Cash flow hedges:
Fair value gains in the period
Transfers to inventory
Transfers to net profit:
—
—
—
Cost of sales
—
Income tax on other comprehensive income —
Total other comprehensive income
for the period net of tax
Total comprehensive income for
the period
Transactions with owners, recorded
directly in equity
Share options exercised
Share-based payment transactions
Income tax on share-based
payment transactions
Dividends to equity holders
Total transactions with owners
Balance at 2 April 2010
—
—
—
—
—
—
—
2.1
—
—
—
—
—
—
—
—
—
—
—
145.6
—
—
—
—
—
—
—
—
0.9
—
—
—
0.9
146.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.4
—
—
—
—
0.4
0.4
—
—
—
—
—
0.4
The notes on pages 103 to 128 are an integral part of these consolidated financial statements.
Download the excel spreadsheet http://halfords.annualreport2010.com/statements
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Proof 7
—
—
—
—
—
—
—
—
—
—
—
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
—
55.8
55.8
22.8
(11.8)
(5.0)
4.6
10.6
10.6
—
—
—
—
13.4
—
—
—
—
—
55.8
(13.1)
1.7
(32.3)
(43.7)
83.1
22.8
(11.8)
(5.0)
4.6
10.6
66.4
(13.1)
1.7
(32.3)
(43.7)
244.4
—
77.0
77.0
—
(5.1)
(7.3)
1.5
(0.6)
(11.5)
—
—
—
—
—
—
0.4
(5.1)
(7.3)
1.5
(0.6)
(11.1)
(11.5)
77.0
65.9
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—
—
—
—
1.9
—
2.5
0.1
(35.3)
(32.7)
127.4
0.9
2.5
0.1
(35.3)
(31.8)
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Consolidated Statement of Cash Flows
Cash flows from operating activities
Profit after tax for the period before non-recurring items
Non-recurring items
Profit after tax for the period
Depreciation — property, plant and equipment
Impairment charge
Amortisation — intangible assets
Foreign exchange loss
Net finance costs
Loss on sale of property, plant and equipment
Equity-settled share based payment transactions
Fair value gain on derivative financial instruments
Income tax expense
Decrease in inventories
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in provisions
Finance income received
Finance costs paid before non-recurring swap close out costs
Swap close out costs
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertaking net of cash acquired
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary shares
Purchase of own shares
Payment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net increase in cash and bank overdrafts
Cash and cash equivalents at the beginning of the period
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of the period
52 weeks to
2 April 2010
£m
Notes
53 weeks to
3 April 2009
£m
83.0
(6.0)
77.0
21.9
5.0
2.2
0.6
2.6
0.7
2.5
0.1
32.7
9.8
0.5
22.8
2.6
2.0
(4.5)
—
(30.4)
148.1
(72.3)
(3.5)
(15.6)
(91.4)
0.9
—
(0.2)
(35.3)
(34.6)
22.1
15.5
(1.1)
36.5
68.1
(12.3)
55.8
22.4
—
2.7
—
14.2
0.3
1.7
(2.3)
21.7
4.6
3.8
(27.4)
16.7
2.5
(12.8)
(4.6)
(25.5)
73.8
—
(5.4)
(17.3)
(22.7)
—
(13.1)
(0.2)
(32.3)
(45.6)
5.5
10.0
—
15.5
10
I.
I.
The notes on pages 103 to 128 are an integral part of these consolidated financial statements.
The net cash from operating activities for the Car Servicing segment was an outflow of £3.5m (2009: nil). There were no cash flows in the Car
Servicing segment for investing or financing activities.
Download the excel spreadsheet http://halfords.annualreport2010.com/statements
17399
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Proof 7
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Notes to Consolidated Statement of Cash Flows
I. Analysis of movements in the Group’s net debt in the period
Cash and cash equivalents at bank and in hand
Debt due after one year
Total net debt excluding finance leases
Finance leases due within one year
Finance lease due after one year
Total finance leases
Total net debt
At 3 April
2009
£m
Cash flow
£m
Other
non-cash
changes
£m
At 2 April
2010
£m
15.5
(179.5)
(164.0)
(0.2)
(12.0)
(12.2)
(176.2)
22.1
—
22.1
0.2
—
0.2
22.3
(1.1)
(0.5)
(1.6)
(0.2)
0.2
—
(1.6)
36.5
(180.0)
(143.5)
(0.2)
(11.8)
(12.0)
(155.5)
Non-cash changes include finance costs of £0.5m in relation to the amortisation of capitalised debt issue costs, £1.1m effect of exchange rate
fluctuations and changes in classification between amounts due within and after one year.
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Accounting Policies
General information
Halfords Group plc is a company domiciled in the United Kingdom. The consolidated financial statements of the Company as at and for the period
ended 2 April 2010 comprise the Company and its subsidiary undertakings.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU
(“adopted IFRSs”).
Basis of preparation
The consolidated financial statements of Halfords Group plc and its subsidiary undertakings (together “the Group”) are prepared on a going concern
basis and under the historical cost convention, except where International Financial Reporting Standards require an alternative treatment. The
principal variations relate to financial instruments (IAS 39 “Financial instruments: recognition and measurement”) and share-based payments (IFRS 2
“Share-based payment”).
The Group has a syndicated five-year term facility totalling £300m that provides the Group with committed bank facilities until July 2011. The Board
is currently reviewing, with the Group’s Brokers, the optimal capital structure for the enlarged Group that will provide the necessary flexible funding to
deliver its strategic agenda. The Board envisages that renewed debt facilities will be agreed and in place in the second half of the financial year ended
1 April 2011.
The accounts of the Group are prepared for the period up to the Friday closest to 31 March each year. Consequently, the financial statements for the
current period cover the 52 weeks to 2 April 2010, whilst the comparative period covered the 53 weeks to 3 April 2009.
The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles requires the use of accounting
estimates and management to exercise its judgement in the process of applying the Group’s accounting policies. These judgements and estimates
are based on historical experience and management’s best knowledge of the amounts, events or actions under review and the actual results may
ultimately differ from these estimates. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements, are, where necessary, disclosed separately.
Basis of consolidation
Subsidiary undertakings
Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They cease to be consolidated from the
date that the Group no longer has control. All subsidiary undertakings have been consolidated.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The financial statements of all subsidiary undertakings are prepared to the same reporting date as the Company.
The principal subsidiary undertakings of the Company at 2 April 2010 are as follows:
Subsidiary undertaking
Principal activity
% Ownership of ordinary shares
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Halfords Investments (2010) LP†
Nationwide Autocentres Holdings Limited*
Nationwide Autocentres Limited*
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories, cycles and cycle accessories
Intermediate holding partnership
Intermediate holding company
Car servicing
Intermediate holding company
Intermediate holding company
100
100
100
100
—
100
100
100
100
* Shares held indirectly through subsidiary undertakings.
† Wholly owned indirectly through subsidiary undertakings.
Revenue recognition
Retail
Retail revenue comprises the fair value of the sale of goods and services to external customers, net of value added tax, rebates, promotions and
returns. Revenue is recognised on the sale of goods when the significant risks and rewards of ownership of the goods have passed to the buyer and
the amount of revenue can be measured reliably. Revenue on goods delivered is recognised when the customer accepts delivery.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Car Servicing
Car Servicing revenue comprises the provision of servicing to external customers, net of value added tax, rebates and promotions. Revenue is
recognised at the point at which those services have been rendered.
Promotions and Returns
The Group operates a variety of sales promotion schemes that give rise to goods and services being sold at a discount to standard retail price.
Revenue is adjusted to show sales net of all related discounts. A provision for estimated returns is made representing the profit on goods sold during
the year which are expected to be returned and refunded after the year end based on past experience. Revenue is reduced by the value of sales
returns provided for during the year.
Non-recurring items
Non-recurring items are those items that are unusual because of their size, nature or incidence. The Group’s management consider that these items
should be separately identified within their relevant income statement category to enable a full understanding of the Group’s results.
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for
own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number
of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options
granted to employees.
Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in Pounds Sterling, which is the Group’s functional and presentation currency and are rounded
to the nearest hundred thousand, except where it is deemed relevant to disclose the amounts to the nearest pound. Items included in the financial
statements of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional
currency).
Transactions and balances
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date, monetary
assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date. Translation
differences on monetary items are taken to the income statement with the exception of differences on transactions that are subject to effective
cash flow hedges.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated at the exchange rate at the date
that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising
on qualifying cash flow hedges, which are recognised in other comprehensive income.
The assets and liabilities of foreign operations are translated to Sterling at the exchange rate at the reporting date. The income and expenses of
foreign operations are translated to Sterling at an average exchange rate. Foreign currency differences are recognised in other comprehensive income
and a separate component of equity. When a foreign operation is disposed of, the relevant amount in equity is transferred to profit or loss.
Share-based payment transactions
The Group operates a number of equity-settled share-based compensation plans.
The fair value of the employee services received under such schemes is recognised as an expense in the income statement. Fair values are
determined by use of an appropriate pricing model. The amount to be expensed over the vesting period is adjusted to reflect the number of awards
for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is
based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the revision of
original estimates, if any, is recognised in the income statement, with a corresponding adjustment to other comprehensive income, over the remaining
vesting period.
Dividends
Final dividends are recognised in the Group’s financial statements in the period in which the dividends are approved by shareholders. Interim equity
dividends are recognised in the period they are paid.
Property, plant and equipment
Property, plant and equipment is held at cost less accumulated depreciation and any accumulated impairment losses.
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Accounting Policies
Depreciation of property, plant and equipment is provided to write off the cost, less residual value, on a straight-line basis over their useful economic
lives as follows:
■ Freehold properties are depreciated over 50 years;
■ Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period of the lease;
■ Leasehold improvements are depreciated over the period of the lease to a maximum of 25 years;
■ Motor vehicles are depreciated over 3 years;
■ Fixtures, fittings and equipment are depreciated over 4 to 10 years according to the estimated life of the asset;
■ Computer equipment is depreciated over 3 years; and
■ Land is not depreciated.
Depreciation is expensed to the income statement within operating expenses.
Residual values, remaining useful economic lives and depreciation periods and methods are reviewed annually and adjusted if appropriate.
Goodwill and intangible assets
Goodwill is the excess of the fair value of the consideration payable for an acquisition over the net fair value of the identifiable net assets of a
subsidiary undertaking acquired at the date of acquisition. Fair value is attributed to the identifiable assets, liabilities and contingent liabilities that
existed at the date of acquisition, reflecting their condition at that date. Adjustments are made where necessary to bring the accounting policies of
acquired businesses into alignment with those of the Group.
Goodwill on acquisition of subsidiary undertakings is included in intangible assets. Goodwill is stated at cost less any impairment. Goodwill is not
amortised but is tested annually for impairment. An impairment charge is recognised for any amount by which the carrying value of goodwill exceeds
its fair value.
The Group has significant carrying values of goodwill and other intangible assets, such as brands, customer relationships and favourable leases
following the acquisition of Nationwide Autocentres. Amortised intangible and tangible assets are tested for impairment where events show an
indication of impairment. The impairment test involves estimation of future cash flows and the selection of a suitable discount rate. This requires an
estimation of the value in use of the cash generating units to which the intangible assets are allocated.
The Group took the exemption available under IFRS 1 “First time adoption of International Financial Reporting Standards” for business combinations
occurring before 3 April 2004. The carrying value of goodwill at 2 April 2004 under UK GAAP was deemed to be cost at 3 April 2004.
Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will generate economic benefits
beyond one year are recognised as intangible assets. These intangible assets are stated at cost less accumulated amortisation and impairment
losses.
Amortisation is calculated based on the cost of the asset, or other amount substituted for cost, less its residual value and is expensed to the income
statement within operating expenses.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the
date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in
the asset. The estimated useful lives for the current and comparative periods are as follows:
■ Brand names and trademarks 10 to 20 years;
■ Customer relationships 5 to 15 years;
■ Favourable leases over the term of the lease; and
■ Software 3 to 5 years.
Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current
assets, except for those with maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Such
assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are
measured at amortised cost less any impairment losses. Loans and receivables are included in trade and other receivables in the balance sheet.
Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are used to manage risks arising from changes in foreign currency exchange rates relating to the purchase of
overseas sourced products. The Group uses the derivatives to hedge highly probable forecast transactions and therefore the instruments are
designated as cash flow hedges.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
Derivatives are recognised at fair value on the date a contract is entered into and are subsequently re-measured at their fair value.
The Group documents the relationship between hedging instruments and hedged items at the hedge inception stage, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in hedging transactions are expected to be “highly effective” in offsetting changes in fair value
or cash flows of the respective hedged items during the period for which the hedge is designated and whether the actual results of each hedge are
within a range of 80%–125%.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other
comprehensive income and presented in the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in
the income statement.
Amounts accumulated in other comprehensive income are recognised in the income statement in the periods when the hedged item will affect profit
or loss (for instance when the forecast purchase that is hedged takes place). However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset or liability, the gains and losses previously deferred in equity are transferred from other comprehensive income and
included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive
income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other comprehensive income is recognised immediately in profit or loss.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve
months or as a current asset or liability, if the remaining maturity of the hedged item is less than twelve months.
Fair value estimation
The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date. The nominal value less
estimated credit adjustments of trade receivables and payables are assumed to approximate to their fair values.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of receivables. The amount of the provision is recognised in the income statement.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost principle and
includes expenditure incurred in inventories, adjusted for rebates, and other costs incurred in bringing them to their existing location.
Impairment of assets
Intangible assets that are attributed an indefinite useful life are not subject to amortisation but are tested annually for impairment. Other tangible and
intangible assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are Grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months or less and bank overdrafts. For the purpose of the consolidated cash flow statement, cash and cash equivalents are
as defined above.
Borrowings and borrowing costs
All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing.
Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the effective interest method.
Finance income and costs
Finance income comprises interest income on funds invested. Income is recognised, as it accrues in profit or loss, using the effective interest
rate method. Finance cost comprises interest expense on borrowings, unwinding of the discount on provisions and the cost of forward exchange
contracts. All other borrowing costs are recognised in profit or loss using the effective interest rate method.
In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the
Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that
asset. Previously the Group immediately recognised all borrowing costs as an expense. This had no impact on either the current or preceding year.
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Accounting Policies
Basis of charge for taxation
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it
relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted, at
the reporting date, and any adjustment to tax payable in respect of previous years.
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when
it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods. In
the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will
not be taxable in future periods.
Deferred taxation
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of an asset or liability
in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred taxation is calculated using rates that are expected to apply when the related deferred asset is realised or the deferred
taxation liability is settled.
Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of
the discount is recognised as finance cost.
Details of the provisions recognised and the significant estimates and judgements can be seen in Note 18.
Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset when the reimbursement is certain.
Leases
Finance leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease
payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance
outstanding. The corresponding rental obligations, net of finance charges, are included in other payables. The interest element of the rental is charged
to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each
period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and its lease term.
In determining whether a lease is a finance lease, the building and land elements of the lease are reviewed separately.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments
made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. The benefit of incentives from
lessors are recognised on a straight-line basis over the term of the lease.
Landlord surrender payments
Payments received from landlords in respect of the surrender of all or part of units previously occupied by the Group, that do not represent an
incentive for future rental commitments are recognised in the income statement on the exchange of contracts, where there are no further substantial
acts to complete.
Sublease income
The Group leases properties from which it no longer trades. These properties are often sublet to third parties. Rents receivable are recognised by
offsetting the income against rental costs accounted for within selling and distribution costs in the income statement.
Pensions
The Halfords Pension Plan is a contract based plan, where each member has their own individual pension policy, which they monitor independently.
The Group pays fixed contributions and has no legal or constructive obligation to pay further amounts. The costs of contributions to the scheme are
charged to the income statement in the period that they arise.
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Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
101
Estimates and judgements
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based
on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
the estimates.
The judgement and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are
detailed below:
Impairment of assets
Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their
recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows, which includes
management assumptions and estimates of future performance. Details of the assumptions used in the impairment review of goodwill and other
assets are explained in Note 11.
Allowances against the carrying value of inventories
The Group reviews the market value of and demand for its inventories on a periodic basis to ensure that recorded inventory is stated at the lower
of cost and net realisable value. In assessing the ultimate realisation of inventories, the Group is required to make judgements as to future demand
requirements and to compare these with the current or committed inventory levels. Assumptions have been made relating to the timing and success
of product ranges, which would impact estimated demand and selling prices.
Sensitivities to the assumptions for specific product lines are not expected by management to result in a material change in the overall allowances.
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Provisions
Provisions have been made for the distribution and warehousing reorganisation, Central Europe exit, property related liabilities and other trading
liabilities. These provisions are estimates of the actual costs of future cash flows and are dependent on future events. Any difference between
expectations and the actual future liability will be accounted for in the period when such determination is made. Assumptions made are detailed
in Note 18.
Intangible asset valuations
The measurement of fair values on a business combination requires the recognition and measurement of the identifiable assets, liabilities and
contingent liabilities. The key judgements involved are the identification of which intangible assets meet the recognition criteria as set out in IAS 38,
the fair values attributable to those intangible assets, excluding any buyer-specific synergies, and the useful lives of individual intangible assets. The
useful lives of intangible assets relating to customer relationships involves judgement as to customer retention rates applicable.
The carrying amount of these assets and liabilities can be seen in the notes to the financial statements on pages 103 to 128.
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Adoption of new and revised standards
The following standards and interpretations are applicable to the Group and have been adopted in 2010 as they are mandatory for the year ended
2 April 2010.
■ Amendments to International Accounting Standards (IAS) 1 “Presentation of Financial Statements — A Revised Presentation” — requires the
presentation of a consolidated statement of changes in equity as a primary statement rather than as a note. Since the changes are presentational
only there has been no impact on profit or net assets.
■ Amendments to IAS 27 “Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate” — requires dividends received from a subsidiary,
jointly controlled entity or associate to be recognised as income by the investor when the right to receive the dividend is established. In accordance
with the accounting standard this has been applied prospectively and has not had a material impact on the current year financial statements.
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■ Amendments to IAS 39 “Financial Instruments: Recognition and measurement — Reclassification of Financial Assets: Effective date and
Transition” — permits reclassification of non-derivative financial assets out of the fair value through the profit or loss category in particular
circumstances. This amendment has not had a significant impact on the consolidated financial statements.
■ Amendments to IFRS 2 “Share-Based payments — Vesting Conditions and Cancellations” — clarifies the definition of vesting conditions,
introduces the concept of non vesting conditions, requires non vesting conditions to be reflected in grant-date fair value and provides the
accounting treatment for non vesting conditions and cancellations. IFRS 2 has been adopted retrospectively and has had no impact on the
financial statements.
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Accounting Policies
■ Amendments to IFRS 7 “Improving disclosures about financial instruments” — enhance disclosures regarding fair value measurements relating to
financial instruments and improving disclosures regarding liquidity risk. Since the changes are presentational only, there is no impact on profit or
net assets.
■ IFRS 8 “Operating Segments” — replaces IAS 14 and sets out requirements for disclosure of information about an entity’s products and services,
the geographical areas in which it operates and its major customers. As of 4 April 2009 the Group determined and presented operating segments
based on the information internally provided to the Executive Directors, who represent the Group’s chief operating decision maker. Following the
acquisition of Nationwide Autocentres on the 17 February 2010 the Executive Directors have concluded that the Group has two main operating
and reporting segments, which are Retail and Car Servicing, and one main geographical segment, which is the United Kingdom.
In addition to the above, amendments to a number of standards under the annual improvements project to IFRS, which are mandatory for the year
ended 2 April 2010, have been adopted in the year. None of these amendments have had a material impact on the Group’s financial statements.
New standards and interpretations not yet adopted
The following standards and interpretations have been published, endorsed by EU, and are available for early adoption, but have not yet been applied
by the Group in these financial statements.
■ IAS 27 “Consolidated and Separate Financial Statements (Revised 2009)” — requires accounting for changes in ownership interests by the Group
in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest
retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to IAS 27 are not
expected to have a material impact and will become mandatory for the Group’s 2011 consolidated financial statements.
■ Amendments to IAS 39 “Financial Instruments: Recognition and measurement: Eligible Hedged Items” — clarifies how to apply existing principles
in determining eligible hedged risks and portions. The amendments to IAS 39 are not expected to have a material impact and will become
mandatory for the Group’s 2011 consolidated financial statements.
■ Revised IFRS 3 “Business Combinations (2009)” — incorporates the following changes that are likely to be relevant to the Group’s operations:
■ The definition of a business has been broadened, which is likely to result in more acquisitions being treated as a business combination.
■ Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss.
■ Transaction costs, other than share and debt issue costs, will be expensed as incurred.
■ Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss.
■ Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities
of the acquiree, on a transaction-by-transaction basis.
■ Revised IFRS 3, which becomes mandatory for the Group’s 2011 consolidated financial statements, will be applied prospectively and therefore
there will be no impact on prior periods.
■ Amendments to IFRIC 9 and IAS 39 “Embedded Derivatives” — requires an entity to assess whether an embedded derivative is required to be
separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through the profit and loss category. This
amendment will become mandatory for the Group’s 2011 consolidated financial statements but is not expected to have a material impact.
■ Amendments to IAS 32 “Classification of Rights Issues” — requires that rights, options or warrants to acquire a fixed number of the entity’s own
equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights options or warrants pro rata to all of its
existing owners of the same class of its own non-derivative equity instruments. The amendment to IAS 32 will become mandatory for the Group’s
2011 consolidated financial statements and is not expected to have a material impact.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
103
Notes to the Financial Statements
1. 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. The
operations of the Car Servicing reporting segment comprise car servicing and repair performed from autocentres.
The Chief Operating Decision Maker is represented by 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 Profit before tax. 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
profit before tax, 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. 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.
Income statement
Revenue
Profit
Operating profit before non-recurring items*
Non-recurring items
Segment result
Finance expense
Finance income
Profit before tax
Taxation
Profit for the year
Retail Car Servicing
£m
£m
52 weeks to
2 April 2010
Total
£m
53 weeks to
3 April 2009
Total
£m
818.1
13.5
831.6
809.5
119.3
(7.4)
111.9
(4.5)
2.0
109.4
(32.6)
76.8
0.4
—
0.4
(0.1)
—
0.3
(0.1)
0.2
119.7
(7.4)
112.3
(4.6)
2.0
109.7
(32.7)
77.0
104.0
(12.3)
91.7
(16.5)
2.3
77.5
(21.7)
55.8
* The Car Servicing segment result includes an amortisation charge of £0.3m in respect of assets acquired through business combinations
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(see Note 11).
Balance sheet
Segment assets
Segment liabilities
Net assets
Income statement
Capital expenditure
Depreciation expense
Impairment expense (property, plant and equipment)
Amortisation expense
Inventory write down
Retail Car Servicing
£m
£m
52 weeks to
2 April 2010
Total
£m
53 weeks to
3 April 2009
Total
£m
574.0
(372.4)
201.6
98.5
(21.6)
76.9
672.5
(394.0)
278.5
583.8
(339.4)
244.4
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Retail Car Servicing
£m
£m
52 weeks to
2 April 2010
Total
£m
20.1
21.8
5.0
1.9
14.9
0.3
0.1
—
0.3
—
20.4
21.9
5.0
2.2
14.9
53 weeks to
3 April 2009
Total
£m
19.4
22.4
—
2.7
16.4
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Transactions between segments are on an arm’s length basis. There are no material unallocated corporate expenses in the current or prior periods.
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104
Notes to the Financial Statements
2. Operating expenses
For the period
Selling and distribution costs before non-recurring items
Non-recurring selling and distribution costs
Administrative expenses before non-recurring items
Non-recurring administrative expenses
3. Operating profit
For the period
Operating profit is arrived at after charging/(crediting) the following expenses/(incomes)
as categorised by nature:
Operating lease rentals:
— plant and machinery
— property rents
— rentals receivable under operating leases
Landlord surrender payments
Loss on disposal of property, plant and equipment
Amortisation of intangible assets
Depreciation of:
— owned property, plant and equipment
— assets held under finance leases
Impairment of property, plant and equipment
Trade receivables impairment
Staff costs (see Note 4)
Cost of inventories consumed in cost of sales
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
280.2
6.8
287.0
52.8
0.6
53.4
271.3
10.3
281.6
46.1
2.0
48.1
340.4
329.7
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
1.8
82.9
(7.1)
(1.1)
0.7
2.2
21.4
0.5
5.0
0.2
126.5
369.0
1.3
82.1
(7.6)
(2.7)
0.3
2.7
21.8
0.6
—
0.1
128.9
379.2
The total fees payable by the Group to KPMG Audit Plc and their associates during the period was £1.1m (2009: PricewaterhouseCoopers LLP
£0.3m), in respect of the services detailed below:
For the period
Fees payable for the audit of the Company’s accounts
Fees payable to KPMG Audit Plc (2009: PricewaterhouseCoopers LLP) and their
associates for other services:
The audit of the Company’s subsidiary undertakings, pursuant to legislation
Other services supplied pursuant to such legislation
Other services relating to taxation
Other services relating to corporate finance activities
Internal audit services
All other services
52 weeks to
2 April 2010
£’000
53 weeks to
3 April 2009
£’000
30
30
236
15
439
299
34
9
1,062
137
23
113
—
—
21
324
Included within “fees payable to the Company’s auditors for the audit of the Company’s subsidiary undertakings, pursuant to legislation” are
amounts payable to KPMG Audit Plc and its associates incurred in respect of the audit work undertaken on financial controls. This work may
include an element which goes beyond that strictly required by relevant Auditing Standards. The amount is estimated not to exceed £0.1m.
Fees payable by the Group to Deloitte & Touche LLP with regard to internal audit services in 2009 totalled £0.2m.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
105
4. Staff costs
For the period
The aggregated remuneration of all employees including Directors comprised:
Wages and salaries
Social security costs
Equity-settled share-based payment transactions (Note 22)
Contributions to defined contribution plans (Note 24)
Non-recurring redundancy costs (Note 5)
Average number of persons employed by the Group, including Directors, during the period:
Stores
Central warehousing
Head office
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
112.8
7.6
2.5
3.2
0.4
126.5
110.2
7.8
1.7
3.2
6.0
128.9
Number
Number
9,066
162
529
9,757
9,573
192
551
10,316
As at 2 April 2010 the number of persons employed by the Group, including Directors, was 10,827.
Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 71 to 80 which forms part of
these financial statements.
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Key management compensation
For the period
Salaries and short-term benefits
Compensation for loss of office
Social security costs
Pensions
Share-based payment charge
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
2.9
—
0.6
0.3
0.8
4.6
2.2
0.2
0.3
0.2
0.6
3.5
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Key management compensation includes the emoluments of the Board of Directors and the emoluments of the Halfords Limited management
Board. David Wild was appointed to the Board on 4 August 2008.
There were no outstanding balances at the year end (2009: £0.6m).
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106
Notes to the Financial Statements
5. Non-recurring items
For the period
Non-recurring operating expenses:
Head Office rationalisation(a)
Store rationalisation(a)
Exit of standalone cycle store pilot(b)
Distribution and warehousing reorganisation(c)
Central Europe closure(d)
Non-recurring operating expenses
Non-recurring finance costs:
Swap close out costs(e)
Non-recurring items before tax
Tax on non-recurring items(f)
Non-recurring items after tax
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
—
—
—
—
7.4
7.4
—
—
7.4
(1.4)
6.0
2.0
0.8
1.2
8.3
—
12.3
4.6
4.6
16.9
(4.6)
12.3
(a) Cost of staffing reductions in Head Office and stores, to access efficiencies arising from the Group’s investment in core enterprise systems
over the past four years.
(b) Exit costs associated with the cessation of the Group’s standalone cycle concept, including the closure of stores where necessary.
(c) Costs associated with the re-configuration and consolidation of the Group’s distribution infrastructure.
(d) Exit costs associated with the closure of all seven stores in Central Europe. Results for Central Europe for the period are as follows:
Revenue
Operating loss before non-recurring items
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
5.9
(2.5)
4.4
(3.2)
(e) On 1 April 2009, the Group closed out its existing interest rate hedging instruments, which were contracted until 2011, at a cost of £4.6m.
(f) This represents the tax credit on these non-recurring costs; this credit is lower than the UK corporation tax standard rate of 28% due to the
non-deductibility of certain legal expenses and depreciation associated with store infrastructure.
Non-recurring operating expenses of £7.4m (2009: £12.3m) consisted of £0.4m (2009: £6.0m) redundancy costs, £5.3m (2009: £0.8m) in
respect of property, plant and equipment and inventory, £2.4m (2009: £2.3m) onerous lease costs and £0.5m (2009: £3.2m) of other costs,
offset by £1.2m of foreign currency translation gains.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
107
6. Finance income and costs
Recognised in profit or loss for the period
Finance costs:
Bank borrowings
Amortisation of issue costs on loans
Commitment and guarantee fees
Costs of forward foreign exchange contracts
Interest payable on finance leases
Interest payable on rent reviews
Finance costs before non-recurring finance costs
Non-recurring finance costs:
Swap close out costs1
Finance costs
Finance income: Bank and similar interest
Net finance costs
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
(2.7)
(0.5)
(0.2)
(0.1)
(0.8)
(0.3)
(4.6)
—
—
(4.6)
2.0
(2.6)
(9.4)
(0.2)
(0.2)
(1.2)
(0.9)
—
(11.9)
(4.6)
(4.6)
(16.5)
2.3
(14.2)
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1 On 1 April 2009, the Group closed out its existing interest rate hedging instruments, which were contracted until 2011, at a cost of £4.6m.
The above finance income and finance costs include the following interest and expense in respect of assets/(liabilities) not at fair value through
profit or loss:
Total interest income on financial assets
Total interest expense on financial liabilities
7. Taxation
For the period
Current taxation
UK corporation tax charge for the period
Adjustment in respect of prior periods
Deferred taxation
Origination and reversal of timing differences
Adjustment in respect of prior periods
Total tax charge for the period
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
2.0
(4.5)
2.3
(10.7)
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
35.5
(1.1)
34.4
(2.5)
0.8
(1.7)
32.7
27.6
(2.2)
25.4
(4.2)
0.5
(3.7)
21.7
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Notes to the Financial Statements
7. Taxation continued
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
For the period
Profit before tax
UK corporation tax at standard rate of 28% (2009: 28%)
Factors affecting the charge for the period:
Depreciation on expenditure not eligible for tax relief
Employee share options
Other disallowable expenses
Adjustment in respect of prior periods
Total tax charge for the period
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
109.7
30.7
1.8
(0.2)
0.7
(0.3)
32.7
77.5
21.7
0.9
0.2
0.6
(1.7)
21.7
In this financial period, the UK corporation tax standard rate was 28%.
The underlying tax rate on trading was 29.4% (2009: 29.7%), principally due to the non-deductibility of depreciation charged on capital
expenditure in respect of mezzanine floors and other store infrastructure. This level of tax non-deductibility is anticipated for the foreseeable
future.
The higher tax rate of 29.8% compared to the prior year (2009: 28.0%) is mainly due to the release of tax provisions in the prior year following
the favourable settlement of tax computations, in particular relating to capital allowance claims.
The tax charge of £32.7m (2009: £21.7m) includes a £1.4m (2009: £4.6m) credit in respect of the tax on non-recurring costs, as detailed in
Note 5.
Income tax of £0.6m on other comprehensive income relates to the fair value of forward currency contracts outstanding at the year end. No
other items within other comprehensive income have an income tax impact.
8. Dividends
For the period
Equity — ordinary shares
Final for the 53 weeks to 3 April 2009 — paid 10.90p per share (2009: 10.35p)
Interim for the 52 weeks to 2 April 2010 — paid 6.0p per share (2009: 5.0p)
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
22.8
12.5
35.3
21.8
10.5
32.3
In addition, the Directors are proposing a final dividend in respect of the financial period ended 2 April 2010 of 14.0p per share (2009: 10.90p
per share), which will absorb an estimated £29.3m (2009: £22.8m) of shareholders’ funds. It will be paid on 6 August 2010 to shareholders who
are on the register of members on 2 July 2010.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
109
9. Earnings per share
Basic earnings per share are calculated by dividing the profit 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 an Employee Benefit Trust (see Note 21) and
has been adjusted for the issue/purchase 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 52 weeks to 2 April 2010.
For the period
Weighted average number of shares in issue
Less: shares held by the Employee Benefit Trust
Weighted average number of shares for calculating basic earnings per share
Weighted average number of dilutive shares
Total number of shares for calculating diluted earnings per share
For the period
Basic earnings attributable to equity shareholders
Non-recurring items (see Note 5):
Operating expenses
Finance costs
Tax on non-recurring items
Underlying earnings before non-recurring items
Earnings per share is calculated as follows:
For the period
Basic earnings per ordinary share
Diluted earnings per ordinary share
Basic earnings per ordinary share before non-recurring items
Diluted earnings per ordinary share before non-recurring items
52 weeks to
2 April 2010
Number of
shares
m
53 weeks to
3 April 2009
Number of
shares
m
210.2
(1.1)
209.1
1.5
210.6
210.6
(1.1)
209.5
0.3
209.8
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
77.0
7.4
—
(1.4)
83.0
55.8
12.3
4.6
(4.6)
68.1
52 weeks to
2 April 2010
53 weeks to
3 April 2009
36.8p
36.6p
39.7p
39.4p
26.6p
26.6p
32.5p
32.5p
The alternative measure of earnings per share is provided because it reflects the Group’s underlying performance by excluding the effect of non-
recurring items.
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Notes to the Financial Statements
10. Acquisition of subsidiary
On 17 February 2010 the Group acquired 100 per cent of the issued share capital of Nationwide Autocentres Holdings Limited and subsidiary
undertakings (“Nationwide Autocentres”) for cash consideration of £74.9m (including transaction costs of £2.6m). Nationwide Autocentres is a
Group of companies involved in car servicing and repair. This transaction has been accounted for by the purchase method of accounting.
Consideration transferred
Cash
Deferred consideration
Contingent consideration
£m
69.7
0.9
1.7
72.3
Contingent consideration
The cash consideration payable for the acquisition was reduced by £1.7m to reflect additional cash consideration payable to certain
shareholders remaining as Directors, contingent on their remaining as employees of the Group as of the first and second anniversary of the
acquisition or, in the event of any of them having terminated their employment, said employment having been terminated in circumstances of
being a “good leaver”.
The additional cash consideration is payable at a rate of £1.0m on 17 February 2011 and £0.7m on 17 February 2012.
The deferred consideration has been settled since the year end.
Identifiable assets acquired and liabilities assumed
Fair value
Book value adjustments
£m
£m
Final
fair value
£m
Property, plant and equipment
Intangible assets (see Note 11)
Inventories
Trade and other receivables
Trade and other payables
Provisions
Current tax liabilities
Deferred tax liabilities
Goodwill
Goodwill was recognised as a result of the acquisition as follows:
Total consideration transferred
Associated costs
Less fair value of identifiable assets
Goodwill
5.4
—
1.2
5.7
(16.6)
(0.7)
(0.9)
0.3
(5.6)
(0.2)
18.2
—
—
(0.4)
(1.7)
(0.4)
(4.7)
10.8
5.2
18.2
1.2
5.7
(17.0)
(2.4)
(1.3)
(4.4)
5.2
£m
72.3
2.6
(5.2)
69.7
The goodwill arising on the acquisition of Nationwide Autocentres is attributable to a) future income to be generated from new retail, fleet
customer contracts and related relationships, b) the Nationwide workforce c) the value of immaterial other intangible assets and d) operating
synergies. None of the goodwill is expected to be deductible for income tax purposes.
The fair value adjustments primarily relate to intangible assets in respect of customer relationships and favourable leases (see Note 11).
Nationwide Autocentres contributed £13.5m revenue and £0.3m to the Group’s profit before tax for the period between the date of acquisition
and the balance sheet date.
If the acquisition of Nationwide Autocentres had been completed on the first day of the financial year, Group revenues for the period would have
been £97.3m higher and Group profit attributable to equity holders of the parent would have been £4.9m higher (pre-amortisation of intangible
assets arising on consolidation).
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11. Intangible assets
Cost
At 28 March 2008
Additions
Brand names
Customer
and trademarks relationships
£m
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
At 3 April 2009
Additions
Assets acquired through business combinations
At 2 April 2010
Amortisation
At 28 March 2008
Charge for the period
At 3 April 2009
Charge for the period
At 2 April 2010
Net book value at 2 April 2010
Net book value at 3 April 2009
0.2
—
0.2
—
0.9
1.1
0.2
—
0.2
0.1
0.3
0.8
—
—
—
—
—
14.9
14.9
—
—
—
0.2
0.2
14.7
—
—
—
—
—
2.3
2.3
—
—
—
—
—
2.3
—
10.7
5.4
16.1
3.5
0.1
19.7
7.0
2.7
9.7
1.9
11.6
8.1
6.4
274.8
—
274.8
—
69.7
344.5
21.7
—
21.7
—
21.7
322.8
253.1
Total
£m
285.7
5.4
291.1
3.5
87.9
382.5
28.9
2.7
31.6
2.2
33.8
348.7
259.5
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Included in computer software are internally generated assets of £0.4m (2009: £0.6m). Product rights of £0.2m, which are fully amortised, have
been included within Brand names and trademarks.
Goodwill of £253.1m arose on the acquisition of Halfords Holdings Limited by the Company on 31 August 2002 and is allocated to Retail.
The goodwill relates to a portfolio of sites within the UK which management monitors on an overall basis as a group of cash-generating units.
Goodwill of £69.7m arose on the acquisition of Nationwide Autocentres on 17 February 2010. The goodwill relates to a portfolio of centres within
the UK which management monitors on an overall basis as a group of cash-generating units being Car Servicing.
The recoverable amount of goodwill is determined based on “value-in-use” calculations for each of the two Groups of cash-generating units,
being Retail and Car Servicing. This is the lowest level within the Group at which the goodwill is monitored for internal management purposes,
which is not higher than the Group’s operating segments as reported in Note 1. These calculations use cash flow projections based on financial
budgets approved by management covering a three-year period with growth no higher than past experience and after consideration of all
available information.
The key assumptions used to determine value-in-use of goodwill held at 2 April 2010 and 3 April 2009 are as follows:
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Discount rate
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Retail
Car
Servicing
Note
1
2
2010
12.2%
0.0%
2009
12.6%
0.0%
2010
13.9%
0.0%
2009
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Notes:
1. Pre-tax discount rate applied to the cash flow projections.
2. Growth rate used to extrapolate cash flows beyond the budget period.
The Directors are confident that a reasonably possible change in the key assumptions would not cause the carrying amounts to exceed the
recoverable amounts.
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Notes to the Financial Statements
12. Property, plant and equipment
Cost
At 28 March 2008
Additions
Disposals
Reclassifications
At 3 April 2009
Additions
Effect of movements in exchange rates
Assets acquired through business combinations
Disposals
Reclassifications
At 2 April 2010
Depreciation
At 28 March 2008
Depreciation for the period
Disposals
At 3 April 2009
Depreciation for the period
Impairment charge
Disposals
At 2 April 2010
Net book value at 2 April 2010
Net book value at 3 April 2009
Payments on
account and
assets in
Fixtures,
fittings and
course of
equipment construction
£m
£m
Land and
buildings
£m
47.6
1.5
(0.1)
0.1
49.1
0.7
0.1
3.0
(0.7)
0.1
52.3
18.4
2.4
—
20.8
2.5
0.3
(0.5)
23.1
29.2
28.3
276.5
12.4
(1.3)
0.2
287.8
8.9
0.8
2.2
(3.7)
—
296.0
189.9
20.0
(1.1)
208.8
19.4
4.7
(3.2)
229.7
66.3
79.0
0.4
0.1
—
(0.3)
0.2
7.3
—
—
—
(0.1)
7.4
—
—
—
—
—
—
—
—
7.4
0.2
Total
£m
324.5
14.0
(1.4)
—
337.1
16.9
0.9
5.2
(4.4)
—
355.7
208.3
22.4
(1.1)
229.6
21.9
5.0
(3.7)
252.8
102.9
107.5
Payments on account and assets in course of construction mainly include the costs associated with the new distribution centre in Coventry.
The impairment charge includes the impairment of assets in relation to the closure of stores in Central Europe. The key assumption for
impairment of property, plant and equipment is the likelihood and extent of future profits of loss making stores. Assumptions are driven by the
factors disclosed in Note 11.
No fixed assets are held as security for external borrowings.
Included in the above are assets held under finance leases as follows:
As at 2 April 2010
Cost
Accumulated depreciation
Net book value
As at 3 April 2009
Cost
Accumulated depreciation
Net book value
1 Relates to the Halfords head office building lease, which expires in 2028.
Land and
Buildings1
£m
Fixtures,
fittings, and
equipment
£m
12.7
(3.0)
9.7
12.7
(2.5)
10.2
0.8
(0.8)
—
0.8
(0.8)
—
Total
£m
13.5
(3.8)
9.7
13.5
(3.3)
10.2
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12. Property, plant and equipment continued
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
13. Inventories
Finished goods for resale
Minimum lease
payments
2010
£m
1.0
4.2
15.8
21.0
Interest
2010
£m
0.8
2.9
5.3
9.0
Principle
2010
£m
Minimum lease
payments
2009
£m
0.2
1.3
10.5
12.0
1.0
4.1
17.0
22.1
Interest
2009
£m
Principle
2009
£m
0.8
3.0
6.1
9.9
2010
£m
138.5
0.2
1.1
10.9
12.2
2009
£m
147.0
Finished goods inventories include £8.4m (2009: £6.6m) of provisions to carry inventories at fair value less costs to sell where such value is
lower than cost. The Group did not reverse any unutilised provisions during the period.
During the period £14.9m was recognised as an expense in respect of the write down of inventories (2009: 16.4m) to net realisable value, which
includes the impairment of inventories in relation to the closure of stores in Central Europe.
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14. Trade and other receivables
Falling due within one year:
Trade receivables
Less: provision for impairment of receivables
Trade receivables — net
Other receivables
Prepayments and accrued income
2010
£m
2009
£m
10.2
(0.3)
9.9
5.8
27.2
42.9
7.4
(0.1)
7.3
6.5
23.8
37.6
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During the period the Group created a provision of £0.3m (2009: £0.1m) for the impairment of trade receivables and utilised £0.1m
(2009: £0.1m).
15. Cash and cash equivalents
Cash at bank and in hand
2010
£m
36.5
2009
£m
15.5
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
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Notes to the Financial Statements
16. Borrowings
Current
Finance lease liabilities
Non-current
Unsecured bank loan
Finance lease liabilities
2010
£m
0.2
180.0
11.8
191.8
2009
£m
0.2
179.5
12.0
191.5
The above borrowings are stated net of unamortised issue costs of £nil (2009: £0.5m).
The Group completed a debt refinancing exercise on 14 July 2006. The debt facility comprises a £180m five-year non amortising loan, maturing
with bullet repayment on 13 July 2011 and a £120m revolving credit facility. This facility is underwritten by The Royal Bank of Scotland Group plc
and the syndication Group allocations were effected from 29 September 2006.
The term loan attracts an interest rate of LIBOR plus a fixed margin of 0.45%. This rate is set at the most competitive market price points, in line
with the term facility agreement, and this can range from two weeks to six months.
The revolving credit facility permits further borrowings to a maximum of £120m. This facility matures on 13 July 2011 and drawings under the
facility attract interest at LIBOR plus 0.45%–0.50% dependant upon covenant fulfilment.
17. Trade and other payables — current
Trade payables
Other taxation and social security payable
Other payables
Deferred income — lease incentives
Accruals and other deferred income
2010
£m
74.0
10.9
4.7
3.7
38.2
131.5
2009
£m
52.2
7.9
2.2
3.2
22.3
87.8
During the year the Directors deemed that certain property related items within accruals and deferred income are more appropriately disclosed
within provisions. Accordingly, £6.3m included within accruals and other deferred income in the prior period is now recognised within provisions
(see Note 18).
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Annual Report & Accounts for period ended 2 April 2010
Online version
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115
18. Provisions
At 3 April 2009
Charged during the period
Utilised during the period
Acquired through business combinations
At 2 April 2010
Analysed as:
Current liabilities
Non-current liabilities
Central Distribution
Europe exit reorganisation
£m
£m
Property
related
£m
Other
trading
£m
—
3.5
—
—
3.5
3.5
—
8.3
—
(1.5)
—
6.8
6.8
—
8.2
1.8
(0.6)
2.4
11.8
8.5
3.3
2.2
0.8
(1.4)
—
1.6
1.6
—
Total
£m
18.7
6.1
(3.5)
2.4
23.7
20.4
3.3
The Central Europe exit provision represents the costs associated with the closure of all seven stores trading in the Czech Republic and Poland
(see Note 5).
The distribution reorganisation provision represents the costs associated with the re-configuration and consolidation of the Group’s distribution
and warehousing infrastructure.
Property related provisions consist of costs associated with vacant property, rent reviews and dilapidations. As disclosed in Note 17 the prior
year balance includes certain items previously included in accruals and deferred income.
Other trading provisions comprises of the sales returns provision and a provision for the costs associated with the cessation of the stand-alone
cycle concept, including closure of stores where necessary.
Restructuring provisions
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either
has commenced or has been announced publicly. Future operating losses are not provided for.
Key assumptions within the Central Europe exit and Distribution reorganisation provisions are the timing of the exit from leases that are
contracted into, the timing of redundancies and the extent of dilapidation costs. The sensitivities to these assumptions are not considered
material due to the time value of money being minimal over the period over which the costs will be incurred.
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Property related provisions
A provision for vacant properties is recognised when the expected benefits to be derived by the Group from a contract are lower than the
unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost
of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises
any impairment loss on the assets associated with that contract. The main uncertainty is the timing of the amounts payable, and the time value
of money has been incorporated in to the provision amount to take account of this sensitivity.
A rent review provision is recognised when there are expected to be additional obligations as a result of the rent review, which forms part of the
Group’s unavoidable cost of meeting its obligations under the lease contract. The provision is based on management’s best estimate of the
rent payable after the review.
Key uncertainties are the estimates of the rent payable after the review has occurred. Sensitivity to this uncertainty is not expected to be material
to the provision in total.
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A dilapidations provision is recognised when there is an expectation of future obligations relating to the maintenance of leasehold properties
arising from events such as lease renewals or terminations.
Key uncertainties are the estimates of amounts due. Sensitivity to this uncertainty is not expected to be material to the provision in total.
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Notes to the Financial Statements
19. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2009: 28%).
The movement on the deferred taxation (provision)/asset is shown below:
At the beginning of the period
Acquired through business combinations
Income statement credit (Note 7)
Debit to equity
At the end of the period
2010
£m
2009
£m
2.7
(4.4)
1.7
(0.5)
(0.5)
(1.0)
—
3.7
—
2.7
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the
balances net.
Deferred tax liabilities:
At 28 March 2008
Credit to the income statement
At 3 April 2009
Acquired through business combinations
Credit to the income statement
Debit to other comprehensive income
At 2 April 2010
Deferred tax assets:
At 28 March 2008
Debit to equity
At 3 April 2009
Acquired through business combinations
Credit to the income statement
Credit to equity
At 2 April 2010
Net deferred tax (liability)/asset
At 2 April 2010
At 3 April 2009
Accelerated
tax
depreciation
£m
(7.2)
1.5
(5.7)
(5.0)
1.2
(0.6)
(10.1)
Provisions
and share
options
£m
6.2
2.2
8.4
0.6
0.5
0.1
9.6
(0.5)
2.7
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Online version
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117
20. Financial instruments and related disclosures
Treasury policy
The Group’s treasury department’s main responsibilities are to:
■ Ensure adequate funding and liquidity for the Group;
■ Manage the interest risk of the Group’s debt;
■ Invest surplus cash;
■ Manage the clearing bank operations of the Group, and
■ Manage the foreign exchange risk on its non-sterling cash flows.
Treasury activities are delegated by the Board to the Finance Director (“FD”). The FD controls policy and performance through the line
management structure to the Group Treasurer and by reference to the Treasury Committee. The Treasury Committee meets regularly to monitor
the performance of the Treasury function. Monthly Treasury Reports provide management information relating to treasury activity.
Policies for managing financial risks are governed by Board approved policies and procedures, which are reviewed on an annual basis.
The Group’s debt management policy is to provide an appropriate level of funding to finance the Business Plan over the medium term at a
competitive cost and ensure flexibility to meet the changing needs of the Group. The Group has a syndicated five-year term facility totalling
£300m that provides the Group with committed bank facilities until July 2011. See Note 16.
The Business Plan and cash flow forecasts are subject to key assumptions such as interest rates and the significance of these risks is
dependent upon the level of earnings before interest, tax, depreciation and amortisation and the strength of the balance sheet.
The key risks that the Group faces from a treasury perspective are as follows:
Market risk
The Group’s exposure to market risk predominantly relates to interest, currency and commodity risk. These are discussed further below.
Commodity risk is due to the Group’s products being manufactured from metals and other raw materials whose prices fluctuate. The Group
mitigates this risk through, for example, transferring the risk to suppliers by negotiating fixed purchase costs or maintaining flexibility over the
specification of finished products produced by its supply chain to meet fluctuations.
Interest rate risk
The Group’s policy aims to manage the interest cost of the Group within the constraints of the Business Plan and its financial covenants. The
Group’s borrowings are currently subject to floating rate and the Group will continue to monitor movements in the swap market.
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
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Financial liabilities
Finance leases
Variable rate instruments
2010
Carrying
amount
£m
12.0
180.0
192.0
2009
Carrying
amount
£m
12.2
179.5
191.7
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The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, therefore a change in interest
rates at the reporting date would not affect profit or loss or equity.
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Notes to the Financial Statements
20. Financial instruments and related disclosures continued
The table below shows the Group’s sensitivity to interest rates changes:
2010
Increase in
finance cost
£m
2010
Reduction
in equity
£m
2009
Increase in
finance cost
£m
2009
Reduction
in equity
£m
1% increase in Sterling interest rates
(1.8)
—
(1.8)
—
A 1% decrease in interest rates would have an equal and opposite effect.
The movement in the income statement reflects the effect on finance costs on the unhedged borrowings of the Group as shown in the table
below. Interest rate movements on deposits, obligations under finance leases, trade payables, trade receivables, and other financial instruments
do not present a material exposure to the Group’s balance sheet.
The exposure of borrowings to interest rate changes when borrowings re-price is as follows:
Total bank borrowings as at 2 April 2010
Total bank borrowings as at 3 April 2009
1 year
£m
180.0
180.0
1-5 years
£m
—
—
Total
£m
180.0
180.0
Foreign currency risk
The Group has a significant transaction exposure with increasing, direct sourced purchases from its suppliers in the Far East, with most of the
trade being in US dollars. The Group’s policy is to manage the foreign exchange transaction exposures of the business to ensure the actual
costs do not exceed the budget costs by 10% (excluding increases in the base cost of the product).
The Group does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of non-sterling
businesses whilst they remain immaterial.
During the 52 weeks to 2 April 2010, the foreign exchange management policy was to hedge via forward contract purchase between 75%–80%
of the material foreign exchange transaction exposures on a rolling 12-month basis. Hedging is performed through the use of foreign currency
bank accounts, spot rates and forward foreign exchange contracts.
The Group’s exposure to foreign currency risk was as follows based on notional amounts:
Cash and cash equivalents
Trade and other receivables
Long term borrowings
Trade and other payables
GBP
£m
33.7
42.9
(180.0)
(116.2)
(219.6)
2 April 2010
USD
£m
0.1
—
—
(15.0)
(14.9)
Other
£m
2.7
—
—
(0.3)
2.4
GBP
£m
8.8
37.6
(179.5)
(81.3)
(214.4)
3 April 2009
USD
£m
2.5
—
—
(6.2)
(3.7)
Other
£m
4.2
—
—
(0.3)
3.9
The following significant exchange rates applied during the current and prior period:
USD
EUR
Average rate
Reporting date
spot rate
2010
1.60
1.13
2009
1.63
1.20
2010
1.53
1.13
2009
1.48
1.10
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119
20. Financial instruments and related disclosures continued
The table below shows the Group’s sensitivity to foreign exchange rates on its US dollar financial instruments, the major currency in which the
Group’s derivatives are denominated.
10% appreciation of the US dollar
10% depreciation of the US dollar
2010
Increase/
(decrease)
in equity
£m
8.4
(7.5)
2009
Increase/
(decrease)
in equity
£m
11.5
(9.4)
A strengthening of Sterling, as indicated, against the USD at 2 April 2010 would have increased/(decreased) equity and profit or loss by the
amounts shown. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the
end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed
on the same basis for 2009.
There are no material movements in the income statement. The movements in equity relates to the fair value movements on the Group’s forward
contracts that are used to hedge future stock purchases.
Credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was:
Carrying amount
Cash and cash equivalents
Loans and receivables1
Forward exchange contracts used for hedging (assets)
Total financial assets
2010
£m
36.5
15.5
3.0
55.0
2009
£m
15.5
10.0
14.0
39.5
The £15.5m (2009: £10.0m) maximum exposure to credit risk, at the reporting date for loans and receivables related to the UK.
The Group does not have any individually significant customers.
The following table shows the age of such financial assets that are past due and for which no provision for bad or doubtful debts has
been raised:
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Not past due
Past due by 1–30 days
Past due by 31–90 days
Past due by 91–180 days
2010
£m
12.7
1.4
0.6
0.8
15.5
2009
£m
7.3
0.9
0.7
1.1
10.0
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The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic payment
behaviour and extensive analysis of the underlying customers’ credit ratings. Based on historic default rates, the Group believes that, apart from
the above, no impairment allowance is necessary in respect of trade receivables not past due or past due by up to 30 days.
Liquidity risk
The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient
cash or working capital facilities to meet the cash requirements of the Group for the current Business Plan. The minimum liquidity level is
currently set at £30.0m.
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Notes to the Financial Statements
20. Financial instruments and related disclosures continued
The process to manage the risk is to ensure there are contracts in place for key suppliers, detailing the payment terms, and for providers of
debt, the Group ensured that such counterparties used for credit transactions held at least an ‘A’ credit rating at the time of syndication (July
2006). Ancillary business, in the main, is directed to the eight banks within the syndicated group. The Treasurer is responsible for determining
credit worthiness of each counterparty, based on the overall financial strength of the counterparty. The counterparty credit risk is reviewed in the
Treasury report, which is forwarded to the Treasury Committee and the Treasurer reviews credit exposure on a daily basis.
The risk is measured through review of forecast liquidity each month by the Treasurer to determine whether there are sufficient credit facilities to
meet forecast requirements, and through monitoring covenants on a regular basis to ensure there are no significant breaches, which would lead
to an “Event of Default”. Calculations are submitted bi-annually to the syndication agent. Reporting on covenant compliance forms part of the
Treasury Report. There have been no breaches of covenants during the reported periods.
The following are the contractual maturities of non-derivative financial liabilities, including estimated interest payments and excluding the impact
of netting agreements:
2010
Due less than one year
Expiring between 1 and 2 years
Expiring between 2 and 5 years
Expiring after 5 years
Contractual cash flows
Carrying amount
2009
Due less than one year
Expiring between 1 and 2 years
Expiring between 2 and 5 years
Expiring after 5 years
Contractual Cash Flows
Carrying amount
Bank
borrowings
£m
Finance
leases
£m
2.4
180.6
—
—
183.0
180.0
1.0
1.0
3.2
15.8
21.0
12.0
Bank
borrowings
£m
Finance
leases
£m
3.5
3.5
181.0
—
188.0
179.5
1.0
1.0
3.1
17.0
22.1
12.2
Trade and
other
payables2
£m
111.6
—
—
—
111.6
111.6
Trade and
other
payables2
£m
71.2
—
—
—
71.2
71.2
Total
£m
115.0
181.6
3.2
15.8
315.6
303.6
Total
£m
75.7
4.5
184.1
17.0
281.3
262.9
The following table provides an analysis of the anticipated contractual cash flows for the Group’s forward currency contracts. Cash flows
receivable in foreign currencies are translated using spot rates as at 2 April 2010 (3 April 2009).
Due less than one year
Expiring between 1 and 2 years
Contractual cash flows
Fair value
2010
Receivables
£m
Payables
£m
Receivables
£m
77.1
—
77.1
3.0
(75.2)
—
(75.2)
(0.8)
90.5
13.0
103.5
14.0
2009
Payables
£m
(76.7)
(13.4)
(90.1)
(0.7)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
Liquidity risk is managed through regular review of the forthcoming cash requirements, and use of the available borrowing facilities when needed.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
121
20. Financial instruments and related disclosures continued
Fair value disclosures
The fair values of each class of financial assets and liabilities is the carrying amount, based on the following assumptions:
Trade receivables, trade payables and
finance lease obligations, short-term
deposits and borrowings
Long-term borrowings
The fair value approximates to the carrying amount because of the short maturity of these
instruments, using an interest rate of 7.1% for long-term finance lease obligations.
The fair value of bank loans and other loans approximates to the carrying value reported in the
balance sheet as the majority are floating rate where payments are reset to markets rates at
intervals of less than one year.
Forward currency contracts
The fair value is determined using the closing spot rate at the balance sheet date and the
outright contract rate.
Fair Value Hierarchy
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.
Cash flow hedges
Forward currency contracts
Forward dated foreign exchange contracts are undertaken to hedge known exposure to foreign purchases in US dollars. The fair value of such
derivatives are shown in the table on page 120.
Borrowing facilities
The Group has the following undrawn committed borrowing facilities available during the period in respect of which all conditions precedent had
been met at that date:
Expiring within 1 year
Expiring between 1 and 2 years
Expiring between 2 and 5 years
2010
£m
1.0
120.0
—
121.0
2009
£m
1.0
—
120.0
121.0
The facilities expiring within one year were annual facilities subject to review at various dates during the period. The facility of £120.0m relates
to the Group’s revolving credit facility, which was arranged to help finance the proposed expansion of the Group’s activities. All these facilities
incurred commitment fees at market rates.
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Notes to the Financial Statements
20. Financial instruments and related disclosures continued
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt. Between June 2006 and September 2009, the Group managed its capital
structure partly through a share buy-back scheme, details of which are given in Note 21.
The Group manages capital by operating within debt ratios. These ratios are lease adjusted net debt to Earnings Before Interest, Tax,
Depreciation and Amortisation (“EBITDA”) and fixed charge cover. Lease adjusted net debt is calculated as being net debt and leases capitalised
at eight times, as a multiple of EBITDA plus operating lease charges. Fixed charge cover is calculated as being EBITDA plus operating lease
charges as a multiple of interest and operating lease charges. As a result of the current economic conditions and the attitude towards debt the
Group has decided to reduce the level of net debt and operates favourably to these target metrics.
1. Trade and other receivables
The following table reconciles trade and other receivables that fall within the scope of IAS 39 to the relevant balance sheet amounts. Other
assets include prepayments and accrued income that are outside the scope of IAS 39. The financial assets are non-interest bearing.
Trade and other receivables
Analysed as:
Financial assets in the scope of IAS 39
Other assets
2010
£m
2009
£m
42.9
15.5
27.4
42.9
37.6
10.0
27.6
37.6
2. Trade and other payables and other non-current liabilities
The following table reconciles trade and other payables that fall within the scope of IAS 39 to the relevant balance sheet amounts. Other
liabilities include deferred income, lease incentives and tax and social security that are outside the scope of IAS 39. The financial liabilities are
non-interest bearing.
Trade and other payables
Analysed as:
Financial liabilities in the scope of IAS 39
Other liabilities
2010
£m
131.5
111.6
19.9
131.5
2009
£m
87.8
71.2
16.6
87.8
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
123
21. Capital and reserves
Ordinary shares of 1p each:
Allotted, called up and fully paid
2010
Number of
shares
2010
£000
2009
Number of
shares
210,710,960
2,107
209,786,251
2009
£000
2,098
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings
of the Company. All shares rank equally with regard to the Company’s residual assets.
During the prior period the Company acquired 4,687,816 of its own shares at a cost of £13.1m.
During the current period the Company’s share capital increased by 924,709 shares (2009: 125,406 shares) due to the exercise by employees
of share options which are shown in the tables in Note 22. The effect of this increase in share capital was to increase share premium by £0.9m
to £146.5m (2009: £145.6m).
In total the Company received proceeds of £0.9m (2009: £nil) from the exercise of share options.
Interest in own shares
At 2 April 2010 the Company held in Trust 1,113,985 (2009: 1,113,985) of its own shares with a nominal value of £11,140 (2009: £11,140).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value of
these shares at 2 April 2010 was £5.4m (2009: £3.4m).
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Company of its own shares and comprises the amount by which the
distributable profits were reduced on these transactions in accordance with the Companies Act 2006.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to
hedged transactions that have not yet occurred.
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Notes to the Financial Statements
22. Share-based payments
The Group has three share award plans:
1. Halfords Company Share Option Scheme (“CSOS”)
2. Halfords Sharesave Scheme (“SAYE”)
3. Performance Share Plan (“PSP”)
1. Halfords Company Share Option Scheme
The CSOS was introduced in June 2004 and the Company has made annual grants since. Options are granted with a fixed exercise price
equal to the market price of the shares under option at the date of grant. The contractual life of an option is 10 years.
Options granted will become exercisable on the third anniversary of the date of grant, subject to the achievement of a three year performance
condition. For grants up to 150% of basic salary the options can only be exercised if the increase in earnings per share (“EPS”) over the period
is not less than the increase in the Retail Price Index (“RPI”) plus 5% per year for the 2005 scheme and 3.5% for options granted subsequently.
In the case of grants in excess of 150% of basic salary, the excess can only be exercised in full if the increase is not less than RPI plus 10% per
year. Exercise of an option is subject to continued employment.
The expected volatility is based on historical volatility of a peer Group of companies since the IPO in June 2004. The expected life is the average
expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds.
Options were valued using the Black–Scholes option-pricing models. No performance conditions were included in the fair value calculations.
The fair value per option granted and the assumptions used in the calculations were as follows:
Grant date
3 August
2009
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividend yield
Possibility of ceasing employment before vesting
Expectations of meeting performance criteria
Fair value per option
Expired during the period
Number of options outstanding at 2 April 2010
£3.4583
£3.4583
137
465,728
3
34%
10
4.85
3.00%
4.49%
32%
100%
£0.75
1,500
464,228
7 August
2008
£3.0725
£3.0725
740
1,881,467
3
27%
10
4.85
4.61%
4.83%
32%
100%
£0.56
125,957
1,647,085
12 July
2007
£3.9875
£3.9875
673
1,600,591
3
23%
10
4.85
5.67%
4.10%
32%
100%
£0.75
108,381
1,346,544
Share options exercised during the period by scheme by grant date:
2 June 2004
6 July 2006
7 August 2008
6 July
2006
£3.010
£3.010
36
252,000
3
35%
10
4.85
4.70%
4.00%
32%
100%
£0.77
8,172
45,944
Exercise
price
£2.60
£3.01
£3.07
13 July
2005
£2.955
£2.955
42
294,000
3
37%
10
4.85
4.68%
4.00%
32%
100%
£0.79
—
—
2 June
2004
£2.600
£2.600
3,598
6,556,953
3
40%
10
3.85
4.68%
4.00%
34%
100%
£0.70
17,750
193,800
2010
Number of
shares
2009
Number of
shares
81,400
134,884
28,876
245,160
3,000
—
—
3,000
17399
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
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125
22. Share-based payments continued
2. Halfords Sharesave Scheme
The SAYE is open to all employees with eligible employment service. Options may be exercised under the scheme if the option holder completes
his saving contract for a period of three years and then not more than six months thereafter. Special provisions allow early exercise in the case
of death, injury, disability, redundancy, retirement or because the Company or business which employs the option holder is transferred out of the
Group, or in the event of a change in control, reconstruction or winding up of the Company.
The fair value per option granted and the assumptions used in the calculations were as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividend yield
Possibility of ceasing employment before vesting
Expectations of meeting performance criteria
Fair value per option
Expired during the period
Number of options outstanding at 2 April 2010
Share options exercised during the period by scheme grant date:
1 August 2006
7 August 2007
7 August 2008
7 August
2009
£3.2592
£2.6074
403
305,750
3
38%
3
3.5
2.74%
4.42%
44%
100%
£0.95
26,509
279,241
7 August
2008
£2.4083
£1.9267
821
1,491,586
3
29%
3
3.5
4.58%
4.83%
44%
100%
£0.61
164,908
1,167,092
7 August
2007
1 August
2006
£4.02
£3.22
1,064
929,890
3
22%
3
3.5
5.54%
4.10%
44%
100%
£1.01
48,106
236,576
£3.01
£3.01
343
173,558
3
22%
3
3.5
4.75%
4.10%
44%
100%
£0.44
12,299
648
Exercise
price
£3.01
£3.22
£1.93
2010
Number of
shares
2009
Number of
shares
52,135
2,436
17,562
72,133
—
—
—
—
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Notes to the Financial Statements
22. Share-based payments continued
3. Performance Share Plan
The introduction of a Performance Share Plan (“PSP”) was approved at the Annual General Meeting in August 2005 awarding the executive
Directors and certain senior management conditional rights to receive shares. Annual schemes have been approved for each year from 2005.
The extent to which such rights vest will depend upon the Company’s performance over the three-year period following the award date. The
vesting of 50% of the awards will be determined by the Company’s relative total shareholder return (“TSR”) performance and the vesting of the
other 50% by the Company’s absolute EPS performance against RPI. The Company’s TSR performance will be measured against the FTSE 350
general retailers as a comparator Group. No retesting will be permitted.
The TSR element of the options granted under the 2007 scheme has been valued using a model developed by Deloitte. The Deloitte model uses
the Group’s share price volatility, the correlation between comparator companies and the vesting schedule attaching to the PSP tranche rather
than generating a large number of simulations of share price and TSR performance to determine the fair value of the award using a Monte Carlo
model. For the 2006 scheme the TSR element of the options were valued using a Monte Carlo simulation option pricing model. The fair value
per option granted and the assumptions used in the calculation were as follows:
Grant date
Share price at grant date
Number of employees
Shares under option
Shares representing dividends reinvested
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Expected dividend yield
Possibility of ceasing employment before vesting
Expectations of meeting performance criteria
Fair value per option
Expired during the period
Number of shares outstanding 2 April 2010
Share options exercised during the period by scheme grant date:
8 August 2005
11 July 2006
12 July 2007
3 August
2009
7 August
2008
£3.4583
20
824,927
12,659
3
41%
3
3
4.49%
30%
100%
£2.74
—
837,586
£2.962
20
866,340
—
3
30%
3
3
4.83%
30%
100%
£1.97
—
796,719
12 July
2007
£4.02
21
539,893
—
3
22%
3
3
4.10%
30%
100%
£2.69
—
57,214
11 July
2006
£3.01
18
596,908
—
3
22%
3
3
4.25%
30%
100%
£1.82
39,386
—
Exercise
price
£0.00
£0.00
£0.00
2010
Number of
shares
—
311,716
295,700
2009
Number of
shares
122,406
—
—
607,416
122,406
As the PSP awards have a nil exercise price the risk free rate of return does not have any effect on the estimated fair value and therefore is
excluded from the above table.
For 2009 awards onwards, the Committee has recommended the reinvestment of dividends earned on award shares, such shares to invest
in proportion to the vesting of the original award shares. This is in line with best practice as contained in the ABI guidelines on executive
remuneration. Following this recommendation the shares awarded in 2009 under the Performance Share Plan earned interim dividends of 6p
per share and were reinvested in shares at a cost of £3.86 per share.
17399
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
127
22. Share-based payments continued
A reconciliation of option movements for the share award plans over the year to 2 April 2010 are shown below:
Outstanding at start of year
Granted
Shares representing dividends reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year
2 April 2010
3 April 2009
Weighted
average
exercise
price
(£)
2.36
1.51
3.91
—
0.98
2.68
2.33
2.16
Number
(’000)
6,943
1,596
12
—
(925)
(553)
7,073
298
Weighted
average
exercise
price
(£)
2.59
2.04
—
—
0.07
2.58
2.36
2.60
Number
(’000)
4,558
4,239
—
(173)
(126)
(1,555)
6,943
294
The number and weighted remaining lives for outstanding share award plans is as follows:
2 April 2010
3 April 2009
Weighted
average
exercise
price
£1.93
£2.60
£2.61
£3.01
£3.07
£3.22
£3.46
£3.99
£0.00
Number of
shares
(’000)
Weighted average
remaining life (years)
Expected Contractual
1,167
194
279
47
1,647
237
464
1,347
1,692
1.8
—
2.8
1.1
3.2
0.8
4.2
2.1
1.8
1.3
4.2
2.3
6.3
8.3
0.3
9.3
7.3
1.8
Weighted
average
exercise
price
£1.93
£2.60
—
£3.01
£3.07
£3.22
—
£3.99
£0.00
Number of
shares
(‘000)
Weighted average
remaining life (years)
Expected
Contractual
1,350
293
—
254
1,803
287
—
1,455
1,501
2.8
—
—
1.8
4.2
1.8
—
3.1
1.6
2.3
5.2
—
5.5
9.3
1.3
—
8.3
1.6
The weighted average exercise price during the period for options exercised was £0.98 (2009: £0.07). The total charge for the year relating to
employee share-based payment plans was £2.5m (2009: £1.7m), all of which related to equity-settled share-based payment transactions.
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Notes to the Financial Statements
23. Commitments
Capital expenditure: Contracted but not provided
2010
£m
3.9
At 2 April 2010, the Group was committed to making payments in respect of non-cancellable operating leases in the following periods:
Within one year
Later than one year and less than five years
After five years
Land and
buildings
2010
£m
90.5
328.3
392.7
811.5
Other
assets
2010
£m
Land and
buildings
2009
£m
1.2
1.5
0.8
3.5
79.8
305.9
390.4
776.1
2009
£m
1.5
Other
assets
2009
£m
1.2
1.2
—
2.4
The Group leases a number of stores and warehouses under operating leases of varying length for which incentives/premiums are received/
paid under the relevant lease agreements. Land and buildings have been considered separately for lease classification. The operating lease
commitments are shown before receipts of sublet income, which totalled £7.1m (2009: £7.6m).
24. Pensions
Employees are offered membership of the Halfords Pension, which is a contract based plan, where each member has their own individual
pension policy, which they monitor independently. The costs of contributions to the scheme are charged to the income statement in the period
that they arise. The contributions to the scheme for the period amounted to £3.2m (2009: £3.2m).
25. Contingent liabilities
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 2 April 2010 amounted to £3.2m (2009: £2.9m).
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
26. Related Party Transactions
Subsidiary undertakings
The Group’s ultimate parent Company is Halfords Group plc. A listing of all principal trading subsidiary undertakings is shown within the financial
statements of the Company on page 133.
Transactions with key management personnel
The key management personnel of the Group comprise the executive and non-executive Directors. 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
71 to 80. Key management compensation is disclosed in Note 4.
Directors of the Company control 0.33% of the ordinary shares of the Company.
27. Off balance sheet arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
129
Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors falling due within one year
Debtors falling due after one year
Creditors: amounts falling due within one year
Net current assets
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
2 April 2010
£m
3 April 2009
£m
Notes
4
5
5
6
6
7
8
8
8
172.1
7.0
0.1
26.9
27.0
(15.8)
11.2
(2.5)
180.8
2.1
146.5
0.2
32.0
180.8
0.3
207.3
207.6
(3.3)
204.3
—
211.3
2.1
145.6
0.2
63.4
211.3
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The notes on pages 132 to 134 are an integral part of the Company’s financial statements.
The Company has elected to prepare its financial statements under UK GAAP and the accounting policies are outlined on page 131.
The financial statements on pages 129 to 134 were approved by the Board of Directors on 10 June 2010 and were signed on its behalf by:
David Wild
Chief Executive
Nick Wharton
Finance Director
Company number: 04457314
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Reconciliation of Movements in Total Shareholders’ Funds
For the period
Profit for the period
Shares issued
Purchase of own shares — share buy-back
Employee share options
Dividends
Net decrease in total shareholders funds
Opening total shareholders’ funds
Closing total shareholders’ funds
52 weeks to
2 April 2010
£m
53 weeks to
3 April 2009
£m
1.4
0.9
—
2.5
(35.3)
(30.5)
211.3
180.8
35.3
—
(13.1)
1.7
(32.3)
(8.4)
219.7
211.3
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
131
Accounting Policies
Basis of preparation
The accounts of the Company are prepared for the period up to the Friday closest to 31 March each year. Consequently, the financial statements
for the current period cover the 52 weeks to 2 April 2010, whilst the comparative period covered the 53 weeks to 3 April 2009. The accounts are
prepared under the historical cost convention, except where Financial Reporting Standards requires an alternative treatment in accordance with
applicable UK accounting standards and specifically in accordance with the accounting policies set out below. The principal variation to the historical
cost convention relates to share based payments.
A consolidated cash flow statement has been included in the Halfords Group plc consolidated accounts. The Company has therefore taken
advantage of the exemption under FRS 1 (revised 1996) “Cash flow statements” not to produce a cash flow statement.
The Company has taken the available exemption not to provide disclosure required by FRS 29 “Financial instruments: disclosures”.
Share-based payments
The Company operates a number of equity-settled, share-based compensation plans that are awarded to employees of the Company’s subsidiary
undertakings.
In accordance with UITF Abstract 44 “FRS 20 (IFRS 2) — Group and treasury share transactions” the fair value of the employee services received
under such schemes is recognised as an expense in the subsidiary undertakings financial statements, which benefit from the employee services.
The Company has recognised the fair value of the share based payments as an increase to equity with a corresponding adjustment to investments.
Fair values are determined using appropriate option pricing models. The total fair value recognised is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is
based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
At each balance sheet date, the Company revises its estimates of the number of share incentives that are expected to vest. The impact of the revision of
original estimates, if any, is recognised as an adjustment to equity, with a corresponding adjustment to investments, over the remaining vesting period.
Investments
Investments in subsidiary undertakings are stated at the original cost of the investments. Provision is made against cost where, in the opinion of the
Directors, the value of the investments has been impaired.
Dividends
Final dividends are recognised in the Company’s financial statements in the period in which the dividends are approved by shareholders. Interim
equity dividends are recognised in the period they are paid.
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Notes to the Financial Statements
1. Profit and loss account
The Company made a profit before dividends for the financial period of £1.4m (53 week period to 3 April 2009: £35.3m). The Directors have
taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a profit and loss account for the
Company alone.
2. Audit fees
The audit fees payable by the Group to KPMG Audit Plc (2009: PricewaterhouseCoopers LLP) and their associates during the period were
borne by Halfords Limited. In the 52 weeks to 2 April 2010 and the 53 weeks to 3 April 2009 the Company did not expense any fees relating to
KPMG Audit Plc (2009: PricewaterhouseCoopers LLP).
3. Staff costs
The Company has no employees other than the Directors. Full details of the Directors’ remuneration and interests are set out in the
Remuneration Report on pages 71 to 80 which form part of the audited information.
4.
Investments
Shares in Group undertaking
Cost
As at 3 April 2009
Additions — share-based payments
Capitalised intercompany receivable
Additions — increase in subsidiary undertaking investment
Disposal of subsidiary undertaking investment
At 2 April 2010
£m
7.0
2.5
162.6
162.6
(162.6)
172.1
During the year an intercompany receivable was capitalised and transferred to investments. This was subsequently disposed of to another group
undertaking at cost. The additions in subsidiary undertakings in the year relate to Halfords Holdings (Jersey) 1 Limited and Halfords Holdings
(Jersey) 2 Limited.
The investments represent shares in the following subsidiary undertakings as at 2 April 2010 and the fair value of share based compensation
plans that are awarded to employees of the Company’s subsidiary undertakings.
Ordinary
shares
Incorporated
in
percentage
owned %
Principal
activities
Halfords Holdings (2006) Limited
Great Britain*
100
Halfords Holdings (Jersey) 1 Limited
Jersey
100
Halfords Holdings (Jersey) 2 Limited
Jersey
100
Intermediate
holding
company
Intermediate
holding
company
Intermediate
holding
company
* Registered in England and Wales.
In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
133
4.
Investments continued
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 2 April 2010 are as follows:
Subsidiary undertaking
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Halfords Investments (2010) LP†
Nationwide Autocentres Holdings Limited*
Nationwide Autocentres Limited*
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
* Shares held indirectly through subsidiaries undertakings.
† Wholly owned indirectly through subsidiary undertakings.
Principal activity
% Ownership of
ordinary equity shares
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories,
cycles and cycle accessories
Intermediate holding partnership
Intermediate holding company
Car servicing
Intermediate holding company
Intermediate holding company
100
100
100
100
—
100
100
100
100
All subsidiary undertakings are incorporated in Great Britain and registered in England and Wales, except for Halfords Holdings (Jersey) 1 Limited
and Halfords Holdings (Jersey) 2 Limited which are incorporated and registered in Jersey. All other subsidiary undertakings are dormant and did
not trade during the year.
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5. Debtors
Falling due within one year:
Amounts owed by Group undertakings
Other taxation and social security payable
Falling due after more than one year:
Amounts owed by Group undertakings
2010
£m
2009
£m
—
0.1
0.1
0.3
—
0.3
26.9
207.3
Amounts owed by Group undertakings that fall due after one year are subject to interest. At 2 April 2010 the amounts bear interest at a rate of
1.06% (2009: 3.4%)
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Falling due within one year:
Bank overdraft
Corporation tax
Amounts owed to Group undertakings
Falling due after more than one year:
Amounts owed to Group undertakings:
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2009
£m
0.1
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15.8
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0.1
3.2
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3.3
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134
Notes to the Financial Statements
7. Equity share capital
Ordinary shares of 1p each:
Allotted, called up and fully paid
2010
Number of
shares
2010
£000
2009
Number of
shares
210,710,960
2,107
209,786,251
2009
£000
2,098
During the prior period the Company acquired 4,687,816 of its own shares at a cost of £13.1m.
During the current period the Company’s share capital increased by 924,709 shares (2009: 125,406 shares) due to the exercise by employees
of share options. Details of shares exercised by scheme are shown in Note 22 of the Group’s financial statements.
In total the Company received proceeds of £0.9m (2009: £nil) from the exercise of share options.
Potential issue of ordinary shares
The Company has three employee share option schemes, which were set up following the Company’s flotation. Further information regarding
these schemes can be found in Note 22 of the Group’s financial statements.
Interest in own shares
At 2 April 2010 the Company held in Trust 1,113,985 (2009: 1,113,985) of its own shares with a nominal value of £11,140 (2009: £11,140).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value of
these shares at 2 April 2010 was £5.4m (2009: £3.4m).
8. Reserves
At 3 April 2009
Profit for the financial period
Share options exercised
Share-based payment transactions
Dividends
At 2 April 2010
Share
premium
account
£m
Capital
redemption
reserve
£m
Profit and
loss
account
£m
145.6
—
0.9
—
—
146.5
0.2
—
—
—
—
0.2
63.4
1.4
—
2.5
(35.3)
32.0
Total
£m
209.2
1.4
0.9
2.5
(35.3)
178.7
The Company settled dividends of £35.3m (2009: £32.3m) in the period, as detailed in Note 8 of the Group’s financial statements.
9. Related party disclosures
Under FRS 8 “Related party disclosures” the Company is exempt from disclosing related party transactions with entities over which it
wholly owns.
10. Contingent liabilities
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 2 April 2010 amounted to £3.2m (2009: £2.9m).
The Company’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
11. Off balance sheet arrangements
The Company has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
17399
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Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financials
135
Five Year Record
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit before non-recurring items
Non-recurring operating expenses
Operating profit
Net finance costs
Profit before tax and non-recurring items
Non-recurring operating expenses
Non-recurring finance costs
Profit before tax
Taxation
Taxation on non-recurring items
Profit attributable to equity shareholders
Basic earnings per share
Basic earnings per share before non-recurring items
52 weeks to
31 March
2006
£m
52 weeks to
30 March
2007
£m
52 weeks to
28 March
2008
£m
53 weeks to 52 weeks to
2 April
2010
£m
3 April
2009
£m
681.7
(335.0)
346.7
(257.6)
89.1
—
89.1
(12.1)
77.0
—
—
77.0
(23.4)
—
53.6
23.6p
23.6p
744.0
(367.9)
376.1
(282.6)
93.5
—
93.5
(12.6)
83.5
—
(2.6)
80.9
(24.3)
0.8
57.4
25.8p
26.6p
797.4
(394.9)
402.5
(301.5)
101.0
—
101.0
(10.8)
90.2
—
—
90.2
(26.2)
—
64.0
29.3p
29.3p
809.5
(388.1)
421.4
(329.7)
104.0
(12.3)
91.7
(14.2)
94.4
(12.3)
(4.6)
77.5
(26.3)
4.6
55.8
26.6p
32.5p
831.6
(378.9)
452.7
(340.4)
119.7
(7.4)
112.3
(2.6)
117.1
(7.4)
—
109.7
(34.1)
1.4
77.0
36.8p
39.7p
Weighted average number of shares
227.1m
222.9m
218.4m
209.5m
209.1m
Key Performance Indicators
Revenue growth
Gross margin
Operating margin
52 weeks to
31 March
2006
52 weeks to
30 March
2007
52 weeks to
28 March
2008
53 weeks to 52 weeks to
2 April
2010
3 April
2009
+8.6%
50.9%
13.1%
+9.1%
50.6%
12.6%
+7.2%
50.5%
12.7%
+1.5%
52.1%
11.3%
+2.7%
54.4%
13.5%
17399
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Analysis of Shareholders
As at 2 April 2010, the number of registered shareholders was 2,898 and the number of ordinary shares in issue was 210,990,824.
Range of holdings
1–5,000
5,001–10,000
10,001–50,000
50,001–100,000
100,001–500,000
500,001 & above
Total
Held by
Individuals
Institutions
Total
No. of % of total
holdings shareholders
No. of % of Issued
shares Share Capital
2,331
116
164
78
121
88
2,898
1,422
1,476
2,898
80.4
4.0
5.7
2.7
4.2
3.0
3,042,178
829,796
4,048,040
5,841,264
29,463,647
167,765,899
1.4
0.4
1.9
2.8
14.0
79.5
100.0
210,990,824
100.0
49.1
50.9
2,713,403
208,277,421
100.0
210,990,824
1.3
98.7
100.0
The data above includes 279,864 shares awaiting cancellation, as part of the Company’s ceased share buy-back programme.
Results and financial diary
Annual General Meeting: 27 July 2010.
Final dividend: 6 August 2010.
Record date: 2 July 2010.
Ex dividend date: 30 June 2010.
Pre-close statement: 7 October 2010.
Half-year report: 18 November 2010.
Annual General Meeting
The Annual General Meeting will be held on Tuesday 27 July 2010
at the Alveston Manor Hotel, Clopton Bridge, Stratford upon Avon,
Warwickshire. CV 37 7HP.
Each shareholder is entitled to attend and vote at the meeting.
Company Information
Registered & Head Office
Halfords Group plc
Icknield Street
Redditch
Worcestershire
B98 0DE
Registrars
Capita IRG PLC
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Auditors
KPMG Audit Plc
One Snowhill
Snowhill
Queensway
Birmingham
B4 6GH
Joint Brokers
Bank of America Merrill Lynch
2 King Edward Street
London
EC1A 1HQ
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Solicitors
Clifford Chance
10 Upper Bank Street
London
E14 5JJ
17399
14/06/2010
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we go the extra mile
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
01
01
01
02
04
05
See inside back cover for easy reference contents
About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
06
1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
08
16
26
34
42
52
60
62
66
71
81
Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Statement of Directors’
Responsibilities
Consolidated Statement of Changes
93
in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Statement of
Cash Flows
Consolidated Income Statement
90
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
91
Accounting Policies
Notes to the Financial Statements 103
92
Company Balance Sheet
129
130
131
94
95
96
Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
135
135
136
136
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financialreport
Easy Reference
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
01
01
01
02
04
05
About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
06
1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
08
16
26
34
42
52
60
62
66
71
81
Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Statement of Directors’
Responsibilities
Consolidated Statement of Changes
93
in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Statement of
Cash Flows
Consolidated Income Statement
90
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
91
Accounting Policies
Notes to the Financial Statements 103
92
Company Balance Sheet
129
130
131
94
95
96
Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
135
135
136
136
we go the extra mile
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
01
01
01
02
04
05
See inside back cover for easy reference contents
About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
06
1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
08
16
26
34
42
52
60
62
66
71
81
Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Statement of Directors’
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Consolidated Statement of Changes
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in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
88
Independent Auditors’ Report to the
Members of Halfords Group plc
89
Consolidated Statement of
Cash Flows
Consolidated Income Statement
90
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
91
Accounting Policies
Notes to the Financial Statements 103
92
Company Balance Sheet
129
130
131
94
95
96
Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
135
135
136
136
Halfords Group plc
Annual Report & Accounts for period ended 2 April 2010
Online version
halfords.annualreport2010.com/financialreport
Easy Reference
halfords.com
Introduction
Our Investment Proposition
Our Strategy
Group Long-Term Vision
Financial and Operational
Highlights
How We Report
Chairman’s Statement
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About Halfords
Halfords Value Diagram
Business Review
Business Review
Finance Director’s Report
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1 Markets and Brands
2 Products and Services
3 Channels
4 Supply Chain
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Responsibility
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Corporate Social Responsibility
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Financials
Statement of Directors’
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Consolidated Statement of Changes
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in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
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Independent Auditors’ Report to the
Members of Halfords Group plc
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Consolidated Statement of
Cash Flows
Consolidated Income Statement
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Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to Consolidated
Statement of Cash Flows
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Accounting Policies
Notes to the Financial Statements 103
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Company Balance Sheet
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Accounting Policies
Notes to the Financial Statements 132
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
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we go the extra mile
we go the extra mile
we go the extra mile
Geared
for Growth
Halfords Group plc
Annual Report & Accounts for period ending 2 April 2010
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Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2010
halfords.annualreport2010.com
Online Annual Report 2009
halfords.annualreport2009.com
224
halfords.annualreport2010.com
Stock Code LON:HFD
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Fold out page for easy reference contents
we go the extra mile
we go the extra mile
we go the extra mile
Geared
for Growth
Halfords Group plc
Annual Report & Accounts for period ending 2 April 2010
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Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2010
halfords.annualreport2010.com
Online Annual Report 2009
halfords.annualreport2009.com
224
halfords.annualreport2010.com
Stock Code LON:HFD
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