Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2011
halfords.annualreport2011.com
Online Annual Report 2010
halfords.annualreport2010.com
Halfords Group plc
Annual Report & Accounts for period ending
1st April 2011
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life on the move
halfords.annualreport2011.com
Stock Code LON:HFD
18559 7/06/2011 Proof 3
halfordscompany.com
Shareholder Notes
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
149
Introduction
Investing in “life on the move”
Group at a Glance
Retail Categories at a Glance
Business Model
Financial Highlights
Chairman’s Statement
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About Halfords
Market Review
Retail Strategy
Retail KPIs
Autocentre Strategy
Autocentre KPIs
People and Culture
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Performance
Chief Executive’s Review
Finance Director’s Report
Risks and Uncertainties
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Corporate Social Responsibility
CSR Report
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Operational Resources
Group Resources and Capabilities 52
Resources and Capabilities
57
Governance
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
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Statement of Directors’
Responsibilities
Consolidated Statement of Changes
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in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
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Members of Halfords Group plc
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Consolidated Statement of
Cash Flows
Consolidated Income Statement
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Notes to Consolidated
Statement of Cash Flows
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Accounting Policies
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to the Financial Statements 111
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Company Balance Sheet
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Accounting Policies
Notes to the Financial Statements 141
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
01
Investing in “life on the move”
We ARe
•
The UK’s leading retailer of automotive and leisure products
•
The UK’s leading operator in garage servicing and auto repair
• Cash generative
•
Focused on the assets we own and how we are managing these to create growth
We HAve
• Many brands and product categories which hold number one sales positions in the UK
• Strong competences and capabilities:
Unrivalled scale and national coverage
Skills in brand management and maximising marketing opportunities
A unique service proposition
Multichannel integration
Agile international sourcing
We plAn to
• Grow earnings sustainably
• Maintain our leading core retail positions
•
•
•
Expand the brand in automotive aftercare
Leverage our core capabilities in the retail sector
Increase multichannel penetration
• Maintain an efficient Balance Sheet across the financing cycle
We DelIveR
products and services that facilitate
“life on the move”
for our customers
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Introduction
Group at a Glance
The Halfords Group operates through two reportable
segments or strategic business units — “Retail” and
“Car Servicing” in the United Kingdom (UK) and the
Republic of Ireland (ROI).
Halfords Autocentres provides car service, repair and
MOTs to both retail and fleet clients throughout the UK.
The Autocentres proposition provides customers with an
unrivalled value and service offer from a trusted brand.
Halfords Retail manages its business through the three
categories of Car Maintenance, Car Enhancement and
Leisure (Travel Solutions & Cycling). The retail product
ranges are marketed through a national network of stores
and through an innovative multichannel offer which
combines website promotion with a number of different
delivery or collection options, backed by in-store services.
Halfords marketing expertise is used to promote both
businesses through a multitude of broadcast, narrowcast
and traditional media presenting our valuable services
which facilitate “life on the move” for our customers.
Retail
Halfords Retail employs approximately 9,300 staff and sells over 14,400
different product lines with significant ranges in car parts, in-car technology,
child seats, cycling, roof boxes, outdoor leisure and camping equipment.
Halfords Retail trades from 466 stores located throughout the UK and the ROI
and online through halfords.com and halfords.ie websites.
Turnover
£771.6m
Operating Profit (before
non-recurring items)
£123.3m
Operating profit was £115.8m
(2010: £111.9m)
Autocentres
Halfords Autocentres employs 1,700 staff and is a leading UK independent
car servicing and repair operator offering maintenance, service, MOT and
repair services at competitive prices and excellent standards of customer
service.
Halfords Autocentres trades from 240 car servicing centres located in the
United Kingdom.
Turnover
£98.1m
Operating
Profit
£7.0m
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
03
Group Revenue
Retail
88.7% £771.6m
Autocentres
11.3% £98.1m
Group
Revenue
£869.7m
Car maintenence
31% £242.6m
Car enhancement
29% £219.6m
Leisure
40% £309.4m
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on page 52
Greater
London
Greater
Manchester
Read more
on page 58
West
Midlands
London
Read more
on page 68
“Halfords’ retail stores are
located within 20 minutes’ drive
for 90% of the UK’s population.”
UK and ROI Coverage
Halfords Stores
“Having a small market share
of the £9bn aftercare market
provides significant scope for
growth.”
New Autocentres in FY11
new centres
existing centres
UK and ROI Coverage
Halfords Autocentres
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Introduction
Retail Categories at a Glance
Car Maintenance
Car maintenance encompasses our 3Bs (bulbs,
blades and batteries), oils, spark plugs, paint
sprays, rust repair, Haynes manuals, winter
car care, tools, lifting and storage, car polish,
shampoo, pressure washers
Car Enhancement
Car Enhancement encompasses Sat Nav and
accessories, DVD, Audio systems, speakers,
portable media devices, FM transmitters,
Bluetooth connectivity, Car Accessories
(seat covers, air fresheners, wheel trims),
Performance Styling (graphics, alloy wheels,
gear knobs)
Leisure
Cycling
Childrens bikes, Mountain bikes, BMX, Hybrid/
Commuting bikes, Specialist bikes, Folding
bikes, Electric bikes and cycle accessories
Travel Solutions
Child safety seats, camping, roof boxes, trailers,
mobility products and safety equipment
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Category Strengths
needs driven demand
established brand is natural destination
for customers
Huge range and national availability
leveraged through in-store services
Category Strengths
Contemporary and innovative ranges drive
a product led market
Competitive international buying maintains
good margins
effective promotion of own brands
through multichannel offer
Market leader in Sat nav, Audio and DAB
radio roll-out
Category Strengths
value driven and environmentally friendly
solutions for leisure and holidaying
new cycle ranges launched across
Carrera, Voodoo and Boardman in 2011 and
launch of new child seat range Pampero
tight integration with multichannel drives
sales of price led ranges
Consistent growth in camping as Halfords
becomes known for “life on the move”
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
05
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on page 58
Read more
on page 59
Read more
on page 60
18559
20/06/2011
Proof 6
06
Introduction
Business Model
Halfords has core competences in marketing, branding, store
retailing, distribution and international sourcing which allow value
to be generated while meeting market needs. It is now leveraging
these competences into Car Servicing.
Range strategy follows our strategic thread of “life on the move”
and encompasses Car Maintenance, Car Enhancement and
Leisure categories. Halfords has grown market share,
consolidating fragmented markets with a national store network
and strong brand management.
Evolving buyer trends have been met by developing a dynamic
web offer which has enabled the Company to leverage average
transaction values and drive many web customers into stores.
With the evolution of more compact and complex vehicles, the
reduced interest for self service and an escalating main dealer
service price list, Halfords has augmented the retail offer with
in-store fitting services. This increases average transaction value,
and allow store colleagues to up-sell and attach accessories to
the sales whilst improving customer service and loyalty.
The successful expansion of our retail offer through in-store
services has driven the decision to invest in car servicing given
similar market drivers to our successful Car Maintenance
category. Halfords now also runs the largest chain of UK car
service centres providing service, repair and MOTs.
As a retailer Halfords makes a profit from the combination of
low cost sourcing and supply chain coupled with excellent
marketing skills and a national store network, leveraging these
skills in the car service sector by running an efficient service offer
that profits from scale and efficiency. Halfords Autocentres
provides services cheaper than most franchised garages and
more comprehensively than many independent garages.
“Range strategy follows our
strategic thread of ‘life on the
move’ and runs from cycles to car
maintenance”
life on the move
Our customers lead busy lives — there aren’t enough hours in
the day. The school run, the commute, the pick-ups and drop-
offs, the visits to families and friends, the holidays and free time.
Each year families make thousands of journeys as essential parts
of their daily lives. They need to keep moving for work and family
and they want to travel for their holidays and enjoy active leisure
time wherever possible. Our customers are living their lives on
the move.
At Halfords we understand how journeys are at the heart of work
and family life, and through our great products, expert advice
and service we are focused on helping our customers stay on
the move. We stock the products they need to maintain and
enhance their vehicles and we have cycles for every age and
discipline. Through our expert colleagues we offer advice and
added value services to ensure our customers make the best
choices around their “life on the move”.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
07
Financial Highlights
Revenue
+4.6%
at £869.7m
(2010: £831.6m)
+7.2%
+1.5%
£797.4m
£809.5m
+2.7%
+4.6%
£831.6m
£869.7m
Underlying
Operating Profit*
+7.0%
at £128.1m
(2010: £119.7m)
+15.1%
+8.0%
+3.0%
£119.7m
£101m
£104m
+7.0%
£128.1m
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2009
2010
2011
2008
2009
2010
2011
Operating profit was £120.6m (2010: £112.3m)
Profit
before tax
+7.7%
at £118.1m
(2010: £109.7m)
+7.7%
£118.1m
+41.5%
£109.7m
+11.5%
£90.2m
-14.1%
£77.5m
Underlying Profit
before tax*
+7.2%
at £125.6m
(2010: £117.1m)
+8.0%
£90.2m
+4.7%
£94.4m
+7.2%
£125.6m
+24.0%
£117.1m
2008
2009
2010
2011
2008
2009
2010
2011
Underlying Basic
earnings per
share*
+8.8%
at 43.2p
(2010: 39.7p)
+22.2%
+8.8%
43.2p
+10.9%
39.7p
+13.6%
29.3p
32.5p
Dividend per
ordinary share
+10.0%
at 22.0p
(2010: 20.0p)
+9.0%
15.1p
+5.3%
15.9p
+10.0%
22.0p
+25.8%
20.0p
2008
2009
2010
2011
2008
2009
2010
2011
Basic earnings per share was 40.7p (2010: 36.8p)
* before non-recurring items
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Introduction
Chairman’s Statement
Dennis Millard
Chairman
“To complement the product offer,
store colleagues are charged with
providing expert customer advice and
delivering a suite of value-for-money
wefit services. ”
Financial year 2011 has seen an extended period of economic
uncertainty and a fragile consumer market, a new Government in
May 2010, an austerity budget in June and an increase in VAT to
20% in January 2011. Recognising this backdrop, management
has focused on strengthening the core Halfords Retail division
and on delivering its development plan for the recently acquired
Autocentres business.
In Retail, revenue was down 5.2% reflecting the tough trading
environment, but operating profit rose by 1.5% (excluding Central
Europe) due to both margin expansion and costs being tightly
managed. A number of significant change initiatives including the
reconfiguration of the Group’s warehouse and distribution
network and the remodelling of staffing structures began to bear
fruit, albeit after some disruption during the year, and the closure
of our Central European operations was completed as
scheduled. Our Autocentres business contributed £7million
operating profit in its first full year and, although below our initial
target, we are pleased with this investment.
As a result, growth in both underlying profit before tax of 7.2%
and in earnings per share of 8.8% was achieved. Importantly,
cash generation was robust, as is the Group’s financial position.
This has enabled the Board to recommend a final dividend of 14
pence per share resulting in a total of 22 pence for the year, an
increase of 10% over the dividend of 20 pence paid last year.
The strength of the Group’s cash flows and financial position will
enable the Board to ensure that shareholders continue to enjoy
an attractive dividend distribution in the years ahead.
In November 2010, we secured a four year £300m revolving
credit facility. This provides the Group with sufficient headroom
and undrawn financing facilities to service its operating activities,
working capital and on-going capital investment. In addition, in
April 2011 we commenced a £75m share buyback programme.
This reflects the Board’s policy of maintaining an efficient capital
structure.
Halfords Retail maintains market-leading positions across a
unique blend of product categories that are made available to
customers via a truly national 466 store network and a highly
responsive multichannel offer. To complement the product offer,
store colleagues are charged with providing expert customer
advice and delivering a suite of value-for-money wefit services.
Dedication to this high service mantra for our customers is
sacrosanct and non-negotiable.
Having acquired Nationwide Autocentres in February 2010, we
have embarked upon a re-branding of the entire network. This
was concluded in March 2011 and was heralded by the launch
of a new radio advertising campaign and revamped website.
Since then, the boost in revenues has been most encouraging.
The plan remains to open some 30 stores in FY12.
As the Group entrenches its reputation as the UK’s natural
destination for “Life on the move”, products and services, we
launched a consolidated national advertising campaign “that’s
helpful that’s halfords”. The objective is to reinforce the service
proposition that Halfords offers to its customers through a simple
message.
At a time when the environment has been difficult for customers,
David Wild, our Chief Executive Officer, and his experienced
executive team have managed the business with vigour. They
have adopted a trading strategy that offers great value, expert
services and many new products, including the re-launch of our
entire Premium Cycle range and the re-branding of the Halfords
Autocentres, whilst maintaining a clear focus on cost control
across the Group.
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
09
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This year we welcomed to the board, Claudia Arney, who provides the
board with broad multichannel experience, David Adams, with deep
experience in retail and finance and who now chairs the Audit
Committee, and Andrew Findlay as Finance Director with strong retail
and finance credentials, latterly with Marks & Spencer. Nigel Wilson has
stepped down from the board after seven years having been Audit
Committee chairman and latterly our SID. Nick Wharton, our previous
Finance Director also left the board after four years as a director with
Halfords. We wish them both well and thank them for their dedicated
service.
The Board has endeavoured to provide strong entrepreneurial
leadership and governance. We have met on a number of occasions
outside the scheduled nine meeting calendar as the need arose to
consider new opportunities and challenges. Each member is actively
engaged in interacting frequently with the management and my key role
as chairman is to provide an open and challenging environment on the
board. Given the recent changes to the board, we decided to postpone
our annual board review until late in the year to give the new members
the opportunity to settle in to Halfords. We then undertook a more
personalised Board evaluation process than in the past, the learning’s
of which will be adopted in the year ahead.
On behalf of the board, I would 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, and
also to the 1,700 Autocentre staff who have performed so well in their
first year as Halfords colleagues.
Since the beginning of the 2012 financial year, the underlying UK
consumer environment has remained difficult though the unusually
warm weather and proximity of numerous bank holidays in April
resulted in a surge in retail spending. This was particularly evident in our
Cycling and Travel Solutions categories on the back of an improving
trend in the last quarter of FY11. Within Autocentres, the customer
response to the re-branding has been heartening and the long-term
growth opportunity of this business remains compelling. We have,
however, drawn up our plans for the year ahead on the assumption of a
challenging environment for the remainder of the year and will continue
to pursue a strategy that further strengthens Halfords’ unique market-
leading product, multichannel and service propositions.
Dennis Millard
Chairman
8 June 2011.
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Business Review
Business Review
466
Business Review
Market Review
Retail Strategy and KPIs
Autocentre Strategy and KPIs
People and Culture
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Use your phone’s
bar code app and
go directly to the
relevant page on
our website.
halfords.annualreport2011.com/br
Go
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
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12
Business Review
Market Review
United Kingdom (UK) & Republic of Ireland (ROI)
The Halfords business operates through retail stores, Autocentres and
websites in the UK & ROI. We continue to grow market share in our core
markets sectors where we have leading positions in attractive markets.
Our unique proposition creates value for customers through a combination of
range, price, quality and service delivered through our multichannel offer by
our colleagues who extend expert advice and service, thus differentiating
Halfords from its competition.
The UK has been the core market since the Company was founded in 1892
and we have operated in the ROI since 2006.
Our Customers
Halfords Retail
The economic climate during the last year has created uncertainty for
customers and reduced household incomes. All retailers have been
affected through a reduction in discretionary expenditure on non-
essential purchases and we have also seen customers delaying items
like car repairs and servicing. A secondary effect is that fuel prices have
led to motorists reducing mileage and hence their need for car products
associated with normal wear and tear.
As a result sales across the year have been more difficult and we have
not grown sales at the levels we would like to.
Even in a tougher climate Halfords looks to drive sales. Our response
has been to focus on the needs of our customers for better value and
to work hard to deliver this through a combination of great prices,
innovative quality products and expert advice and service.
Looking to the year ahead we expect it to be just as demanding for our
customers.
Halfords has market-leading positions in long-term resilient categories
and we have worked hard to rebalance our prices and reinvigorate our
ranges with innovative new products. Our Autocentres have been
rebranded and we are now leveraging the strength of the Halfords
brand in that market. We have launched initiatives to deliver sales
growth and supported these with a new marketing campaign — “that’s
helpful that’s halfords” — which emphasises Halfords’ credentials.
These initiatives give us the potential to trade more strongly in the year
ahead.
We retail from 466 stores in the UK and ROI, of which 402 are
“Superstores”, 29 are mid-sized “Compact” stores and 35 are the
smaller “Metro” stores. In most catchments the preferred location is a
7,500 sq ft unit on an edge of town retail park with parking for around
20 cars. This is allows us to locate a superstore format which can carry
some 10,000 lines.
Around the country 90% of the UK population are within a 20 minute
drive of one our stores.
The Halfords retail business is split across three main product
categories: “Car Maintenance”, “Car Enhancement” and “Leisure”.
Our UK and ROI websites carry our most comprehensive product
selection and currently display 14,400 product lines. They received 40.5
million visitors in the year to March 2011. Our web traffic is growing at
an annual rate of 35% and 81% of online sales are through our industry
leading Reserve and Collect channel. Here customers buy online and
collect from their nearest store, which allows us to provide further
advice for customers and additional sales of accessories.
In the product categories, Car Maintenance is market-led with
customers making needs based purchases. These are either to replace
worn or failed parts like car bulbs, wiper blades and batteries or to
meet legislative, manufacturer guidelines or safety concerns. This
market is relatively robust and driven by the large and ageing UK car
parc. Car Enhancement is technology led and depends largely on
innovation to drive the market; it also responds to changes in
discretionary income. 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.
18559
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Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
13
Multichannel Revenue Growth
+36.4%
+36.4%
£70.1m
+37.1%
£51.4m
+93.3%
£37.5m
£19.4m
2008
2009
2010
2011
Our response has been to
focus on the needs of our
customers for better value
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Halfords Autocentres
Halfords Autocentres is the largest independent chain of car service
garages in the country, comprising 240 centres. The chain was acquired
in February 2010 and over the last year it has been fully rebranded as
Halfords Autocentres. The car maintenance market is worth
approximately £9bn annually, of which Halfords has approximately a 1%
market share. The market is fragmented: at one end are the more
expensive franchise dealers and at the other small independent garages.
Since rebranding, the centres have been relaunched with a national
advertising campaign to raise awareness and more proactive customer
relationship management.
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 the Halfords brand is
expected to add further value to an already successful service offer.
Fleet customers tend to operate cars under three years old and
recognise the cost saving benefits of a non-franchised, high quality,
national organisation.
£9bn car
aftercare
market
466 stores
and 240
Autocentres
18559
20/06/2011
Proof 6
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14
Business Review
Retail Strategy and KPIs
Our Retail strategy is built on the four pillars of
Extending Range and Services
Investing in the Store Portfolio
Ongoing focus on cost control
Leveraging the Halfords brand in multichannel
Retail Strategy
Extending Range and Services
Investing in the Store Portfolio
Halfords’ trading strategy is aimed at increasing the number of
products purchased by customers on each visit to a store
through dynamic use of store space in order to sell products
which are seasonally relevant or which are being specifically
promoted. The Directors have also increased staff participation in
sales-related incentive schemes and have implemented specific
incentives at peak trading periods to help drive sales.
The Directors intend to continue to leverage Halfords’ brands
into new categories and new product ranges within existing
categories. This is one route to increasing sales. During the year
we introduced a variety of new products across our categories.
These include innovative new designs like longer life car light
bulbs, extension of our existing ranges, like new camping lines
and entirely new ranges like our mobility products. In the coming
year we will launch three new cycle ranges within our own brand
Carrera, and our exclusive Voodoo and Boardman ranges.
We are also expanding the services we offer. Halfords has a
progressive approach to service, that provides fitting of many of
the products that we sell. We now fit 23% of all the blades, bulbs
and batteries we sell. We will also undertake oil top-ups and fit
Sat Navs, child seats and roof boxes. Our move into Autocentres
is a significant demonstration of our approach to extending the
service that we offer motorists to include mechanical repairs,
MOT and car servicing offer.
The Group has considerable experience in both converting
existing stores and opening new stores. This year we have
opened five new stores, closed one and relocated three, as well
as refurbishing 26 others. Our active store refresh programme is
working across the estate to rebalance the store layout and
signage around the key areas of growth and customer focus
within our stores.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
15
Retail Revenue
£771.6m
We will be launching 3 new cycle
ranges within our own brand
Carrera, and our exclusive voodoo
and Boardman ranges.
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Car maintenence
31% £242.6m
Car enhancement
29% £219.6m
Leisure
40% £309.4m
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Ongoing focus on cost control
To provide the flexibility to invest in our customer offer we are
vigilant across the business on cost control. We look for ways to
reduce unnecessary overheads wherever possible. Operating
expenses for the UK/ROI business, before non-recurring items,
at £296.2m, were down 7.4% on the prior year. This decrease
reflected reductions across all key cost categories. The benefits
from the review of store labour rotas and structures combined
with lower than planned colleague store incentive payments
drove an £8.7m reduction in store staffing costs. Warehouse and
Distribution costs fell marginally by 0.8%.
Leveraging the Halfords brand in multichannel
A major facet of our strategy is to stay at the forefront of
multichannel development. Our brand is growing rapidly online
as customers turn to the internet to research and buy products.
We have invested in our dot com platform and developed a true
multichannel approach where 85% of our internet purchases are
researched and collected from our stores. Our unique product
mix strongly favours added value, so when customers come to
store we can offer further advice and fitting services.
Our brand is growing rapidly
online as customers turn to
the internet to research and
buy products.
Online Product Ranges
14,400
Online
10,000
Superstore
Option to
‘Reserve & Collect’
14,400 lines from
every store type
6,000
4,200
Compact
Metro
Figures quoted are for typical store examples
Multichannel Revenue Growth
+36.4%
+36.4%
£70.1m
+37.1%
£51.4m
+93.3%
£37.5m
£19.4m
2008
2009
2010
2011
18559
20/06/2011
Proof 6
16
Business Review
Retail Strategy and KPIs
Retail KPIs
KPI
Definition
Strategy
Commitment
Like-for-like sales represent revenues
from stores trading for greater than
365 days and include revenues
denominated in foreign currencies
translated at constant rates of
exchange.
The stores offer a fitting/repair service
when customers purchase
replacement products such as car
bulbs, windscreen wiper blades and
batteries (3Bs).
Extending range
and services.
We are committed to maximising our like-
for-like sales opportunities in whatever
economic environment we find ourselves.
Extending range and
services.
Expert knowledge, advice and service
remain at the heart of the Halfords customer
offer and, specifically through fitting,
differentiate and defend the Halfords offer
and generates attractive levels of return.
Like-for-like sales
wefit/werepair jobs*
* This KPI includes the
sale of bike care plans.
Number of Stores
The quality Halfords retail store is a
key element of our customer
proposition and a source of
competitive advantage.
Investing in the store
portfolio.
Number of
Stores refreshed/
refurbished
The layout and offering within our
stores is important as the two
formats of choice (superstore and
compact) allow us to reach both large
and small catchment areas.
Investing in the store
portfolio.
Costs
(as a % of sales)
Operating expenses from the Retail
business activities expressed as a
percentage of sales.
Ongoing focus on cost
control.
Online sales
(as a % of total revenue)
Sales enacted via the web, through
Reserve & Collect, Order & Collect
and Direct Delivery
Leveraging the
Halfords brand in
multichannel.
Online Penetration
(% of web customers
visiting stores)
Percentage of online sales using the
Reserve & Collect and Order &
Collect offer and visiting stores after
researching online.
Leveraging the
Halfords brand in
multichannel.
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Proof 5
We will continue to focus on national scale
as it supports our position as the store of
first choice, with 90% of our customers
within a 20-minute journey of one of our
stores.
We will continue to review the lines available
in each of our formats of choice, looking to
refresh or refurbish as appropriate as we
believe this enhances like-for-like sales
growth in these stores.
We are committed to an ongoing focus on
cost control. This ensures an efficient use of
resources and the correct cost base for the
prevailing economic conditions.
The internet is changing the way our
customers shop and providing us with new
opportunities to grow our business. In the
last few years we have introduced three
ways to shop online: Reserve & Collect,
Order & Collect and Direct Delivery.
Our strategy is to seamlessly integrate
halfords.com and our store operations. Our
research tells us that our customers like the
convenience of buying online but also want
to visit our stores for our expert advice and
added value services.
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
17
Annual performance
2007
2008
2009
2010
2011
+6.0%
+4.3%
-3.3%
+1.3%
-5.5%
1.18m
1.34m
1.70m
2.35m
2.54m
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37.8%
39.2%
40.0%
38.4%
1.17%
2.43%
4.67%
6.4%
9.2%
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20/06/2011
Proof 6
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In a difficult consumer environment
we have responded with a trading
strategy that offers great value and
expert services.
We have continued with our
advertising to raise the awareness
of our wefit services and have
supported this in-store with an
intense training programme to
ensure that our store colleagues are
trained to provide expert customer
advice and fitting services.
During the year we have opened
five new stores, relocated three
others and closed one.
We have refreshed 26 stores in
FY11, and these have reported
like-for-like sales growth ahead of
the retail average.
During the year the Retail business
completed on two key initiatives: a
reconfiguration of our distribution
centres and an in-store efficiency
programme. The full benefits of
these will be seen in FY12.
During FY11, actual online sales
rose by 36.4% to £70.1m. This
performance was driven by
increases in Car Maintenance,
46%; Travel Solutions, 57%; and
Cycling, 42%.
The development of our Order &
Collect offer (launched in January
2010), whereby customers order
online but collect direct from the
stores, has driven a 5.2% increase in
web customers visiting our stores.
18
Business Review
Autocentre Strategy and KPIs
Our Autocentre strategy is built on the four pillars of
Maintaining and growing service advantage
Investing in new centres
Maintaining low cost structure
Leveraging the Halfords brand
Autocentre Strategy
As planned the complete rebranding of 224 existing centres and the
opening of 16 new centres has met our predictions for year one.
Maintaining and growing service advantage
Maintaining low cost structure
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 only operate 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. The Autocentres business is the perfect balance.
We are always more competitive than franchised dealers and we
have the brand and reputation to put customers at ease and the
diagnostic computer technology to maintain most cars without
affecting warranties.
We are also targeting increased penetration of the fleet market.
There is growing realisation amongst fleet operators that our
business offers them the scope to lower the cost of maintaining
their vehicles without compromising the quality of the service
they receive in any way.
Investing in new centres
The second pillar of our sales growth strategy is to increase the
number of centres. Our research on the geography and
demographics of the £9bn car servicing and repair market and of
our local catchment sizes shows that there is scope for up
to 600 Autocentre locations throughout Britain. We will add new
centres at the rate of approximately 30 further locations per year
until we reach this point.
We aim to increase sales in existing centres and make use of
spare capacity in our technicians. Jobs per productive worker
per week have improved from 12.5 to 13.8 over the last five
years and we believe we can raise this to at least 17, i.e. a further
19% increase in revenue without needing more fixed cost or
more labour. We aim to improve customer retention at our
existing centres: over the last five years this has increased from
43% to 51.5% and we believe we can ultimately achieve 60%+.
We will achieve this through better marketing and use of
customer data. Our main commitment though is to the highest
levels of customer service and we measure this through the Net
Promoter Scoring which scores each centre on customer
feedback and recommendation.
Leveraging the Halfords brand
We are leveraging the Halfords brand in the car servicing sector
to cross sell our services to existing Halfords customers and to
recruit new ones. This will give our Autocentres significantly more
credibility and recognition and make our marketing much more
effective in attracting customers. Since acquiring our autocentre
business we have rebranded the entire estate as Halfords
Autocentres and launched our first high profile national media
campaign on radio.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
19
Autocentre customer types
Fleet
26.3%
Retail
73.7%
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New Autocentres in FY11
new centres
existing centres
Our target is to open new Autocentres
at a rate of 30 per year.
Greater
Manchester
West
Midlands
London
18559
20/06/2011
Proof 6
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Business Review
Autocentre Strategy and KPIs
Autocentres KPIs
KPI
Definition
Strategy
Commitment
Like-for-like sales
Like-for-like sales represent revenues
from centres trading for greater than
12 months.
Maintaining and growing
service advantage.
We are committed to maximising our like-
for-like sales opportunities in whatever
economic environment we find ourselves.
Fleet sales (as a % of
total sales)
Sales accessed from Car Fleet
operators.
Maintaining and
growing service
advantage.
The Company will continue to focus on
providing dealer quality services at
independent garage prices
Number of Centres
The number of Autocentre servicing
centres within the UK.
Investing in new centres.
Jobs per Productive per
Week (“jpppw”)
Total jobs undertaken by the
Company divided by the average
number of appropriate productive
technicians and apprentices
Maintaining low cost
structure.
Our research on the geography and
demographics of the £9bn car servicing and
repair market and of our local catchment
sizes shows that there is scope for up to
600 Autocentres.
We aim to increase sales in existing centres
and make use of spare capacity in our
technicians. We believe that we can raise
jpppw to 17, i.e. a further 19% increase in
revenue, without needing more fixed cost or
more labour.
Online Bookings
The number of service bookings
made via halfordsautocentres.com
against those made direct with
centres.
Leveraging the
Halfords brand.
Enhancing our online offer and further
extending our online presence through both
halfords.com and halfordsautocentres.com
is a Group investment priority.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
21
Annual performance
2007*
2008*
2009*
2010
2011
In a tough consumer environment,
where customers have been very
deliberate about their spending
plans we have experienced a
delaying effect as customers
manage their discretionary spend.
This strategy has helped drive Fleet
business, to the extent that fleet
cars now represent over 1 in every
4 cars serviced.
We have opened 16 new centres in
FY11, whilst at the same time
rebranding and refurbishing the
existing 224. We aim to open a
further 30 centres in FY12.
Jobs per productive worker per
week have improved from 12.5 to
13.8 over the last 5 years.
-0.6%
4.1%
1.2%
3.4%
-0.6%
21.9%
22.4%
22.6%
26.7%
26.3%
208
216
222
224
240
12.5
12.9
13.0
13.7
13.8
n/a
n/a
97,942
111,261
138,954
The development of a group
strategy and providing an
Autocentres link from Halfords.com
has driven an increase in online
bookings of 102% in March 2011.
* Data relates to the Autocentres business under previous ownership.
18559
20/06/2011
Proof 6
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Business Review
People and Culture
Delivering on helpful
Our brand and values serve the Group both internally and
externally. With over 109 years of heritage our brand, which
began as being associated with bikes, has progressed to be
synonymous as broader trusted retailer. Past research has
identified the Group has having the following characteristics;
■■ Offering a unique combination of products
■■ Being No.1 in a number of its core categories and being the
destination of choice for many markets
Within this offering Halfords and its colleagues have always gone
the extra mile for our customers and this has created an
environment in which store colleagues are always keen to help
customers to fulfil their purchase and service needs.
The “We go the extra mile” philosophy was delivered by
colleagues offering their help and creating an expectation of
service from the customer, however when questioned not many
customers were aware of the full range of products and services
available from Halfords.
During 2011 we commissioned our advertising agency, to
develop a new campaign, based on new market research. This
research confirmed the need for Halfords to focus on points of
differentiation, which were not being acknowledged by our
customers.
At a time of economic and household income pressures we were
seen as been judged on price not on value, there was a low
awareness of the value add services that made us different to
other retailers and with the launch of Halfords Autocentres we
were not building on consumer loyalty across a portfolio of
products and services that had never been wider.
The idea for a new campaign came from customers. Research
showed they think we are helpful. It’s also the principle reason
customers give when they recommend us to their friends. So our
new campaign speaks about one of our main strengths.
This is the start of a new era for Halfords, because we are giving
a public commitment to being helpful. And while helping is our
strength, customer feedback also throws up a lot of examples of
where we have fallen short of people’s expectations - in part
because they expect so much from us! So we do need to
redouble our commitment to understanding what customers
need and ensure we deliver helpful consistently for them.
We must also be focused on helping our front line colleagues.
Ultimately, helpful is delivered in store, but that can only happen if
we give our store colleagues all the support they need — the
products, the availability, the appreciation, the information.
that’s helpful that’s halfords will make a major difference for our
business and help us achieve our commercial goals. It will
encourage customers to be more loyal, recommend Halfords to
their friends and these actions will drive footfall and sales. We will
be a very different and better company.
There’s been a lot of hard work and preparation getting us to this
point. Each and every one of Halfords’ colleagues now has the
chance to take helpful to the next stage making it a living,
breathing part of our business. In delivering helpful we will be in
tune with our customers’ needs, make their, and our lives easier,
continue to go the extra mile for our customers and use all our
expertise to be helpful as we go public with our commitment.
The journey has begun.
What Customers want + What we do = helpful
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
23
Customer Response
Dear Halfords
I am sending you this email to express my extreme
satisfaction with the service that I have received from your
Northallerton, North Yorkshire branch.
fitted these for me - and again found that another part
number (aero bars) shown by Thule was incorrect as they
were wider than needed.
Working in the retail food industry, high levels of customer
service are high on my agenda seven days a week. I am
responsible for nearly 800 food stores and spend much of
my time encouraging great customer care.
A few weeks ago I took delivery of a new E Class
Mercedes Coupe and called into the store to buy a Thule
roof rack system and bike carriers. The problem that I
encountered was that having the model with a panoramic
glass sun roof, that when open lifts - the standard Thule
kit for the coupe was not suitable. The store manager Guy
spoke with Thule and called me back to advise that they
did not make a suitable kit for my car. This was despite the
Thule website indicating that they did - but showing
incorrect part numbers - that would not give sufficient
clearance for the roof to open.
I returned to the store and one of the team - Lee set to
and was determined to solve this issue. The relevant parts
were duly ordered and last Saturday Lee and a colleague
I now have a perfect solution that is 100% correct and I
am delighted.
The standard of customer care shown by Guy, Lee and his
colleague - name unknown as they were wearing orange
fluorescent jackets to keep dry in the heavy rain that did
not deter them.
When the job was completed, I offered them £10 to buy a
drink and Lee very politely declined saying that it was
company policy.
Your team really went the extra mile, and this is certainly
not the first time that my wife and I have had exceptional
service from the branch, they are a credit to your
company.
Sincerely
John
Northallerton
Dear Halfords
I felt I had to write to you and congratulate you on
your excellent service. I visited your Livingston, West
Lothian, store this morning and could not have been
treated any better. I wanted a car seat for my grand
daughter and the assistant, Heather, who attended to
me gave me all the help and advice I needed.
She explained all about the ISOFIX and even came
out to my car to look and see if I had it!!! She then
brought the seat out and showed me exactly how to
slip it into position. I will most certainly be
recommending you and thank you very much indeed
for your help.
It is so nice to walk out of a shop nowadays and be
able to tell people how well you were treated and
made to feel as if it mattered to the staff that you
were happy - Halfords certainly managed this today.
I am very happy.
Winnie Smith (Mrs)
West Lothian
Mobile News did a mystery shop of 5 shops (T Mobile, 02,
Carphone Warehouse, Orange and Halfords Warrington) asking
for a fully fitted car kit for handsfree calling. Halfords came out
top by a long way – with the reviewer writing: “Halfords was the
clear winner, combining available product with great service and
a good demonstration.”
The other was a blogger write up on The Baby Website, who
had gone into Halfords Aylesbury to have baby seats fitted for
her two young twins. Aaron did a great job of putting the
customer at ease and finding out exactly what she wanted.
Halfords Customer Service
Redditch
18559
20/06/2011
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24
Business Review
David Wild
Chief Executive
“Our ongoing focus is to offer great
value to our customers through the
quality and price of our products and
the expertise and service of our
colleagues.”
Use your phone’s
bar code app and
go directly to the
relevant page on
our website.
halfords.annualreport2011.com/ceo
Go
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
25
Business Review — Performance
Chief Executive’s Review
Finance Director’s Report
Risks and Uncertainties
26
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18559
04/05/2011
Proof 1
26
Business Review
Chief Executive’s Review
David Wild
Chief Executive
“In our Retail business we have also
built sales through Halfords.com,
made progress with our store
portfolio refresh programme and
significantly extended our wefit
services.”
Introduction
The UK and ROI retail sector is going through one of the
toughest times for many years. A combination of low economic
growth, higher taxes and successive increases in VAT to 20%
have reduced disposable income while higher raw material and
fuel costs have put pressure on input prices.
Halfords’ response has been to do what we do best — to offer
great value to our customers through the quality and price of our
products and the expertise and service of our colleagues. In our
Retail business we have also built sales through Halfords.com,
made progress with our store portfolio refresh programme and
significantly extended our wefit services. We have done this
whilst managing costs sensibly and investing for the future. Our
Autocentres business, acquired in February 2010, was
rebranded during the year and is now positioned to leverage the
Halfords brand in the automotive aftercare sector.
We completed the closure of our operation in Central Europe to
focus on the growth opportunities in the near term.
Review of Trading
In what has been a difficult trading year the Group generated an
7.2% increase in underlying PBT and continued cash generation
for shareholders through good cost management and margin
control with free cash flow of £54.7m, after paying dividends of
£46.2m.
Group sales were £869.7m, up 4.6% overall. This reflected the
acquisition of our Autocentres business, which added £98.1m of
sales to our Retail sales of £771.6m.
Within Retail, sales across the year on a like-for-like basis
(“LfL”) averaged -5.5% as customers responded to economic
conditions. Our sales performance was also affected by some
one-off factors like supply issues from the Far East following the
Chinese New Year, reduced availability during the commissioning
of our new Distribution Centre and the product balance in our
bike range.
Car Maintenance had a solid performance growing by 0.6% LfL
and a raise in market share. We saw strong sales during
December’s severe winter weather when products like anti-
freeze, de-icer and scrapers sold in record volumes.
Our wefit service has seen another year of strong growth. We
now fit 23.5% of the bulbs, blades and batteries we sell as more
customers look to Halfords for expert help with basic car
maintenance.
Car Enhancement suffered from the continued market
contraction of Sat Nav and Audio. Halfords consistently gained
share in a declining Sat Nav market across the year. Audio
gained market share in the last three months, through better
deals with branded suppliers and a focus on accessory sales.
In Leisure we again saw increases in the sales of tents and
camping equipment and increased market share. Cycle sales
were less buoyant, due in part to the range issues in the Spring/
Summer and winter snow that slowed sales pre-Christmas.
Halfords.com business has grown strongly across the year.
Sales have increased by 36.4% and now represent 9.2% of total
Retail sales. We have invested in better technology, site
information and deals.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
27
“While the sales performance has
been challenging, this year has been a
period of significant operational
progress for the group.”
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Group Revenue
Group
Revenue
£869.7m
Car maintenence
31% £242.6m
Car enhancement
29% £219.6m
Leisure
40% £309.4m
Retail
88.7% £771.6m
Autocentres
11.3% £98.1m
wefit/werepair
jobs
‘000s
+5.9%
+5.9%
2,263
+35.5%
2,136
+97.0%
1,576
800
2008
2009
2010
2011
Sales at our Autocentres business were also affected by
economic conditions and sales decreased by 0.6% LfL as drivers
cut back on mileage and deferred some repair work. We also
decided to delay our marketing spend until the completion of
rebranding and refurbishment of the whole Autocentres estate so
that we could advertise on a national basis. Since the relaunch of
the centres and a new Autocentres Website we have seen
encouraging signs of increased awareness and sales.
Operational progress
While the sales performance has been challenging, this year has
been a period of significant operational progress for the group.
Our major initiatives have enhanced customer service, reduced
costs and established a solid platform for future growth.
We successfully reconfigured our distribution network with a new
Distribution Centre at Coventry, equipped with state-of-the-art
logistics technology. Following some initial disruption, the new
DC is now running smoothly and was a major contributor to the
excellent availability of winter products in our stores pre-
Christmas. The second element of our revised logistics is our
Redditch warehouse dedicated to cycles.
We also reorganised our store staff structure and rostering
schedule and strengthened store management. This makes
more staff available to serve customers during peak periods,
provides a clearer career path for colleagues and brings savings
in our overall cost of labour.
New brand campaign
Our plans for the year ahead are supported by the launch of our
new brand campaign “that’s helpful, that’s halfords”. This
reinforces our unique service proposition, demonstrating how we
understand our customer’s needs and can help them live life on
the move. These initiatives give us the potential to trade more
strongly in the year ahead.
Retail
Our consistent strategy continues to provide a roadmap for the
development of our retail business.
Whilst the economic environment will remain tough in the year
ahead, we remain confident that our leading positions in strong
markets, and the continued development of our multichannel
offer will continue to provide good opportunities for future
growth, backed by active gross margin management and tight
cost control.
Our ongoing focus is to offer great value to our customers
through the quality and price of our products and the expertise
and service of our colleagues.
18559
20/06/2011
Proof 6
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28
Business Review
Chief Executive’s Review continued
We will:
1. Extend our range and service advantage
2. Invest in our store portfolio
3. Continue to focus on cost control
4. Leverage the Halfords brand in multichannel
1. Extending our range and service advantage
Range
Halfords Retail maintains market-leading positions across a
unique blend of categories with ranges of unrivalled breadth and
depth. Our scale provides a unique ability to develop and source
high quality, own brand alternatives to branded ranges. These
offer customers real value through innovative, high specification
products at great prices and create a competitive advantage for
Halfords. This programme complements the close association
and exclusivity we have with many leading global manufacturers
brands.
Halfords Apollo is the nation’s leading bike brand and this year
we completely relaunched the range with 16 new models with
stronger designs and a focus on the trend towards hybrid bikes
for adults. In our Travel Solutions ranges we successfully
launched a new exclusive brand of child seats called Pampero
and a redesigned range of Exodus roof boxes. We developed
and extended our camping range and were particularly
successful with our Halfords and Urban Escape branded tent
packs. Meanwhile in Car Entertainment we were the first movers
in the development of a digital radio offering through the
introduction of our new own-brand Sonichi units.
Looking to the year ahead our focus on product innovation
continues. We have launched a 2011 range of Boardman cycles,
designed exclusively for Halfords in the UK by former Olympic
Champion Chris Boardman. This completely new range of 17
models has already been widely acclaimed for its leading
designs, construction and price competitiveness and is endorsed
by world famous riders like Alistair Brownlee, the reigning World
Triathlon champion. Halfords also has an exclusive arrangement
to sell Voodoo bikes in the UK, designed by Joe Murray, the
award-winning American mountain biker. This range offers a
premium product to the serious mountain bike rider and we have
introduced a new range for this year.
Most of the bikes we sell we also build for our customers. This
year we are extending our range to include our Trax brand sold
boxed for self assembly. This quality bike will be available at
entry-level prices and gives Halfords a competitive offer against
supermarkets and other non-specialist outlets. These innovations
mean that Halfords is uniquely positioned to compete strongly at
all levels of the cycle market from entry level boxed bikes to
premium cycles for the competitive rider.
Extending our Service
The expert knowledge, advice and service of our instore
colleagues are at the heart of the Halfords customer offer. They
sell and fit many of our products and this differentiates Halfords
from our competition, acts as a barrier to market entry and
generates attractive levels of return.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
29
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“Sales of our Bike Care Plan, which
provides repairs free of labour
charges, increased by over 28.3%”
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We build 95% of the bikes we sell and all new bikes come with the offer
of a free six-week first service. Sales of our Bike Care Plan, which
provides repairs free of labour charges, increased by over 28.3% during
the year and have contributed to a 16.3% increase in our service sales
revenue.
All product categories include a core service element, for instance,
more than 2,000 colleagues are professionally trained and accredited
by RoSPA to fit child seats to cars. The foundation of our fitting
proposition though is wefit, the on-demand fitting of Car Bulbs,
Windscreen Blades and Batteries, (3Bs), by our trained in-store
colleagues. During the year some 1.91 million wefit jobs were
completed and 23.5% of all 3Bs sold were also fitted.
Our strategy is to grow awareness of our fitting capability and to
continue to invest in technical and skills training of colleagues so that
we can further increase fitting levels. We have set stretching targets for
the year ahead to increase awareness, uptake and revenue from our
service offer.
Our colleagues, in all areas of our business, are of paramount
importance to the provision of both our services and our helpfulness to
our customers. Their passion and abilities are central to the delivery of
our strategic objectives and we are extremely proud of their
commitment and enthusiasm.
18559
20/06/2011
Proof 6
30
Business Review
2. Investing In The Store Portfolio
4. Leveraging the Halfords brand in multichannel
The location, assortment and layout of the Halfords Retail store estate
is a key element of our customer proposition.
With 466 stores trading throughout the UK and Ireland our scale
supports our position as the store of first choice. 90% of our customers
live within a 20-minute journey of one of our stores.
We have refurbished 26 stores with plans for 50 more in the next
twelve months. The sales uplifts are encouraging and represent a good
return on the invested capital. In London we are exploring new formats,
reflecting the shortage of suitable Superstore opportunities.
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 the headroom to fund strategic investments
in future growth.
Our three major initiatives this year included the reconfiguration of our
distribution network, the review of our store labour structure and
favourable negotiations with landlords.
We have a flexible sourcing policy and work closely with suppliers
around the globe to ensure we achieve the most competitive product
costs. Our sourcing team based in Asia control all aspects of the supply
chain to eliminate unnecessary costs in transport, shipping and stock
holding.
Looking to the year ahead, payroll, energy and occupancy costs are
expected to increase the underlying cost base by around 2.5%.
Planned investments in incentives and IT infrastructure will add a further
1.5%. Product cost pressures are also increasing, but our market
leading positions and sourcing options provide some flexibility.
Online sales have grown rapidly during the year by 36.4%, ahead of the
industry average of 19.9%. Online sales currently represent
approximately 9.2% of Halfords Retail sales.
We have made enhancing our online offer and further extending our
multichannel presence an investment priority. In line with market trends,
we continue to increase the amount of advertising dedicated to this
medium. This year customers have also added 26,000 ratings and
reviews, which together with our “Ask and Answer” facility allows
customers to tap into the expertise and experience of other users.
In addition to extending the site functionality, we have increased the
range of products we offer online. Much of the additional inventory is
managed in partnership with 3rd party suppliers, this reduces stock
costs and obsolescence risk.
Our strategy is to seamlessly integrate halfords.com and our store
operations. Our product mix lends itself to this strategy, as customers
often want further advice, or a demonstration and fitting. Our online
ordering service offers customers the option of direct delivery or to
reserve and collect items at their local store. 85% of online transactions
are collected in store. The ability to add further expert advice and
service to our online mix gives Halfords a differentiated offer and a
competitive advantage.
Autocentres
This has been a year of significant progress and integration since we
acquired the business in February 2010. We carried out detailed
customer research on how to apply the Halfords brand into the auto
servicing market and then rebranded and refurbished the whole estate
of 240 service centres as Halfords Autocentres in a rolling programme
across the year.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
31
e p i n g “ L i fe on the Move”
h e l p f ul that’s Halfords
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Since rebranding was completed we have been actively promoting
Halfords Autocentres through a national radio campaign and online
marketing with encouraging results.
Halfords Autocentres is an excellent complement to Halfords Retail,
building on our growing car parts and wefit service business. 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.
The long-term growth opportunity of this business remains compelling
given the market size, its fragmentation, the strength of the Halfords
Autocentres proposition and the potential to leverage the Halfords
brand. During the year we also opened 16 new centres, 30 new centres
are targeted in FY12 and in the medium term we believe there is an
opportunity for up to 600 centres nationally. Further growth
opportunities exist from fleet customers and accelerating tyre sales.
Benefits of the operational gearing of the Autocentres business are
expected as sales improve, supported by cost and purchasing
synergies.
Summary and outlook
Halfords retains clear leadership in its core retail markets of cycling and
car maintenance. We are a resilient business with an excellent brand
and have adapted to the changing needs of our customers by creating
innovative, quality products at great prices supported by the expertise
and service of colleagues.
We believe Halfords unique, market-leading position provides strong
potential for us to consolidate further the fragmented markets in which
we operate. Our Autocentre business gives us a market leading
position in a large and unconsolidated market and opens another
exciting avenue of growth for Halfords.
We expect the consumer environment to remain challenging, but we
have demonstrated that our business can make good progress in these
conditions. Our market leading positions, ongoing actions to reduce
costs and strong cash flow characteristics provide a solid platform for
medium term growth through our core strategic growth initiatives.
Through this focus on creating value for our customers and active
management of the business, the Board believes the Group is well
positioned for the year ahead.
This has been a demanding year for the business and our colleagues
have risen to the challenges of the year with energy and determination.
It is a pleasure to lead such a great team of people and I would like to
thank them for their adaptability and hard work in the tough
environment in which we currently operate.
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David Wild
Chief Executive Officer
8 June 2011
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18559
20/06/2011
Proof 6
32
Business Review
Finance Director’s Report
Andrew Findlay
Finance Director
“Group gross profit at £485.0m
represented 55.8% of revenue
reflecting an uplift in Retail of 17 basis
points (‘bps’) and incorporated a full
year of the Autocentres business.”
Halfords Group plc (“the Group” or “Group”)
All references to Group represent the consolidation of the
Halfords (“Halfords Retail”/”Retail”) and Halfords Autocentres
(“Halfords Autocentres”/”Autocentres”) trading entities. The
Halfords Group operates through two reportable segments or
strategic business units — “Retail” and “Car Servicing” in the
United Kingdom (UK) and the Republic of Ireland (ROI).
Financial results
The 2011 accounting period represents trading for the 52 weeks
to 1 April 2011. The comparative 2010 period represents 52
weeks to 2 April 2010 for Halfords Retail, and the 44 days post
acquisition period for Halfords Autocentres.
Group revenue in 2011 was £869.7m, comprising Retail revenue
of £771.6m and Autocentres revenue of £98.1m. This compares
to 2010 Group revenue of £831.6m (Retail £818.1m;
Autocentres £13.5m). Group gross profit at £485.0m (2010:
£452.7m) represented 55.8% of revenue (2010: 54.4%) reflecting
an uplift in Retail of 17 basis points (“bps”) and a full year of the
Autocentres business which generated 66.3% gross margin.
Halfords Retail before non-recurring costs
Total operating costs before non-recurring items increased to
£356.9m (2010: £333.0m) of which Retail represented £296.7m
(2010: £324.4m) and Autocentres £58.0m (2010: £8.3m).
Central unallocated expenses of £2.2m (2010: £0.3m) represent
the amortisation charge in respect of intangible assets from the
acquisition of Nationwide Autocentres in February 2010, which
arise on consolidation of the Group results.
A non-recurring expense of £7.5m was provided in the year. This
expense relates to the creation of a provision for the potential
liabilities arising from lease guarantees provided by Halfords prior
to July 1989. An estimate of the potential liability relating to these
guarantees was previously disclosed as a contingent liability in
the Interim financial statements. The guarantees were provided
to landlords of properties leased by Payless DIY (now part of
Focus DIY) when both Halfords and Payless DIY were under
ownership of the Ward White Group. Focus DIY entered into
administration in May 2011. Non-recurring expenses of £7.4m
were incurred in 2010 relating to the closure of the Group’s seven
store pilot within Central Europe.
£m
Sales
Gross Profit
Costs
Operating Profit
2011
UK/ROI Central Europe
769.7
419.9
(296.2)
123.7
1.9
0.1
(0.5)
(0.4)
Total
771.6
420.0
(296.7)
123.3
2010
UK/ROI Central Europe
812.2
441.7
(319.8)
121.9
5.9
2.1
(4.6)
(2.5)
Total
818.1
443.8
(324.4)
119.4
Underlying profit before tax and non-recurring items was up
7.2% to £125.6m (2010: £117.1m).
Profit before tax after non-recurring items was up 7.7% to
£118.1m (2010: £109.7m).
Revenue for the UK/ROI business of £769.7m reflected a total
sales decline of 5.2%, with a like for like sales decline of 5.5%,
partially offset by £1.2m of revenue from new space. The
negative impact of Easter timing on 2011 sales was around
0.6%. By category, Car Maintenance revenues were up 0.2%,
whilst the more discretionary categories of Car Enhancement
and Leisure were down -12.7% and -3.5% respectively. The
relative split of revenues between Car Maintenance, Car
Enhancement and Leisure categories was 31.4%: 28.4%: 40.2%
(2010: 29.6%: 30.7%: 39.7%).
Gross profit for the UK/ROI business at £419.9m (2010:
£441.7m) represented 54.5% of sales, a 16 bps improvement on
the prior year (2010: 54.4%). This improvement in gross margin
reflected continued progress in penetration of fitting services,
increased accessory sales, and better sourcing, particularly in the
halfords.annualreport2011.com/fd
Go
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
33
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Retail Revenue
£771.6m
Car maintenence
31% £242.6m
Car enhancement
29% £219.6m
Leisure
40% £309.4m
Profit
before tax
+7.7%
at £118.1m
(2010: £109.7m)
+11.5%
£90.2m
-14.1%
£77.5m
+7.7%
£118.1m
+41.5%
£109.7m
2008
2009
2010
2011
first half of the year, while relative sales growth in the higher
margin car maintenance category also enhanced margin.
Although full year gross margins have improved, the second half
saw a 9bps decline on the prior year, primarily reflecting
increased product cost pressures, increased levels of
promotional activity and participation and some selective price
realignment in response to the difficult trading environment.
These margin pressures are expected to continue throughout
2012.
Operating expenses for the UK/ROI business, before non-
recurring items, at £296.2m, were down 7.4% on the prior year.
This decrease reflected reductions across all key cost categories.
The benefits from the review of store labour rotas and structures
combined with lower than planned colleague store incentive
payments drove an £8.7m reduction in store staffing costs (2011:
£78.1m; 2010: £86.8m). Warehouse and Distribution costs fell
marginally by 0.8% (2011: £27.5m; 2010: £27.8m). The new
network was opened in July 2010 and is now fully operational;
however improvements in efficiency took longer than expected to
deliver and were further compounded by a combination of record
winter volumes, inflationary pressures on fuel and dual running
costs to ensure that availability was maintained in store during
the transition period. Without the new network in place
Warehouse and Distribution costs would have been c.£1m
higher. Store occupation costs fell 4.6% (2011: £135.4m; 2010:
£142.0m) due primarily to successful rent negotiations and
reduced depreciation, although this was partially offset by
increased utility and rates inflation which is expected to continue
in 2012. A reduction in support costs, down 12.7% (2011:
£55.2m; 2010: £63.2m) reflected savings in administrative
expenses, the largest element being the non-payment of head-
office incentive payments. Removing the cost savings that were
more one- off in nature, the underlying cost base of the UK/ROI
Retail business for 2011 would be around £300m.
The discontinuation of the Central European Retail operation was
announced late in 2010. In 2011, while the closure progressed,
this operation generated revenues of £1.9m (2010: £5.9m) and a
loss before taxation of £0.4m (2010: £2.5m) after operating
expenses of £0.5m (2010: £4.6m).
18559
20/06/2011
Proof 6
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34
Business Review
Finance Director’s Report continued
Halfords Autocentres
£m
Sales
Gross Profit
Costs
Operating
Profit
2010
Reported 44
days
2010
Proforma 52
weeks
13.5
8.9
(8.3)
0.6
97.3
64.9
(56.5)
8.4
2011
98.1
65.0
(58.0)
7.0
Autocentres generated total revenues of £98.1m in their first full
year in the Halfords Group (2010 reported £13.5m; 2010
proforma £97.3m). Sixteen new Autocentres opened in the year,
generating £1.5m of new incremental revenue, taking the total
number of Autocentres locations to 240 as at 1 April 2011. The
small decrease in revenues from the existing 224 centres
reflected the effects of lower mileage driven by customers and
their deferral of non-urgent servicing work. The 2011 results
reflected minimal benefit from the UK wide brand relaunch which
was postponed to the last quarter of the financial year.
Gross profit at £65.0m reflects a gross margin of 66.3%, down
50bps on proforma 2010 levels driven by an increase in the sale
and fitting of lower margin tyres and a lower proportion of high
margin servicing revenues partially offset by improved sourcing of
parts and oil.
Portfolio management
The Group continues to actively manage its store portfolio.
During 2011 the Retail business opened five stores, relocated
three, closed one and refurbished 26. Lease extension and
reductions were completed on nine further locations. The Group
continues to lease one vacant property which is being actively
marketed. Within Autocentres, 16 new centres were opened and
two centres were relocated in the period.
Operating leases
With the exception of nine long leasehold and two freehold
properties within Autocentres, the Group’s operating sites are
occupied under operating leases, the majority of which are on
standard lease terms, typically with a 5 to 15-year term at
inception. The Group has a total commitment under non-
cancellable operating leases of £737.9m (2010: £811.5m).
Finance Expense
Net finance expense was £2.5m (2010: £2.6m). The lower
expense in the period included £0.9m of interest income relating
to the settlement of amounts due from HMRC, and 4.5 months
of interest expense and charges under the new revolving credit
facility in place since 12 November 2010. Average net bank
borrowings were marginally higher than last year reflecting the
acquisition of Nationwide close to the prior year end. The costs
of forward exchange contracts were £0.3m higher than last year.
Taxation
The taxation charge on profit for the financial year was £32.6m
(2010: £32.7m), including a £2.1m credit (2010: £1.4m) in
respect of the tax on non-recurring items, and represents a full
year effective tax rate of 27.6% (2010: 29.8%). The effective tax
rate of 27.6% differs from the UK corporation tax rate (28%)
principally due to the non-deductibility of depreciation charged
on capital expenditure and the reassessment of anticipated
future tax deductions from employee share schemes offset by a
reassessment of historic tax provisions required against tax
uncertainties.
Earnings per share (“EPS”)
Basic EPS before non-recurring items was 43.2 pence (2010:
39.7 pence), an 8.8% increase on the prior year. Basic EPS for
the period was 40.7 pence (2010: 36.8 pence) a 10.6% increase.
Dividend
The Board is recommending a final dividend of 14 pence per
share (2010: 14 pence), which, in addition to the interim dividend
of 8 pence per share (2010: 6 pence), generates a total dividend
of 22 pence, an increase of 10% on 2010 (20 pence). In line with
the Boards’ intention, communicated in November 2010, to
increase over time the proportion of the full year dividend
represented by the interim dividend to approximately 40%, the
split of the total dividend between interim and final dividend has
moved to 36:64 in 2011 from 30:70 in 2010. Given Halfords
strong cash generative characteristics, the board will maintain a
progressive dividend policy whilst targeting dividend cover of
broadly 2 times earnings over the medium term.
Subject to shareholder approval at the Annual General Meeting
the final dividend will be paid on 5 August 2011 to shareholders
on the register at the close of business on 1 July 2011.
Capital expenditure
Capital investment in the period totalled £22.8m (2010: £20.4m)
comprising £16.6m in Retail and £6.2m in Autocentres.
Consistent with prior periods, management have continued to
adopt a prudent approach with regard to capital investment.
During 2011 the Group invested £14.6m in its property portfolio
(2010: £7.4m), including £8.4m within Retail and £6.2m to drive
the Autocentres roll out plan and the rebranding of the
Autocentres sites under the Halfords banner. Systems to support
the Retail business and its online customer proposition attracted
£1.3m of investment. This is an increasing area of focus within
the business and investment in business systems and the web
proposition will continue into 2012. The completion of the
National Distribution Centre project in 2011 resulted in £3.4m of
capital expenditure during the year.
Inventories
Group stock inventory held at 1 April 2011 was £147.6m (2 April
2010: £138.5m), up 6.6% on the prior year. Lower cycle sales
over the Christmas period, a late Easter in 2011, earlier stock
fulfilment to avoid prior year stock outs as a result of Chinese
New Year and stock build in advance of Spring and Summer
2011 product launches to ensure enhanced store availability,
contributed to this increase. The management of inventory
remains a key area of focus for the Retail business while the
Autocentres business model is such that only small levels of
inventory are held within the centres with most parts being
acquired on an as-needed basis.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
35
Cash flow and borrowings
The Group has continued its strong track record of cash
generation. Net cash generated from operating activities in 2011
was £118.4m (2010: £148.1m). Free cash flow of £54.7m is after
taking into account taxation, dividends, share issues, capital
expenditure and net finance costs.
Total net bank debt at 1 April 2011 was £91.4m (2 April 2010:
£143.5m) while further borrowings of £11.8m (2010: £12.0m) in
respect of the Head Office finance lease resulted in Group net
debt at 1 April 2011 of £103.2m (2 April 2010: £155.5m). At this
level, net debt to EBITDA (Earnings before non-recurring items,
finance expense, depreciation and amortisation) was 0.7 times
(2 April 2010: 1.0 times).
On 5 November 2010 the Group signed a new revolving credit
facility agreement (the new facility) amounting to £300m. The
new facility replaced the Group’s existing facilities and runs until
12 November 2014 extendable by a further year to 12 November
2015. Associated refinancing costs incurred totalled £3.6m,
which will be amortised over the 4-year life of the new facility.
The Board is committed to continued investment in the growth of
the business, both through organic development and other
business development opportunities as they might arise. The
new facility gives the enlarged Group the appropriate level of
committed financing for its working capital needs.
Following a review by the Board of the Group’s capital structure
and cash generation capabilities, with effect from 7 April 2011
the Group commenced a share buyback programme, with the
intention to return up to £75m of cash to shareholders over the
following 12 months. Since the financial year end, approximately
£20.7 million of buyback has taken place via the purchase of 5.3
million shares.
Basic earnings
per share before
non-recurring
items
+8.8%
at 43.2p
(2010: 39.7p)
+22.2%
+8.8%
43.2p
+10.9%
39.7p
+13.6%
29.3p
32.5p
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2010
2011
Dividend per
ordinary share
+10.0%
at 22.0p
(2010: 20.0p)
+9.0%
15.1p
+5.3%
15.9p
+10.0%
22.0p
+25.8%
20.0p
2008
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2010
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18559
20/06/2011
Proof 6
36
Business Review
Finance Director’s Report continued
Treasury policy
Interest rate risk
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
four-year facility totalling £300m that provides the Group with
committed bank facilities until November 2014, extendable by
one year to November 2015.
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.
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.
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 1 April 2011, 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 ensured that such counterparties, who all sit within the
syndicated group, used for credit transactions and ancillary
business held at least an A credit rating at the time of syndication
(November 2010).
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.
18559
29/05/2011
Proof 3
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
37
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 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.
Andrew Findlay
Finance Director
8 June 2011
18559
29/05/2011
Proof 3
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38
Business Review
Risks and Uncertainties
Like all businesses, our Group faces risks and uncertainties that could impact the achievement of the Group’s strategy objectives.
These risks are accepted as being a part of doing business and the Board recognises that the nature and scope of these risks can change and so
regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them.
The Corporate Governance report on pages 78 to 83 describes the systems and internal control processes through which the directors identify,
assess, manage and mitigate risks.
Business Unit Strategy
Our strategy is developed to be delivered under recognisable and measurable
performance metrics and communicated to all colleagues.
Extending Range and Services
Investing in the Store Portfolio
Ongoing focus on cost control
Leveraging the Halfords brand in multichannel
Key Risks and Uncertainties
Senior Management colleagues assess risks on a department by department
basis using a variety of techniques to identify risk. The likelihood and impact of
these risks are considered and scored against a recognised framework dependent
upon their effect on the achievement of our corporate strategies.
Mitigation
Responsibility for taking necessary actions to manage risk is delegated to
appropriate colleagues in the business, with executive sponsor involvement. The
Risk Register is monitored and updated with current and ongoing mitigation on a
regular basis.
Report & Review
The Executive Committee and the Group Board consider the risks reported within
the Risk Register and review and monitor new risks and all mitigating actions to
ensure the status of risk mirrors the Board’s appetite for risk.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
39
Key Risks and Uncertainties
Mitigation
Strategy
Economic
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. Changes
in Government policies may also affect our consumers’
ability to benefit from our products and services.
Business Strategy
The delivery of the Group’s business strategy will
deliver long-term value to our shareholders. The
Board understands that if the strategy and vision are
inappropriately formulated and communicated and that
the necessary resources are not in place to deliver the
strategy both from the core business and from M&A
activity the business will suffer.
Competition
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,
in both 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.
Compliance
The Group operates in an environment governed by
legislation, standards and codes in areas including,
but not limited to, trading, advertising, product quality,
health and safety, hazardous substances and data
protection.
Changing Customer Preferences
Some of the products that Halfords sells, particularly in
the car enhancement category, are subject to rapidly
changing consumer preferences. Products such as
children’s cycles face competition from alternative
products (such as games consoles) and some of the
products that the Group sells are non-discretionary in
their nature and predicting future trends is difficult.
The Group mitigates against these risks by focusing
on maintaining the “defensive” characteristics of its
“needs driven” product groups and by ensuring that its
stores and centres are the key destination for its core
products and services. We also ensure that we have
representation with Governmental decision-makers in
the areas supporting our core categories.
The budgetary and planning process delivers the
Group’s growth targets (in conjunction with any M&A
activity) and business plans are developed to ensure
these targets are achieved and that they are resourced
appropriately. Regular monitoring of performance
against plan is carried out by both the executive
managers of the Company and the Group Board to
ensure targets are being achieved and that they remain
relevant to and focused on the Group Strategy.
The Board is aware of the risks faced from UK
Retailers, both in-store and online, and from the
national car-servicing network and seeks to continually
strengthen its “own-brand” and “sub-brand” retail offer
and develop service opportunities to differentiate the
Halfords offer.
The Group has a Quality Assurance team and a
Commercial Regulatory team that manage legal
and regulatory control processes both in-house and
externally to advise and take action on existing and
emerging risk management issues. Our various Codes
of Practice regulate our behaviour in our dealings with
all stakeholders including customers, suppliers and
colleagues and our attitudes toward such areas as the
environment and ethical trading.
Halfords has recruited experienced, knowledgeable
colleagues who can identify and interpret trends and
consequently respond in a timely manner to changes
in consumer preferences. Colleagues also monitor
developments in alternative products and our forecasts
reflect the latest assumption in these areas. We
are continually looking at ways of moving into new
merchandising opportunities to mitigate technology
changes and to improve forecasting and planning to
ensure we meet our customers’ changing needs.
18559
20/06/2011
Proof 6
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40
Business Review
Risks and Uncertainties continued
Key Risks and Uncertainties
Mitigation
Strategy
Reputation
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.
Reliance on Foreign Manufacturers
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, the exposure to different
legal standards, the burden of complying with a variety
of foreign laws and changing foreign government
policies and natural disasters.
Product and Service Quality
The Board recognises that the quality and safety of
both our products and services in our stores and
autocentres is of critical importance to us and that any
major failure will affect consumer confidence. We
recognise that if our products are seen to be or
perceived to be of poor standard or of poor value for
money then customers will look to obtain these from
our competitors. There is also the risk that our service
proposition fails due to inconsistent levels of service at
individual stores and individual centres.
Ultimately the protection of the Halfords brand
and position in its core markets will be sustained
by unique and extensive product offerings and a
multichannel approach to sales in our stores and
a high service based customer proposition in our
stores and autocentres. This is complemented by
quality training from accredited Automotive Technician
training to Cytech (Cycles), RoSPA, and the Institute
of Mechanical Industries, ensuring that colleagues at
both stores and centres are capable of supporting the
Halfords brand.
Extensive research is conducted into quality and ethics
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 and we maintain very close
relationships with both our suppliers and shippers to
ensure that disruption to production and supply are
managed appropriately.
The Group constantly seeks to enhance its position
as store or centre 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 in-store wefit proposition provides a range of
services at a lower cost to our customers than that
provided by competitors. We have an established
training infrastructure to ensure that our colleagues
receive ongoing product and service training. In
our Autocentres the training of our technicians to
provide high quality motor vehicle repairs is enhanced
through an apprenticeship programme and accredited
automotive technician training. Sixty per cent of our
Autocentre workshop colleagues hold a Motor Industry
qualification. We continually track performance against
a broad range of measures that customers tell us are
critical to their shopping and servicing experience, and
monitor customer perceptions of ourselves to ensure
we can respond quickly if required.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
41
Key Risks and Uncertainties
Mitigation
Strategy
Information Technology (“IT”) systems and infrastructure
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,
multichannel and distribution systems, could potentially
compromise our operational capability for a period of
time. With ambitious growth plans for our multichannel
offer, our trading capacity could be affected by internal
and external systems resilience and interdependencies.
Dependence on key management personnel
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.
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 backup strategy, including a hotlink
secure data centre hosted outside the UK and access
to a further data support centre elsewhere in the UK in
case of a major incident.
Our Remuneration Policy outlined on page 84 details
the strategies in place to ensure that high calibre
executives are attracted and retained. The Group looks
to improve its senior manager cadre through operating
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. At a junior level the
Group continues to invest in graduate programmes
and store/centre colleague training and development.
18559
20/06/2011
Proof 6
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42
Business Review
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.
Strategies related to our Corporate Social Responsibility
H
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Stores, Custo
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E
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vestin g in t h e
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We believe effective management of our CSR makes good
business sense. In doing so, we 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 commitments
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.
For the period to 1 April 2011 the Group continued to follow its
“ACTING RESPONSIBLY” policy. However, during the year
Business in the Community (“BITC”) undertook a high level
review of our activities, both in retail and the autocentres, to
understand the key business priorities and aspirations of the
organisation, to review current CSR activities and to review how
these may be progressed through the formalisation of a CSR
strategy and framework for the organisation. The review was not
an audit of Halfords’ activities, but aimed to identify the key
strengths and gaps in the organisation’s approach to managing
CSR and how it is integrated within the strategic management
process.
To understand our current CSR practices and activities BITC
undertook detailed discussions with key senior managers
including the Company Secretary, Divisional Managers, Category
Managers and managers in HR, H&S, Store Operations, and
Supply Chain. They also reviewed key documents including
recent Halfords Annual Reports, information from the website,
environmental reports and policies and Competitor/Peer CR
commitments.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
43
BITC concluded that the Company is keenly bottom line driven
with strong growth ambitions and the thinking hierarchy at
present is “cost first”. It is therefore essential that any CSR
programme should be shown to be intricately linked to achieving
business success and enhancing the business’s value
proposition.
The report commented on how Halfords prides itself on behaving
responsibly to all stakeholders and how CSR forms an integral
element of this relationship by demonstrating the Company’s
honesty, reliability and trustworthiness in respecting customers,
employees, investors and the environment. Feedback from
customers identified a belief that Halfords should be “doing
something” in the CSR arena, although there was less clarity
about what this should be. There are also expectations from staff
around what it means to be a national “responsible” retailer and
having pride in an organisation, which is known for “Going the
extra mile” and wants to become famous for being “Helpful”.
The BITC report also went into detail on actions that the
Company could undertake to improve its overall CSR agenda
and these will be reviewed and adopted where appropriate
during 2011/12, the first step of which is to formalise a
community investment strategy.
Following this review we shall henceforth report on our activities
under the headings used by BITC in their report, and we have
aligned these with our business unit strategies on page 42.
CSR OveRvIew & Key PeRFORMAnCe InDICAtORS
wORKPLACe
Employer of choice
Our growth in stores/centres and turnover would not have been
possible without the unfailing support and commitment of our
colleagues employed across stores, autocentres, 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.
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 and service, love
coming to work, strive to achieve their best and enjoy dealing
with customers. We recognise and reward high performance
and by ensuring colleagues have interesting jobs, with real
accountability, Halfords can provide the opportunity to develop
careers. In the last three years we have reduced staff turnover
rates in our retail stores by 1% and over the same period staff
turnover rates in the autocentre business have fallen by 12%.
Our colleagues are people who consistently look for
opportunities to deliver a first-class service, going the extra mile
with the aim being to be helpful to our customers. Some 4,800
(2010: 4,000) of our retail staff hold accredited fitting
qualifications, whilst 60% of our Autocentre workshop
colleagues hold a Motor Industry qualification.
Our 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 thus the Board reviews the policy and
our performance against that policy annually.
In summarising their report BITC wrote: “From our discussions it
is apparent that there is a significant amount of good work
currently happening within Halfords that falls under the banner of
responsible business practices or corporate responsibility,
however to date it appears that community investment activities
have been informal and not driven by a clear community
investment strategy.”
Compliance
Differentiation
Leadership
WORKPLACE
MARKETPLACE
ENvIRONMENT
COMMUNITy
The Autocentre business also run a Training Academy
apprenticeship programme, which currently has approximately
140 apprentices, all of whom go through a three year fully
funded programme and will finish as fully qualified Technicians
with an Institute of Motor Industry NVQ level 3 and a Diploma. In
addition, they will each finish an Automotive Technician
Accreditation (ATA) assessment and we provide ongoing
development opportunities through our IMI accredited Academy
of learning where we can deliver a range of both Technical and
Management qualifications from foundation level voluntary
qualifications through to degree equivalents.
Diversity
Halfords has an Equal Opportunities Policy which outlines
regulatory requirements as well as the organisation’s
commitments regarding diversity and expectations of staff. The
current workforce in store may not be reflective of the
community base but we feel that it does reflect customer use.
More women than men are employed at our Redditch Head
Office location and in January 2011 we appointed our first
woman Director to the Group Board. During the year to the date
of this report we have worked with the Employers Forum on
Disability to overcome issues surrounding the implications of the
Disability Discrimination Act (DDA) regarding entrance to stores
and engaged the EFD to provide disability awareness training to
our Customer Services team and Store Managers.
18559
20/06/2011
Proof 6
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44
Business Review
Corporate Social Responsibility continued
Health and 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, customers, visitors and others who
come into contact with the business. The Group believes that
effective occupational health and safety management is
fundamental to a successful business and we constantly review
our procedures and risk management standards to identify
opportunities for further improvement. Over the last few years
safety training has been delivered to both Head Office managers
and the Autocentre manager population.
MARKetPLACe
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 over 14,000 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” helpful attitude and
competitive, value-for-money pricing. Surveys are regularly
carried out across our customer base and in 2010/11, 59% of
customers asked said they were very likely to recommend
Halfords to friends.
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.
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, email, letter or fax. The
consolidation of our web and store contact centres gives our
customers and stores the opportunity to contact us through one
single phone number and email address. This has enabled us to
offer increased support to our store colleagues and be more
flexible to our customers’ needs.
Our Autocentres provide value added services to both the
general public and large fleet providers alike, and carry out
manufacturer based servicing which meets the needs of vehicles
still covered under warranty as well as our own menu based
servicing options, typically reducing the cost of motoring yet
maintaining quality. The parts that we fit meet OE standards,
ensuring that warranties are never compromised and that
legislative requirements are met. We are the UK’s largest
supporter of the Automotive Technician Accreditation (ATA)
scheme and we work proactively to ensure that our technicians
are up to date and technically competent.
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 in both our
businesses; in the retail business 210 per 100,000 employees
(2010: 190) and in the Autocentres 533 per 100,000 employees
(2010: 666).
As well as being monitored by external organisations such as
VOSA and Trading Standards, we apply our own quality control
systems and mystery shopper programme to ensure that our
customers receive the very best service experience. Autocentres
survey up to 13,500 customers every six-months which drives
detailed feedback on the service standards, quality of work and
views on value for money. Every centre has a Net Promoter
Score and this allows management to closely monitor service
delivery and the actions of centre staff.
Autocentres also call customers two days after service has been
delivered to check customer satisfaction and to follow up on
items that require scheduled replacement. In addition, mailers are
sent to customers when these items should be replaced and
Centre managers also call customers to enquire on the service
they have received. This gives us a quality feedback loop and
also a means to track how customers’ cars are performing.
Products
We continually assess the lifestyle and environmental impacts of
our products, packaging, procedures and services at all
appropriate stages, i.e. 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 1 April 2011 our customers returned 118,067 batteries,
an increase of 31.1% on 2010.
Number of batteries returned by customers
for recycling
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2007
2008
2009
2010
2011
Halfords Autocentres
Halfords Retail
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
45
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 179 different models of
bicycles, of which 77 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
1 April 2011, we sold nearly a million bikes, approximately 1 out
of 3 of all bikes sold in the UK.
Services
Within our Autocentres business, all of our servicing products are
aimed at increasing fuel efficiency and helping the motorist get
more miles per gallon. Recently we have improved our offers to
drive our most fuel efficient services, benefiting both the motorist
and the environment. Since 2008 the autocentres business has
grown the number of “major” services, our most fuel efficient
service, by 11%.
“Major Service” volumes
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Number of bicycles stocked
200
180
160
140
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
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 four years, we have
increased the number of schemes that we manage on behalf of
employers by five times, thereby allowing their employees the
opportunity to embrace a healthy, keep-fit lifestyle.
Number of “Cycle 2 Work” schemes managed
by Halfords
3,000
2,500
2,000
1,500
1,000
500
0
2007
2008
2009
2010
2011
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Calendar Year
2008
2009
2010
In 2011 we intend to offer all customers who book a combined
MOT and Service a free Fuel Service, designed to help our
customers keep the cost of motoring down and reduce the effect
of harmful emissions on the environment. Throughout 2011, we
will be driving this focus on fuel efficiency by offering either a free
or heavily discounted fuel service, with the unique guarantee that
if we fail to improve the fuel burning efficiency of the engine, we
will refund any charge.
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 airfreighting of our products from
suppliers, and only do so in cases of extreme urgency.
Whilst we do our best to reduce the weight of products shipped
in this way, 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. However, during
the period we airfreighted 177 tonnes of product as we
experienced problems in meeting our orders. This was
significantly more than in 2009/10 but still 5% down on 2007
when we first started measuring this KPI. The problems arose
because, following the Chinese New Year, many Suppliers in
China found it difficult to return to normal levels of manufacturing
output as many of the staff that worked in the factories travelled
back home to visit their families and did not return to work. This,
in turn, caused production delays to orders and there was
consequential pressure on meeting our customers’ demands for
product. We have mitigated this risk in 2011/12 by requiring our
suppliers to manufacture products ahead of the Chinese
New Year.
18559
20/06/2011
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46
Business Review
Corporate Social Responsibility continued
Number of containers moved by rail
3,000
2,500
2,000
1,500
1,000
500
0
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2008
2009
2010
2011
Containers moved by rail
% of total containers moved
Water consumption per retail store
(cubic metres)
210
205
200
195
190
185
180
175
170
165
2007
2008
2009
2010
2011
During the year we have been preparing the groundwork to allow
us to report on water consumption by individual Autocentres and
will give the information in next year’s report.
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
2010/11, 61% of all containers delivered were moved by rail to a
hub in the Midlands for onward transportation to our DCs.
tHe envIROnMent
Our products, 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:
Natural Resources
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.
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 78.7% in 2011.
As motor vehicle servicing centres, our Autocentres are
continually disposing of “motor vehicle” related waste. In
2010/11 as well as recycling car batteries, we put 755,000 litres
of oil, 126,000 tyre casings and a range of other waste materials
into the recycling chain through our waste management
programme.
We continue to improve our water usage and over the years have
invested in “smart” water meters, which help us to identify water
leaks at an early stage. In 2011 we maintained our proud record
of reducing water usage year on year with a further 1.5%
reduction.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
47
Energy and reducing CO2 emissions
As we have continued to open new stores and autocentres, our
overall use of gas and electricity has improved as we have added
energy management systems to our stores and implemented
specific action plans around voltage reduction. This year’s
increase in energy usage was a result of the prolonged winter
weather through the winter of 2010/2011. In 2007 we set
ourselves the target of reducing our energy usage per store by
between 15% and 20% and gave ourselves three years to
achieve this reduction. In 2010 we had reduced energy usage by
22% and even with the increased usage in 2011, this represents
a 17% reduction on our 2007 base.
Our efforts do not stop there; we shall continue to monitor
energy usage in our retails stores and following the inclusion of
the 240 Autocentres we shall rebase our usage and target a
further reduction across the Group as a whole.
The following graph represents the energy used by our stores,
autocentres, head offices and distribution centres.
Total energy usage
(kWh millions)
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
Retail
2011
Group
Electricity
Gas
Energy useage per store/autocentre
(kWh 000s)
300
250
200
150
100
50
0
2007
2008
2009
2010
2011
Retail
2011
Group
Fuel and transport fleet efficiency
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 2010/11, DHL drove, on our
behalf, 9,151,216 kilometres, a reduction of 2.5% on 2010,
following a reduction of 2% last year and we used 103,487 less
litres of diesel. The CO2 equivalent usage, calculated based on
DEFRA’s 2010 Freight Transport conversion factor, shows a
3.6% improvement year on year. This has all been achieved
against the backdrop of increased cross-over activity as we
continued to operate from three distribution centres rather than
the current operating model of two. As we consolidate our new
DC in Coventry we will be looking to further reduce our CO2
emissions.
Kilometres driven
CO2 equivalent (kg)
CO2kg/revenue (£m)
2007
2008
2009
2010
2011
9,491,422
7,932,414
10,662
9,786,649
8,311,283
10,423
9,571,380
7,711,390
9,526
9,393,452
7,585,301
9,272
9,151,216
7,318,284
9,581
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48
Business Review
Corporate Social Responsibility continued
COMMUnIty
Accessibility
Our stores serve their local communities with our products and
expert services and we are conscious that all, irrespective of
disability, should be able to access both our stores and our
online offering. We treat our responsibilities under the Disability
Discrimination Act (“DDA”) very seriously and we are committed
to ensuring that all of our customers are able to access our
products and services with the minimum of effort. As part of the
refurbishment and rebranding of our Halfords Autocentres we
have altered our reception areas and made them much more
accessible. Following last year’s launch of mobility products, we
have partnered with AgeUK to deliver their branded mobility
products to our customers.
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, and in
2011 we worked with The Employers Forum for Disability to
deliver training to some of our Head Office and store colleagues.
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.
Accessibility for disabled customers
Ethical trading
We place great importance on the selection of our suppliers and
how they interact within their own local communities and, where
appropriate, we 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
20%
3%
33%
30%
14%
Automatic doors
Doors with push-pad
release
Vandal-proof DDA
compliant door bells
Standard door bells
Other
160
140
120
100
80
60
40
20
0
136
91
111
113
99.8
99.9
77
36
2008
2009
2010
2011
Number of audits undertaken
% of suppliers covered
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
49
Charity of the year
In the future
Our policy on charitable giving is to concentrate on supporting
one main charity and, in the year to 1 April 2011, 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 raising c.£45,000 in the process. In total during the
18-month partnership with Macmillan Cancer Support we have
raised in excess of £134,000. We are also committed to
supporting the communities we serve and individual stores also
support local initiatives. From 2 April 2011 we have entered into
a two-year partnership with Cancer Research.
Apprenticeships
The Group is aware of the need to provide employment
opportunities within local communities and our Autocentres have
the largest independent Apprentice Scheme in the motor
industry. The scheme has been in operation for more than 20
years and we plan to grow it significantly to meet the needs of
our business, our local communities and our growth strategy.
Our apprentice retention rates are excellent and to date we have
never failed to offer employment to apprentices who complete
the three-year scheme. We have also worked with the probation
service, where we provided work experience places, which for
some led to full-time jobs and with the prison service where we
helped a local prison deliver a Motor Vehicle Repair course aimed
at equipping offenders with the skills to get a job when released.
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 and representatives of
Halfords Autocentres are involved in SkillAuto, the organisation
responsible for ensuring that the UK motor sector is represented
at the European and World skills championships, with the IMI
Awards National Advisory Forum who review and develop
industry qualifications and with the Vehicle Operator Services
Agency. Most recently we have led an initiative backed by the
plain English society to reduce the use of technical jargon by
garages. The guide, believed to be an industry first, has been
awarded the “Crystal Mark” by the Plain English Campaign,
which praised Halfords Autocentres for the initiative. This can be
found at halfordsautocentres.com/GarageSpeak. Senior
managers from Halfords Autocentres are also in debate with
Government departments over changes to the current MoT
regime.
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 and, as highlighted by the
BITC report, we intend to implement a community programme
during 2011 and will report on its activities next year.
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20/06/2011
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50
Resources
466
Resources
Group Resources and Capabilities
Retail and Autocentre Resources and Capabilities
52
58
Use your phone’s
bar code app and
go directly to the
relevant page on
our website.
halfords.annualreport2011.com/resources Go
18559
29/05/2011
Proof 3
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
51
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29/05/2011
Proof 3
52
Resources
Group Resources and Capabilities
The Halfords Brand
Growth and leverage of a trusted high street brand
for 109 years.
The Halfords brand is distinct and unique . . . there is nowhere quite like Halfords. In many
categories Halfords products are consistently the UK’s No.1 choice, testament to the trust the
brand has earned through the long-term delivery of good value.
The Halfords brand embodies our “life on the move” product and service range principles, it is the
central aspect of our Group strategy of “single face to the customer” and its marketing value has
leveraged our strategic aim to grow both the Retail and Autocentres multichannel business.
Through the use of TV, radio, direct mail and online campaigns the brand has engaged old and
new target audiences using the “Helpful” personality, whilst reinforcing our value, quality and
service advantage.
The 240 Halfords branded Autocentres now add significant national brand visibility whilst
extending the store based services to a whole new level of trusted support for customers.
Trading as
Halfords
since
1902
1st
choice in
core markets
Over
7,900
own-brand
SKUs
Branding and Marketing
The skill of knowing when to use an existing brand
and when to create a new one.
Retail product positioning has always been a complex operation of understanding the target
audience needs and sensitivities. Halfords continues to build techniques for the capture of market
information from store and online channels and to use this in the design of new ranges.
Whilst half of the story is to create products to meet demand, the other half is to ensure there is
shareholder value to be had from the margins achieved. Own brands can frequently be used to
meet price points in the market whilst allowing our skilled sourcing teams to buy competitively.
As the Internet has empowered consumers’ research capability, Halfords’ own brands have
successfully differentiated product and met price and specification expectations. The creation of
the Pampero child car seat brand is an example. Child seats have a higher than average level of
sales online, they are frequently researched prior to purchase, and comparison of known brands
and models is easy to do online. Pampero was created to compete with premium brands whilst
offering exceptional specification and can only be purchased through Halfords.
No. 1
UK Bike
Brand Apollo
Own-label
products
44.5% of
revenue in 2011
Exclusive
distribution of
Boardman
Brand in UK
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
53
Colleagues
Developing performance and living the Group
values of being helpful.
Halfords people are central to our Group strategies of “Operational Specialisation” and “Least
Cost Back-Office”; their talent and passion for service on the frontline ensures a great customer
experience and the skill and dedication to efficiency and effectiveness ensure all back-office
services improve year in year out.
2011 is the beginning of an expanded culture of service delivery. Our “that’s helpful, that’s
halfords” campaign is being rolled out as much within the business as with customers; indeed,
there is a dependency on the former being delivered. Read more on page 22 about our “Helpful”
culture development plans.
Our evolving training techniques and their consistent application continue to drive performance.
Training is a key element in delivering a memorable service experience, including from a
competence framework across the business to nationally recognised and accredited training
programmes for Retail and Autocentres colleagues helping Halfords achieve customer loyalty and
growth.
c.11,000
colleagues
c.4,800
of our retail
staff hold
accredited fitting
qualifications
60% industry
qualified
Autocentre
staff
Systems
The integration and roll-out of updates to many
systems has put Halfords in a strong position.
Halfords is online with upgraded warehousing, enterprise resource and web systems to cope with
our efficient store logistics and successful multichannel offer. Investments have helped to drive up
capacity and business intelligence whilst meeting our Group strategy of “least cost back-office”.
Halfords is one of the few true “bricks and clicks” operations and has delivered large scale
leverage to our customer offer through the “Reserve & Collect” and “Order & Collect” services.
These services integrate our website with store and DC inventories and increase the footfall to
stores with particular range increasing opportunities for the smaller formats.
During the year Halfords launched a dedicated mobile website and it has seen consistent growth
in volume.
Looking to the future Halfords now has the capability to enhance the customer experience and
empower our “Helpful” culture with more functional applications for colleagues and customers.
2.76m
Reserve
& Collect
transactions
to date
Mobile website
launched
August
2010
Over
400,000
items available
to order in
store
18559
20/06/2011
Proof 6
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Resources
Group Resources and Capabilities continued
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
Our Customers
“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
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
55
Sourcing
Domestic growth in the Far East has at times
introduced new challenges we have risen to well.
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.
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.
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.
31%
of supply
managed
from Far East
99.85% of
products
imported audited
to our ethical
standards
Direct trade
with 9
countries
Distribution
Having completed the distribution centre move the
focus moves to operational efficiencies.
Having come fully on stream in June 2010 the new Coventry distribution centre was a successful
project as part of our “least cost back-office” Group strategy. In both financial and economic
measures the new site has delivered the budgeted savings whilst giving the Group further growth
potential. A net reduction of 240,000 km travelled was seen and with additional economies in
vehicle fuel consumption Halfords will have delivered a saving of over 270,000 kg of CO2.
Within the distribution centres, many of the envisioned efficiencies have been achieved and the
management of a multi-million pound rationalisation plan was carried out to a high standard. In
practical terms the pick rate on bulk items has grown by 25% and on small items by 35%. In
addition, the reliability of new automated warehouse systems has been excellent.
Going forward the logistics operations have an ambitious programme of improvements. First is
in optimising the economics, second in supporting the internal aspects of “Helpful” by improving
customer service and third with a colleague engagement programme for the recent recruits.
240,000
less delivery
kilometres
driven
3.5% of CO2
reduced in
2010/11
New 320,000
sq ft DC fully
functional
summer 2010
18559
20/06/2011
Proof 6
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Resources
Paul McClenaghan
Commercial Director
“Looking closely at regional
demographics is allowing us to
investigate new options for store
types and layouts . . . the early stages
are looking promising.”
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
57
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Retail and Autocentre Resources and Capabilities
Car Maintenance
Car Enhancement
Leisure
In-store Services
Stores
Online
Autocentres
58
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18559
20/06/2011
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Resources
Resources and Capabilities
Car Maintenance
If you have a failed bulb, blade or battery, Halfords
is the destination of choice to keep your “life on the
move”. Unrivalled availability, ranges and wefit!
Market
To keep “life on the move” our customers need products and services which will keep their car,
van or motorcycle roadworthy. As such, this category is less exposed to changes in disposable
income. The current economic climate is expected to keep consumers’ minds focused on cost
saving and therefore the Halfords approach to value remains attractive.
Value for motorists is a combination of price, quality and service and Halfords competes strongly
in each aspect. Our range strategy offers options to meet all budgets and performance needs
whilst the wefit store service can get the product professionally fitted both economically and
conveniently by store colleagues.
Competition is fragmented with no nationally equivalent service provider. Geographically the
supermarkets have a national network of outlets but have limited product scope and usually no
service offering. Competing smaller car parts suppliers lack our brand strength and national
accessibility, providing us with significant competitive advantage.
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. Evidence of these trends is seen in the growing proportion of
sales now taken with a fitting services (23.5% of 3Bs in 2011).
Offer
Using our retailing competences, our large ranges follow a good, better, best positioning strategy
and in particular our 3Bs (bulbs, blades and batteries) continues to perform well. Clearly labelled
benefits allow customers to select upgraded product performance, and attachment rates for
services are also growing.
Blades stocked
for 93%
of UK car parc
Bulbs stocked
for 98%
of UK car parc
UK Sales
No. 1*
for engine oil
Key Product Groups
Key Brands
Halfords (Value, Core & Advanced), Bosch, Castrol, Mobil,
Redex, WD40, Haynes, Loctite, Davids, Hammerite, NGK,
Champion, Ferodo, Stanley.
Blades
Bulbs
Batteries
Oils
Spark plugs
Panel sprays, rust repair
Haynes manuals
Winter
Tools
Metal storage
Lifting
* According to Market Research Agency GfK Retail and Technology UK’s panelmarket* data, Halfords are the number one Engine Oil retailer by litres share sold
between the periods April 2010 - March 2011.
Panelmarket refers to the areas GfK include in their measure. The panelmarket used in both the engine oil, specialist cleaners and paint care reports
incorporates Car Accessory Stores, DIY Super Stores, Variety Stores and Supermarkets combined. data.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
59
Car Enhancement
Halfords is the UK’s No. 1 retailer of Sat Nav and
car audio and our market position is defensively
maintained by our scale, scope, multichannel
availability and the knowledge of our colleagues.
Market
The market for enhancing “life on the move” is more exposed to changes in discretionary
spend given its optional nature. In order to stay ahead in these product led categories Halfords
have processes to capture both consumer buying tends and gain insight to broader market
developments to select and update ranges.
DAB digital radio is one of the market trends which has both an aspect of enhancement in that it
has more channels and the sound quality is improved as well as macroeconomic shifts towards
digital broadcasting that are driving uptake. Whilst the market is still in development there are an
estimated 20 million cars in the UK that don’t currently have DAB radio, and Halfords is at the
forefront of product ranges, availability and fitting capability to capture the opportunity.
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.
Offer
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 and the opportunity to see the product and for many
technology items be able to see them perform prior to purchase.
Online provides an ideal opportunity to present both our detailed product information and to drive
sales through our “Reserve & Collect” and “Order & Collect”.
No. 1*
UK Sat Nav
retailer
3.0m
Car air
fresheners
sold in Fy11
No. 1*
UK in-car
technology and
entertainment
Key Brands
Technology:
Tom Tom, Garmin, Sony, JVC, Kenwood, Sonchi, Ripspeed, Pioneer
Car Accessories and Performance Styling:
Type S, Airwick, Magic Tree, Hello Kitty, Prism lighting, Me to You
Key Product Groups
Sat Nav and accessories
In-car DVD players
Audio
Car Accessories
Performance styling —
Car polish
Car shampoo
Pressure washers
Alloy wheel cleaners
* Data from GFK Panel market.
18559
20/06/2011
Proof 6
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Resources
Resources and Capabilities continued
Leisure: Cycling
2011 sees a comprehensive upgrade of
ranges making the Halfords bike offer exciting,
contemporary and great value.
Market
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.
For those wanting “life on the move” to have a more social, health and environmental slant,
cycling hits the mark. For commuting cycling offers the added bonus of economy to an already
attractive proposition. Changes in the HMRC Cycle2Work scheme still provide a persuasive
incentive for employers to provide tax efficient benefit to staff. Halfords has worked hard to
clarify the options available and take-up is now stable; more information is available from
www.cycle2work.info
Sustainability
Underlying consumer trends towards health, leisure and environmental concerns make cycling
a category with potential to not only sustain into the medium term but offer attractive growth
potential. Halfords’ multichannel competences have enabled changes in purchasing patterns to
be dealt with effectively.
Offer
Participation in the cycle market by an increasingly wide range of competitors from the grocers to
online “pure-play” companies has driven innovation in range attributes and service offers. At the
low cost end the Trax range offers a boxed adult bike to compete with online price comparison
whilst Apollo, Carrera, Voodoo and Boardman offer distinct value options right through to the
premium end of the market. For every child and adult bike Halfords offer innovative “bundle”
pricing deals including popular cycle accessories and services that differentiate our offer.
vOODOO
New Premium
MTB launched
— Feb 2011
GB bikes
31%*
by value share
Largest
UK bike
retailer
Key Brands
* Data from GFK NOP Consumer Panel, 31/12/2010.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
61
Leisure: Travel Solutions
Increasingly recognised as the destination of
choice for products which facilitate “life on the
move” Halfords has grown revenues in camping
and launched new ranges including Pampero.
Market
The Travel Solutions division within the Leisure category includes product ranges to facilitate
journeys, camping, child travel solutions and mobility products.
Our “life on the move” focus in travel solutions encompasses products which increase the
capacity of carrying goods (like roof boxes and trailers), increase the safety of the journey (like
child seats and safety vests) and provide service at destination or en route (like tents and camping
equipment).
Many of these ranges have appeal to different segments of the UK audience at different times
but certainly many facilitate the ability to holiday more cost-effectively and spend leisure time
with family. In short there is balanced portfolio of product demand at different points in the
economic cycle.
Sustainability
The long-term consumer trends towards leisure, safety and economy make our Travel Solutions
ranges a category with attractive growth potential. Our growing brand association with leisure
products continues to grow from the traditional core products like roof boxes and cycle carriers,
to the expanding camping and mobility offer.
Offer
Travel Solutions is heavily promoted through our multichannel offer and on the more price
competitive ranges we have created new products to drive margin. One example is the Pampero
child seat range — it offers equivalent quality and performance at a lower price point whilst
maintaining margins. The Halfords offer also has the benefit of a professional fitting service.
448,000
child safety
seats sold
9.5m
units sold
across the
Travel Solutions
Category
51,700
tent packs
sold Fy10
Key Brands
18559
20/06/2011
Proof 6
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62
Resources
Resources and Capabilities continued
In-store Services
In-store services continue to be a success story
driven by a high value service meeting a growing
market demand. Our fitting services are central to
the “that’s helpful” customer campaign.
Our compelling service offers are designed for the growing “do it for me” audience and meet the
level of support and service provision required by the customer.
Each service varies according to 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 to facilitate “life
on the move” and creates for Halfords a sustainable competitive advantage.
Our service innovations have secured not only increased transaction values but has attracted
new consumer groups to Halfords. The offer is both a strategic defence and a growth driver
differentiating us with check, assembly, repair and fitting services.
272,600
Bike Care
Plans sold, up
28.5% on Fy10
2.26m
wefit/werepair
jobs. An
increase
of 6%
£12.4m
revenue
from in-store
services
“Being helpful through value added
services further differentiates the
Halfords offer.”
Year on year we have seen significant growth
in the wefit offer. The offer enables us to
deliver the following benefits:
• improved customer service
• improved safety with professional fitting
• increased loyalty to the brand
• cross-selling, up-selling and attachment opportunities
The demonstration and fitting of our child safety products, for
example, provides peace of mind to parents and ensures best
practice is followed for fit and general operation.
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 and builds customer loyalty.
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 also performs 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 screenwash or oil level, we help facilitate
“life 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 (a bike care plan). Policies are
issued lasting between one and three years. The customer gets
peace of mind and a higher level of safety, while our stores get
increased footfall, sales of the consumable items used and
improved customer loyalty. It is also a service not offered by
online and supermarket competitors so has growth and
defensive potential.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
63
being helpful with wefit
“every parent
is concerned
about child
safety and
we’re helpful”
Angela Davies
Plymouth store colleague
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being helpful with weassemble
“knowing the
bike has been
safely built gives
everyone some
peace of mind”
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Oxford store colleague
18559
20/06/2011
Proof 6
64
Resources
Resources and Capabilities continued
Stores
Structurally unique, our national stores network
drives the majority of Group revenue but also
offers competitve advantage to multichannel with
availability, location and service.
Halfords operates 466 stores which include 402 superstores, 29 compact stores and 35 metro
stores. Our stores are within 20 minutes’ travelling time for 90% of the UK population and are
increasingly optimised in layout and range which is specific to local demographics.
Halfords’ large store network not only allows us to present goods in prime locations but also to
serve as a consolidation point drawing in web customers with the “Reserve & Collect” and “Order
& Collect” online offer. They also facilitate the delivery of our range of retail services which include
checking, building and fitting products.
Of the five factors affecting stores business performance — Value, Stock, Expertise, Range
and Service — a good deal of work on several fronts has furthered the Retail strategic aims of
“Extending range and service” and “Investing in the store portfolio”.
Improvement in colleague work patterns has optimised the availability on the shop floor of the
right people at the right time to improve the customer experience of helpfulness. Ongoing store
refreshment has improved layout and promotion and continues to show good returns.
The pervasive use and uptake of mobile technology which has helped Halfords see impressive
growth from the mobile website and provides many potential options for assisting customers in-
store. The potential to leverage PC tablets in particular for smaller format stores to showcase our
14,000+ product lines also remains an area of investigation.
New store formats are also being investigated in highly populated urban locations where very
significant range and layout changes are based upon local demographics. Halfords has pilot
stores in London where as much as 60% of range is focused on cycles and accessories.
466
stores
23
ROI stores
located
20 minutes
from 90%
of the UK
population
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
65
Store Locations
466
Stores
2
1
9
4
3
6
10
5
7
14
15
11
12
8
13
21
16
22
24
23
26
17
18
25
Halfords Store Types
1
18 Superstores
1 Compact Store
2
16 Superstores
2 Compact Stores
3
19 Superstores
4
19 Superstores
1 Compact Store
1 Metro Store
5
18 Superstores
1 Compact Store
6
18 Superstores
7
17 Superstores
2 Compact Stores
1 Metro Store
8
17 Superstores
1 Compact Store
3 Metro Stores
*
9
14 Superstores
4 Compact Stores
10
19 Superstores
1 Compact Stores
11
17 Superstores
2 Compact Stores
12
14 Superstores
3 Compact Stores
2 Metro Stores
13
19 Superstores
2 Compact Stores
1 Metro Store
14
19 Superstores
1 Compact Store
15
16 Superstores
4 Compact Stores
16
12 Superstores
4 Compact Stores
4 Metro Stores
* Includes 3 superstores situated in ROI.
17
18 Superstores
2 Metro Stores
18
22 Superstores
1 Metro Store
21
17 Superstores
2 Metro Stores
22
10 Superstores
2 Metro Stores
23
15 Superstores
5 Metro Stores
24
11 Superstores
1 Compact Store
7 Metro Stores
25
17 Superstores
3 Metro Stores
26
20 Superstores
1 Metro Store
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Superstores
Compact stores
Metro stores
Our superstores are typically
7,500–10,000 sq.ft. of retail
space located on out of
town retail shopping parks.
Of the 402 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 29 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.
Our 35 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 & Collect and
Order & Collect web offer.
18559
20/06/2011
Proof 6
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66
Resources
Resources and Capabilities continued
Online
Offering 14,400 product lines our website holds
our most comprehensive range, directs many
customers into stores for service delivery and
captures information used across the business.
The Halfords multichannel strategy has grown significantly year on year and combined with the
Halfords store network offers a compelling array of services which meet the changing buyer
behaviour as online becomes further embedded in everyday life.
Competition online stems from either the “pure play” internet only companies or organisations
which also have a “bricks and mortar” store network. Each of the competitor types has strengths
and weaknesses to which Halfords has developed strong competitive responses to. As a result
the multichannel offer continues to outperform the average industry growth rates with online sales
growing by over 36.4%.
To take advantage of the macroeconomic trend to buy online and increasingly through mobile
devices, Halfords has continued to strengthen the multichannel teams and further integrate
techniques and knowledge with the core retail business. During the year additional members
joined as specialists in retail trading, digital marketing, search analysis and analytics which has
served to inform a range of new buying and trading strategies.
Online product selection and targeting has also been refined, whilst the product range is in total
only around 45% larger than our superstores. In selective categories where we have identified
higher levels of online participation, the ranges offered can be up to 600% larger than a store to
best capture online buying behaviour.
Our “Reserve & Collect” and “Order & Collect” continue to be effective in getting customers into
store which is our preferred option, this allows 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.
40.5m
visitors in
Fy11
Online Sales up
36.4%
in Fy11
Over
14,400
products
available online
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
67
“. . . continues to outperform the
average industry growth rates with
online sales growing by over 36%.”
466
18559
20/06/2011
Proof 6
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Resources
Resources and Capabilities continued
Autocentres
The first full year as part of Halfords has seen all 224
Autocentres rebranded and refurbished and 16 new
Autocentres opened achieving a new centre run rate
in Q4 consistent with our 30 per annum target.
Halfords Autocentres is the largest car service network in the UK with currently around 1% market
share of the estimate £9bn car aftercare market. The addition of full service capability means the
Halfords customer offer runs from the DIY with retail parts sales, through “Do it for me” with the
in-store wefit service to the complete vehicle maintenance package.
The car maintenance market has by virtue of its needs driven nature some insulation from
economic cycles although can be exposed to owners choosing to extend service cycles. The
Halfords offer in car servicing has developed a series of strategies to optimise capture of new
business both by harnessing the Halfords brand as well as operational improvements.
The service market consists of three broad segments. At one extreme are the franchised dealers:
slick, credible and trusted but generally costly. 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. In the middle ground Halfords Autocentres
offer the best of both, a cost structure which is competitive but a service which also delivers high
standards and does not compromise manufacturers warranties’, the backing of a large group and
the latest technology and training.
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.
During the year brand testing was carried out at test centres during May to July which
encompassed comprehensive research from consumers on the service offer. From August the full
224 Autocentres were rebranded in seven months with over 30 centres rebranded every month
and included a full refresh of marketing materials and website. The programme was completed on
time, to budget and, based on the broad feedback received, to a high standard.
On 28 February 2011, Halfords Autocentres launched its first national above the line advertising
campaign. This featured radio commercials with the new “that’s helpful, that’s halfords”
campaign, and we ran the first phase in the spring of 2011.
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.
Largest
independent
garage
network in
the UK
240
Autocentres
679,000
appointments
in Fy11
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
69
“. . . Halfords Autocentres launched
its first national advertising campaign
featuring radio commercials with the
new ‘that’s helpful, that’s halfords’
campaign.”
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224 Autocentres rebranded
Arnold Autocentre
Redditch Autocentre
Fareham Autocentre
Arnold
Nottingham
NG5 7DS
Redditch
Worcestershire
B98 8DU
Fareham
Southampton
SO31 6AF
18559
20/06/2011
Proof 6
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70
Governance
466
Use your phone’s
bar code app and
go directly to the
relevant page on
our website.
halfords.annualreport2011.com/governance Go
Governance
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
72
74
78
84
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
71
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18559
04/05/2011
Proof 1
72
Governance
Board of Directors
DAvID WILD
CHIEF ExECUTIvE OFFICER
Joined
4 August 2008
Current Roles
Chief Executive of Halfords Group plc and
non-executive director of Premier Foods plc
Past Roles
Prior to joining Halfords David was Senior
Vice-President for New Business Development at
Wal-Mart US. Prior to this appointment he was
President and Managing Director of Wal-Mart
Germany. Before joining Wal-Mart, David spent 18
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.
Brings to the Board
David brings over 20 years’ retailing experience,
gained at two world-leading businesses, and the
skills and ability to manage the company’s future
growth strategy.
n
DENNIS MILLARD
CHAIRMAN
Joined
28 May 2009
Current Roles
Dennis is currently Chairman of Smiths News plc.
He is the Senior Independent Director and
Chairman of the Audit Committee of Premier
Farnell plc, Xchanging plc and Debenhams plc.
Past Roles
Dennis was previously a non-executive director of
Exel plc and EAG Limited.
Brings to the Board
Dennis has broad commercial and financial
experience in the retail, service, distribution and
manufacturing sectors both internationally and in
the UK and, through his roles on other boards,
relevant experience of the entrepreneurial and
governance contributions that directors and
chairmen should bring to the board.
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PAUL McCLENAGHAN
COMMERCIAL DIRECTOR
Joined
31 March 2007
Current Roles
Commercial Director of Halfords Group plc
Past Roles
Before joining Halfords, 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.
Brings to the Board
Paul brings over 20 years’ experience in Retail
Marketing, Supply Chain, Merchandising, Space
Planning, and Multichannel Retailing. Expertise in
Range Management and Far East sourcing.
ANDREW FINDLAy
GROUP FINANCE DIRECTOR
Joined
1 February 2011
Current Roles
Group Finance Director of Halfords Group plc
Past Roles
Prior to his appointment, Andrew was Director of
Finance, Tax and Treasury at Marks and Spencer
Group plc. Prior to Marks and Spencer he held
senior finance roles at the London Stock Exchange
and at Cable & Wireless, both in the UK and US.
Andrew qualified as a chartered accountant with
Coopers & Lybrand.
Brings to the Board
An impressive track record and extensive financial
experience in retail and other competitive,
consumer and business facing industries.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
73
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DAvID ADAMS
NON-ExECUTIvE DIRECTOR
Joined
1 March 2011
CLAUDIA ARNEy
NON-ExECUTIvE DIRECTOR
Joined
25 January 2011
Current Roles
David is the Non-Executive Chairman of both Snap
Equity Ltd (Jessops) and the Alexon Group, he is
also the Senior Independent Director at JJB
Sports. He is a non-executive director of the
British Retail Consortium and the charity, Walk The
Walk.
Past
David was the Deputy Chief Executive and Finance
Director of the House of Fraser Plc until 2006.
Prior to that, he was the Group Finance Director at
Asprey Plc and before that the Finance Director at
Texas Homecare and also at Top Shop and
Dorothy Perkins.
Brings to the Board
David brings extensive and very relevant financial
and business experience and a deep knowledge of
the retail sector.
a n r
Current Roles
Claudia is a Board member of Transport For
London, a member of the Advisory Group to the
Shareholder Executive of the Department of
Business, Innovation and Skills and a Non-
Executive Director of Doctors.net.uk.
Past Roles
Claudia was the Group Managing Director, Digital
at EMAP Inform until autumn 2010 where she led
the development and execution of online
publishing strategy. Prior to this she was Director
of the Enterprise and Growth Unit at HM Treasury,
and previously she was an Executive Director at
Goldman Sachs working on both product
development and e-publishing. She has also
worked as the Head of Product Development at
FT.Com.
Brings to the Board
Claudia brings extensive experience of strategy
formulation and business development particularly
in the online consumer and media space.
a n r
KEITH HARRIS
INDEPENDENT NON-ExECUTIvE DIRECTOR
Joined
17 May 2004
Current Roles
Keith has been Executive Chairman of Seymour
Pierce Limited since its acquisition from Investment
Management Holdings plc. Keith is currently on
the Boards of Cooper Gay (Holdings) Limited and
Sellar Investments Limited.
Past Roles
Prior to this Keith was Chairman of the Football
League and Chief Executive of HSBC Investment
Bank plc and he has been on the Board of
Benfield plc.
Brings to the Board
Keith brings extensive experience of public
company governance, particularly in the field of
executive remuneration.
a
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BILL RONALD
INDEPENDENT NON-ExECUTIvE DIRECTOR
AND SENIOR INDEPENDENT DIRECTOR
Joined
17 May 2004
Current Roles
Bill is currently Chairman of the Muscular
Dystrophy Campaign, and a non-executive
director of Bezier Limited, Dialight plc and Alfresca.
Past Roles
Bill’s past roles include Chairman of
Europackaging Limited and 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.
Brings to the Board
Bill brings experience of brand building and
winning loyalty by putting the customer first.
He also brings a focus upon organisational
development.
a n r
executive
non-executive
a ■Audit Committee
n ■Nomination Committee
r ■Remuneration Committee
18559
20/06/2011
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74
Governance
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 1 April 2011.
Principal activities
Donations
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 466 retail stores (2010:
469) and car servicing and repair performed from 240 autocentres
(2010: 224). The principal activity of the Company is that of a holding
company.
Business review
The Chairman’s statement on pages 8 to 9, the Business Review on
pages 12 to 49 including the Finance Director’s report on pages 32 to
37 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 42 to 49 and also form part of this Directors’ Report.
Corporate governance
The Corporate Governance report on pages 78 to 83 forms part of this
Directors’ Report.
Profits and dividends
The Group’s results for the year are set out in the Consolidated Income
Statement on page 98.
The profit before tax on ordinary activities was £118.1m (2010
£109.7m) and the profit after tax amounted to £85.5m (2010: £77.0m).
The Directors propose that a final dividend of 14p per ordinary share be
paid on 5 August 2011 to shareholders whose names are on the
register of members at the close of business on 1 July 2011. This
payment, together with the interim dividend of 8p per ordinary share
paid on 24 January 2011, makes a total for the year of 22p per ordinary
share. The total final dividend payable to shareholders for the year is
estimated to be £29.5m. 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’s operations. The Board
considers the KPIs listed on pages 16, 17, 20 and 21 are appropriate
measures for the delivery of the strategy of the Group and its two
divisions — Retail and Autocentres.
During the year the Group contributed £73,000 (2010: £82,800) to
Charities in the UK, including donations to BEN, a charity supporting
individuals and families linked to the motor industry and associated
trades.
In 2009 Halfords commenced a two-year partnership with Macmillan
Cancer Support which ended on 31 March 2011. During the course of
the partnership the Company raised over £134,000 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, together with head office and
store colleagues participating in relay bike ride.
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 2010 Annual General Meeting (“AGM”) that provided for
limited authority for such expenditure, such authority remaining valid
until the earlier of 4 October 2011 or the conclusion of the AGM to be
held in 2011, and as such the Company will be asking for this limited
authority to be renewed at the AGM to be held on 2 August 2011.
Colleagues
The Board seeks to instill 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.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
75
A “whistle-blowing” policy and procedure is in place and has been
notified to all Retail and Autocentre 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 1 April
2011 and at the date of this Report:
Dennis Millard
David Wild
Nick Wharton (resigned 30 November 2010)
Paul McClenaghan
Andrew Findlay (appointed 1 February 2011)
David Adams (appointed 1 March 2011)
Claudia Arney (appointed 25 January 2011)
Nigel Wilson (resigned 31 March 2011)
Keith Harris
Bill Ronald
In accordance with the Company’s Articles of Association and with the
UK Corporate Governance Code guidelines all those persons holding
positions as directors of the company on 1 April 2011, will offer
themselves for re-election at that the company’s AGM on 2 August
2010.
Directors’ interests
The Directors’ interests in shares and options over shares in the
Company are shown in the Directors’ Remuneration Report on pages
84 to 93.
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.
Directors’ indemnities
Article 136 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 96 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 59 days (2010: 49
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.
18559
20/06/2011
Proof 6
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Governance
Directors’ Report continued
Major Shareholders
At 3 June 2011, 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
Artemis Investment Mgt Ltd
Capital (Institutional Grp)
Ignis Asset Management
L&G Investment Management
F&C Asset Management
M&C Investments
Number of
shares
% of issued
shares
12,154,298
11,724,908
8,472,512
7,721,079
7,306,885
6,419,454
5.7
5.5
4.0
3.6
3.4
3.0
The Takeover Directive
As at 1 April 2011 and 2 April 2010, 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 1 April 2011 there were
211,985,998 (2010: 210,710,960) 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. Following the
publication of a revised Combined Code on 28 May 2010, the Board
has agreed that all Directors will stand for re-election on an annual basis
and this requirement was adopted into the Company’s Articles of
Association 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.
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 27 July 2010 shareholders approved a special
resolution authorising the Company to purchase a maximum of
21,101,923 shares, representing 10% of the Company’s issued share
capital at 18 June 2010, such authority expiring at the conclusion of the
AGM to be held in 2011. The Directors intend to optimise the Group’s
balance sheet to enhance shareholder returns and on 7 April 2011
commenced a £75m share buyback programme. In the 52 weeks to
1 April 2011 the Company purchased Nil shares (2010: Nil),
representing a nominal value of £Nil (2010: £Nil).
Auditors
At the AGM held on 27 July 2010 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.
Going concern
The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the
Business Review on pages 12 to 49. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described in the Finance Director’s Review on pages 32 to 37. In
addition, note 20 to the Group financial statements includes the
Group’s objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments
and hedging activities; and its exposures to credit risk and liquidity risk.
With effect from 5 November 2010 the Group secured a four-year
£300m revolving credit facility (extendable by a further year) and at
1 April 2011 the Group had undrawn borrowing facilities of £211m.
The Group’s previous and current committed borrowing facilities contain
certain financial covenants, which have been met throughout the
period.
The Group’s forecasts and projections, taking account of reasonably
possible changes in trading performance, show that the Group should
be able to operate within the level of its borrowing facilities and
covenants for the foreseeable future. As a consequence, the directors
believe that the Group is well placed to manage its business risks
successfully despite the uncertain economic outlook.
The directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the financial statements.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
77
Annual General Meeting
The AGM will be held at the Hyatt Hotel, Bridge Road, Birmingham.
B1 2JZ, on Tuesday 2 August 2011. 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
8 June 2011
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18559
20/06/2011
Proof 6
78
Governance
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 and has adopted the UK Corporate
Governance Code from 29 June 2010. 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 the June 2008 Combined Code (“the
Code”) for the financial period to 1 April 2011. This report describes
how the Group has complied with the Code.
Board Structure
On 1 April 2011 the Board was composed of eight members, consisting
of a non-executive chairman, four non-executive Directors and three
executive Directors.
Board structure
Halfords Group Board
Audit Committee
David Adams (Chairman)
Claudia Arney
Keith Harris
Bill Ronald
Treasury Committee*
* Reports to the Audit Committee. The Treasury
Committee is not a formal committee of the Board.
Nomination Committee
Dennis Millard (Chairman)
David Adams
Claudia Arney
Keith Harris
Bill Ronald
David Wild
Remuneration Committee
Keith Harris (Chairman)
David Adams
Claudia Arney
Dennis Millard
Bill Ronald
Date of Appointment/Reappointment
Date of Resignation
The following Directors held office during the financial
period to 1 April 2011:
Dennis Millard
David Wild
Nick Wharton
Paul McClenaghan
Andrew Findlay
Claudia Arney
David Adams
Keith Harris
Bill Ronald(1)
Nigel Wilson
Designation
Chairman
Chief Executive
Finance Director
Commercial Director
Finance Director
27 July 2010
27 July 2010
27 July 2010
27 July 2010
1 February 2011
Non-Executive Director
25 January 2011
Non-Executive Director
1 March 2011
Non-Executive Director
Non-Executive Director
27 July 2010
27 July 2010
Senior Independent Director
27 July 2010
(1) Bill Ronald was appointed Senior Independent Director on 1 April 2011, following the resignation of Nigel Wilson.
18559
17/06/2011
Proof 5
30 November 2010
31 March 2011
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
79
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 all
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.
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 non-executive directors meet with senior
management and 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 into the cycle of meetings and considered at the
appropriate time.
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 a
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. On 7 March 2011 David Wild was appointed a
non-executive director to the Board of Premier Foods plc and, until his
resignation on 30 November 2010, Nick Wharton was a non-executive
director on the Board of Dunelm Group plc where he also chaired the
Audit Committee.
The Board had nine scheduled meetings this year and others as
required. During 2010 five additional Board meetings were held to
consider business outside the normal calendar of agendas. 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 four, seven and six meetings respectively
additional meetings were held where appropriate. Individual Director
attendance is shown below.
Group
Board
Audit
Nomination Remuneration
Dennis Millard
David Wild
Nick Wharton(1)
Paul
McClenaghan
Andrew Findlay(1)
Claudia Arney(1)
David Adams(1)
Keith Harris
Bill Ronald
Nigel Wilson
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12
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3*
3*
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1
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7
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* Indicates attendance by invitation.
(1) Nick Wharton, Andrew Findlay, Claudia Arney and David Adams
attended all the meetings they were entitled to attend.
Directors and their interests
During the period there have been a number of changes to the
composition of the Board including the resignation as Finance Director
of Nick Wharton on 30 November 2010 and the appointment of
Andrew Findlay as Finance Director on 1 February 2011. Non-Executive
Director changes include the appointments of Claudia Arney on 25
January 2011 and David Adams on 1 March 2011 and the resignation
of Nigel Wilson on 31 March 2011. From 2 April 2010 until his
resignation Nigel Wilson was the Company’s Senior Independent
Director. Bill Ronald has held the position since 1 April 2011.
Dennis Millard was appointed Chairman on 28 May 2009, and was
considered on appointment to meet the independence criteria as set
out in paragraph A.3.1 and B.1.1 of the Code and continued with his
existing commitments (as disclosed on page 72).
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 requirements of paragraph B.1.2 of
the 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, multichannel trading,
retailing, 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.
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18559
20/06/2011
Proof 6
80
Governance
Corporate Governance continued
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.
Following the guidelines of the UK Corporate Governance Code that all
directors should retire and seek re-election on an annual basis, the
Company’s Articles of Association were amended at the Company’s
last Annual General Meeting (“AGM”) to mirror these guidelines
Consequently, all Directors on the Board on 1 April 2011 will seek
election or re-election at the Company’s AGM on 2 August 2011.
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 84 to 93. The
Directors have wide experience and expertise and their biographical
details are given on pages 72 to 73.
In response to the requirements of the Companies Act 2006, 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 as
to whether or not such conflict will be approved.
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. The process for 2010 identified the following actions:
■■ 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. A review of the
process was carried out and a more dynamic, bottom-up/top-
down basis was adopted.
■■ Given the Company’s strategic objective of leveraging the Halfords
brand within its multichannel offer, it was felt that the Board would
benefit from greater exposure to trends within this fast-moving
environment. Claudia Arney, who has extensive multichannel
experience, has been appointed to the board.
Given the number of changes to the Board towards the end of the year,
it was decided to postpone the 2011 board evaluation process until
each of the three new board members had settled in to their roles.
Furthermore, it was decided to include in the process one-on-one
meetings between the Chairman and each board member to
supplement questionnaires that were issued for the evaluation of each
committee. The interview process was carried out in May 2011 and
covered such topics as the board agenda, meeting process,
composition, succession plans, relationships between board members,
their individual performance and the board’s role in the formulation of
group strategy and policy. The Senior Independent Director also
discussed the performance of the Chairman with each board member.
A review of these responses by the Board or by the appropriate
Committee, is underway and appropriate action will be 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. A full report back will be provided
in the 2012 Annual Report.
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.
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
81
Remuneration Committee
For the financial period to 1 April 2011, the Remuneration Committee
comprised Keith Harris (Chairman), Nigel Wilson, Bill Ronald, Dennis
Millard and, following their appointments on 25 January 2011 and
1 March 2011, Claudia Arney and David Adams. All are considered to
be independent non-executive Directors.
Executive Directors attend Remuneration Committee meetings at the
invitation of the Committee Chairman.
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 and its Chairman, Keith Harris, takes this responsibility very
seriously, stating that “Within the general framework of corporate
governance, remuneration committees have the key responsibility of
balancing management’s expectations with the interests of all
stakeholders. A key role of the committee is to attract and retain
executives of the highest quality, and to motivate them to deliver
shareholder value. They must set targets for management that are
stretching yet attainable but not so far reaching as to encourage
excessive risk taking. To function effectively such committees must
have authority and independence of thought; never more than in
today’s challenging environment is the work of remuneration
committees so carefully scrutinised.”
The Committee 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 84 to 93. The
Directors’ Remuneration Report sets out the status of the Company’s
compliance with the requirements of the UK Corporate Governance
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 is chaired by the Company’s Chairman
Dennis Millard, who believes that “The composition of the Board and
the senior management team as well as well-defined succession plans
for each are critical to the success of Halfords, as with any company.
During this year, the Committee was particularly actively engaged with
the appointment of three new Board members and with the
appointment of a number of senior executives. In doing so, emphasis
was placed on securing candidates that not only fit the role
specification but also on how well they would interact with the team as
well as the fresh and challenging approach we believed they could, and
should bring. We believe that this has been achieved.” During the year
the Committee also included Keith Harris, Bill Ronald, Nigel Wilson,
David Wild and, following their appointments on 25 January 2011 and 1
March 2011, Claudia Arney and David Adams. All are considered to be
independent non-executive Directors. The 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.
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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
Finance Director and for new non-executive Directors, the committee
used the services of the executive recruitment agency Egon Zehnder.
Egon Zehnder has no other connection with the Company.
In recommending Claudia Arney and David Adams to be appointed
non-executive Directors of the Group, the Nomination Committee
assessed the time commitment required by the position and in
approving these appointment the Board took this into account and also
considered Claudia and David’s other commitments. The Board
concluded that they both had enough time to fulfil their commitments to
the Group and their other commitments would not affect their ability to
carry out their duties and responsibilities effectively for the Group.
Audit Committee
For the financial period to 1 April 2011, the Audit Committee comprised
Nigel Wilson, Keith Harris and Bill Ronald and, following their
appointments on 25 January 2011 and 1 March 2011, Claudia Arney
and David Adams, all of whom are independent non-executive
Directors. Until his resignation on 31 March 2011 the Committee
chairman was Nigel Wilson, who, as Chief Financial Officer of Legal &
General plc, was considered by the Board to have recent and relevant
financial experience. From 1 April 2011 David Adams was appointed
Chairman of the Committee. David has been the Deputy Chief
Executive and Finance Director of the House of Fraser Plc and as such
is also considered by the Board to have recent and relevant financial
experience. David believes that “The work of the audit committee is key
to securing stakeholder confidence in the financial statements of the
Company. The constant process of review of the processes involved in
the production of these statements, covering assessment of risk, review
of controls, and awareness of a regulatory framework that is constantly
evolving, is fundamental to the committee’s exercise of its
responsibilities. In addition, the committee manages the relationship
with the internal auditors to ensure independence , and works with the
external auditors and the Board to set the planned activity for the
internal audit function.”
Each of the other independent non-executive Directors on the
Committee has, through their other business activities, significant
experience in financial matters. The Chairman, senior members of
management and advisers are invited to attend meetings as
appropriate.
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82
Governance
Corporate Governance continued
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 Auditor 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 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 Auditor’s
independence including any non-audit services that are to be provided
by the external Auditor. The Auditor is also requested to confirm their
independence at least annually. During the year a policy which ensured
that the nature of the advice to be provided could not impair the
objectivity of the external Auditor’s opinion on the Group’s financial
statements was followed. The policy incorporated 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. This policy was reviewed in June 2011 and in future all
non-audit work conducted by the external Auditor must have prior
approval from the Audit Committee.
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
roll-out to our Autocentre colleagues.
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 Code for the financial period to
1 April 2011, 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 Andrew Findlay and
previously Nick Wharton, the Company’s Finance Directors, 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:
■■ 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;
■■ well-defined policies governing appraisal and approval of capital
expenditure and treasury operations;
■■ reviews of key business risks and of management’s controls and
plans to mitigate these risks; and
■■ 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 and Safety, Human Resources,
Finance, Store Assurance, Business Services, Multichannel, Logistics,
and Supply Chain functions. During the financial period to 1 April 2011
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 and reported its findings to the Board. The Board considered
its appetite for risk in relation to the top 30 risks and determined that
the risks and mitigating actions were appropriate to the level of risk that
was both acceptable to and incumbent within a FTSE 250 business.
More information on the Company’s key risks and uncertainties are
shown on pages 38 to 41.
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
83
Relationships with shareholders
Nigel Wilson was the Senior Independent Director until his resignation
on 31 March 2011 and Bill Ronald was appointed Senior Independent
Director on 1 April 2011 following this resignation. 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.
The Board recognises the importance of establishing and maintaining
good relationships with all of the Company’s shareholders and Bill
Ronald has indicated his willingness to meet with any shareholders as
they request. 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.
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
and meetings with individual investors as appropriate. 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 2 August 2011 at the Hyatt Hotel, Bridge Road,
Birmingham. 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 146.
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By order of the Board
Alex Henderson
Company Secretary
8 June 2011
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84
Governance
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 June 2008 Combined Code, 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
2 August 2011.
PARt A — UnAUDIteD InFORMAtIOn
Remuneration Committee
Membership
The Committee comprised the following non-executive Directors during
the financial period to 1 April 2011:
Keith Harris (Committee Chairman)
David Adams (appointed 1 March 2011)
Claudia Arney (appointed 25 January 2011)
Dennis Millard
Bill Ronald
Nigel Wilson (resigned 31 March 2011)
Details of non-executive Directors’ experience and their other roles are
set out in the Directors’ biography section on page 72 to 73. The Board
believes that these Directors have suitable experience to serve on the
Remuneration Committee.
Meetings
During the financial period to 1 April 2011 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 operation of 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 UK Corporate Governance Code and its terms of
reference are available on the Group’s website halfordscompany.com.
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;
■■ Monitoring the relationship between the remuneration of executive
Directors and senior executive managers and the pay arrangements
throughout the Group to ensure that it remains appropriate;
■■ 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.
During the year the Committee conducted an internal effectiveness
review. Following this review the Secretary to the Committee was
requested to ensure that the Company’s new Director of Human
Resources and the Committee’s advisers be invited to attend
Committee meetings on a more regular basis. The Committee will
continue to review effectiveness on an annual basis and take steps to
improve this where appropriate.
Advisers
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 also provide unrelated
advisory and tax 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 Company Secretary (who is secretary to the
Committee).
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
85
Company is at an important stage in its development and is committed
to achieving growth and to generating shareholder value in the future. In
this context, the Committee believes that the policy of upper quartile
pay for upper quartile performance remains appropriate. This is
explained in more detail in the section relating to the Performance Share
Plan on page 88. The Committee continued to monitor remuneration
arrangements during the year and concluded that they remain
appropriate and no further changes were required.
The Committee will continue to 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.
In determining the remuneration arrangements for executive Directors,
the Committee considers the pay and employment conditions
elsewhere in the Group, especially when determining base salary
increases.
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 2011/12:
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, but only if above upper quartile
performance is delivered.
■■ Enable the Group to attract and retain management of the calibre
required to run the business and drive exceptional shareholder
value creation.
The Board reviews this policy and whether remuneration arrangements
appropriately reflect this policy annually. During the period the
Committee worked with Deloitte LLP to review the remuneration
arrangements to ensure that they reflected this policy and our long-term
business strategy. The Committee concluded that, while a number of
elements of the remuneration arrangements remained appropriate, the
structures in place at the time were 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.
In this context, and following discussions with major shareholders, an
award “multiplier” was introduced to the Performance Share Plan
(“PSP”) and the revised plan rules were adopted at the Company’s
AGM in July 2010. The revised scheme allows executives to earn an
incremental reward if performance is above upper quartile levels. The
Fixed vs. Variable Remuneration
Chief executive officer — target
51%
26%
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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Governance
Directors’ Remuneration Report continued
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
Annual Bonus
Purpose and link to
remuneration policy
Maximum award
Key features
■■ Reflects the competitive
■■ n/a
■■ Paid monthly in cash
■■ Based on individual
contribution
■■ Reviewed annually
market salary level for the
individual and their roles
■■ Takes account of personal
performance and
contribution to corporate
performance
■■ Rewards the achievement
of annual earnings targets
■■ 150% of base salary for
■■ For CEO, two-thirds of
CEO
■■ 100% of base salary for
Finance Director and
Commercial Director
bonus is delivered in cash
with one-third being
deferred into shares for
three years
■■ For the Finance Director
and Commercial Director
the full bonus is delivered in
cash
Performance Share Plan (“PSP”)
Company Share Option Scheme
(“CSOS”)
■■ Aligns with shareholder
interests through the
delivery of shares
■■ Rewards growth in
shareholder value and
earnings
■■ Direct link to value creation
through share price growth
as major objective
■■ Aligns with shareholder
interests through the
delivery of shares
■■ Maximum core award of
■■ 50% based on TSR
performance and 50%
based EPS performance
■■ Vests over a three-year
performance period
■■ Based on EPS performance
150% of base salary for all
directors
■■ Performance multiplier of
up to maximum of 1.5 ×
(i.e. 225% of base salary),
for the delivery of
exceptional performance
■■ It is currently intended that
the executive Directors will
not participate in the CSOS
(other than in exceptional
circumstances)
Further details are provided about each element of remuneration below.
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Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
87
Base salaries
Remuneration for senior managers
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 market median at other retail companies for comparable
roles.
During the year the Committee undertook a benchmarking exercise and
decided to defer the annual salary review from the normal time in
October 2010 to March 2011. No further benchmarking was
undertaken. In March 2011 the following executives’ salaries were
approved with effect from 1 April 2011.
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.
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Role
Chief Executive
Finance Director
Salary (with effect from 1 April 2011)
Share plans
£507,500 (nil increase)
£275,000 (new appointment)
Commercial Director
£290,700 (2% increase)
The Committee recognises that in the current economic environment
salary increases should be kept to a minimum and be in line with salary
increases elsewhere in the Group. Average salary increases throughout
the Group for 2011 were c.2%. The Committee considers that salaries
remain approximately at the median when compared to other retailers
of similar size and complexity. Following the six-month deferral in 2010,
base salaries will next be reviewed in October 2011.
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 (“EPS”)
targets. 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.
Bonuses for the Finance Director and the Commercial Director are
payable in cash. The CEO’s bonus is payable two-thirds in cash
following the year end with one-third of any bonus earned being
delivered in Halfords shares. These shares are deferred for a period of
three years from the date of the award subject to continued
employment and other applicable terms. The Committee believes that
this deferral is important to incentivise the CEO to deliver annual
performance while managing risk and creating long-term alignment with
shareholders.
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 (other than in exceptional circumstances). 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 year
shareholder dilution is 4.31%.
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.
Halfords Sharesave Scheme
During the year the Committee considered the principles behind the
establishment of the SAYE scheme in 2010 and concluded that the
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18559
20/06/2011
Proof 6
88
Governance
Directors’ Remuneration Report continued
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.
Following the review of remuneration arrangements and having received
shareholder approval at the AGM in July 2010, for awards granted in
2010 onwards, the core award for all executive Directors will be 150%
of base salary. In addition, there will be a vesting multiplier of up to 1.5
× which will be applied to the TSR and EPS elements of awards. The
maximum multiplier will only apply if performance is at upper decile
levels. The maximum possible award that can be earned will therefore
be 225% of base salary.
For the core award, 30% of the awards vests for achieving median TSR
performance compared to the comparator group described below and
EPS growth of RPI plus 4% per annum. The full core award vests for
achieving upper quartile TSR and EPS growth of RPI plus 11% per
annum. For the award multiplier, the TSR element will only vest if TSR
performance is between upper quartile and upper decile. 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. For the core award and
the multiplier straight-line vesting applies between each of these points.
These targets are considered to be very challenging and the Committee
believes that these targets represent an appropriate level of stretch. The
targets are summarised in the table below:
TSR and EPS performance will 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 companies included in the TSR comparator group for awards
granted in 2010 are as follows:
■■ Brown Group
■■ Game Group
■■ Morrison
■■ Carpetright
■■ Greggs
■■ Mothercare
■■ Carphone
Warehouse
■■ HMV Group
■■ Next
■■ Debenhams
■■ Home Retail Group
■■ Sainsbury’s
■■ Dignity
■■ Kesa Eletricals
■■ Sports Direct
■■ DSG International
■■ Kingfisher
■■ Tesco
■■ Dunelm Group
■■ Marks & Spencer
■■ WH Smith
The comparator group for awards pre-2010 (which did not include the
performance multiplier) was similar to the above group but did not
include food retailers.
The Committee believes that the operation of the PSP is appropriate to
continue to effectively incentivise and retain key executives in a way
which is aligned with our long-term strategy and the creation of
shareholder value. 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’s
decision-making process provides appropriate safeguards to ensure
that this structure does not incentivise executives to take an
inappropriate level of risk.
Details of awards granted to executive Directors are set out on
page 93.
In 2008 and 2009 (the first two years of his tenure) the Chief Executive
Officer received awards under the PSP of 200% of base salary (these
awards are not subject to the performance multiplier).
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.
TSR Performance
Element
(50% of award)
EPS Performance
Element
(50% of award)
Award “Multiplier”
(up to 1.5 × initial award)
1.5 × initial award vesting
Upper Decile performance
16% growth p.a. above RPI
Straight-line vesting
Between Upper Quartile and
Upper Decile
Between 11% growth p.a. and
16% growth p.a. above RPI
Core Award
(150% of salary)
100% vesting
Upper Quartile performance
11% growth p.a. above RPI
Straight-line vesting
Between Median and Upper Quartile
Between 4% growth p.a. and
11% growth p.a. above RPI
30% vesting
0% vesting
Median
4% growth p.a. above RPI
Below Median
Below 4% growth p.a. above RPI
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
89
Shareholding
The shareholding guidelines require executive Directors to acquire and
retain shares to a value equal to 100% of their basic annual salary.
Newly appointed executive Directors will be required 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 1 April 2011 is shown below.
Remuneration delivered in respect of performance in 2010/11
Halfords has had a challenging year and the Remuneration Committee
has recommended that no annual performance bonuses are paid out in
respect of FY11 as the targets of EBT and EPS had not been achieved.
Other Bonus payments made in respect of 2010/11 are set out on
page 91.
Performance for PSP awards granted in 2008 were tested in respect of
the financial years 2009, 2010 and 2011. Halfords were ranked 5th
when compared to the comparator group of selected other retail
companies and EPS growth over the three-year performance period of
38.8% exceeded RPI plus 11% per annum. Consequently 99.01% of
the awards granted in 2008 will vest in August 2011.
Performance for CSOS awards granted in 2008 to below Board
employees was also tested in respect of the financial years 2009, 2010
and 2011. The EPS growth target attached to this award was 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
April 2006, 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
2006
2007
2008
2009
2010
2011
FTSE 350 General Retailers
Halfords Group
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
1 April 2011
As at
2 April 2010
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32,500
100,000
124,744
3,846
11,538
25,000
100,000
124,744
3,846
11,538
Dennis Millard
David Wild
Paul McClenaghan
Keith Harris
Bill Ronald
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 1 April 2011
and 8 June 2011.
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, who each receive a pension
contribution of 15% of base salary per annum. Nick Wharton, the
previous Finance Director, received 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 91.
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 and they are entitled to retain any fees they
may receive. David Wild was appointed as a non-executive director of
Premier Foods on 7 March 2011 for which he received a fee of £4,750.
During the year, up until his resignation, Nick Wharton served as a non-
executive director of Dunelm Group plc, where he was also Chairman
of the Audit Committee for which he received a fee of £27,500.
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18559
20/06/2011
Proof 6
90
Governance
Directors’ Remuneration Report continued
Service agreements
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. Halfords’
policy in relation to non-executive Director fees is as follows:
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.
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
Andrew Findlay(1)
Paul McClenaghan
Date of Service
Agreement
19 June 2008
16 November 2010
9 May 2005
Notice
Period
12 months
12 months
12 months
(1) Andrew Findlay was appointed to the Board on 1 February 2011 and
his 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.
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 91 and 93.
Nick Wharton resigned from the role of Finance Director on
30 November 2010. He received no payment upon his resignation in
accordance with the terms of his contract. He did not receive an award
under the LTIP in 2010 and outstanding awards granted to him under
the share incentive plans lapsed upon his cessation of employment.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
91
Details of non-executive appointment periods appear below:
Dennis Millard
David Adams
Claudia Arney
Keith Harris
Bill Ronald
Nigel Wilson
Date of
appointment
Date of
current
reappointment
28 May 2009
27 July 2010
1 March 2011
25 January 2011
—
—
17 May 2004
27 July 2010
17 May 2004
27 July 2010
Date of
resignation
Expiry date
Unexpired term
at the date of
this report
—
27 May 2012
— 28 February 2014
— 24 January 2014
—
—
26 July 2011
26 July 2011
12 months
33 months
32 months
2 months
2 months
—
17 May 2004
27 July 2010
31 March 2011
—
PARt B — AUDIteD InFORMAtIOn
The following section provides details of the remuneration, pension and share interests of the Directors for the 52 weeks to 1 April 2011 and has
been audited.
Remuneration of executive Directors
Details of the payments made to executive Directors were as follows:
David Wild
Nick Wharton(1)(2)
Paul McClenaghan(2)
Andrew Findlay(4)
52 weeks to 1 April 2011
Salary
£’000
Bonuses
£’000
Benefits(3)
£’000
504
204
271
46
—
—
—
60(5)
27
10
16
2
Total
£’000
531
214
287
108
2010
Total
£’000
1,134
555
540
—
(1) Nick Wharton resigned on 30 November 2010 and payments were made up to that date.
(2) Nick Wharton and Paul McClenaghan, as members of the Halfords Pension Plan sacrificed some of their salary for like-for-like pension
contributions.
(3) Benefits include payments made in relation to private health insurance and the provision of a company car.
(4) Andrew Findlay was appointed from 1 February 2011 and payments were made from that date.
(5) The Remuneration Committee believed it was necessary in attracting the right calibre of individual to the role of Finance Director to offer certain
terms as part of his initial employment terms. It therefore recommended to the Board that Andrew Findlay receive a bonus of £60,000 to
compensate him for lost benefits from his previous employment.
Pension entitlements
Pension contributions to defined contribution pension schemes made by the Group during the 52 weeks to 2 April 2010 in respect of qualifying
services of executive Directors were as follows:
David Wild(1)
Nick Wharton(2)
Paul McClenaghan(2)
Andrew Findlay
52 Weeks to
1 April 2011
£’000
52 Weeks to
2 April 2010
£’000
75
62
56
—
193
75
86
53
—
214
(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, Nick Wharton and Paul McClenaghan have sacrificed some of their salary for like-for-like pension
contributions.
18559
20/06/2011
Proof 6
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92
Governance
Directors’ Remuneration Report continued
Remuneration of non-executive Directors
Details of the payments made to non-executive Directors are shown below:
Basic Fees
£’000
52 weeks to 1 April 2011
Chairman’s
SID Fees
Fees £’000
£’000
165
4
8
45
45
45
—
—
—
—
—
15
—
—
—
5
—
5
Total
£’000
165
4
8
50
45
65
2010
Total
£’000
138
—
—
50
45
65
Dennis Millard
David Adams(1)
Claudia Arney(2)
Keith Harris
Bill Ronald
Nigel Wilson(3)
(1) Appointed 1 March 2011.
(2) Appointed 25 January 2011.
(3) Resigned 31 March 2011.
Directors’ interests in share options
At the beginning of the year and at 1 April 2011, the following Directors had options to subscribe for shares granted under the terms of the
Halfords SAYE.
Nick Wharton
2008 SAYE
Total
Paul McClengahan
2008 SAYE
Total
Options
as at
2 April
2010
4,878
4,878
4,878
4,878
Lapsed
in the period
4,878
4,878
—
—
Options
as at
1 April
2011
—
—
4,878
4,878
Exercise
Price
£
Exercisable
from
Exercisable
to
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 1 April 2011, 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.
18559
17/06/2011
Proof 5
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
93
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.
Award Date
David Wild
7 August 2008
3 August 2009
3 August 2010
Nick Wharton(1)
7 August 2008
Paul
3 August 2009
7 August 2008
McClenaghan
3 August 2009
3 August 2010
Mid-market
price
on date
of award
Awards
held
2 April 2010
Awarded
during the
period
Dividend
Reinvestment(2)
Lapsed
during the
period
Exercised
during
the year
2.96
3.46
4.10
2.96
3.46
2.96
3.46
4.10
337,643
293,659
—
—
—
156,797
86,099
112,324
86,099
112,234
—
—
—
—
—
88,054
—
14,446
3,062
—
3,269
—
5,526
1,719
—
—
—
86,099
115,593
—
—
—
—
—
—
—
—
—
—
—
Awards
held
1 April
2011
Performance
period
3 years to
337,643 1 April 2011
308,105 1 April 2012
159,859 1 April 2013
— 1 April 2011
— 1 April 2012
86,099 1 April 2011
117,760 1 April 2012
89,773 1 April 2013
(1) Nick Wharton resigned on 30 November 2010 and all his option awards lapsed.
(2) Following the recommendation of the Committee to reinvest dividends earned on shares awarded in 2009 and 2010 dividends were reinvested
as follows:
2009 Scheme: Final dividend of 14p per share was reinvested in shares at a cost of £4.81 per share.
Interim dividend of 8p per share was reinvested in shares at a cost of £4.10 per share.
2010 Scheme: Interim dividend of 8p per share was reinvested in shares at a cost of £4.10 per share.
Gains made by Directors
The table below shows gains made by individual Directors from the exercise of share options during the financial year ended 1 April 2011. The gains
are calculated as at the exercise date, although the shares may not have been retained.
2006 PSP
Nick Wharton
Paul McClenaghan
2007 PSP
Nick Wharton
Paul McClenaghan
Total gains on share options
2011
£’000
—
—
—
—
—
2010
£’000
146
177
260
520
1,103
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 1 April 2011 and there were no changes in the options held by the Directors between 1 April 2011
and 8 June 2011.
On 1 April 2011 the market price of ordinary shares of Halfords Group plc was 350.8p and the range during the financial year was 348.2p to 550.0p.
For details of the grant dates of options see note 22 on page 134.
Keith Harris
Chairman of the Remuneration Committee
8 June 2011
18559
20/06/2011
Proof 6
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94
Financials
466
Use your phone’s
bar code app and
go directly to the
relevant page on
our website.
halfords.annualreport2011.com/financials Go
Financials
Statement of Directors’ Responsibilities in Respect of
the Annual Report and the Financial Statements
Independent Auditor’s Report to
the Members of Halfords Group plc
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in
Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Statement of Cash Flows
96
97
98
99
100
101
102
103
Accounting Policies
Notes to the Financial Statements
Company Balance Sheet
Reconciliation of Movements in
Total Shareholders’ Funds
Accounting Policies
Notes to the Financial Statements
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
104
111
138
139
140
141
145
145
146
146
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
95
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18559
20/06/2011
Proof 6
96
Financials
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 judgements 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;
■■ ■for the parent company financial statements, state whether
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.
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.
Approved by order of the Board
Dennis Millard
8 June 2011
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
97
Independent Auditor’s Report to
the Members of Halfords Group plc
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.
Under the Listing Rules we are required to review:
■■ the directors’ statement, set out on page 76, in relation to going
concern;
■■ the part of the Corporate Governance Statement on pages 78 to 83
relating to the company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review; and
■■ certain elements of the report to shareholders by the Board on
directors’ remuneration.
GA Watts (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
8 June 2011
We have audited the financial statements of Halfords Group plc
for the period ended 1 April 2011 set out on pages 98 to 144. 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 auditor’s 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set
out on page 96, 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, and express an opinion on, 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/private.cfm.
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 1 April 2011 and of
the group’s profit for the year 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; and
■■ the information given in the Directors’ Report for the financial period
for which the financial statements are prepared is consistent with the
financial statements.
18559
20/06/2011
Proof 6
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98
Financials
Consolidated Income Statement
For the period
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
Profit for the financial period
attributable to equity shareholders
Earnings per share
Basic
Diluted
Notes
1
1, 2
3
6
6
7
9
9
Before
non-recurring
items
£m
52 weeks to 1 April 2011
Non-recurring
items
(note 5)
£m
—
—
—
(7.5)
(7.5)
—
—
—
(7.5)
2.1
(5.4)
869.7
(384.7)
485.0
(356.9)
128.1
(4.3)
1.8
(2.5)
125.6
(34.7)
90.9
43.2p
42.7p
Before
non-recurring
items
£m
52 weeks to 2 April 2010
Non-recurring
items
(note 5)
£m
Total
£m
869.7
(384.7)
485.0
(364.4)
120.6
(4.3)
1.8
(2.5)
118.1
(32.6)
831.6
(378.9)
452.7
(333.0)
119.7
(4.6)
2.0
(2.6)
117.1
(34.1)
85.5
83.0
40.7p
40.2p
39.7p
39.4p
—
—
—
(7.4)
(7.4)
—
—
—
(7.4)
1.4
(6.0)
Total
£m
831.6
(378.9)
452.7
(340.4)
112.3
(4.6)
2.0
(2.6)
109.7
(32.7)
77.0
36.8p
36.6p
All results relate to continuing operations of the Group.
The notes on pages 111 to 137 are an integral part of these consolidated financial statements.
The Group has elected to prepare its financial statements under IFRSs as adopted by the EU and the accounting policies are outlined on pages 104
to 110.
Download the excel spreadsheet http://halfords.annualreport2011.com/statements
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
99
Consolidated Statement of Comprehensive Income
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
Notes
85.5
77.0
0.1
(4.2)
(1.0)
1.6
1.1
(2.4)
83.1
0.4
(5.1)
(7.3)
1.5
(0.6)
(11.1)
65.9
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
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 111 to 137 are an integral part of these consolidated financial statements.
The Group has elected to prepare its financial statements under IFRSs as adopted by the EU and the accounting policies are outlined on pages 104
to 110.
Download the excel spreadsheet http://halfords.annualreport2011.com/statements
18559
20/06/2011
Proof 6
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100
Financials
Consolidated Statement of Financial Position
Assets
Non-current assets
Intangible assets
Property, plant and equipment
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
Notes
1 April 2011
£m
2 April 2010
£m
10, 11
12
13
14
20
15
16
20
17
18
16
20
18
19
21
21
21
346.7
102.6
449.3
147.6
42.0
0.3
2.7
192.6
641.9
(7.6)
(2.3)
(142.0)
(23.4)
(10.4)
(185.7)
6.9
(98.3)
—
(27.7)
(7.5)
(0.3)
(133.8)
(319.5)
322.4
2.1
151.0
0.1
169.2
322.4
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
The notes on pages 111 to 137 are an integral part of these consolidated financial statements.
The Group has elected to prepare its financial statements under IFRSs as adopted by the EU and the accounting policies are outlined on pages 104
to 110.
The financial statements on pages 98 to 137 were approved by the Board of Directors on 8 June 2011 and were signed on its behalf by:
David Wild
Chief Executive
Andrew Findlay
Finance Director
Company Number: 04457314
Download the excel spreadsheet http://halfords.annualreport2011.com/statements
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
101
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
13.4
83.1
Total
equity
£m
244.4
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Balance at 3 April 2009
2.1
145.6
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.9
—
—
—
0.9
Balance at 2 April 2010
2.1
146.5
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.5
—
—
—
4.5
Balance at 1 April 2011
2.1
151.0
—
—
0.4
—
—
—
—
0.4
0.4
—
—
—
—
—
0.4
—
0.1
—
—
—
—
0.1
0.1
—
—
—
—
—
0.5
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5.1)
(7.3)
1.5
(0.6)
(11.5)
(11.5)
—
—
—
—
—
1.9
—
—
(4.2)
(1.0)
1.6
1.1
(2.5)
(2.5)
—
—
—
—
—
0.2
(0.6)
77.0
77.0
—
—
—
—
—
—
77.0
—
2.5
0.1
(35.3)
(32.7)
127.4
0.4
(5.1)
(7.3)
1.5
(0.6)
(11.1)
65.9
0.9
2.5
0.1
(35.3)
(31.8)
278.5
85.5
85.5
—
—
—
—
—
—
85.5
—
2.4
0.1
(46.2)
(43.7)
169.2
0.1
(4.2)
(1.0)
1.6
1.1
(2.4)
83.1
4.5
2.4
0.1
(46.2)
(39.2)
322.4
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The notes on pages 111 to 137 are an integral part of these consolidated financial statements.
The Group has elected to prepare its financial statements under IFRSs as adopted by the EU and the accounting policies are outlined on pages 104 to 110.
Download the excel spreadsheet http://halfords.annualreport2011.com/statements
18559
20/06/2011
Proof 6
102
Financials
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 loss on derivative financial instruments
Income tax expense
(Increase)/decrease in inventories
Decrease in trade and other receivables
Increase in trade and other payables
(Decrease)/increase in provisions
Finance income received
Finance costs paid
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
Proceeds from loans, net of transaction costs
Repayment of borrowings
Payment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net (decrease)/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
1 April
2011
£m
52 weeks to
2 April
2010
£m
Notes
90.9
(5.4)
85.5
20.4
—
4.6
0.5
2.5
0.1
2.4
0.6
32.6
(9.1)
0.8
11.1
(5.8)
1.5
(3.6)
(25.7)
118.4
(1.9)
(2.6)
(19.5)
(24.0)
4.5
86.4
(180.0)
(0.2)
(46.2)
(135.5)
(41.1)
36.5
—
(4.6)
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
10
I.
I.
The notes on pages 111 to 137 are an integral part of these consolidated financial statements.
The Group has elected to prepare its financial statements under IFRSs as adopted by the EU and the accounting policies are outlined on pages 104
to 110.
Download the excel spreadsheet http://halfords.annualreport2011.com/statements
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
103
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 2 April
2010
£m
Cash flow
£m
Other non-cash
changes
£m
At 1 April
2011
£m
36.5
(180.0)
(143.5)
(0.2)
(11.8)
(12.0)
(155.5)
(41.1)
93.6
52.5
0.2
—
0.2
52.7
—
(0.4)
(0.4)
(0.3)
0.3
—
(0.4)
(4.6)
(86.8)
(91.4)
(0.3)
(11.5)
(11.8)
(103.2)
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Non-cash changes comprise finance costs in relation to the amortisation of capitalised debt issue costs of £0.4m and changes in classification
between amounts due within and after one year. Cash and cash equivalents at the period end consist of £2.7m (2010: £36.5m) of liquid assets and
£7.3m (2010: £nil) of bank overdrafts.
18559
20/06/2011
Proof 6
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104
Financials
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 1 April 2011 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 for the reasons set out in the Directors Report on page 76, 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 financial statements are presented in millions of UK pounds, rounded to the nearest £0.1m.
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 1 April 2011, whilst the comparative period covered the 52 weeks to 2 April 2010.
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 1 April 2011 are as follows:
Subsidiary undertaking
Principal activity
% Ownership of ordinary shares
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories, cycles and cycle accessories
Halfords Investments (2010) LP†
Intermediate holding partnership
Halfords Autocentres Holdings Limited*
Intermediate holding company
Halfords Autocentres Limited*
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
Halfords Ireco 1 Limited
Halfords Ireco 2 Limited*
Halfords Finance UK LLP†
Car servicing
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding partnership
* Shares held indirectly through subsidiary undertakings.
† Wholly owned indirectly through subsidiary undertakings.
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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 and on services
when those services have been rendered.
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 considers 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.
The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-recurring items. A reconciliation of this
alternative measure to the statutory measure required by IFRS is given in note 9.
Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in pounds sterling, which is the Group’s 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 and is determined by reference to the fair value of the options granted. 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.
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106
Financials
Accounting Policies continued
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.
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:
■■ 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 recoverable amount.
For acquisitions prior to 3 April 2010 costs directly attributable to business combinations formed part of the consideration payable when calculating
goodwill. Adjustments to contingent consideration, and therefore the consideration payable and goodwill, are made at each reporting date until the
consideration is finally determined.
Acquisitions after this date fall under the provisions of ‘Revised IFRS 3 Business Combinations (2009)’. For these acquisitions transaction costs,
other than share and debt issue costs, will be expensed as incurred and subsequent adjustments to the fair value of consideration payable will be
recognised in profit or loss.
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.
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 2 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 twelve 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
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overseas sourced products. The Group uses the derivatives to hedge highly probable forecast transactions and therefore the instruments are
designated as cash flow hedges.
Derivatives are recognised at fair value on the date a contract is entered into and are subsequently remeasured 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%.
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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 amortised cost less
any impairment losses 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 in operating expenses.
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.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate 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 foreign exchange
contracts.
In respect of borrowing costs relating to qualifying assets, 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. All other borrowing costs are recognised in profit or loss using the effective interest
method.
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Financials
Accounting Policies continued
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.
Provision is also made for loss-making stores and autocentres which management do not expect to become profitable.
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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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:
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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.
Provisions
Provisions include residual amounts for the 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 intangibles 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 111 to 137.
Adoption of new and revised standards
The following standards and interpretations are applicable to the Group and have been adopted in 2011 as they are mandatory for the year ended
1 April 2011.
■■ 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.
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■■■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.
■■■■Since there have been no acquisitions in the year, there has been no impact on profit or loss or net assets.
■■ IAS 27 ‘Consolidated and Separate Financial Statements (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. This amendment has not had a
material impact on 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. This amendment has not had a material impact on the Group’s 2011 consolidated financial
statements.
■■ 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 has not had a material impact on the Group’s 2011 consolidated financial statements.
■■ Amendments to IFRS 8 ‘Operating Segments’ — removes the requirement to present segment information for total assets unless regularly
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Financials
Accounting Policies continued
reported to the chief operating decision-maker. Since the changes are presentational only there has been no impact on profit or net assets.
■■ Amendments to IAS 17 ‘Leases’ — allows a lease of land with an indefinite economic life to be classified as a finance lease when relevant criteria
are met. This amendment has not had any impact on the Group’s 2011 consolidated financial statements.
■■ 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. This amendment has not had any impact on the Group’s 2011
consolidated financial statements.
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 1 April 2011, 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 the EU, and are available for early adoption, but have not yet been
applied by the Group in these financial statements.
■■ IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ — deals with how entities should measure equity instruments issued in a debt
for equity swap. Application of this standard is required for periods starting on or after 1 July 2010. The amendments are not expected to have a
material impact and will become mandatory for the Group’s 2012 consolidated financial statements.
■■ IAS 24 ‘Related Party Disclosures (revised 2009)’ — makes changes to the definition of a related party. Application of this standard is required
for periods starting on or after 1 January 2011. The amendments are not expected to have a material impact and will become mandatory for the
Group’s 2012 consolidated financial statements.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
111
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 the Executive Directors. Internal management reports for each of the segments are reviewed by the
Executive Directors on a monthly basis. Key measures used to evaluate performance are Revenue and Operating Profit. Management believes
that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.
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The following summary describes the operations in each of the Group’s reportable segments. Performance is measured based on segment
operating profit, as included in the management reports that are reviewed by the Executive Directors. These internal reports are prepared in
accordance with IFRS accounting policies consistent with these Group Financial Statements.
All material operations of the reportable segments are carried out in the UK and all material non-current assets are located in the UK. The
Group’s revenue is driven by the consolidation of individual small value transactions and as a result Group revenue is not reliant on a major
customer or group of customers. All revenue is from external customers.
Income statement
Revenue
Segment result before non-recurring items
Non-recurring items
Segment result
Unallocated expenses1
Operating profit
Net financing expense
Profit before tax
Taxation
Profit for the year
Income statement
Revenue
Segment result before non-recurring items
Non-recurring items
Segment result
Unallocated expenses1
Operating profit
Net financing expense
Profit before tax
Taxation
Profit for the year
Retail
£m
Car Servicing
£m
52 weeks to
1 April 2011
Total
£m
771.6
98.1
869.7
123.3
(7.5)
115.8
7.0
—
7.0
130.3
(7.5)
122.8
(2.2)
120.6
(2.5)
118.1
(32.6)
85.5
Retail
£m
818.1
119.4
(7.4)
112.0
52 weeks to
2 April 2010
Total
£m
Car Servicing
£m
13.5
831.6
0.6
—
0.6
120.0
(7.4)
112.6
(0.3)
112.3
(2.6)
109.7
(32.7)
77.0
1 Unallocated expenses have been disclosed to reflect the format of the internal management reports reviewed by the Chief Operating Decision
maker and comprise an amortisation charge of £2.2m in respect of assets acquired through business combinations (2010: £0.3m).
18559
20/06/2011
Proof 6
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112
Financials
Notes to the Financial Statements continued
1. Operating segments continued
Other segment items:
Capital expenditure
Depreciation expense
Amortisation expense
Inventory write-down
Other segment items:
Capital expenditure
Depreciation expense
Impairment expense (property, plant and equipment)
Amortisation expense
Inventory write-down
There have been no transactions between segments in the 52 weeks ended 1 April 2011 (2010: £nil).
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
52 weeks
ended 1 April
2011
Total
£m
Retail
£m
Car Servicing
£m
16.6
19.1
2.5
11.0
6.2
1.3
—
—
22.8
20.4
2.5
11.0
52 weeks
ended 2 April
2010
Total
£m
20.4
21.9
5.0
1.9
14.9
Retail
£m
Car Servicing
£m
20.1
21.8
5.0
1.9
14.9
0.3
0.1
—
—
—
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
306.5
—
306.5
50.4
7.5
57.9
364.4
280.2
6.8
287.0
52.8
0.6
53.4
340.4
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
113
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
1 April 2011
£m
52 weeks to
2 April 2010
£m
2.2
87.4
(7.2)
(0.6)
0.1
4.6
19.9
0.5
—
0.1
144.2
375.6
1.8
82.9
(7.1)
(1.1)
0.7
2.2
21.4
0.5
5.0
0.2
126.5
369.0
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The total fees payable by the Group to KPMG Audit Plc and their associates during the period was £0.4m (2010: £1.1m), 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 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
1 April 2011
£’000
52 weeks to
2 April 2010
£’000
30
184
15
136
—
57
—
422
30
236
15
439
299
34
9
1,062
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
(2010: £0.1m).
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18559
20/06/2011
Proof 6
114
Financials
Notes to the Financial Statements continued
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/Autocentres
Central warehousing
Head offices
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
129.6
112.8
9.4
2.4
2.8
—
7.6
2.5
3.2
0.4
144.2
126.5
Number
Number
10,495
148
590
11,233
9,066
162
529
9,757
Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 84 to 93 which form part of
these financial statements.
Key management compensation
For the period
Salaries and short-term benefits
Social security costs
Pensions
Share-based payment charge
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
1.9
0.2
0.3
1.0
3.4
2.9
0.6
0.3
0.8
4.6
Key management compensation includes the emoluments of the Board of Directors and the emoluments of the Halfords Limited and Halfords
Autocentres management boards.
There were no outstanding balances at the year end (2010: £nil).
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
115
5. Non-recurring items
For the period
Non-recurring operating expenses:
Lease guarantee provision(1)
Central Europe closure(2)
Non-recurring items before tax
Tax on non-recurring items(3)
Non-recurring items after tax
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
7.5
—
7.5
(2.1)
5.4
—
7.4
7.4
(1.4)
6.0
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(1) A non-recurring expense of £7.5m was incurred in the year. This expense relates to the creation of a provision for the potential liabilities
arising from lease guarantees provided by Halfords prior to July 1989. An estimate of the potential liability relating to these guarantees was
previously disclosed as a contingent liability in the Interim financial statements. The guarantees were provided to landlords of properties leased
by Payless DIY (now part of Focus DIY) when both Halfords and Payless DIY were under the ownership of the Ward White Group. Focus DIY
entered into administration in May 2011.
(2) Exit costs associated with the closure of all seven stores in Central Europe. Results for Central Europe for the period was £1.9m (2010:
£5.9m), generating an operating loss before non recurring items of £0.4m (2010: £2.5m).
(3) This represents the tax credit at 28% on these non-recurring costs; in 2010 this credit was 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.
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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
Finance income:
Bank and similar interest
Other interest receivable
Finance income
Net finance costs
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
(2.1)
(0.4)
(0.6)
(0.4)
(0.8)
—
(4.3)
0.9
0.9
1.8
(2.5)
(2.7)
(0.5)
(0.2)
(0.1)
(0.8)
(0.3)
(4.6)
2.0
—
2.0
(2.6)
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Other interest includes £0.9m relating to the settlement of amounts due from HMRC in the period.
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
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
1.8
(3.9)
2.0
(4.5)
18559
20/06/2011
Proof 6
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116
Financials
Notes to the Financial Statements continued
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
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% (2010: 28%)
Factors affecting the charge for the period:
Depreciation on expenditure not eligible for tax relief
Employee share options
Non-taxable income
Other disallowable expenses
Adjustment in respect of prior periods
Total tax charge for the period
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
35.7
(4.1)
31.6
(0.2)
1.2
1.0
32.6
35.5
(1.1)
34.4
(2.5)
0.8
(1.7)
32.7
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
118.1
33.1
1.2
1.2
(0.7)
0.7
(2.9)
32.6
109.7
30.7
1.8
(0.2)
—
0.7
(0.3)
32.7
On 22 June 2010 the Chancellor announced that the main rate of UK corporation tax will reduce from 28% to 27% with effect from 1 April 2011.
This tax change became substantively enacted in July 2010 and therefore the effect of the rate reduction on the deferred tax balances as at
1 April 2011 has been included in the figures above. On 23 March 2011 the Chancellor announced a further reduction in the main rate of UK
corporation tax to 26% with effect from 1 April 2011. This change became substantively enacted on 29 March 2011 and therefore the effect of
the rate reduction has been reflected in the figures above as it was substantively enacted prior to the balance sheet date.
The Chancellor also proposed changes to further reduce the main rate of corporation tax by 1% per annum to 23% by 1 April 2014, but
these changes have not yet been substantively enacted. It has not yet been possible to quantify the full anticipated effect of this further 3%
rate reduction, although this will further reduce the Group’s future current tax charge and reduce the Group’s deferred tax assets and liabilities
accordingly.
In this financial period, the UK corporation tax standard rate was 28% (2010: 28%).
The effective tax rate of 27.6% (2010: 29.8%) differs from the UK corporation tax rate principally due to the non-deductibility of depreciation
charged on capital expenditure, the reassessment of anticipated future tax deductions from employee share schemes and the reassessment of
historic tax provisions required against tax uncertainties.
The tax charge of £32.6m (2010: £32.7m) includes a credit of £2.1m (2010: £1.4m) in respect of the tax on non-recurring costs, as detailed
in note 5.
An income tax credit of £1.1m (2010: £0.6m charge) 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 a tax impact.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
117
8. Dividends
For the period
Equity – ordinary shares
Final for the 52 weeks to 2 April 2010 – paid 14.00p per share (2010: 10.90p)
Interim for the 52 weeks to 1 April 2011 – paid 8.00p per share (2010: 6.00p)
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
29.3
16.9
46.2
22.8
12.5
35.3
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In addition, the Directors are proposing a final dividend in respect of the financial period ended 1 April 2011 of 14.00p per share (2010: 14.00p
per share), which will absorb an estimated £29.5m (2010: £29.3m) of shareholders’ funds. It will be paid on 6 August 2011 to shareholders who
are on the register of members on 1 July 2011.
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 1 April 2011.
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
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
1 April 2011
Number of
shares
£m
52 weeks to
2 April 2010
Number of
shares
£m
211.5
(1.1)
210.4
2.4
212.8
210.2
(1.1)
209.1
1.5
210.6
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
85.5
7.5
(2.1)
90.9
77.0
7.4
(1.4)
83.0
52 weeks to
1 April 2011
52 weeks to
2 April 2010
40.7p
40.2p
43.2p
42.7p
36.8p
36.6p
39.7p
39.4p
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.
18559
20/06/2011
Proof 6
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118
Financials
Notes to the Financial Statements continued
10. Acquisition of subsidiary undertaking in prior year
On 17 February 2010 the Group acquired 100% 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, now
Halfords Autocentres, is a group of companies involved in car servicing and repair. This transaction was accounted for by the purchase method
of accounting.
The acquisition had the following effect on the Group’s assets and liabilities:
Acquiree’s net assets at the acquisition date
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Trade and other payables
Provisions
Current tax liabilities
Deferred tax liabilities
Net identifiable assets and liabilities
Goodwill on acquisition (see note 11)
Consideration paid
Pre-
acquisition
carrying
amounts
£m
Fair value
adjustments
£m
Recognised
values on
acquisition
£m
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
69.7
74.9
The fair value adjustments primarily relate to intangible assets in respect of customer relationships and favourable leases, see note 11.
There have been no subsequent changes to the fair value of the net assets acquired at the time of purchase.
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”.
£1.0m of the additional cash consideration was payable on 17 February 2011 and was settled on that date. The remaining £0.7m is payable on
17 February 2012.
The deferred consideration of £0.9m has been settled in the year.
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
119
11. Intangible assets
Cost
At 3 April 2009
Additions
Assets acquired through business
combinations
At 2 April 2010
Additions
At 1 April 2011
Amortisation
At 3 April 2009
Charge for the period
At 2 April 2010
Charge for the period
At 1 April 2011
Net book value at 1 April 2011
Net book value at 2 April 2010
Brand
names and
trademarks
£m
Customer
relationships
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
0.2
—
0.9
1.1
—
1.1
0.2
0.1
0.3
0.4
0.7
0.4
0.8
—
—
14.9
14.9
—
14.9
—
0.2
0.2
1.7
1.9
13.0
14.7
—
—
2.3
2.3
—
2.3
—
—
—
—
—
2.3
2.3
16.1
3.5
0.1
19.7
2.6
22.3
9.7
1.9
11.6
2.5
14.1
8.2
8.1
274.8
—
69.7
344.5
—
344.5
21.7
—
21.7
—
21.7
322.8
322.8
Total
£m
291.1
3.5
87.9
382.5
2.6
385.1
31.6
2.2
33.8
4.6
38.4
346.7
348.7
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No intangible assets are held as security for external borrowings.
Included in computer software are internally generated assets of £0.3m (2010: £0.4m). 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 the
Retail segment. 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 and is allocated to the car
servicing segment. 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 goodwill arising on the acquisition of the 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.
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 and expectations for future market developments.
The key assumptions, to which the Group of cash-generating units recoverable amounts are most sensitive, used to determine value-in-use of
goodwill held at 1 April 2011 and 2 April 2010 are as follows:
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Discount rate
Growth rate
Retail
Car Servicing
Notes
1
2
2011
14.2%
0.0%
2010
12.2%
0.0%
2011
14.9%
0.0%
2010
13.9%
0.0%
Notes:
1. Pre-tax discount rate applied to the cash flow projections.
2. Growth rate used to extrapolate cash flows beyond the three year 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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Proof 6
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Financials
Notes to the Financial Statements continued
12. Property, plant and equipment
Cost
At 3 April 2009
Additions
Effect of movements in exchange rates
Assets acquired through business combinations
Disposals
Reclassifications
At 2 April 2010
Additions
Disposals
Reclassifications
At 1 April 2011
Depreciation
At 3 April 2009
Depreciation for the period
Impairment charge
Disposals
At 2 April 2010
Depreciation for the period
Disposals
At 1 April 2011
Net book value at 1 April 2011
Net book value at 2 April 2010
Fixtures,
fittings
and
equipment
£m
Payments on
account and
assets in
course of
construction
£m
Land and
buildings
£m
49.1
0.7
0.1
3.0
(0.7)
0.1
52.3
5.3
(0.6)
0.5
57.5
20.8
2.5
0.3
(0.5)
23.1
3.0
(0.5)
25.6
31.9
29.2
287.8
8.9
0.8
2.2
(3.7)
—
296.0
14.7
(6.5)
6.9
311.1
208.8
19.4
4.7
(3.2)
229.7
17.4
(6.5)
240.6
70.5
66.3
0.2
7.3
—
—
—
(0.1)
7.4
0.2
—
(7.4)
0.2
—
—
—
—
—
—
—
—
0.2
7.4
Total
£m
337.1
16.9
0.9
5.2
(4.4)
—
355.7
20.2
(7.1)
—
368.8
229.6
21.9
5.0
(3.7)
252.8
20.4
(7.0)
266.2
102.6
102.9
Payments on account and assets in the course of construction mainly include the costs associated with the new distribution centre in Coventry.
The prior period impairment charge included the impairment of assets in relation to the closure of stores in Central Europe. These assets have
been fully disposed of in the period.
No fixed assets are held as security for external borrowings.
Included in the above are assets held under finance leases as follows:
Land and
Buildings1
£m
Fixtures,
fittings, and
equipment
£m
12.7
(3.6)
9.1
12.7
(3.0)
9.7
0.8
(0.8)
—
0.8
(0.8)
—
Total
£m
13.5
(4.4)
9.1
13.5
(3.8)
9.7
As at 1 April 2011
Cost
Accumulated depreciation
Net book value
As at 2 April 2010
Cost
Accumulated depreciation
Net book value
1 Relates to the Halfords head office building lease, which expires in 2028.
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
121
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
2011
£m
1.0
4.3
14.7
20.0
Interest
2011
£m
0.7
2.9
4.6
8.2
Principal
2011
£m
Minimum lease
payments
2010
£m
0.3
1.4
10.1
11.8
1.0
4.2
15.8
21.0
Interest
2010
£m
0.8
2.9
5.3
9.0
2011
£m
147.6
Principal
2010
£m
0.2
1.3
10.5
12.0
2010
£m
138.5
Finished goods inventories include £8.4m (2010: £8.4m) 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 £11.0m was recognised as an expense in respect of the write-down of inventories (2010: £14.9m) to net realisable value
which, in the prior period, included the impairment of inventories in relation to the closure of stores in Central Europe.
No inventories are held as security for external borrowings.
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
2011
£m
10.4
(0.3)
10.1
2.8
29.1
42.0
2010
£m
10.2
(0.3)
9.9
5.8
27.2
42.9
During the period the Group created a provision of £0.3m (2010: £0.3m) for the impairment of trade receivables and utilised £0.1m
(2010: £0.1m).
15. Cash and cash equivalents
Cash at bank and in hand
2011
£m
2.7
2010
£m
36.5
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
18559
20/06/2011
Proof 6
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122
Financials
Notes to the Financial Statements continued
16. Borrowings
Current
Unsecured bank overdraft
Finance lease liabilities
Non-current
Unsecured bank loan and other borrowings1
Finance lease liabilities
2011
£m
7.3
0.3
7.6
86.8
11.5
98.3
2010
£m
—
0.2
0.2
180.0
11.8
191.8
1 The above borrowings are stated net of unamortised issue costs of £3.2m (2010: £nil).
The Group has renegotiated its debt facility with effect from 5 November 2010 and secured a four-year £300m revolving credit facility from that
date (with an option to extend by a further year). While variable in line with the level of Group debt, at the Group’s optimal gearing level of 1.5×
EBITDA, the facility carries an interest margin of approximately 200bps.
With revised facilities in place the Board has determined that it has sufficient working capital and undrawn financing facilities to service its
operating activities and ongoing capital investments following the signing. The Board retains its preference for financial flexibility and lower
gearing whilst pursuing high return investments. Accordingly the Group’s pro forma gearing at the end of the period was 0.7× EBITDA.
The revolving credit facility permits further borrowings of £210m up to a maximum of £300m.
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
2011
£m
80.7
18.1
5.4
3.7
34.1
142.0
2010
£m
74.0
10.9
4.7
3.7
38.2
131.5
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20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
123
18. Provisions
At 2 April 2010
Charged during the period
Utilised during the period
Released during the period
At 1 April 2011
Analysed as:
Current liabilities
Non-current liabilities
Central
Europe exit
£m
Distribution
reorganisation
£m
Property
related
£m
Other
trading
£m
3.5
—
(2.0)
(0.7)
0.8
0.8
—
6.8
—
(6.8)
—
—
—
—
11.8
8.4
(2.8)
(2.1)
15.3
7.8
7.5
1.6
1.2
(0.8)
(0.2)
1.8
1.8
—
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Total
£m
23.7
9.6
(12.4)
(3.0)
17.9
10.4
7.5
The Central Europe exit provision represents the costs associated with the closure of all seven stores trading in the Czech Republic and Poland.
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. Also included in the current period
are £7.5m of non-recurring costs (note 5) relating to liabilities in respect of previous assignments of leases where the lessee has entered into
administration subsequent to the period end.
Other trading provisions comprises a 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 were the timing of the exit from leases that were
contracted into, the timing of redundancies and the extent of dilapidation costs. The sensitivities to these assumptions were not considered
material due to the time value of money being minimal over the period over which the costs would be incurred.
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 into the provision amount to take account of this sensitivity.
A rent review provision is recognised when there is 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 contracts. The provision is based on management’s best estimate of the rent
payable after the review.
Key uncertainties are the estimate of the rent payable after the review has occurred. Sensitivity to this uncertainty is not expected to be material
to the provision in total.
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.
18559
20/06/2011
Proof 6
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Financials
Notes to the Financial Statements continued
19. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 26% (2010: 28%).
The movement on the deferred taxation (provision)/asset is shown below:
At the beginning of the period
Acquired through business combinations
Income statement (charge)/credit (note 7)
Credit/(debit) to equity
At the end of the period
2011
£m
(0.5)
—
(1.0)
1.2
(0.3)
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 3 April 2009
Acquired through business combinations
Credit to the income statement
Debit to other comprehensive income
At 2 April 2010
Credit to the income statement
Credit to other comprehensive income
At 1 April 2011
Deferred tax assets:
At 3 April 2009
Acquired through business combinations
Credit to the income statement
Credit to equity
At 2 April 2010
Debit to the income statement
Credit to equity
At 1 April 2011
Net deferred tax (liability)/asset
At 1 April 2011
At 2 April 2010
2010
£m
2.7
(4.4)
1.7
(0.5)
(0.5)
£m
(5.7)
(5.0)
1.2
(0.6)
(10.1)
1.1
1.1
(7.9)
£m
8.4
0.6
0.5
0.1
9.6
(2.1)
0.1
7.6
(0.3)
(0.5)
Deferred tax liabilities represents the deferred tax calculated on the accelerated tax depreciation and fair value of financial instruments held at
1 April 2011.
Deferred tax assets represents the deferred tax calculated on provisions and share options held at 1 April 2011.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
125
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;
■■
■■ Manage the clearing bank operations of the Group; and
■■ Manage the foreign exchange risk on its non-sterling cash flows.
Invest surplus cash;
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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 four-year revolving credit facility
totalling £300m that provides the Group with committed bank facilities until November 2014, which are extendable by a further year. 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:
Financial liabilities
Finance leases
Variable rate instruments
2011
Carrying
amount
£m
11.8
90.0
101.8
2010
Carrying
amount
£m
12.0
180.0
192.0
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.
The table below shows the Group’s sensitivity to interest rates changes:
2011
Increase in
finance cost
£m
2011
Reduction in
equity
£m
2010
Increase in
finance cost
£m
2010
Reduction in
equity
£m
1% increase in sterling interest rates
(0.9)
—
(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.
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.
18559
20/06/2011
Proof 6
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126
Financials
Notes to the Financial Statements continued
20. Financial instruments and related disclosures continued
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 more than 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 1 April 2011, 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, monitoring of 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
1 April 2011
2 April 2010
GBP
£m
(6.0)
42.0
(90.0)
(128.1)
(182.1)
USD
£m
—
—
—
(13.6)
(13.6)
Other
£m
1.4
—
—
(0.3)
1.1
GBP
£m
33.7
42.9
(180.0)
(116.2)
(219.6)
USD
£m
0.1
—
—
(15.0)
(14.9)
Other
£m
2.7
—
—
(0.3)
2.4
The following significant exchange rates applied during the current and prior period:
USD
EUR
Average rate
Reporting date
spot rate
2011
1.56
1.18
2010
1.60
1.13
2011
1.60
1.13
2010
1.53
1.13
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
2011
Increase/
(decrease)
in equity
£m
11.0
(8.7)
2010
Increase/
(decrease)
in equity
£m
8.4
(7.5)
A strengthening of sterling, as indicated, against the USD at 1 April 2011 would have increased/(decreased) equity and profit or loss by the
amounts shown above. 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.
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.
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Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
127
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
2011
£m
2.7
12.5
0.3
15.5
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£m
36.5
15.5
3.0
55.0
The £12.5m (2010: £15.5m) 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:
Not past due
Past due by 1–30 days
Past due by 31–90 days
Past due by 91–180 days
2011
£m
10.0
0.9
1.3
0.3
12.5
2010
£m
12.7
1.4
0.6
0.8
15.5
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The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectable, 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, such that under Treasury Policy the maximum drawings would be £270m of the £300m available facility.
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 refinancing (November
2010). Ancillary business, in the main, is directed to the five banks within the club banking group. At the time of the drawdown of the bank facility
in November 2010 all banks within the club were ‘A’ grade. 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 Club bank agent. Reporting on covenant compliance forms part of the
Treasury Report. There have been no breaches of covenants during the reported periods.
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Proof 6
128
Financials
Notes to the Financial Statements continued
20. Financial instruments and related disclosures continued
The following are the contractual maturities of non-derivative financial liabilities, including estimated interest payments and excluding the impact
of netting agreements:
2011
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
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
Bank
borrowings
£m
Finance
leases
£m
3.2
3.2
95.0
—
101.4
86.8
1.0
1.0
3.3
14.7
20.0
11.8
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
Trade and
other
payables2
£m
112.1
—
—
—
112.1
112.1
Trade and
other
payables2
£m
111.6
—
—
—
111.6
111.6
Total
£m
116.3
4.2
98.3
14.7
233.5
210.7
Total
£m
115.0
181.6
3.2
15.8
315.6
303.6
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 1 April 2011 (2 April 2010).
Due less than one year
Expiring between 1 and 2 years
Contractual cash flows
Fair value
Receivables
£m
2011
Payables
£m
Receivables
£m
95.4
1.2
96.6
0.3
(97.8)
(1.3)
(99.1)
(2.3)
77.1
—
77.1
3.0
2010
Payables
£m
(75.2)
—
(75.2)
(0.8)
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.
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
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.
Long-term borrowings
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 market 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.
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Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
129
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 is shown in the table on page 128.
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
2011
£m
1.0
—
210.0
211.0
2010
£m
1.0
120.0
—
121.0
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The facilities expiring within one year were annual facilities subject to review at various dates during the period. The facility of £210.0m relates to
the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.
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 and a new share buy-back scheme was initiated on 7 April 2011.
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.
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Trade and other receivables
Analysed as:
Financial assets in the scope of IAS 39
Other assets
2011
£m
42.0
12.5
29.5
42.0
2010
£m
42.9
15.5
27.4
42.9
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Financials
Notes to the Financial Statements continued
20. Financial instruments and related disclosures continued
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
21. Capital and reserves
2011
£m
142.0
112.1
29.9
142.0
2011
Number of
shares
2011
£000
2010
Number of
shares
2010
£m
131.5
111.6
19.9
131.5
2010
£000
Ordinary shares of 1p each:
Allotted, called up and fully paid
211,985,998
2,120
210,710,960
2,107
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 current period the Company’s share capital increased by 1,275,038 shares (2010: 924,709 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 £4.5m to
£151.0m (2010: £146.5m).
In total the Company received proceeds of £4.5m (2010: £0.9m) from the exercise of share options.
Interest in own shares
At 1 April 2011 the Company held in Trust 1,108,520 (2010: 1,113,985) of its own shares with a nominal value of £11,085 (2010: £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 1 April 2011 was £3.9m (2010: £5.4m).
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.
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
131
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 ten 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
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
1 April 2011
3 August
2009
7 August
2008
£3.4583
£3.4583
137
£3.0725
£3.0725
740
12 July
2007
£3.9875
£3.9875
673
6 July
2006
£3.010
£3.010
36
13 July
2005
£2.955
£2.955
42
2 June
2004
£2.600
£2.600
3,598
465,728
1,881,467
1,600,591
252,000
294,000
6,556,953
3
34%
10
4.85
3.00%
4.49%
32%
100%
£0.75
70,165
3
27%
10
4.85
4.61%
4.83%
32%
100%
£0.56
3
23%
10
4.85
5.67%
4.10%
32%
100%
£0.75
232,254
216,511
3
35%
10
4.85
4.70%
4.00%
32%
100%
£0.77
—
394,063
1,376,013
299,699
31,944
3
37%
10
4.85
4.68%
4.00%
32%
100%
£0.79
—
—
3
40%
10
3.85
4.68%
4.00%
34%
100%
£0.70
18,000
134,400
18559
20/06/2011
Proof 6
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Financials
Notes to the Financial Statements continued
22. Share-based payments continued
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
8 September
2010
3 August
2010
£5.030
£5.030
113
£4.855
£4.855
536
144,000
1,197,740
3
35%
10
4.85
1.80%
4.00%
33%
100%
£1.10
1,500
3
35%
10
4.85
2.15%
4.08%
33%
100%
£1.08
19.885
Number of options outstanding at 1 April 2011
142,500
1,177,585
Share options exercised during the period by scheme by grant date:
2 June 2004
6 July 2006
12 July 2007
7 August 2008
Exercise price
£2.60
£3.01
£3.99
£3.07
2011
Number of
shares
2010
Number of
shares
41,400
14,000
830,334
38,818
924,552
81,400
134,884
—
28,876
245,160
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
133
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.
Options were valued using the Black–Scholes option-pricing models. 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
Forfeited during the period
10 August
2010
7 August
2009
7 August
2008
7 August
2007
£5.1383
£4.1507
541
£3.2592
£2.6074
403
£2.4083
£1.9267
821
£4.02
£3.22
1,064
295,737
305,750
1,491,586
929,890
3
39%
3
3.5
1.49%
4.26%
44%
100%
£1.22
31,119
—
3
38%
3
3.5
2.74%
4.42%
44%
100%
£0.95
60,879
280
3
29%
3
3.5
4.58%
4.83%
44%
100%
£0.61
133,933
1,949
920,265
3
22%
3
3.5
5.54%
4.10%
44%
100%
£1.01
27,601
4,749
645
Number of options outstanding at 1 April 2011
264,618
208,518
Share options exercised during the period by scheme grant date:
1 August 2006
7 August 2007
7 August 2008
7 August 2009
Exercise price
£3.01
£3.22
£1.93
£2.61
2011
Number of
shares
2010
Number of
shares
—
203,581
109,051
9,564
322,196
52,135
2,436
17,562
—
72,133
18559
20/06/2011
Proof 6
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Financials
Notes to the Financial Statements continued
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
Forfeited during the period
Number of shares outstanding 1 April 2011
Share options exercised during the period by scheme grant date:
11 July 2006
12 July 2007
7 August 2008
3 August
2010
3 August
2009
7 August
2008
£4.8550
25
320,288
6,524
3
41%
3
3
4.08%
30%
100%
£3.65
—
—
326,542
£3.4583
20
824,927
38,957
3
41%
3
3
4.49%
30%
100%
£2.74
13,865
128,687
734,171
Exercise
price
£0.00
£0.00
£0.00
12 July
2007
£4.02
21
539,893
—
3
22%
3
3
4.10%
30%
100%
£2.69
18,046
—
—
£2.962
20
866,340
—
3
30%
3
3
4.83%
30%
100%
£1.97
19,203
—
691,417
2011
Number of
shares
—
39,168
86,099
2010
Number of
shares
311,716
295,700
—
125,267
607,416
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 final dividends of 14p
per share and were reinvested in shares at a cost of £4.81 per share. Shares awarded in both 2009 and 2010 under the PSP earned interim
dividends of 8p per share and were reinvested in shares at cost of £4.10 per share
18559
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Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
135
A reconciliation of option movements for the share award plans over the year to 1 April 2011 is 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
1 April 2011
2 April 2010
Weighted
average
exercise price
Number (’000)
(£) Number (’000)
7,073
1,957
45
(135)
(1,372)
(865)
6,703
525
2.33
3.97
3.94
0.15
3.26
3.01
2.55
3.14
6,943
1,596
12
—
(925)
(553)
7,073
298
Weighted
average
exercise price
(£)
2.36
1.51
3.91
—
0.98
2.68
2.33
2.16
The number and weighted remaining lives for outstanding share award plans are as follows:
1 April 2011
2 April 2010
Weighted
average
exercise price
Number of
shares
(’000)
Weighted average
remaining life (years)
Expected
Contractual
Weighted
average
exercise price
Number of
shares
(’000)
Weighted average
remaining life (years)
Expected
Contractual
£1.93
£2.60
£2.61
£3.01
£3.07
£3.22
£3.46
£3.99
£4.86
£5.03
£4.15
£0.00
920
134
209
32
1,376
—
394
300
1,178
143
265
1,752
0.8
—
1.8
0.1
2.2
—
3.2
1.1
4.2
4.2
2.8
0.7
0.3
3.2
1.3
5.3
7.3
8.3
6.3
9.3
9.3
2.3
0.7
£1.93
£2.60
£2.61
£3.01
£3.07
£3.22
£3.46
£3.99
—
—
—
1,167
194
279
47
1,647
237
464
1,347
—
—
—
£0.00
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
The weighted average exercise price during the period for options exercised was £3.26 (2010: £0.98). The total charge for the year relating to
employee share-based payment plans was £2.4m (2010: £2.5m), all of which related to equity-settled share-based payment transactions.
18559
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Financials
Notes to the Financial Statements continued
23. Commitments
Capital expenditure: Contracted but not provided
2011
£m
1.0
At 1 April 2011, 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
2011
£m
87.2
300.2
350.5
737.9
Other
assets
2011
£m
1.5
2.6
0.7
4.8
Land and
buildings
2010
£m
90.5
328.3
392.7
811.5
2010
£m
3.9
Other
assets
2010
£m
1.2
1.5
0.8
3.5
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 £7.2m (2010: £7.1m).
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 £2.8m (2010: £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 1 April 2011 amounted to £3.9m (2010: £3.2m).
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 142.
Transactions with key management personnel
The key management personnel of the Group comprise the executive and non-executive Directors and the Halfords Limited and Halfords
Autocentres Management Boards. The details of the remuneration, long-term incentive plans, shareholdings and share option entitlements of
individual Directors are included in the Directors’ Remuneration Report on pages 84 to 93. Key management compensation is disclosed in
note 4.
Directors of the Company control 0.17% 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.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
137
28. Post-balance sheet events
Share buyback programme
Following a review by the Board of the Group’s capital structure and cash generation capabilities, with effect from 7 April 2011, the Group
commenced a share buyback programme, returning up to £75m of cash to Shareholders over the following twelve months. As at 3 June 2011
approximately £20.7m of buyback has taken place via the purchase of 5.3 million shares.
Lease guarantee provision
A non-recurring expense of £7.5m was incurred in the year. This expense relates to the creation of a provision for the potential liabilities arising
from lease guarantees provided by Halfords prior to July 1989. An estimate of the potential liability relating to these guarantees was previously
disclosed as a contingent liability in the Interim financial statements. The guarantees were provided to landlords of properties leased by Payless
DIY (now part of Focus DIY) when both Halfords and Payless DIY were under the ownership of the Ward White Group. Focus DIY entered into
administration in May 2011.
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18559
20/06/2011
Proof 6
138
Financials
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
1 April
2011
£m
2 April
2010
£m
Notes
4
5
5
6
6
8
9
9
9
570.8
172.1
—
40.8
40.8
(0.6)
40.2
(146.8)
464.2
2.1
151.0
0.2
310.9
464.2
0.1
26.9
27.0
(15.8)
11.2
(2.5)
180.8
2.1
146.5
0.2
32.0
180.8
The notes on pages 141 to 144 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 140.
The financial statements on pages 138 to 144 were approved by the Board of Directors on 8 June 2011 and were signed on its behalf by:
David Wild
Chief Executive
Andrew Findlay
Finance Director
Company number: 04457314
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
139
Reconciliation of Movements in Total Shareholders’ Funds
For the period
Profit for the period
Shares issued
Employee share options
Dividends
Net increase/(decrease) in total shareholders’ funds
Opening total shareholders’ funds
Closing total shareholders’ funds
52 weeks to
1 April 2011
£m
52 weeks to
2 April 2010
£m
322.7
4.5
2.4
(46.2)
283.4
180.8
464.2
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1.4
0.9
2.5
(35.3)
(30.5)
211.3
180.8
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18559
20/06/2011
Proof 6
140
Financials
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 1 April 2011, whilst the comparative period covered the 52 weeks to 2 April 2010. 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 disclosures 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 undertaking’s 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 do 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.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
141
Notes to the Financial Statements
1. Profit and loss account
The Company made a profit before dividends paid for the financial period of £322.7m (52 week period to 2 April 2010: £1.4m). 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 and their associates during the period are detailed in note 3 to the Group financial
statements. In the 52 weeks to 1 April 2011 the Company expensed £0.2m in fees relating to KPMG Audit Plc.
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 84 to 93 which form part of the audited information.
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4.
Investments
Shares in Group undertaking
Cost
As at 2 April 2010
Additions — share-based payments
Additions — increase in subsidiary undertaking investment
At 1 April 2011
£m
172.1
2.4
396.3
570.8
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During the year Halfords Group plc sold two £58m Eurobond investments, one to Halfords Holdings (Jersey) 1 Limited and one to Halfords
Holdings (Jersey) 2 Limited, for consideration of 2,320,000 £1 ordinary shares in each company issued at a premium. Therefore, £116m of
additions in subsidiary undertakings in the year relates to Halfords Holdings (Jersey) 1 Limited and Halfords Holdings (Jersey) 2 Limited.
Halfords Ireco 1 Limited and Halfords Ireco 2 Limited were incorporated as 100% owned subsidiaries of Halfords Group plc on 28 October
2010. Ireco 2 Limited was subsequently sold to Ireco 1 Limited and a contribution of £280.3m made from Halfords Group plc to Ireco 1 Limited.
This contribution and the initial share capital are included in the additions in subsidiary undertakings in the year relating to the investment in
Halfords Ireco 1 Limited.
The investments represent shares in the following subsidiary undertakings as at 1 April 2011 and the fair value of share-based compensation
plans that are awarded to employees of the Company’s subsidiary undertakings.
Subsidiary undertaking
Halfords Holdings (2006) Limited
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
Halfords Ireco 1 Limited
* Registered in England and Wales.
Incorporated
in
Great Britain*
Jersey
Jersey
Gibraltar
Ordinary shares
percentage owned %
Principal
activities
100 Intermediate holding company
100 Intermediate holding company
100 Intermediate holding company
100 Intermediate holding company
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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18559
20/06/2011
Proof 6
142
Financials
Notes to the Financial Statements continued
4.
Investments continued
Principal subsidiary undertakings
The principal subsidiary undertakings of the Company at 1 April 2011 are as follows:
Subsidiary undertaking
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Halfords Investments (2010) LP†
Halfords Autocentres Holdings Limited*
Halfords Autocentres Limited*
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
Halfords Ireco 1 Limited
Halfords Ireco 2 Limited*
Halfords Finance UK LLP†
Principal activity
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
Intermediate holding company
Intermediate holding company
Intermediate holding partnership
* Shares held indirectly through subsidiary undertakings.
† Wholly owned indirectly through subsidiary undertakings.
% Ownership of
ordinary equity shares
100
100
100
100
—
100
100
100
100
100
100
—
Halfords Holdings (Jersey) 1 Limited and Halfords Holdings (Jersey) 2 Limited are incorporated and registered in Jersey. Halfords Ireco 1 Limited
and Halfords Ireco 2 Limited are incorporated and registered in Gibraltar. All other subsidiary undertakings are incorporated in Great Britain and
registered in England and Wales. The only subsidiaries to trade during the year were Halfords Limited and Halfords Autocentres Limited.
5. Debtors
Falling due within one year:
Amounts owed by Group undertakings
Tax and social security
Falling due after more than one year:
Amounts owed by Group undertakings
2011
£m
—
—
—
2010
£m
—
0.1
0.1
40.8
26.9
Amounts owed by Group undertakings that fall due after one year are subject to interest. At 1 April 2011 the amounts bear interest at a rate of
4.83% (2010: 1.06%).
6. Creditors
Falling due within one year:
Bank overdraft
Accruals and deferred income
Amounts owed to Group undertakings
Falling due after more than one year:
Bank borrowings (note 7)
Amounts owed to Group undertakings
2011
£m
—
0.6
—
0.6
86.8
60.0
146.8
2010
£m
0.1
—
15.7
15.8
—
2.5
2.5
Amounts due to Group undertakings that fall due after one year are subject to interest. At 1 April 2011 the amounts bear interest at a rate of
2.07% (2010: 1.06%).
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
143
7. Borrowings
Maturity of debt — bank loans
Expiring between one and two years
Expiring between two and five years1
2011
£000
—
86.8
86.8
2010
£000
—
—
—
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1 The above borrowings are stated net of amortised issue costs of £3.2m.
Details of the Company’s borrowing facilities are in note 16 of the Group’s financial statements.
8. Equity share capital
Ordinary shares of 1p each:
Allotted, called up and fully paid
2011
Number of
shares
2011
£000
2010
Number of
shares
2010
£000
211,985,998
2,120
210,710,960
2,107
During the current period the Company’s share capital increased by 1,275,038 shares (2010: 924,709 shares) due to the exercise by employees
of share options. Details of shares exercised by scheme are shown in note 22 to the Group’s financial statements.
In total the Company received proceeds of £4.5m (2010: £0.9m) 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 to the Group’s financial statements.
Interest in own shares
At 1 April 2011 the Company held in Trust 1,108,520 (2010: 1,113,985) of its own shares with a nominal value of £11,085 (2010: £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 1 April 2011 was £3.9m (2010: £5.4m).
9. Reserves
At 2 April 2010
Profit for the financial period
Share options exercised
Share-based payment transactions
Dividends
At 1 April 2011
Share
premium
account
£m
146.5
—
4.5
—
—
151.0
Capital
redemption
reserve
£m
Profit and
loss account
£m
0.2
—
—
—
—
0.2
32.0
322.7
—
2.4
(46.2)
310.9
Total
£m
178.7
322.7
4.5
2.4
(46.2)
462.1
The Company settled dividends of £46.2m (2010: £35.3m) in the period, as detailed in note 8 of the Group’s financial statements.
Included in the profit and loss account is £118m of reserves that are not distributable (2010: £nil).
10. Related party disclosures
Under FRS 8 ‘Related party disclosures’ the Company is exempt from disclosing related party transactions with entities which it wholly owns.
18559
20/06/2011
Proof 6
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144
Financials
Notes to the Financial Statements continued
11. 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 1 April 2011 amounted to £3.9m (2010: £3.2m).
The Company’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
12. Off balance sheet arrangements
The Company has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
13. Post-balance sheet events
Share buyback programme
Following a review by the Board of the Company’s capital structure and cash generation capabilities, with effect from 7 April 2011, the Company
commenced a share buyback programme, returning up to £75m of cash to Shareholders over the following twelve months. As at 3 June 2011
approximately £20.7m of buyback has taken place via the purchase of 5.3 million shares.
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
145
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
30 March
2007
£m
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
52 weeks
to
28 March
2008
£m
53 weeks
to
3 April
2009
£m
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
52 weeks
to
2 April
2010
£m
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
52 weeks
to
1 April
2011
£m
869.7
(384.7)
485.0
(364.4)
128.1
(7.5)
120.6
(2.5)
125.6
(7.5)
118.1
(34.7)
2.1
85.5
40.7p
43.2p
Weighted average number of shares
222.9m
218.4m
209.5m
209.1m
210.4m
Key Performance Indicators
Revenue growth
Gross margin
Operating margin
52 weeks
to
30 March
2007
+9.1%
50.6%
12.6%
52 weeks
to
28 March
2008
+7.2%
50.5%
12.7%
53 weeks
to
3 April
2009
+1.5%
52.1%
11.3%
52 weeks
to
2 April
2010
+2.7%
54.4%
13.5%
52 weeks
to
1 April
2011
+4.6%
55.8%
13.9%
18559
20/06/2011
Proof 6
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146
Financials
Analysis of Shareholders
As at 1 April 2011, the number of registered Shareholders was 3,547 and the number of ordinary shares in issue was 211,985,998.
Range of holdings
1–5,000
5,001–10,000
10,001–50,000
50,001–100,000
100,001–500,000
500,001 and above
Total
Held by
Individuals
Institutions
Total
No. of
holdings
% of total
shareholders
No. of
Shares
% of Issued
Share Capital
2,954
143
167
82
120
78
83.4
4.0
4.7
2.3
3.4
2.2
3,874,155
1,043,490
4,036,699
5,986,292
27,306,885
169,738,477
3,544
100.0
211,985,998
1,608
1,936
3,544
45.4
54.6
2,617,561
209,368,437
100.0
211,985,998
1.8
0.5
1.9
2.8
12.9
80.1
100.0
1.2
98.8
100.0
Results and financial diary
Annual General Meeting: 2 August 2011.
Final dividend: 5 August 2011.
Record date: 1 July 2011.
Ex dividend date: 29 June 2011.
Pre-close statement: 4 October 2011.
Half-year report: 10 November 2011.
Annual General Meeting
The Annual General Meeting will be held on Tuesday 2 August 2011 at
The Hyatt Hotel, Bridge Road, Birmingham, B1 2JZ.
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
18559
20/06/2011
Proof 6
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
147
Shareholder Notes
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18559
20/06/2011
Proof 6
148
Financials
Shareholder Notes
18559
20/06/2011
Proof 6
halfordscompany.com
Shareholder Notes
Halfords Group plc
Annual Report & Accounts for period ended 1 April 2011
Online version
halfords.annualreport2011.com
149
Introduction
Investing in “life on the move”
Group at a Glance
Retail Categories at a Glance
Business Model
Financial Highlights
Chairman’s Statement
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About Halfords
Market Review
Retail Strategy
Retail KPIs
Autocentre Strategy
Autocentre KPIs
People and Culture
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Performance
Chief Executive’s Review
Finance Director’s Report
Risks and Uncertainties
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32
38
Corporate Social Responsibility
CSR Report
42
Operational Resources
Group Resources and Capabilities 52
Resources and Capabilities
57
Governance
Board of Directors
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
72
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78
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Financials
Statement of Directors’
Responsibilities
Consolidated Statement of Changes
101
in Shareholders’ Equity
Reconciliation of Movements
in Total Shareholders’ Funds
96
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Independent Auditors’ Report to the
Members of Halfords Group plc
97
Consolidated Statement of
Cash Flows
Consolidated Income Statement
98
Notes to Consolidated
Statement of Cash Flows
99
Accounting Policies
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Notes to the Financial Statements 111
100
Company Balance Sheet
138
139
140
102
103
104
Accounting Policies
Notes to the Financial Statements 141
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
145
145
146
146
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Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2011
halfords.annualreport2011.com
Online Annual Report 2010
halfords.annualreport2010.com
Halfords Group plc
Annual Report & Accounts for period ending
1st April 2011
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life on the move
halfords.annualreport2011.com
Stock Code LON:HFD
18559 7/06/2011 Proof 3