Halfords Group Annual Report 2012

← All annual reports

FY2012 Annual Report · Halfords Group

Loading PDF…

Halfords Group plc
Annual Report & Accounts
for period ended 30 March 2012

Contents

Investing in life on the move

Business Model

Financial Highlights

Segmental Summary

Chairman’s Statement

About Halfords

Market Review

Group Strategy

Strategic Pillars

Shareholder KPIs

Retail KPIs
Autocentre KPIs
People Powering the
Next Generation

Transforming Halfords

Transforming our Business

Infrastructure

People

Systems

Investment

Board of Directors

Directors’ Report

Corporate Governance Report

Directors’ Remuneration Report

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

Performance

Chief Executive’s Review

Finance Director’s Report

Risks and Uncertainties

Corporate Responsibility

Corporate Responsibility Report

Channels

Reach and Scale

Brand Resonance
Customer Focus

Products & Services

Friend of the Motorist

Best Cycle Shop in Town

Starting Point for Great Getaways 65

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

Consolidated Statement of Changes
99
in Shareholders’ Equity

Reconciliation of Movements
in Total Shareholders’ Funds

Consolidated Statement of
Cash Flows

Notes to Consolidated
Statement of Cash Flows

Accounting Policies

100

101

102

Notes to the Financial Statements 108

Company Balance Sheet

128

129

130

Accounting Policies

s
a
c
n
a
n
F

Notes to the Financial Statements 131

Five Year Record

Key Performance Indicators

Analysis of Shareholders

Company Information

134

135

Read online: halfords.annualreport2012.com

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

We help and
inspire our
customers with their
life on the move

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

We are

We have

We plan to

The UK’s leading retailer of automotive and
cycling products

Many brands and product categories which
hold number one market positions in the UK

Maintain our leading core retail and car
servicing positions

The leading operator in garage servicing and
auto repair in the UK

Cash generative

Focused on managing the assets we own
and managing these for growth

Unrivalled scale and national coverage

Skills in brand management and maximising
marketing opportunities

Source the best products and launch
exclusive ranges extending the breadth and
quality of our product ranges

A service-based proposition

Powerful multi-channel capabilities

Agile international sourcing

Provide well-trained, enthusiastic and
knowledgeable service expertise

Provide real value solutions, balancing
high-quality products with a competitive
combination of range, price and service

Increase multi-channel penetration

Maintain an efﬁcient balance sheet across
the ﬁnancing cycle

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Introduction

Business Model

Halfords has core competencies in marketing, branding, store
retailing, distribution and international sourcing, which allow value
to be generated to meet market needs. Since 2010, these
competencies have been leveraged in Car Servicing, when we
acquired our Autocentres business.

The successful expansion of our Retail offer through in-store
services drove the decision, in 2010, to invest in the Car Service
category given similar market drivers to our successful Car
Maintenance retail category. Halfords runs the largest chain of
UK car service centres providing service, repair and MOTs.

Our focus on range follows our strategy of life on the move and
encompasses being:

■ the Friend of the Motorist;

■ the Best Cycle Shop in Town; and

■ the Starting Point for Great Getaways.

This is delivered through our Car Maintenance, Car
Enhancement, Leisure, and Car Servicing categories through
which Halfords has grown market share, consolidating
fragmented markets with a national store and centre 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, as
well as combining halfords.com and halfordsautocentres.com to
offer a Group-based solution.

With the evolution of more compact and complex vehicles, the
reduced interest in self-service or Do It Yourself (“DIY”), and an
escalating main dealer service price list, Halfords has augmented
the retail offer with Do It For Me (“DIFM”) in-store ﬁtting services.
This increases the average transaction value, is margin accretive
and allows store colleagues to upsell and attach accessories to
the sales whilst improving customer service and loyalty.

Our operations are designed to be best in class so that we can
leverage our market-leading positions through our supply chain.
We source from suppliers around the world who manufacture
products to our designs and speciﬁcations. Our distribution team
use their specialist knowledge to group and ship products in line
with the sales plan of our Retail operation and market demands.
Our internal operations draw from best industry practice.

We also create value for our customers by keeping our cost
structure as efﬁcient as possible. The size of our operation
means that we achieve advantages of scale and run our back
ofﬁce functions cost-effectively.

As a retailer, Halfords makes a proﬁt from the combination of
low-cost sourcing and supply chain coupled with excellent
marketing and a national store network. These skills are
leveraged in the Car Service sector by running an efﬁcient service
offer which proﬁts from scale and efﬁciency. Halfords provides
services more affordably than most franchised garages and more
comprehensively than many independent garages.

Our brand is one of our greatest strengths and our strategy is to
leverage this as we grow our Group. We want to provide a single
face to customers so they can connect with the Halfords brand
across our offer and through new products, services and
channels.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Financial Highlights

Revenue
-0.8%

Underlying Operating Profit*
-24.1%

1,000

900

800

700

600

500

400

300

200

100

(cid:12)(cid:18)(cid:15)(cid:22)(cid:6)

(cid:12)(cid:19)(cid:15)(cid:24)(cid:6)

(cid:12)(cid:21)(cid:15)(cid:23)(cid:6)

(cid:14)(cid:17)(cid:15)(cid:25)(cid:6)

(cid:98)(cid:25)(cid:17)(cid:26)(cid:15)(cid:22)(cid:78)

(cid:98)(cid:25)(cid:20)(cid:18)(cid:15)(cid:23)(cid:78) (cid:98)(cid:25)(cid:23)(cid:26)(cid:15)(cid:24)(cid:78)

(cid:98)(cid:25)(cid:23)(cid:20)(cid:15)(cid:18)(cid:78)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

150

135

120

105

(cid:12)(cid:18)(cid:22)(cid:15)(cid:18)(cid:6)

(cid:12)(cid:24)(cid:15)(cid:17)(cid:6)

(cid:98)(cid:18)(cid:19)(cid:25)(cid:15)(cid:18)(cid:78)

(cid:12)(cid:20)(cid:15)(cid:17)(cid:6)

(cid:98)(cid:18)(cid:18)(cid:26)(cid:15)(cid:24)(cid:78)

(cid:98)(cid:18)(cid:17)(cid:21)(cid:15)(cid:17)(cid:78)

(cid:14)(cid:19)(cid:21)(cid:15)(cid:18)(cid:6)

(cid:98)(cid:26)(cid:24)(cid:15)(cid:19)(cid:78)

n
o
i
t
c
u
d
o
r
t
n

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

Profit before Tax
-20.3%

Underlying Profit before Tax*
-26.6%

150

135

120

105

(cid:12)(cid:24)(cid:15)(cid:24)(cid:6)

(cid:98)(cid:18)(cid:18)(cid:25)(cid:15)(cid:18)(cid:78)

(cid:12)(cid:21)(cid:18)(cid:15)(cid:22)(cid:6)

(cid:98)(cid:18)(cid:17)(cid:26)(cid:15)(cid:24)(cid:78)

(cid:14)(cid:19)(cid:17)(cid:15)(cid:20)(cid:6)

(cid:98)(cid:26)(cid:21)(cid:15)(cid:18)(cid:78)

(cid:14)(cid:18)(cid:21)(cid:15)(cid:18)(cid:6)

(cid:98)(cid:24)(cid:24)(cid:15)(cid:22)(cid:78)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

150

135

120

105

(cid:12)(cid:24)(cid:15)(cid:19)(cid:6)

(cid:98)(cid:18)(cid:19)(cid:22)(cid:15)(cid:23)(cid:78)

(cid:12)(cid:19)(cid:21)(cid:15)(cid:17)(cid:6)

(cid:98)(cid:18)(cid:18)(cid:24)(cid:15)(cid:18)(cid:78)

(cid:12)(cid:21)(cid:15)(cid:24)(cid:6)

(cid:98)(cid:26)(cid:21)(cid:15)(cid:21)(cid:78)

(cid:14)(cid:19)(cid:23)(cid:15)(cid:23)(cid:6)

(cid:98)(cid:26)(cid:19)(cid:15)(cid:19)(cid:78)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

Underlying Basic Earnings per Share*

-22.0%

Dividend per Ordinary Share

Maintained

(cid:12)(cid:25)(cid:15)(cid:25)(cid:6)

(cid:21)(cid:20)(cid:15)(cid:19)(cid:81)

(cid:12)(cid:19)(cid:19)(cid:15)(cid:19)(cid:6)

(cid:12)(cid:18)(cid:17)(cid:15)(cid:26)(cid:6)

(cid:20)(cid:26)(cid:15)(cid:24)(cid:81)

(cid:20)(cid:19)(cid:15)(cid:22)(cid:81)

(cid:14)(cid:19)(cid:19)(cid:15)(cid:17)(cid:6)

(cid:20)(cid:20)(cid:15)(cid:24)(cid:81)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

* before non-recurring items

(cid:12)(cid:18)(cid:17)(cid:15)(cid:17)(cid:6)

Maintained

(cid:19)(cid:19)(cid:15)(cid:17)(cid:81)

(cid:12)(cid:19)(cid:22)(cid:15)(cid:25)(cid:6)

(cid:19)(cid:17)(cid:15)(cid:17)(cid:81)

(cid:12)(cid:22)(cid:15)(cid:20)(cid:6)

(cid:18)(cid:22)(cid:15)(cid:26)(cid:81)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Introduction

Segmental Summary

The Halfords Group operates through two reportable
segments: “Retail” and “Autocentres”.

The business has three strategic pillars, Friend of the
Motorist, Best Cycle Shop in Town and the Starting
Point for Great Getaways, which span Retail and
Autocentre operations.

Halfords Retail manages its business in the United
Kingdom (UK) and the Republic of Ireland (ROI) and its
product ranges are marketed through a national network
of stores and through an innovative multi-channel offer
which combines website promotion with direct delivery
or collection from store, backed up by in-store services.

Halfords Autocentres provides car service, repair and
MOTs to both retail and fleet customes throughout the
UK. The Autocentres proposition provides customers with
an unrivalled value and service offer from a trusted brand
delivering dealership quality service at more affordable
garage prices.

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.

That’s helpful, that’s Halfords.

Retail

Halfords Retail employs approximately 10,000 staff and sells up
to 16,000 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 467
retail stores located throughout the UK and the ROI and online
through the halfords.com and halfords.ie websites.

Revenue
£752.3m

Operating Profit
(before non-recurring items)
£92.8m
Operating Proﬁt was £94.7m (2011: £115.8m)

Autocentres

Halfords Autocentres employs approximately 1,700 staff and
is the UK’s leading 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 260 Car
Servicing centres and online through the
www.halfordsautocentres.com websites.

Revenue
£110.8m

Operating Profit
£6.6m

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Group Revenue £863.1m

Retail
87%

Autocentres
13%

Car Maintenance
27%

Car Enhancement
22%

Leisure
38%

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Introduction

Chairman’s Statement

“The key to the success of Halfords is, and will
continue to be, our service ethic and our service
offerings backed up by the very best product
ranges .”
Dennis Millard
Chairman

This has been a challenging year for the UK consumer and
Halfords was not immune to this difﬁcult trading environment.
Our customers have tightened their purse strings in response to
increased taxes, an uncertain employment landscape and a lack
of conﬁdence in the face of recessionary conditions for much of
the year. Our automotive customers were particularly hard hit by
continued rises in fuel prices to unprecedented levels and by
further increases in motor insurance which, in turn, was reﬂected
by a decrease in miles driven in the UK. There were, however,
some bright spots and we made good progress in our key
growth areas, Car Maintenance parts ﬁtting, Autocentres and
Cycling, where the market continued to grow as more people
recognised both the pleasure and beneﬁcial health aspects of
cycling.

Against this backdrop, Group revenue declined by 0.8% with
Retail down 2.3%, partly offset by strong growth from
Autocentres where revenue grew by 12.9%. An adverse mix
effect and input cost pressures for Retail and an increase in lower
margin tyre sales by Autocentres resulted in an overall 100 basis
point decrease in the Group’s gross margin. Our Retail cost base
was closely managed but upward pressure on occupation,
stafﬁng and support costs, albeit mitigated by lower warehouse
and distribution costs, resulted in a 3.6% rise in operating costs,
whereas those of Autocentres rose in line with revenue growth.
As a result, Group underlying proﬁt before tax was down 26.6%
to £92.2m.

A pleasing feature of the year was the Group’s continued robust
cash ﬂow performance with free cash ﬂow, before dividends and
capital transactions, of £70.4m being generated. This enabled
the Board to recommend an unchanged ﬁnal dividend of 14.0
pence per share which would amount to 22.0 pence for the year,
1.53 times covered by earnings per share of 33.7 pence and 1.6
times by free cash ﬂow. In addition, a share buyback programme
was initiated in April 2011 with £62.3m being outlaid in the
period. In total, £106.5m was returned to shareholders in the
period and, with a Net Debt:EBITDA ratio of 1.1 at 30 March
2012, the Group’s ﬁnancial position remains sound.

During the year, management embarked upon a deep and
wide-ranging review of the business, its strengths, weaknesses,
opportunities and threats. The Board has been an integral part of
this process; contributing, challenging and supporting the output.
The resultant vision for Halfords to “Help and Inspire our
Customers with their Life on the Move” is underpinned by three
pillars of the strategy:

■ the Friend of the Motorist

■ the Best Cycle Shop in Town

■ the Starting Point for Great Getaways

The underlying shift in emphasis of the strategy is recognition of
the changes in customer preferences and the opportunities it
presents for Halfords. The strategy plays to the strengths of
Halfords, recognises and addresses the opportunities and
challenges and underscores the uniqueness of the Group’s range
of products and services, its heritage and strong brand.
Importantly, it sets out a clear direction of travel for all of our
stakeholders. The strategy will seek to accelerate the transition
of Halfords from a “traditional retailer to a contemporary provider
of products and services”.

Targeted investments in the key enablers of the strategy — our
Retail store and Autocentre portfolio, IT and operating systems,
web offerings, marketing and, most importantly, in our people
— have been and are being mapped out and will commence in
the year ahead. However, the transition will unfold more fully over
the years ahead to ensure that we have a business that is ﬁt for
purpose for many, many years to come.

The backbone of the business and the key to the success of
Halfords is, and will continue to be, our service ethic and our
service offerings, backed by the very best product ranges. We
will be relentless in our pursuit of service excellence and the
mantras “Helpful” and “Trust”. Without this, our strategy and
customer proposition will not resonate with our customers.
Management will strive to ensure that every member of the
Halfords Group is attuned to this message. I am sure that the
12,000 colleagues in our Retail and Autocentres businesses and
Head Ofﬁce will rise to the challenge. In this regard, the Board
thanks them for their dedication in this difﬁcult trading year and is
conﬁdent that they will continue to focus on delivery of the very
best products and services to our customers.

This year, our Chief Executive, David Wild, set out to build a
management team of contemporary skills and experience that
would be best suited to face the challenges ahead. He has
succeeded in doing so and the Board would like to thank David
and his team for managing a difﬁcult trading environment with
some skill whilst dedicating much time and effort to crafting the
strategy and plans for the future. Lastly, I would like to thank my
Board colleagues for their support and for their passion to help
Halfords achieve the very best for its shareholders.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

Read online: halfords.annualreport2012.com/cs

Since the beginning of the year, economic conditions have remained
difﬁcult and the uncertain and worrying situation in the Eurozone has
cast a cloud over the UK economy. In addition, the record rains in April
and early May have dampened the normal early spring spending on
Leisure products which has affected our business. Nevertheless, we
believe that our colleagues will be able to meet the inevitable
challenges in the year ahead and that the execution of our strategy
means Halfords is in good stead to grow the business in the years
thereafter.

Dennis Millard
Chairman
30 May 2012

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

BUSINESS
REVIEW

About Halfords

Market Review

Group Strategy

Strategic Pillars

Shareholder KPIs

Retail KPIs

Autocentre KPIs

People Powering the Next Generation

Performance

Chief Executive’s Review

Finance Director’s Report

Risks and Uncertainties

Corporate Responsibility

Corporate Responsibility Report

Read online: halfords.annualreport2012.com/br

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Market Review

The Halfords business operates through its Retail stores, Autocentres and
websites in the UK and ROI. We continue to grow market share in our core
market sectors where we have leading positions in attractive markets.

Our unique proposition differentiates Halfords from its competition and creates
value for customers through a combination of range, price and quality, delivered
through our multi-channel offer by our colleagues who extend expert advice
and service.

Halfords’ store and autocentre footprint covers the UK (United
Kingdom) and ROI (Republic of Ireland) with the majority of
locations around highly populated urban locations. The Retail
store portfolio includes 467 stores with a mix of 402
superstores (7,000–10,000 sq ft, 10,000 lines), 34 compact
stores (approximately 4,000 sq ft, 6,000 lines) and 31 metro
compact stores (small format, approximately 4,200 lines). The
Autocentres business has increased to 260 centres. Both the
Retail and Autocentres businesses have a comprehensive

online offer: the Retail website covers 16,000 SKUs and the
Autocentres website offers booking and location tools.

The Halfords vision to help and inspire customers with their life
on the move is strategically split into three pillars. These
“strategic pillars” are delivered through our core categories of
Car Maintenance, Car Enhancement, Car Servicing, and
Leisure, and enable internal communication and collaboration,
enhanced decision making and marketing focus to augment
returns.

Friend of the Motorist

With approximately 32 million cars in the target market, and
many now of increasing age, Halfords is uniquely placed to
provide help to our customers, delivering a wide range of car
replacement parts (we stock 98% of the UK car parc’s bulb
requirements) and a comprehensive assortment of in-car
motoring ancillary ranges from navigation and audio to
performance styling. At the same time the stores offer weﬁt/
werepair service where for a small charge products such as
bulbs, wiper blades and batteries will be ﬁtted to customers’
vehicles. If a more comprehensive repair service is required
then our autocentres offer a quality MOT, service and repair
service for all makes and models of vehicle at affordable prices.

Whilst economic factors of fuel, maintenance and insurance
costs coupled with job uncertainty have placed value pressure
on consumers, it seems that time pressures and decreasing
levels of skills to perform DIY tasks are pushing consumers

towards a “Do It For Me” (“DIFM”) level of service with a
premium on value for money. We believe that within the
aftercare market there is substantial growth opportunity. The
bulbs, blades and battery market is worth c.£950m and
Halfords Retail stores currently has only a 9% share. The
Service and Repair market is a needs-driven market worth
c.£9bn, of which Halfords Autocentres has only a 1% share.

These low market share positions provide Autocentres with
material opportunities to consolidate a fragmented market
under a strong brand coupled with an improved penetration of
ﬂeet sales. Meanwhile, the stores provide a unique capability to
expand the ﬁtting offer through market awareness campaigns
and attracting customer segments that have not previously
considered Halfords.

Car Parts – Maintenance & Enhancement

Fitting – Do It For Me

Autocentre – Servicing & Repair

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Best Cycle Shop in Town

The UK cycling market is estimated to be worth £1.4bn and
has been growing at a rate 5% p.a. for the last ﬁve years. This
long-term trend is expected to continue with additional interest
being created by the 2012 Olympic Games. Economic drivers
make cycling more attractive with consumers still under
ﬁnancial pressure, in addition to the health and family leisure
beneﬁts.

Cycling provides signiﬁcant opportunities for sales growth
through higher levels of participation in cycle models and
brands and by attracting wider consumer groups. In addition
to cycle sales, there is material opportunity to capture share in
the parts, accessories and clothing (“PACs”) products, in
particular thorough increased ranges offered online.

The Halfords cycle proposition offers an end-to-end solution
for cyclists: through its own brand cycles of Trax, Apollo and
Carerra and its branded Boardman and Pendleton ranges.
This offers something for everyone at a variety of price points;
through PACs products where research has revealed that
Halfords has a lower participation than in bikes which
represents a growth opportunity both in store and online; and
through repair and servicing where, as with motoring, cycling
customers expect high levels of service. Consequently,
Halfords offers customers build, service and repair services at
price points and a breadth of range, which provides
exceptional value.

Cycle Range

Parts, Accessories and Clothing

Repair

Starting Point for Great Getaways

Halfords has repeatedly demonstrated an ability to consolidate
fragmented markets with a comprehensive offer. Leisure travel
is another market where Halfords provides a unique
combination of products and solutions. The economic drivers
for holidays in the UK remain in place. There is an increase in
“staycation” holidays and in the demand for an active leisure
time. Our market share growth continues to be seen across
roof boxes and camping.

The Halfords getaway proposition offers solutions for car
journeys and campsite holidays including Accessories (e.g.
maps, safety jackets and ﬁrst aid kits), Travel Solutions (e.g.
roof boxes, cycle carriers and trailers) and Camping (e.g. tents,
sleeping bags and cooking sets).

These categories represent opportunities to expand market
share through increasing awareness that Halfords is the natural
destination when planning a getaway.

Travel Accessories

Travel Solutions

Camping

Leveraging Technology

Summary

With wide-ranging store and online offers, Halfords has also
recognised and begun to adapt to market buying behaviour.
Mobile devices are increasingly being used to research and
purchase online and barcodes enable customers to access
comprehensive online resources whilst shopping.

As customers buy more online and market expectations of
delivery times for goods bought online become quicker we will
continue to invest in our IT and Web infrastructure. In March
2012 we launched a revised Order & Collect service providing
next day delivery. In many instances this service works with
delivery to store, allowing customers to collect at a convenient
time and still get build, ﬁtting and advice offered
simultaneously.

Over the years Halfords has evolved from its humble
beginnings in 1892, as a cycle shop in Leicester, into a national
chain of retail stores that have been seen to support the use of
the motor car with needs driven purchases. Recently the
Company evolved further to support Do It For Me Car
Maintenance through its acquisition of our Autocentres
business and the Leisure category is becoming more important
to the growth of Halfords.

Read online: halfords.annualreport2012.com/mr

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Group Strategy

Our strategy is based upon our desire to maximise returns for our shareholders.
Each of our business units is tasked to deliver against an overall business plan and
is focused on delivering our strategy. In doing this, we have identified a number
of measures that are important to the success of the business as a whole through
which the Board and Senior Management measure performance.

Price

Value

Service

Innovation

Group Strategy

Our Group strategy is built on the Halfords vision to help and
inspire our customers with their life on the move.

Group Strategy Description

The Group’s key aim is to maximise returns for our
shareholders. We do this by creating real value for our
customers within the products and services we sell while
operating our business as a good corporate citizen.

We have an ongoing strategy to drive growth from our core
business. In Retail this means our 467 stores, Halfords.com
and product categories in which we hold leading market
positions and in our Autocentre business through our 260
Autocentres and halfordsautocentres.com.

In driving this growth we continue to place ourselves as the
No.1 destination for products that enhance our customers’ use
of their car, their bikes and their touring activities. We aim to be
the Friend of the Motorist by providing the products, services
and expertise required to take the hassle out of motoring and
making driving more enjoyable. We are able to encourage our
customers to do it for themselves and we are able to do it for
them. We are dedicated to providing the right level of service to
our customers, from stocking in-store and online a
comprehensive assortment of car parts, through a price
competitive, 7 days a week, on-demand ﬁtting service, to a full
service and repair offer through the national coverage afforded
by our Autocentres.

With over 100 years’ heritage in cycling, our service, expertise,
brands and product range are unsurpassed and we will
continue to offer these products and services whether it be to
customers who are purchasing their ﬁrst bike or a top-of-the-
range Boardman racing bike. Through our desire to be the
Best Cycle Shop in Town, we aim to build on our service and
brand credentials as well as providing a wide range of parts,
accessories and clothing, contributing to the growing
popularity of cycling as a healthy and environmentally friendly
form of transport.

With the development of our own range of camping equipment
(Urban Escape) and roof boxes (Exodus), we help our
customers make the most of their journeys and their time
outdoors and we have become the Starting Point for Great
Getaways. With the demand for a more active leisure time and
the desire for the enjoyment of simple family pleasures, such
as camping, Halfords offers a range of great “getaway”
products from travel accessories, travel equipment and
camping solutions in order to help our customers make the
most of their time outdoors and to help them get there.

In order to consolidate our position as the Friend of the
Motorist, the Best Cycle Shop in Town and the Starting Point
for Great Getaways, we will continue to offer a unique range of
products, which are constantly innovated and extended. They
are matched by an unparalleled honest and trustworthy service
delivered by our well-trained, enthusiastic and knowledgeable
colleagues in-store, at the autocentres and online thereby
helping our customers, from novices to enthusiasts, to work
out exactly what they need. Our unique store ﬁtting service and
competitive autocentre repair service gives customers the
choice of having us do it for them or doing it themselves. We
deliver convenient and value solutions to our customers, where
they can get what they need when they need it, through our
extensive store network with market-leading coverage, open
7 days a week, and 24/7online, with a market leading multi-
channel offer available to order or reserve. Our autocentre
network can deal with planned and emergency work alike.

We provide our customers with solutions that offer real value
by balancing high quality products with a competitive
combination of range, price and service and in the autocentres
we provide dealership quality services at independent garage
prices.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

We help and inspire
our customers with their
life on the move

Strategic Pillars

w
e
v
e
R
s
s
e
n
s
u
B

Enablers

Portfolio

Web

Operations

Marketing

People

Values

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Read online: halfords.annualreport2012.com/gs

Business Review

Strategic Pillars

Through our core categories of Car
Maintenance, Car Enhancement and Car
Servicing we provide the services and
expertise to take the hassle out of
motoring.

Strengths

Needs driven demand

Established brand is natural destination
for customers

Huge range and national availability

Leveraged through unique in-store services

Dealership quality services at independent garage
prices

Through a wide range of Leisure products
and accessories, from trailers and roof
boxes to tents, we help customers make
the most of their journeys and
destinations.

Strengths

Value driven including environmentally friendly
solutions for leisure and holidaying

Tight integration with multi-channel 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 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

We deliver a compelling range of own-
brand cycles, and complement these with
a knowledgeable, skilful and competitive
cycle service offering.

Strengths

Contemporary and innovative ranges drive a
product led market

Competitive international buying maintains good
margins

Effective promotion of own brands through multi-
channel offer

New cycle ranges launched: Carrera, Voodoo,
Boardman and Pendleton

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Shareholder KPIs

KPI

Deﬁnition

Commitment

Underlying Proﬁt

Measures the normal underlying performance of the
business after removing non-recurring items.

The Board considers that this measurement of proﬁtability
provides stakeholders with information on trends and
performance.

Underlying Earnings
per Share

Underlying proﬁts as deﬁned above divided by the
number of shares in issue.

EPS is a measure of our investment thesis and as such
we aim to manage revenues and margins and invest in
long-term growth.

Net Debt

Bank debt plus ﬁnance leases, less cash and cash
equivalents both in-hand and at bank.

The Group remains strongly cash generative and
continues to invest in the business. The Board is
committed to maintaining an efﬁcient balance sheet,
returning any surplus capital, by way of dividends and
share buybacks, not required to fund growth to
shareholders.

Dividend per ordinary
share

Cash returned to shareholders as a return on their
investment in the Company.

To maintain this policy whilst retaining the ﬂexibility to
invest when opportunities are identiﬁed.

Total Revenues(1)

Total sales revenues from all business activities.

The Group is committed to growing sales in all of its core
trading activities.

Costs
(as a % of sales)

Group operating costs from all business activities,
excluding non-recurring items, expressed as a
percentage of sales.

We are committed to controlling costs and the efﬁcient
use of resources, both through cross-functional initiatives
and a culture of cost awareness.

(1) Figures for the years 2008–2010 relate to the Retail business only.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Annual Performance

2008

2009

2010

2011

2012

In what has been a tough
environment for customers the Group
generated an underlying Profit before
Tax of £92.2m. Halfords’ response
has been to help customers by
creating value through the quality and
price of our products and the
expertise and service of our
colleagues. Our significant growth
areas of Cycling, Fitting services and
Autocentres have all performed
strongly.

As a result of the fall in profits, EPS
before non-recurring items is down
22.0% on the prior year.

The Company continued to invest in
the business in FY12 and during the
year purchased 18.1m shares via a
share buyback programme,
commenced on 7 April 2011, at a
cost of £62.3m.

The Board will recommend, at the
Company’s AGM, a final dividend of
14.0p per ordinary share. This
confirms the Company’s ability to
generate strong cash flows year-on-
year.

At £863.1m Group revenues were
down 0.8% year-on-year. Retail
revenues of £752.3m were down
2.5%, whilst Autocentre revenues at
£110.8m were up 13%.

To secure long-term growth and
proﬁtability, investment in the
business has continued. Activities
that have contributed to an increase
in costs include: inﬂationary and
minimum wage increases acros the
Group; increases in rents, rates and
utilities; a successful media
campaign; investment in tyre training;
rebrand depreciation; the impact of
new centre opening activity and
higher store support costs.

£90.2m

£94.4m £117.1m £125.6m

£92.2m

n
o
i
t
c
u
d
o
r
t
n

29.3p

32.5p

39.7p

43.2p

33.7p

£181.7m £176.2m £155.5m £103.2m £139.2m

w
e
v
e
R
s
s
e
n
s
u
B

15.1p

15.9p

20.0p

22.0p

£797.4m £809.5m £831.6m £869.7m £863.1m

37.8%

39.2%

40.0%

41.0%

43.5%

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Retail KPIs

KPI

Deﬁnition

Strategy

Commitment

Like-for-like Sales

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.

People

Portfolio
Operations Web
Marketing

Gross Proﬁt Percentage

Gross Proﬁt expressed as a
percentage of Sales.

weﬁt/werepair jobs

The stores offer a ﬁtting/repair service
when customers purchase
replacement products such as car
bulbs, windscreen wiper blades and
batteries (3Bs). This KPI includes the
sale of Bike Care Plans.

weﬁt/werepair revenue

The sales income generated from all of
our ﬁtting and repair services, including
the sale of Bike Care Plans.

Marketing

Portfolio
Operations People
Web

Portfolio
Operations People

Marketing

Portfolio
Operations People

Marketing

No. 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.

Portfolio

Costs
(as a % of sales)

Operating expenses from the Retail
business activities expressed as a
percentage of sales.

Online sales
(as a % of total revenue)

Sales enacted via the web, through
Reserve & Collect, Order & Collect and
Direct Delivery.

% of web customers
visiting stores

% of online sales using the Reserve &
Collect offer and visiting stores after
researching online.

People

Portfolio
Operations Web
Marketing

Marketing
Web

Portfolio Web
Marketing

We are committed to maximising our
like-for-like sales opportunities whatever
the economic environment.

Gross Proﬁt is an important indicator of
the Company’s ﬁnancial performance.
Within the business, we focus on
maximising cash generation.

Expert knowledge, advice and service
remain at the heart of the Halfords
customer offer and, speciﬁcally through
ﬁtting, differentiates and defends the
Halfords offer and generates attractive
levels of return.

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 provides 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 30 March 2012

Online version
halfords.annualreport2012.com

Annual Performance

2008

2009

2010

2011

2012

In a difficult consumer environment
we have responded with a trading
strategy that offers great value and
expert services.

+4.3%

-3.3%

+1.3%

-5.5%

-2.3%

n
o
i
t
c
u
d
o
r
t
n

Gross Profit in the UK/ROI Retail
business declined by 140bps.

50.5%

52.1%

54.4%

54.5%

53.1%

1.34m

1.70m

2.35m

2.54m

2.67m

w
e
v
e
R
s
s
e
n
s
u
B

n/a

£9.3m

£11.7m

£12.4m

£15.2m

n/a

37.8%

39.2%

40.0%

38.4%

40.8%

2.43%

4.67%

6.4%

9.2%

8.9%

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

54%

74%

77%

85%

86%

s
a
c
n
a
n
F

We have continued with our
advertising to raise the awareness of
our weﬁt/werepair services and have
supported this in-store with an
intense training programme to ensure
that our colleagues provide expert
customer advice and fitting services.

Services offered by our colleagues
provide a “Do It For Me” solution to
the needs of all of our customers
across all of our categories and has
resulted in an annual increase of
c.23%.

We have refreshed 83 stores in
FY12, and these have reported like-
for-like sales growth of +2.5%, ahead
of the retail average.

The underlying increase in operating
costs reflected higher store and
support costs, offset by savings in
warehouse and distribution costs.

With online sales of c.£66.6m the
30bps reduction reflected a fall in
online travel solution sales, where the
majority of products, such as child
seats, are sold on price alone.
Halfords continues to offer fitting as a
point of differentiation to pure online
retailers.

Whilst remaining static year-on-year,
the relaunch in March 2012 of our
Order & Collect service which allows
next day delivery for goods ordered
online before 6.00 pm saw an
immediate improvement in the
number of sales made online.

Business Review

Autocentre KPIs

KPI

Deﬁnition

Strategy

Commitment

Like-for-like sales

Like-for-like sales represent revenues
from centres trading for more than 12
months.

We are committed to maximising our
like-for-like sales opportunities in
whatever economic environment we ﬁnd
ourselves.

People

Portfolio
Operations Web
Marketing

Fleet sales
(as a % of total sales)

Sales accessed from car fleet
operators.

Operations People

The Company will continue to focus on
providing dealer quality services at
independent garage prices.

Number of Centres

The number of autocentres in
the UK.

Portfolio

Marketing

Jobs per Productive per
Week (“jpppw”)

Total jobs undertaken by the centres
divided by the average number of
productive technicians and
apprentices.

Operations People

Online Bookings

The number of service bookings made
via halfordsautocentres.com against
those made direct with centres.

Marketing Web

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 c.17, without
needing to obtain more ﬁxed cost
labour.

Enhancing our online offer and further
extending our online presence through
both Halfords.com and
halfordsautocentres.com is a Group
investment priority.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Annual Performance

2008

2009

2010

2011

2012

In a tough consumer environment,
where customers have been very
deliberate about their spending plans
we have focused on delivering a
quality and trustworthy service at an
affordable price. We aim to improve
customer retention at our existing
centres: over the last six years this
has increased from 43% to 51.7%
and we believe we can ultimately
achieve 60%+.

Unfortunately we have suffered in
FY12 as both the number and size of
ﬂeets have reduced. However, we
remain committed to this strategy of
driving Fleet business and have
resently appointed a Director of Fleet
sales to drive this strategy forward.
Fleet cars still represent over 1 in
every 4 cars serviced.

We have opened 20 new centres in
FY12, whilst at the same time
completing rebranding and
refurbishing the original estate. We
aim to open a further 20 to 30
centres in FY13.

We continue to increase jobs per
productive worker per week to
14.7% and increase over the last ﬁve
years of c.14%. We expect this to
improve further as the number of tyre
ﬁttings increases.

The continued development of a
Group strategy and providing an
Halfordsautocentres.com link from
Halfords.com has driven an increase
in online bookings of 43.6% in FY12.

+4.1%

+1.2%

+3.4%

-0.6%

+6.1%

n
o
i
t
c
u
d
o
r
t
n

22.4%

22.6%

26.7%

26.3%

25.2%

w
e
v
e
R
s
s
e
n
s
u
B

216

222

224

240

260

12.9

13.0

13.7

13.8

14.7

n/a

97,942

111,261

138,954

199,524

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

People Powering the Next Generation

FY 2012 saw the development of a new People agenda for the
Group with the arrival of the new Group HR Director, Jonathan
Crookall. The four key focus areas are:

■ Recruiting the right people to support our service culture and

future growth

■ Training and developing people to deliver expertise, advice

and service

■ Managing talent to provide succession for key roles and

career opportunities for colleagues

■ Establishing an engaging culture, based on a clear set of

values

Recruiting the Right People to Support our Service Culture
and Future Growth

During the year we improved our recruitment processes and
focused them more on selecting colleagues with an attitude that
supports service and our “helpful” agenda. We established
partnerships with recruitment suppliers and initiated a project to
improve our recruitment website and applicant tracking. The new
website launches in the summer and will align with our consumer
branding, attracting colleagues who have a helpful approach and
great potential for the future. We will also be better able to target
candidates who are best suited to retail and our particular
product groups.

Training and Developing People to Deliver Expertise,
Advice and Service

We continued to invest in colleague training, focusing on
technical skills to support increased ﬁtting and the growth in
cycling. All colleagues were involved in a programme called
Flying Start, which provided the skills and conﬁdence needed
to develop further the ability to engage with every customer in
store, re-emphasising the importance of a great interaction with
customers and our overall “helpful” message.

In our Autocentres business our apprentice training programme
went from strength to strength with the establishment of a new
external partnership with the specialists ProVQ. More than 180
new apprentices started our latest scheme in support of the
growth in the Autocentres business.

Luke Tomkins, 19, was named Halfords Autocentres Apprentice
of the Year after seeing off competition from fellow apprentices
from around the country in the network’s annual skills
competition.

The competition, hosted at training provider ProVQ’s state-of-
the-art workshop facilities near Shrewsbury, saw the ten talented
young technicians compete against the clock over a number of
tasks, including a vehicle safety inspection and various fault
diagnosis challenges.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

People Powering the Next Generation continued

Establishing an Engaging Culture, Based on a Clear Set
of Values

In FY12 we built on the success of the “Helpful” campaign by
creating a broader culture change programme based on a new
set of Halfords values (see page 13). Over 800 people across the
Company were involved in creating the six values and deﬁning
the behaviours that underpin them. The values were launched at
our national conference and continue to be a key action area. We
are rolling out a full colleague engagement survey in June to
assess how best we can further develop colleague engagement
in support of our drive for improving the customer experience.

Luke impressed the judges with his consistent technical
competency, expertise and ability to maintain a cool head under
pressure before being declared overall winner.

Bill Collins, technical training manager
for Halfords Autocentres, said:

“Halfords Autocentres runs the largest motor technician
apprentice scheme in the UK. Our Apprentice of the Year
competition is a chance to celebrate the fresh talent we have
in the business and to showcase their skills.”

Managing Talent to Provide Succession for Key Roles and
Career Opportunities for Colleagues

We have a good track record of developing colleagues from the
shop ﬂoor into management positions. This year we formalised
our approach to tracking talent in stores and autocentres, and
provided speciﬁc development programmes to grow the skills
required to make the next level. Our graduate programme
continues to provide us with a pipeline of talent for our teams in
Commercial and Marketing given the scarcity of quality talent in
these critical areas.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Chief Executive’s Review

“In the year ahead we plan to develop this vision to take
advantage of the opportunities offered by our key growth
areas and accelerate our transition from traditional retailer
to a contemporary provider of products and services.”

David Wild
Chief Executive

Introduction

Review of Trading

The last year continued to be a challenging time for the UK and
ROI consumer sector. People had less disposable income and
managed their discretionary spend tightly. Motorists particularly
were affected by higher fuel prices and insurance costs.

Halfords’ response has been to help customers by creating value
through the quality and price of our products and the expertise
and service of our colleagues. Our signiﬁcant growth areas of
Cycling, Fitting Services and Autocentres have all performed
strongly.

We also continued our store portfolio refresh programme,
invested for the future in IT infrastructure, introduced new
products and developed our team. We have done this whilst
managing costs sensibly.

The progress in our growth areas both demonstrates how we are
evolving Halfords from a traditional out-of-town retailer to a
signiﬁcant service provider and creating the route to strengthen
our business further. We are planning to take advantage of these
opportunities in the year ahead.

In what has been a tough environment for customers the Group
generated an underlying proﬁt before tax of £92.2m and
continued cash generation for shareholders through good cost
management and margin control with free cash ﬂow of £70.4m
after taking into account taxation, capital expenditure and net
ﬁnance costs.

Group revenues were £863.1m, down 0.8% overall (Retail
£752.3m; Autocentres £110.8m).

Within Retail, revenues across the year on a like-for-like basis
(“LfL”) were down 2.7%.

Sales of Car Maintenance products at -4.5% LfL, suffered as
motorists drove fewer miles and reduced their spending on
vehicles where possible. The lack of a prolonged spell of winter
weather, as in the preceding year, also reduced demand for cold
weather products like de-icers, screen wash and batteries.

The demand for “Do It For Me” ﬁtting continues to build and our
weﬁt services have seen another year of strong growth. We now
ﬁt 26.2% of the bulbs, blades and batteries we sell, as we build
on Halfords’ unique customer offer and more customers look to
us for expert help with basic Car Maintenance.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

Read online: halfords.annualreport2012.com/cer

Group Revenue £863.1m

Retail
87%

Autocentres
13%

Car Maintenance
27%

Car Enhancement
22%

Leisure
38%

Online Product Ranges

(cid:18)(cid:23)(cid:13)(cid:17)(cid:17)(cid:17)

Online

(cid:18)(cid:17)(cid:13)(cid:17)(cid:17)(cid:17)

(cid:52)(cid:86)(cid:81)(cid:70)(cid:83)(cid:84)(cid:85)(cid:80)(cid:83)(cid:70)

(cid:23)(cid:13)(cid:17)(cid:17)(cid:17)

(cid:21)(cid:13)(cid:19)(cid:17)(cid:17)

(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:68)(cid:85)

Metro

(cid:48)(cid:81)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:85)(cid:80)
“Reserve & Collect”
(cid:18)(cid:23)(cid:13)(cid:17)(cid:17)(cid:17)(cid:1)(cid:77)(cid:74)(cid:79)(cid:70)(cid:84)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)
(cid:70)(cid:87)(cid:70)(cid:83)(cid:90)(cid:1)(cid:84)(cid:85)(cid:80)(cid:83)

(cid:70)(cid:1)(cid:85)(cid:90)(cid:81)(cid:70)

Figures quoted are for
typical store examples

The decline in Car Enhancement sales continued as the markets
for Sat Nav and audio products contract. We have also seen falls
in sales of Performance Styling and Car Cleaning products
reﬂecting the pressure on motorists spending and the changing
nature of the auto accessory market.

In Leisure we saw strong growth throughout the year, up 5.0%
LfL, driven by increases in our cycling revenues through our
relaunched ranges.

Halfords.com business, representing c.9% of total Retail sales,
had a less buoyant year. While we had signiﬁcantly more visitors
to our site, fewer of these converted to sales. Cycle Accessories
and in-car entertainment products performed well, but the sales
of Sat Navs and child seats declined. During the year we have
invested in better technology, site information and deals.

Sales at our Autocentres grew strongly by c.6% LfL and c.13%
overall, driven by the growing awareness of the Halfords brand in
the garage servicing sector and recognition by motorists of the
value we offer. This performance is especially strong when
compared to the overall auto aftercare market.

Strategy

Vision

Our customers lead busy lives and each year they make
thousands of essential journeys. They need to keep moving for
work and family and they want to travel for their holidays and
enjoy active leisure time.

Halfords’ products and services are an essential part of the
everyday life of millions of people; and we are evolving our offer
in line with the changing nature of our customers’ needs.

Our vision is to Help and Inspire Customers with their Life
on the Move.

In the year ahead we plan to develop this vision to take
advantage of the opportunities offered by our key growth areas
and accelerate our transition from traditional retailer to a
contemporary provider of products and services.

We have carried out detailed research to map our areas of
strength against the requirements and aspirations of our
customers. This work has identiﬁed, and conﬁrmed, that we have
a signiﬁcant opportunity to grow in the medium to long term by

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Chief Executive’s Review continued

building on and evolving our current offering and service
capability. We have identiﬁed three areas where customers
speciﬁcally want our help and which provide opportunities for
growth and the development of our business.

These three strategic pillars are the Friend of the Motorist, the
Best Cycle Shop in Town and the Starting Point for Great
Getaways.

In each of these areas Halfords can create value for our
customers through a unique blend of the quality, innovation and
the price of our products and the expertise and service of our
colleagues.

Strategic Pillars

The Friend of the Motorist

The last year has been a particularly challenging time for drivers
who have faced higher costs. Halfords is uniquely placed to be
the Friend of the Motorist by providing end-to-end solutions for
their auto aftercare needs. Through the Car Maintenance parts in
our Retail stores, in-store ﬁtting services and Autocentres, we
can provide real value through our products, services and the
expertise required to take the hassle out of motoring and make
driving more enjoyable. We can help motorists look after their
cars, or we can take care of their cars for them.

We stock the widest selection of replacement car parts and
accessories of any retailer. We can help the motorists who do
their own maintenance ﬁnd the right part for their make and
model and offer alternative price points through our good, better
and best ranging.

Halfords also helps motorists with motoring consumables like
screen-wash, de-icers and car-washing products, plus we are
the market-leading destination for Sat Navs, Car Audio and
Performance Styling. While the market for these products is
declining, we have extended our leadership position and these
sales continue to contribute to our overall performance.

There is a strong trend towards “Do It For Me” in Car
Maintenance and Halfords has seen a growing demand for our
weﬁt services. The foundation of our ﬁtting proposition is the
ﬁtting of car bulbs, windscreen blades and batteries (“3Bs”), by
our trained in-store colleagues. During the year some 2 million
weﬁt jobs were completed and 26.2% of all 3Bs sold were also
ﬁtted. This compares with 23.5% ﬁtted in FY11.

The 3Bs market, selling both product and ﬁtting, is estimated to
be worth £950m and Halfords only has a small percentage share
of the market while garages and dealerships have a 75% share.
Our offer is unique, 7 days a week on-demand ﬁtting at the most
competitive prices, so there is good potential to win sales and
grow revenues. Fitting is also a high margin revenue stream and
an economically favourable one, as labour costs are based on
retail wage rates as opposed to the mechanics’ rates that
garages and dealers charge.

Our strategy is to maintain our DIY parts proposition while driving
awareness and sales of our ﬁtting capability. We have set
stretching targets to increase uptake and this year we are
budgeting for extra marketing, new point-of-sale materials, extra
colleague hours and training. We are conﬁdent that because of
the historic strong performance in this area, and the extra
resources we are committing, that ﬁtting is a signiﬁcant avenue of
growth for our business.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Halfords’ own and exclusive ranges of cycles. We address the
whole cycle market from entry level to high performance.

Our great value Trax range, that is sold boxed for self-assembly,
gives Halfords a competitive offer against supermarkets and
other non-specialist outlets.

Apollo is the UK’s best-selling cycle brand and offers value,
quality build and good components.

Carrera provides performance speciﬁcation and contemporary
design without the price tag associated with global brands.

Our exclusive Voodoo range is designed by Joe Murray, the
award-winning American mountain biker, and is a premium
product for the serious mountain biker.

Top of the Halfords’ cycle range are Boardman cycles, designed
exclusively in collaboration with Halfords by former Olympic
champion Chris Boardman. This range has been widely
acclaimed for its leading designs, construction and price
competitiveness and is endorsed by world famous riders such as
Alistair Brownlee, the reigning World Triathlon champion.

During the year we redesigned and relaunched many of our
cycles, including the entire Carrera range of 22 cycles and the
Voodoo range of 10 cycles. It meant that at Christmas 2011
broadly half of our cycles were newly designed.

We will continue to develop and improve our existing brands and
introduce new ones that offer value and appeal to our
customers. A good example of this is the Carrera Virago, a
carbon-ﬁbre road racer for under £1,000, a very competitive
price for such a quality performance cycle. It has been extremely
positively reviewed by both the mainstream media and
specialised cycling press.

The ﬁnal element of being the Friend of the Motorist is delivered
through our Autocentres. We provide MOTs, car servicing and
repairs and this is a natural extension of Halfords’ retail service
offer.

This has been a year of signiﬁcant progress for Halfords
Autocentres. As at 30 March 2012, we have 260 autocentres
and since rebranding we have actively developed our offer and
promoted Halfords Autocentres through a national radio
campaign, online marketing and national TV advertising.

The results have been extremely encouraging and we have seen
strong sales growth throughout the year as we win new
customers. Our progress during a period when motorists are
cutting back is a clear sign that the Halfords brand is increasingly
viewed as the destination for all auto aftercare needs and as the
Friend of the Motorist.

In the year Bill Duffy was promoted to CEO of Halfords
Autocentres, and Simon Benson recruited as Operations
Director. We have also relocated our Autocentres Head Ofﬁce
from Olton to our Group Head Ofﬁce site in Redditch; this is
already bringing beneﬁts in cross-functional working.

The long-term growth opportunity of this business remains
compelling. There are 32m cars on the UK’s roads and the
auto aftercare market is large and worth £8bn – £10bn.
Competition is fragmented; there are around 24,000 garage
outlets in the UK but numbers are in long-term decline due to
economic factors. Halfords Autocentres has a good opportunity
to grow in this environment due to the strength of our proposition
and the potential to leverage our brand.

We are developing and investing in our customer relationship
management. Car MOTs and servicing are linked to the age and
mileage of vehicles and this lends itself to advanced data
management systems. A key way we can help customers is to
anticipate their vehicle’s needs and make the right marketing
offer to take the stress out of vehicle maintenance and attract
them to use our autocentres.

We intend to build on success through the roll-out of new
autocentres. During the year we opened 20 new autocentres and
we are targeting up to 30 more in FY13. Further growth
opportunities exist from ﬂeet customers and accelerating tyre
sales. We will also continue to invest in growing awareness and
developing our proposition through innovative products. For
example our recently launched brakes-4-life offers customers
free replacement brake parts once they have bought and had
these parts ﬁtted at Halfords.

Linking all the elements of our auto aftercare offer together
means that we can provide all aspects of car maintenance for
our customers. Our products, services and value, backed by our
trusted brand, offer real help to drivers and underpin our ambition
to be the Friend of the Motorist.

The Best Cycle Shop in Town

Our research shows that the cycle shop and its web offer are
central to the enjoyment and experience of cycling. We recognise
that although we are the biggest provider of cycles to the UK
market, at a local level and online we are not necessarily always
the best cycle shop in every town. This must be our aspiration.

The core of our strategy to be the Best Cycle Shop in Town is

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Chief Executive’s Review continued

In addition, to take full advantage of the heightened interest in
the Olympics, we have introduced limited edition, in British
colours, Carrera cycles. We have also launched an exclusive
range of ladies cycles under the Pendleton brand, designed by
Olympic and World champion cyclist Victoria Pendleton. These
are aimed at women who want to incorporate some cycling into
their everyday routine.

Our innovative and competitively priced ranges mean that
Halfords is uniquely positioned to compete strongly at all levels of
the cycle market, providing customers with one of the best
selections of designs and prices in any cycle shop.

In addition to cycles, we stock a wide range of cycle parts and
accessories from locks and lights to high visibility jackets and
cycling helmets. The Parts, Accessories and Clothing (“PACs”)
market is estimated to be worth £615m annually and we have a
lower share of this market than our share of the cycle market.
This offers Halfords a signiﬁcant opportunity to grow in this
higher margin area. A high proportion of PACs sales occur online
so an important part of our strategy for growth will be to improve
our range and order fulﬁlment for these products online. We are
planning to develop this category to capture an increased share
of this market.

We also support our cycle offer through the advice and service of
our colleagues; c.95% of the cycles we sell we also build and we
offer a free six-week ﬁrst service. Our Bike Care Plan that
provides repairs, free of labour charge, is another opportunity to
develop a service based revenue stream.

In the last year we have grown cycling sales by c.10%, and
gained share in a growing market. This demonstrates the
strength of the Halfords brand and our cycling offer.

The cycle market is estimated to be currently worth £1.4bn. We
now plan to take advantage of this opportunity to drive further
growth in this category through the combination of great service,
reliable maintenance and repair, the best value bike range in the UK
and new ranges of PACs. Our ability to deliver our biggest ranges to
our customers next day is a winning formula within our strategy to
be the Best Cycle Shop in Town.

The Starting Point for Great Getaways

As well as essential travel, our customers also want to enjoy their
active leisure time and use their cars to go on trips. Our range of
products and services is designed to equip people for their
journey and help them make the most of their time out of doors.

A great example is our exclusive ranges of Exodus roof boxes.
These signiﬁcantly increase the carrying capacity of a car. They
create extra space for luggage and other holiday essentials and
leave more room in the vehicle for the family. We also supply the
roof bars and cycle carriers and have trained colleagues ready to
ﬁt everything for customers while they wait.

We stock all the products motorists need to reach their
destination: tyre pumps, warning triangles and high visibility
jackets. At our autocentres we can check and service cars
before they set off on long journeys.

Halfords’ offer extends beyond the journey. We also stock
tents and a whole range of camping and outdoor equipment.
These items provide the basis for the holiday itself. Halfords is
helping with great value offers, like our 4-person family tent
pack, which contains a tent, sleeping bags, airbeds and a
pump for less than £100.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

We help and inspire
our customers with their
life on the move

Strategic Pillars

n
o
i
t
c
u
d
o
r
t
n

Enablers

Portfolio

Web

Operations

Marketing

People

Values

It is predicted that this year more families than ever will holiday in
Britain or look for lower cost ways of spending their vacation
time. Thousands will come to Halfords as the starting point for
their great getaway and catering for this demand provides a clear
avenue for future growth.

In summary, through a focus on our three strategic pillars we
plan to deliver sustainable revenue growth over the medium
term. In the year ahead we intend to invest an additional c.£6m
of Retail operating expenditure to create growth in these
strategic areas. Of the total, £3.5m will be spent in support of our
ambitions in ﬁtting, £1.0m to enhance our multi-channel offer to
complement our range and product development plans and
£1.5m on training, capability and customer relationship
management. These drivers will be broadly proﬁt neutral in
FY13 and will contribute to growth in top line and proﬁtability
from FY14.

Enablers

To deliver our strategic pillars we are focused on ﬁve key areas of
our business which are central to improving our customer
proposition and hence the progress of our business.

Portfolio

Our stores and our autocentres are the key ingredient of our
multi-channel customer proposition. Their location and layout are
central to how we deliver our ambition and our promise.

We have 467 retail stores and 260 autocentres trading
throughout the UK and Ireland. Approximately 90% of our
customers live within a 20-minute journey of our stores.

Through our store refresh programme we refurbished and
reconﬁgured over 80 stores during the year. The sales uplifts
achieved at these stores represent a good return on the invested
capital and ensures a short payback period. Over 100 stores
across the estate have now been refreshed over the last two
years.

In London our High Street format stores provide a potential route
for further expansion in an area where there is a shortage of
suitable superstore opportunities.

We have had considerable success during the year in our
negotiations with landlords in reducing occupancy costs. Within
our store portfolio our lease expiry proﬁle means that we have
c.130 leases expiring over the next ﬁve years, which provide the
opportunity to accelerate our work on reducing occupancy costs.

The nature of the shopping trip is changing as customers
combine online shopping, stock checking and research with
more traditional store visits. At Halfords, our stores must also
facilitate our ﬁtting and cycle repair services. Stores in the future
will need to combine all these elements to provide a seamless
experience. To test ideas that could provide future solutions and
an enhanced shopping experience for our customers we have
opened three laboratory stores. These will be used to test
concepts and, if successful, it may be appropriate to include
some of these concepts in future store designs. In the meantime
our store refresh programme is on hold pending the feedback
from these laboratory stores.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Chief Executive’s Review continued

Web

Operations

Our commitment is to be a true multi-channel retailer, so that we
seamlessly integrate our web offer with our in-store experience.
Our development work is aimed to join together all aspects of the
shopping trip and to leverage within that the growing power and
use of the web as part of it. Enhancing our online offer and
further extending our multi-channel presence is an investment
priority.

To drive our ambition we have appointed a dedicated Digital
Director, Clive West, reporting to me. He is responsible for all
aspects of our online offer from the online site to the delivery
process for orders.

The launch of the mobile version of our site has been very
successful. It enables our customers to research and purchase
online while they are on the move. Mobile trafﬁc and revenues
experienced signiﬁcant growth and almost a ﬁfth of all visits and
over 10% of our online sales are now through these devices.

The introduction of the Halfords App and offering quick response
(“QR”) codes at the point of sale are other mobile innovations
that Halfords has introduced to enhance the shopping
experience for our customers. Customers can scan barcodes
and access rich content like videos and product information, or
get help in ﬁnding the right part for their make and model of
vehicle. We have experienced over 370,000 visits to our App last
year and over 15,000 QR codes were scanned.

We have also made considerable progress in enhancing our
IT infrastructure and improving our on-site experience. We
continue to develop the site with additional functionality aimed
at improving our customer journey. We are focused on the entire
customer journey from accessing the site to order fulﬁlment.

Our product mix lends itself to a multi-channel offer as customers
often want further advice, a demonstration or ﬁtting. Online
purchasing patterns reﬂect this, with 86% of sales on Halfords.
com reserved and then collected from a store. We recently made
a further improvement to this service. Customers who buy an
item online before 6.00 pm from the vast majority of Halfords
16,000 online product range can now choose to collect it the
next day from their local store for free, even if that store does not
normally stock the product. Direct delivery to home represents
14% of our online sales and we also continue to focus on
improving this proposition for our customers. We now offer free
delivery on a wide range of products as well as Saturday delivery.

The Halfords Autocentres website has provided a signiﬁcant
route to grow our Autocentres business. In the fragmented
garage sector the relaunched website, with improved
functionality, has provided a point of difference and resonated
with customers. The revenue derived from online bookings was
up by c.40%. Online bookings now account for 25% of all
Autocentres bookings with 7% of bookings coming from the
Halfords.com Retail site. Further integration of the Retail and
Autocentres websites is a focus. The Autocentres website has
also successfully supported our ambition in tyre sales, with online
tyre sales up 170% in the year.

While the sales performance has been challenging, the Group
has made signiﬁcant operational progress this year. We have
focused on enhancing customer service, reducing costs and
continuing to build a solid platform for future growth.

Our new Distribution Centre at Coventry, equipped with
state-of-the-art logistics technology, has operated smoothly and
is a major contributor to good availability in our stores. One
innovation has been the commissioning of 24 new double-
decker lorry trailers. These can carry extra product, which helps
decrease road miles and saves fuel.

To reduce the costs of goods not-for-resale we have
implemented new processes. Some contracts have been
renegotiated with speciﬁcations and suppliers changed. We have
also appointed a new Head of Procurement responsible for
goods not-for-resale buying to continue our focus on driving
down costs in this area. One innovation is a new process for the
recovery of the 3,000 tonnes of waste cardboard from our stores
to our distribution centres, where it is baled and sold for
recycling.

To fulﬁl our ambitions in ﬁtting we are actively recruiting and
training new colleagues. We have also put in place new
programmes for customer engagement to improve the in-store
experience and the help we offer people when they visit a
Halfords store.

Autocentres continued to develop and enhance the technical
expertise of colleagues. This meant executing the tyre sales
opportunity whilst developing compelling offers such as
brakes-4-life. Additional investment in centre capability was
complemented by trials of extended hours and Sunday
openings.

Marketing

Our new marketing campaign “that’s helpful, that’s Halfords”
has helped build awareness of the value we offer through great
prices, quality and innovative products with the expert service of
our colleagues. Our Christmas campaign was critically acclaimed
and developed this theme highlighting the lasting value of
Halfords’ products like cycles which provide pleasure for years.

Our summer campaign demonstrates how Halfords has helped
customers for many years make the most of their holidays. Using
the strapline, The Best Trips Last a Lifetime, it focuses on
how customers use our products to make the best of their
summer holidays.

We also extended our national advertising of Autocentres from
radio to TV with a series of idents around the motoring
programmes on the Dave channel. These illustrate the delighted
response of motorists who have been helped by Halfords
colleagues.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

People

Our colleagues, in all areas of our business, are of paramount
importance to help our customers. Their passion and abilities are
central to the delivery of our strategic objectives and I am
extremely proud of their commitment and enthusiasm.

In addition, their expert knowledge, advice and service
differentiate us from our competition, especially the online pure
plays, and generate attractive levels of return. In the year we
have invested in extra training for colleagues through our
programmes to encourage higher levels of engagement with
customers. We are also investing in extra training to increase
the number of colleagues who carry out ﬁtting and cycle
repair services.

We track our success in customer service through Empathica
customer surveys and our detailed quarterly customer research;
these show that increasingly customers recommend our service
to others.

Values are central to all successful organisations and this year we
have more clearly deﬁned the central tenets of the way we want
to work together. We launched these at our ﬁrst Company-wide
managers’ conference. The values are:

In the year ahead we are running an engagement survey for all
our colleagues which will help us to understand how to support
and offer the best training possible.

As well as the appointments already mentioned, my Executive
team has been completed during the year with the promotion of
Kevin Thomas as Retail Director and the appointment of
Jonathan Crookall as Group HR Director.

I would like to thank all our colleagues for their hard work and
their immense contribution to the progress of our business.

Summary and Outlook

Halfords continues to be highly proﬁtable and strongly cash-
generative, and is maximising its performance in a demanding
retail environment.

While this is a challenging time, Halfords has delivered signiﬁcant
growth in Leisure, including cycles, ﬁtting services and
Autocentres throughout the past and prior years. This
demonstrates how we are evolving our business from a
traditional out-of-town product retailer to a signiﬁcant service
provider.

Some other areas of the business like Car Enhancement are
shrinking while others like DIY Car Maintenance are mature and
have been affected by the pressures on motorists and the
reduction in mileages being driven.

The strong performance of Halfords’ growth areas is proof of the
relevance of our offer in the busy lives of our customers. By
Helping and Inspiring our Customers with their Life on the
Move we play a vital role for millions of people. Our three
strategic pillars — the Friend of the Motorist, the Best Cycle Shop
in Town, and the Starting Point for Great Getaways — give us an
attractive route to evolve our business over the longer term.

We plan to take advantage of these opportunities and to
accelerate the transition through strategic investments in the year
ahead. We anticipate that this will contribute to growth in our
sales and proﬁts in the medium term.

David Wild
Chief Executive Ofﬁcer
30 May 2012

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Finance Director’s Report

“Group revenue in FY12, at £863.1m, comprised
Retail revenue of £752.3m and Autocentres
revenue of £110.8m.”

Andrew Findlay
Finance Director

Halfords Group plc (“the Group” or “Group”)

Reportable Segments

Halfords Group operates through two reportable business
segments:

■ Halfords Retail, operating in both the UK and Republic of

Ireland; and

■ Halfords Autocentres, operating solely in the UK.

All references to Group represent the consolidation of the
Halfords (“Halfords Retail”/“Retail”) and Halfords Autocentres
(“Halfords Autocentres”/“Autocentres”) trading entities.

Financial Results

FY12
£m

863.1

472.8

97.2

(5.0)

FY11
£m

869.7

485.0

128.1

(2.5)

%
Change

-0.8%

-2.5%

-24.1%

—

92.2

125.6

-26.6%

Group Revenue

Group Gross Profit

Group Operating Profit

Net Finance Costs

Profit Before Tax, before
non-recurring items

Profit Before Tax, after non-
recurring items

(FY11: £296.7m), Autocentres £66.4m (FY11: £58.0m) and
unallocated expenses £2.2m (FY11: £2.2m). Unallocated
expenses represented amortisation charges in respect of
intangible assets acquired through business combinations (the
acquisition of Nationwide Autocentres Ltd in February 2010),
which arise on consolidation of the Group. Non-recurring income
during the year of £1.9m represented the release of the Focus
lease guarantee provision, recognised as a non-recurring cost in
FY11, resulting from the better-than-anticipated settlements in
the period.

Net ﬁnance costs for the period were £5.0m (FY11: £2.5m).

Group proﬁt before tax and non-recurring items for the 52 weeks
to 30 March 2012 was down 26.6% at £92.2m (FY11: £125.6m).

Group proﬁt before tax for the 52 weeks to 30 March 2012 after
non-recurring items was £94.1m (FY11: £118.1m), down 20.3%.

Halfords Retail (before non-recurring items)

FY12
£m

FY11
£m

UK/
ROI

Central
Europe Total

UK/
ROI

Central
Europe

Total

UK/
ROI %
Change

94.1

118.1

-20.3%

Revenue

752.3

— 752.3 769.7

1.9

771.6 -2.3%

All above items are shown before non-recurring items unless otherwise stated.

The “FY12” accounting period represented trading for the 52
weeks to 30 March 2012. The comparative period “FY11”
represented trading for the 52 weeks to 1 April 2011.

Group revenue in FY12, at £863.1m, comprised Retail revenue of
£752.3m and Autocentres revenue of £110.8m. This compared
to FY11 Group revenue of £869.7m, comprising Retail revenue
of £771.6m and Autocentres revenue of £98.1m. Group
revenues decreased by 0.8%, but when excluding the
discontinued Central European revenues in the comparable
period, the decrease was restricted to 0.5%.

Group gross proﬁt at £472.8m (FY11: £485.0m) represented
54.8% of Group revenue (FY11: 55.8%). This reﬂected a decline
in UK/ROI Retail business of 140 basis points (“bps”) and a gross
margin of 65.9% (FY11: 66.3%) in the Autocentres business.

Total operating costs before non-recurring items increased to
£375.6m (FY11: £356.9m), of which Retail represented £307.0m

Gross
Profit

Operating
Costs

Operating
Profit

399.8

— 399.8 419.9

0.1

420.0 -4.8%

(307.0)

— (307.0) (296.2)

(0.5)

(296.7) +3.6%

92.8

— 92.8 123.7

(0.4)

123.3 -25.0%

Revenues for the UK/ROI business of £752.3m reﬂected, on a
constant currency basis, a like-for-like (“LfL”) sales decline of
2.7%. This was partially offset by £3.7m of revenue from new
space, reducing the sales deﬁcit to 2.3%. By category, Car
Maintenance and Car Enhancement LfL revenues were down
4.5% and 11.6% respectively, Leisure LfL revenues were up
5.0%. The relative split of UK/ROI revenues is shown opposite.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

Read online: halfords.annualreport2012.com/fdr

UK/ROI Retail Revenue £752.3m

-2.3%

Car Maintenance
31% £231.7m

Car Enhancement
26% £194.4m

Leisure
43% £326.2m

wefit/werepair jobs
’000s
+6.4%

2,500

2,250

2,000

1,750

1,500

1,250

1,000

750

500

250

(cid:12)(cid:23)(cid:15)(cid:21)(cid:6)

(cid:19)(cid:13)(cid:21)(cid:17)(cid:24)

(cid:12)(cid:22)(cid:15)(cid:26)(cid:6)

(cid:19)(cid:13)(cid:19)(cid:23)(cid:20)

(cid:12)(cid:20)(cid:22)(cid:15)(cid:22)(cid:6)

(cid:19)(cid:13)(cid:18)(cid:20)(cid:23)

(cid:18)(cid:13)(cid:22)(cid:24)(cid:23)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

Proportion of UK/ROI
Retail Sales

Car Maintenance

Car Enhancement

Leisure

FY12

30.8%

25.9%

43.3%

FY11

31.4%

28.4%

40.2%

Gross proﬁt for the UK/ROI business at £399.8m (FY11:
£419.9m) represented 53.1% of sales, a 140 bps decline on the
prior year (FY11: 54.5%). This reﬂected the continued focus on
the delivery of cash returns within the business, increased levels
of promotional participation by our customers, reduced sales of
higher-margin ranges and the impact from our focus on efﬁcient
stock clearance. The effect of these, together with the adverse
results of product cost inﬂation, was partially offset by the
continuing increased penetration of our unique, high-margin
weﬁt and werepair propositions and continued focus on
maximising product-sourcing efﬁciencies.

Operating costs for Retail before non-recurring items were
£307.0m (FY11: £296.7m), up 3.6%. In FY11, UK/ROI operating
costs before one-off store occupancy and support cost savings
were c.£300m. Based on this, the underlying increase in UK/ROI
Retail operating costs in the period was restricted to 2.3%. The
increase reﬂected higher store and support costs, offset by
savings in warehouse and distribution costs.

UK/ROI Retail
Operating Costs

Store Staffing

Store Occupancy

Warehouse & Distribution

Support Costs

Total

FY12
£m

80.1

139.0

25.9

62.0

FY11
£m

78.1

135.4

27.5

55.2

%
Change

+2.6%

+2.7%

-5.8%

+12.3%

307.0

296.2

+3.6%

Store stafﬁng costs rose 2.6% which represented the continued
beneﬁts of the restructuring of store labour rotas in the prior year
and lower-than-forecast store colleague incentive payments,
offset by inﬂationary and minimum wage pay increases year-on-
year. Store occupancy costs increased by 2.7%, reﬂecting c.£3m
of one-off beneﬁts in FY11, inﬂationary increases in rent, rates
and utility costs, and included the revenue costs associated with
83 store refreshes in the period.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Finance Director’s Report continued

Warehouse and distribution costs fell by 5.8%, driven by the
expected improvements in efﬁciency being delivered following the
move to the new Distribution Centre in Coventry in July 2010.
Under the old distribution network, costs would have been
approximately £3.8m higher than those reported.

The increase in support costs predominantly reﬂected our
investment in colleagues ahead of FY13 through ensuring we
have the right resources to drive sustainable growth in the key
areas. As an example of this, we recently appointed our ﬁrst
Digital Director to maximise the multi-channel opportunity ahead
of us. We also invested in store colleague training and
engagement to ensure we are equipped to drive additional
in-store service revenues at our Company-wide managers’
conference. We also invested during the year to obtain a better
understanding of our markets, customers and future growth
opportunities. No Head Ofﬁce performance bonus for the period
was accrued.

In FY11, the Central European Retail operation generated
revenue of £1.9m and a loss before taxation of £0.4m, after
operating costs of £0.5m. The operations were fully wound down
in FY11, and no revenues or costs associated with this operation
were recognised during the period.

Halfords Autocentres

Revenue

Gross profit

FY12
£m

110.8

73.0

FY11
£m

98.1

65.0

%
Change

+12.9%

+12.3%

Underlying Operating Costs

(66.0)

(58.0)

+13.8%

Underlying Operating Profit

One-off Relocation Costs

Statutory Operating Profit

7.0

(0.4)

6.6

7.0

—

7.0

—

-5.7%

Autocentres generated total revenues of £110.8m in FY12 (FY11:
£98.1m), an increase of 12.9% over the prior year, a like-for-like
increase of 6.1%. Twenty new autocentres opened in the year,
generating £2.2m of incremental revenue, which took the total
number of autocentre locations to 260 as at 30 March 2012. The
increase in revenues from the existing 240 centres reﬂected the
beneﬁt of the UK-wide brand relaunch completed in April 2011,
enhanced media support and growth in tyre sales, an area of
opportunity for Autocentres.

Gross proﬁt at £73.0m represented a gross margin of 65.9%,
down 40 basis points on comparable FY11 levels, driven by
increased volumes of lower-margin tyre sales, partially offset by
better parts-buying.

Before a one-off charge of £0.4m associated with the transfer of
the Autocentres Head Ofﬁce from Olton to Redditch (completed
in April 2012), Autocentres’ operating proﬁt was £7.0m (FY11:
£7.0m) reﬂecting underlying operating costs of £66.0m (FY11:
£58.0m). To secure long-term growth and proﬁtability, investment
in the business continued. A successful media campaign,
investment in tyre training, rebrand depreciation and the impact
of new centre opening activity contributed to the operating cost
increase.

Portfolio Management

The Group continued to manage actively its store and autocentre
portfolio. During FY12, the Retail business opened three stores in
London (Wood Green, Ilford, Ealing), closed two metro stores
(Norwich, Haywards Heath) and refurbished 83 stores. Within
Autocentres, 20 new centres were opened in the period.

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 ﬁve to 15 to 25-year term
from inception and with an average lease length of around
seven years.

During the year re-gear negotiations were completed on 14
stores, resulting in six contracts being exchanged on lease
extensions, ﬁve downsizes and three relocations resulting in
lower ongoing rental payments.

Focus Leases

At the end of FY11, a non-recurring charge of £7.5m was
recognised in respect of a provision for property leases for which
Halfords was guarantor, triggered by the demise of the Focus
DIY retail chain. At the end of FY12, the provision was £3.1m
reﬂecting the settlement and exit of certain leases, resulting in
non-recurring income of £1.9m during the year, and utilisation of
the provision in respect of rent, insurance, service charges and
legal fees incurred.

Finance Costs

Net ﬁnance costs were £5.0m (FY11: £2.5m). The higher charge
in the period reﬂects a full year of loan facility non-utilisation fees,
margins and arrangement-fee amortisation expense. A one-off
beneﬁt of £0.9m interest income was also recognised in the prior
period relating to the settlement of amounts due from HMRC.
Weighted average borrowings of £116.7m were £37.6m lower
than last year.

Taxation

The taxation charge on proﬁt for the ﬁnancial year was £25.7m
(FY11: £32.6m), including a £0.9m charge (FY11: £2.1m credit)
in respect of the tax on non-recurring items. After non-recurring
items, the full year effective tax rate of 27.3% (FY11: 27.6%)
differed from the UK corporation tax rate (26.0%) principally due
to the non-deductibility of depreciation charged on capital
expenditure, the reassessment of anticipated future tax
deductions from employee share schemes and other permanent
differences arising in the period. Before non-recurring items, the
full year effective tax rate in FY12 was 26.9%.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Earnings Per Share (“EPS”)

Cash Flow and Borrowings

Basic EPS before non-recurring items was 33.7 pence (FY11:
43.2 pence), a 22.0% decrease on the prior year. Basic EPS
after non-recurring items for the period was 34.2 pence (FY11:
40.7 pence). Basic weighted average shares in issue during the
year were 199.9m (FY11: 210.4m). During the year 18,084,113
shares were acquired by the Company via the share buyback
programme commenced in April 2011. Of these, 12,634,493
have been cancelled, with 5,449,620 converted to treasury
shares to be used by the Group to satisfy existing and future
employee share schemes.

Dividend

The Board is recommending a ﬁnal dividend of 14.0 pence per
share (FY11: 14.0 pence), which, in addition to the interim
dividend of 8.0 pence per share (FY11: 8.0 pence), generates a
total dividend of 22.0 pence (FY11: 22.0 pence). This reﬂects the
Board’s recognition of the importance of dividends to
shareholders and the continuing cash-generative capabilities of
the business.

Subject to shareholder approval at the Annual General Meeting
the ﬁnal dividend will be paid on 3 August 2012 to shareholders
on the register at the close of business on 6 July 2012.

Capital Expenditure

Capital investment in the period totalled £19.7m (FY11: £22.8m)
comprising £15.2m in Retail and £4.5m in Autocentres.
Consistent with prior periods, management has continued to
adopt a prudent approach with regard to capital investment and
has focused on investments generating material returns.

Within Retail, £11.5m was invested in stores, and included
£1.2m in three new London stores, together with two completed
store relocations. It also included £10.3m of investment in 83
store refreshes, the rightsizing of two stores, other expenditure
covering general maintenance and the investment in three
laboratory store formats opened recently. Additional investment
in Retail infrastructure included a £2.4m investment in IT
systems, including further development of the online customer
proposition, £1.0m in logistics and £0.3m in central facilities.

A further £4.5m (FY11: £6.2m) was invested in Autocentres
predominantly to drive the centre roll-out plan and upgrade
centre equipment, especially in relation to the delivery of the tyre
proposition.

Inventories

Group stock held at 30 March 2012 was £146.7m (1 April 2011:
£147.6m), down 0.6% on the prior year. Within this, Autocentres’
stock was £1.4m, ﬂat year-on-year. 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 autocentres, with most
parts being acquired on an as-needed basis.

The Group has continued its strong track record of cash generation.
Net cash generated from operating activities in FY12 was £89.7m
(FY11: £118.4m). Free cash ﬂow of £70.4m is after taking into account
taxation, capital expenditure and net ﬁnance costs.

Total net bank debt at 30 March 2012 was £127.7m (1 April 2011:
£91.4m) after cash balances of £10.9m. Further borrowings of £11.5m
(FY11: £11.8m), in respect of the Head Ofﬁce ﬁnance lease, resulted in
Group net debt at 30 March 2012 of £139.2m (1 April 2011: £103.2m),
an increase of £36.0m. At this level net debt to EBITDA (earnings before
non-recurring items, ﬁnance expense, depreciation and amortisation)
was 1.1 times.

Following a review by the Board of the Group’s capital structure and
cash-generation capabilities, the Group commenced a share buyback
programme, with effect from 7 April 2011, with the intention to return
up to £75m of cash to shareholders over the following 12 months. In
FY12, £62.3m of shares were bought back via the purchase of 18.1m
shares. As at 29 May 2012, a further £0.9m of shares were purchased
in the new ﬁnancial year.

Given the return to more normalised levels of gearing the Board
has resolved to bring the current buyback programme to an end and
does not intend to undertake any further buyback activity in the new
ﬁnancial year.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

Financial Risks

Treasury Policy

The Group’s treasury department’s main responsibilities are to:

■ Ensure adequate funding and liquidity for the Group;

■ Manage the interest risk of the Group’s debt;

■ Invest surplus cash;

■ Manage the clearing bank operations of the Group; and

■ Manage the foreign exchange risk on its non-sterling cash flows.

Treasury activities are delegated by the Board to the Finance Director.
The Finance Director 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.

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.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Finance Director’s Report continued

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, subject
to price ﬂuctuation. The Group mitigates this risk by negotiating
ﬁxed purchase costs or by 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 interest rates and the Group will continue to monitor
movements in the swap market.

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 30 March 2012, 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
and forward foreign exchange contracts.

Capital Risk Management

Pension Liability Risk

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 other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.

The Group has no association with any deﬁned-beneﬁt pension
scheme and therefore carries no deferred, current or future
liabilities in respect of such a scheme. The Group operates a
number of Group Personal Pension Plans for colleagues.

Liquidity Risk

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 buyback
scheme. A separate buyback scheme was initiated on 7 April
2011.

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 £30m, such that
under the Treasury Policy the maximum drawings would be
£270m of the £300m available facility.

The Group manages capital by operating within debt ratios.
These ratios are:

■ consolidated EBITDAR (earnings before non-recurring items,
finance expense, depreciation, amortisation and rental costs)
to consolidated total net interest payable plus rent; and

■ consolidated total net borrowings to consolidated EBITDA.

Credit Risk

The carrying amount of ﬁnancial assets represents the maximum
credit exposure. The maximum exposure to credit risk as at
30 March 2012 was £28.6m (1 April 2011: £15.5m).

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 year-end four of the banks within this group maintained a
credit rating of ‘A’ or above. The counterparty credit risk is
reviewed in the Treasury Report, which is forwarded to the
Treasury Committee and the Group Treasurer reviews credit
exposure on a daily basis.

The risk is measured through review of forecast liquidity each
month by the Group 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. There have been no breaches of covenants during the
reported periods.

Andrew Findlay
Finance Director
30 May 2012

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Risks and Uncertainties

Like all businesses, our Group faces risks and uncertainties that could
impact the achievement of the Group’s strategy.

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 74 to 81 describes the
systems and internal control processes through which the Directors
identify, assess, manage and mitigate risks.

Strategic Pillars

Enablers

Portfolio

Web

Operations

Marketing

People

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 the necessary actions to manage risk is
delegated to appropriate colleagues in the business, with Executive
manager sponsor involvement. The Risk Register is monitored and
updated with current and ongoing mitigation on a regular basis.

Report and Review

The Executive Committee and the Board consider the
risks reported within the Risk Register and review and
monitor new risks and all mitigating actions to ensure
that the status of risk mirrors the levels of risk that the
Board is willing to take in achieving the Group’s
strategic objectives.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

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.

The Group mitigates 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.

Business Strategy

The aim of the Group’s business strategy is to 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 put in place then 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. The
Car Servicing market is a service-based market with a
number of different-sized providers where “Trust” is
extremely important to customers. Failure to compete with
competitors on areas including price, product range,
quality, service and “trustworthiness” 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.

Portfolio
Operations
Marketing

Portfolio
Operations
Marketing
People
Web

The budgetary and planning process aims to deliver
the Group’s growth targets and business plans are
developed to ensure these targets are achieved and
that they are resourced appropriately. Regular access
to industry experts and monitoring of performance
against plan is carried out by both the Executive
managers of the Company and the 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 opportunities to differentiate the Halfords
offer and deliver an honest and trustworthy service.

Marketing
Web

The Group has a Quality Assurance 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.

Operations

Portfolio
Marketing
Web

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

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.

Operations
Marketing
People

Operations

Operations
Marketing
People

Ultimately the protection of Halfords’ brand and
position in its core markets will be sustained by unique
and extensive product offerings and a multi-channel
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 training, 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 products from any new
country or supplier. The Group’s strong management
team in the Far East has been recruited locally and
understands 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
the 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. Our Autocentre business
continually seeks to provide innovate solutions for their
customers, such as brakes4life. We also have an
established training infrastructure to ensure that our
colleagues receive ongoing product and service
training. In our centres 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
centres workshop colleagues hold a Motor Industry
qualiﬁcation.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Key Risks and Uncertainties

Mitigation

Strategy

Information Technology (“IT”) Systems
and Infrastructure

In common with most businesses, Halfords is dependent
on the reliability and suitability of a number of important IT
systems where any sustained performance problems,
particularly with regard to stores, centres or warehouse,
multi-channel and distribution systems, could potentially
compromise our operational capability for a period of time.
With ambitious growth plans for our multi-channel 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 the stores and
autocentres, including the appropriate training of in-store
and centre colleagues, and the design, procurement and
allocation of 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, and a hotlink secure
data centre hosted outside the UK, with an additional
access to a further data support centre elsewhere in
the UK in case of a major incident.

Operations
Marketing
People
Web

Our Remuneration Policy outlined on page 82 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.

People

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Corporate Responsibility Report

Strategies related to our
Corporate Responsibility

H
e
a
l
t
h
&
S
a
f
e
t
y

i
t

ers
m
s
orie
sto
u
s
s
e
c
c

s, C
Store
& A

of C

ployer

oic

c e

p l a

W ork
O p e r a ti o n s

Natural
Resources

life on
the move

P
e

o
p

Gro
servic

Portfo

win

b
e
W

i
r

fo
ntrol

cus
Market i n g

C o m m u nity

el
u
F

n
d
u
s
t
r
y
F
o
r
u
m

s
e

t
c
v i c

u
r

o
r
& S

Supply Chain
& Ethical Trading

nity

We believe effective management of our Corporate Responsibility
(“CR”) makes good business sense. In doing so, we will seek to
ensure that Halfords, which is a household brand, has a positive
impact on the communities and environment in which we work,
be it through our operations, products and services or through
our interactions with our customers, colleagues and suppliers.
We are proud of our business and we see CR 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 committed to ensuring 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. “That’s helpful, that’s Halfords” is not just for our
customers, but is about how Halfords acts and reacts to ensure
sustainability of both the environment in which we operate and
our own business model.

The Group annually reviews its ongoing CR commitments to
ensure it meets the needs of the markets and communities in
which we work and that the associated Key Performance
Indicators (“KPIs”) accurately reﬂect the Group’s success or
otherwise in implementing its policy.

Following the review conducted last year by Business in the
Community (“BITC”) the Group continued to follow its “ACTING
RESPONSIBLY” policy during the period to 30 March 2012.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Halfords’ corporate responsibility (“CR”)
programme is aligned with the Group’s
business strategy, addresses the important
CR issues that we face and informs
appropriate management and colleague
behaviour.

n
o
i
t
c
u
d
o
r
t
n

Read online: halfords.annualreport2012.com/cr

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 management 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 the Future

Halfords will continue to work towards improving its management
of the social, environmental and economic issues that are within
its control and will continue to work with BITC to ensure that we
focus on the core areas of Corporate Responsibility whilst at the
same time being proud custodians of the Halfords brand and its
impact on its stakeholders. It makes good business sense that
we ensure the right and proper interaction between our
Company, our stores and our products, and our customers, their
communities and their environment. We hope to build on our
cycle repair work inclusion programme to help us deliver a quality
repair service in-store and we will report more on the success of
this initiative next year.

However, the Company has a strong cost control ethos and is
keenly bottom line driven with clear proﬁt ambitions and the
thinking hierarchy at present is “cost ﬁrst”. It is therefore essential
that any CR programme should be shown to be intricately linked
to achieving business success and enhancing the business’s
value proposition.

Halfords has always prided itself on behaving responsibly to all
stakeholders, and CR forms an integral element of this
relationship by demonstrating the Company’s honesty, reliability
and trustworthiness in respecting customers, employees,
investors and the environment. However, we acknowledge that in
the past our community investment activities have been informal
and not driven by a clear community investment strategy that is
aligned to our business strategies.

In order to address this the Company has involved itself with the
Prince’s Trust “Seeing is Believing” activities and visited a number
of charities to see how Halfords might be able to make a positive
contribution to communities in which our stores operate. All the
charities that we met with worked with individuals from
disadvantaged backgrounds including homelessness, young
people NEET (“not in education, employment or training”) or
ex-offenders. In the many discussions that we had with the
young people that we met, it was obvious that whilst they were
appreciative of all offers of help, what they really wanted was a
real opportunity to get a job. This has led to discussions with a
Social Enterprise company, Bikeworks, as to how Halfords might
introduce a Work Inclusion programme for NEET individuals. This
is discussed in more detail on page 49.

As in 2011 we continue to report on our activities under the
headings used by BITC in their 2010 report, and we have aligned
these with our Group strategy on page 12.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Corporate Responsibility Report continued

Workplace

“We recognise that our colleagues are our
single most valuable asset and we are
committed to a fair but robust approach
to equal opportunities.”

Read online: halfords.annualreport2012.com/cr

Full unaudited details of our Corporate Responsibility activities are available online — www.halfordscompany.com/cr

Employer of Choice

Diversity

The development and delivery of Halfords’ customer offer both in
our retail stores and autocentres would not have been possible
without the unfailing support and commitment of our colleagues
employed across all our operations. Consequently, 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, love coming to
work, strive to achieve their best and enjoy dealing with
customers and delivering our “helpful” message.

We recognise and reward high performance and by ensuring
colleagues have interesting jobs, with real accountability, Halfords
can provide the opportunity to develop careers. Over the years
we have worked hard to provide an environment in which people
are keen to work and our turnover rates both in our retail stores
and autocentres are monitored on a regular basis.

Our commitment to our customers means we are able to add
value to their purchases with our ﬁtting services. This requires the
majority of our colleagues to be properly trained in the ﬁtting of,
amongst other products, bulbs, blades, batteries, child seats and
roof boxes. Our desire to become famous for being “helpful”
means that FY12 has seen a 20.4% increase in the number of
our retail staff holding accredited ﬁtting qualiﬁcations, whilst
c.60% of our autocentre workshop colleagues hold a Motor
Industry qualiﬁcation.

To ensure the best and the most consistent garaging servicing,
Halfords Autocentres also run a Training Academy apprenticeship
programme, which currently has approximately 140 apprentices.
All go through a three-year fully funded programme and will
complete as qualiﬁed Technicians with an Institute of the Motor
Industry NVQ level 3 and a Diploma. In addition, they will each
complete 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.

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 our stores and autocentres may not always
be reﬂective of our community base, but we feel it does reﬂect
our customer base and the types of services we provide, with
26% of our total colleague population being women.

Health & Safety Management

Halfords is committed to high standards of occupational health &
safety to minimise the risk of injuries and ill health to employees,
contractors, customers, visitors and others who come into contact
with the business. Our overall annual incident rate remains below
the benchmarks of the industries we operate in.

Halfords Retail —
Staff holding accredited fitting qualifications

7,000

6,000

5,000

4,000

3,000

2,000

1,000

5780

4800

4000

2010

2011

2012

Women Colleagues employed in Halfords

26%

28%

13%

47%

Total
Women

Women
in Store

Women
in DC

Women
in HO

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Marketplace

“We interact with our customers every day
to ensure that our range meets their
requirements and that they understand
how to use our products safely.”

Read online: halfords.annualreport2012.com/cr

n
o
i
t
c
u
d
o
r
t
n

Full unaudited details of our Corporate Responsibility activities are available online — www.halfordscompany.com/cr

Stores and 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 interact 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
together with a reasonably priced service proposition.

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.

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.

Products

We continually assess the lifestyle and environmental impacts of our
products, packaging, procedures and services at all appropriate
stages, e.g. design, procurement, supply, sale, use and disposal. We
always promote good practice in the provision of environmental
communication to customers and colleagues; however, our business
strategy and product offering is strongly influenced by consumer
choice. For example in FY12 we sold c.993,000 litres of diluted screen
wash and only c.540,000 litres of concentrated screen wash, a
product that has a carbon footprint c.5 times lower than
its diluted eqivalent.

No. of Cycles stocked

200

180

160

140

120

150

160

178

170

179

189

2007 2007

Total Bikes/ Child Bikes

2008 2008

2009 2009

2010 2010

2011 2011

2012 2012

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 189 models of bicycles, of which
82 are aimed at children between three and eight years of age, and we
continue to market “Cycle 2 Work” schemes that allow employers to
offer to their employees the use of a bicycle for travelling to work.

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.

During 2011 we introduced our new brakes4life product. brakes4life
is a lifetime replacement of brake pads and brake shoes. By
maintaining brake pads and shoes in good working condition our
customers can improve fuel efficiency and ensure they can drive the
car safely.

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. When landed in the UK, the majority of our
products are shipped via rail to our Distribution Centres in the Midlands.

Tonnes of Product Airfreighted

200

180

160

140

120

100

187.043

177.020

67.641

89.204

2007

2008

29.045
2009

2010

2011

2012

36.817

No. of Containers moved by Rail

3,500

3,000

2,500

2,000

1,500

1,000

500

2008

2009

2010

2011

2012

Containers moved by Rail

% of Total Containers moved

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Business Review

Corporate Responsibility Report continued

The Environment

“Our commitment is to understand and to
continually improve the performance and
management of our environmental
impact.”

Read online: halfords.annualreport2012.com/cr

Full unaudited details of our Corporate Responsibility activities are available online — www.halfordscompany.com/cr

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:

Fuel Efficiency

During FY12 our ﬂeet of lorries drove over 7,000,000 kilometres
in delivering product to our stores. To more fully understand our
impact on Greenhouse Gas (“GHG”) emissions, we have
converted the transport ﬂeet fuel usage to total CO2 emissions. In
FY12, The CO2 equivalent usage, calculated based on DEFRA’s
2011 Freight Transport conversion factor of 2.648, indicates that
we have used over 6 million tonnes of CO2, an 18% reduction
year-on-year. This has been achieved by better utilisation of our
Main and Cycling Distribution Centre, resulting in improved
management of store deliveries and in the use of larger and
double-decker trailer units, meaning more stock can be carried
per delivery.

Natural Resources

We continue to reduce our water usage and over the years have
invested in “smart” water meters, which helps us to identify water
leaks at an early stage. In our Retail stores, in FY12 we
maintained our proud record of reducing water usage year-on-
year with a further 12.4% reduction.

Water Consumption per Retail store (litres)

Volumes of waste material recycled versus that sent to landﬁll have
increased over the last ﬁve years to 81% in 2012.

As motor vehicle servicing centres, our autocentres are
continually disposing of “motor vehicle” related waste safely. In
FY12 as well as recycling car batteries we disposed of c.197,200
tyres (2011: 132,000) and c.876,300 litres of oil (2011: 755,000).

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 added
energy management systems to our properties and implemented
speciﬁc action plans around voltage reduction. This year’s use of
energy has not been affected by the cold weather periods of
December 2010 and February 2011 and we have reduced our
use of energy within the Group’s stores and autocentres, in
2012, by 10.6%. In Retail where records have been kept since
2007 we continue to reduce our use of gas and electricity in line
with our target of between 15% and 20% on a 2007 base.

The following graph represents the energy used by our stores,
autocentres, head ofﬁces and distribution centres.

Total Energy Usage (kWh)

120,000,000

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

2007

2008

2009

2010

Retail
2011

Group
2011

Retail
2012

Group
2012

Energy Usage per Store and Autocentre (kWh)

205.13

188.91

181.98

178.13

158.52

2008

2009

2010

2011

2012

300,000.00

250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

2007

2008

2009

2010

Retail
2011

Group
2011

Retail
2012

Group
2012

300

250

200

150

100

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Community

“We are committed to ensuring that all of
our customers are able to access our
products and services with the minimum
of effort”

Read online: halfords.annualreport2012.com/cr

n
o
i
t
c
u
d
o
r
t
n

Full unaudited details of our Corporate Responsibility activities are available online — www.halfordscompany.com/cr

Halfords’ Work Inclusion Programme

Following the Seeing is Believing visits described on page 45,
Halfords was introduced to Bikeworks, a social enterprise company,
specialising in using cycles and cycle repair to engage with
disadvantaged NEET individuals.

Bikeworks already run a work-based training programme, over a
three-month period, that is design to give individuals the technical
skills and work experience to be ready for employment in the cycle
industry. The successful trainees gain a bicycle maintenance
qualification as well as being exposed to a working cycle-retailing
operation where they develop customer service and team-working
skills.

Halfords has, therefore, entered into a partnership with Bikeworks to
create and deliver a programme that not only meets the Company’s
CR community objectives but also supports the Company’s “Best
Cycle Shop in Town” strategy by creating a programme of Cycle
Repair training for people from disadvantaged backgrounds and,
where appropriate, employing them in Halfords stores, delivering a
knowledgeable, skilful and competitive cycle repair service.

Plans for this partnership were finalised in March 2012, and from
1 April 2012 Halfords has committed to not only sponsoring
Bikeworks to deliver out-reach “Build-a-bike” courses and to deliver
the “Cycle into Work” course to a number of individuals, but we
have also committed to employing the best, in Halfords stores local
to each individual. In FY13 we aim to employ a minimum of 10
individuals in the London area through this Work Inclusion
Programme.

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 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. We are
committed to ensuring that both customers and colleagues have
acess to our facilities and we have taken various actions in order to
fulfil our responsibilities, including in 2011 working with the
Employers Disability Forum to deliver training to some of our Head
Office and store colleagues.

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).

150

135

120

105

(cid:18)(cid:20)(cid:23)

(cid:18)(cid:18)(cid:18)

(cid:18)(cid:18)(cid:20)

91.0

99.8

99.9

95.9

(cid:22)(cid:18)

2009

(cid:19)(cid:17)(cid:18)(cid:17)

(cid:19)(cid:17)(cid:18)(cid:18)

(cid:19)(cid:17)(cid:18)(cid:19)

Number of audits undertaken

% of suppliers covered

Charity of the Year

Our policy on charitable giving is to concentrate on working with
one main charity over a two-year period. Since April 2011
we have partnered with Cancer Research UK.

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 over 20 years and we have
never failed to offer employment to apprentices who complete the
three-year scheme.

Industry Forums

Halfords retail values opportunities to work closely with trade
associations, research institutes, standards authorities, universities
and government organisations to improve performance standards
and safety. During the year we have worked with ProMOTe to
challenge proposed changes to MOT testing and the Plain
English Campaign who awarded their “Crystal Mark” to both our
brakes4life brochure and our “Helpful MOT” Guide.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

RESOURCES

Transforming Halfords

Transforming our Business

Infrastructure

People

Systems

Investment

Channels

Reach and Scale

Brand Resonance

Customer Focus

Products & Services

Friend of the Motorist

Best Cycle Shop in Town

Starting Point for Great Getaways

Read online@halfords.annualreport2012.br
Read online: halfords.annualreport2012.com/res

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Transforming Halfords

Infrastructure

Channels

Products &
Services

Proposition

— People
— Investment
— Systems

— Reach and Scale
— Brand Resonance
— Customer Focus

Product categories
— Car Maintenance
— Car Enhancement
— Autocentres
— Leisure

Strategic pillars
— Friend of the Motorist
— Best Cycle Shop in Town
— Starting Point for Great Getaways

We help and inspire our customers
with their life on the move

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Transforming our Business

As a company we want to play to our strengths — leveraging our infrastructure,
developing innovative channels and creating new routes to market. This will enable
us to continue to build trusted relationships with our customers.

This leads us to our proposition: “we help and inspire our customers with life on
the move”. Our proposition is dependent on our ability to have a market-leading
portfolio of products and services accessible through innovative channel delivery,
enabled by the core elements of our infrastructure. This combination will drive and
deliver our future growth.

Improving our infrastructure supports our customer proposition ensuring we continue
to offer great products and services — at the right price and at the right time.

Simultaneously, our infrastructure provides the business with the ability to improve
our customer responsiveness and underpin the growth opportunities we have
identified.

As a result we are simplifying and refocusing our activities around three core
themes:

Friend of the Motorist
Best Cycle Shop in Town
Starting Point for Great Getaways.

This will allow us to differentiate what we do and set the standards for innovative
retailing.

The following pages highlight the areas of strength at the heart of our business and
will continue to provide the strong foundations necessary for executing our strategy
and delivering on our promises.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Infrastructure — People

We believe our people are core to enabling our aggressive growth plans
to be realised. Colleagues continue to play an important role in
delivering our plans to sustain our success as a retailer and build
momentum across a challenging retail landscape.

To succeed it is important that we build and maintain both a qualiﬁed
core and ﬂexible colleague base. Improvements in colleague work
patterns have optimised shop ﬂoor availability of the right people at the
right time to improve customer experience and deliver on the Halfords
“helpful” promise.

Experienced

Our colleagues are highly experienced in the roles they perform. In
particular, not only do our people have great experience in product
knowledge, servicing and ﬁtting but our buyers are highly experienced
in the markets we source from and supply to. In addition, our property
team has considerable experience in converting and refurbishing our
store portfolio. All of this experience contributes to making Halfords a
retailer of choice.

Engagement

In addition, we continue to provide a range of training and development
opportunities designed to improve productivity levels within Halfords
Autocentres and improve competency in ﬁtting services across the
Halfords store portfolio. This we believe will drive growth.

To be the best we have to engage with our colleagues. Our people are
encouraged to connect, collaborate and exchange ideas, knowledge
and insights. This informs decision-making and improves our overall
customer proposition.

Our people continue to play an important role in ensuring Halfords is
recognised as being a “Friend to the Motorist”, the “Best Cycle Shop in
Town”, as well as a “Starting Point for Great Getaways”.

Engagement includes clear communication focused around our core
values — Think Customer; Be Helpful; Earn Trust; Inspire Others; Aim
To Win; Work As A Team.

Strengthening Our Team

We continue to strengthen our team at all levels and across all areas of
the business. We focus on recruiting for attitude, expertise and potential
as well as the ability to be part of a cohesive and uniﬁed “one” team
approach.

Our appointments range from strategic hires, as well as further
additions to our operational management teams and specialist retail
trading, digital marketing, search analysis and analytics teams. Such
appointments continue to inform and identify new buying and trading
strategies.

Examples of engagement across the business include the initiative to
encourage colleagues within the Centre and at the Distribution Centres
to “Buddy” or “Adopt” a store — this has proved a great way to get
people thinking across the business rather than simply seeing things
from their perspective. In turn, this has led to improving our multi-
channel offerings.

Competencies

There are a number of activities that we believe are essential to ensuring
that we remain competitive in the market and attractive to our
customers.

5,780 of retail
staff hold
accredited
fitting
qualifications

Within Halfords
Autocentres
60% of staff
are industry
qualified

6.5% productivity
improvement
at Halford
Autocentres

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Core competencies in marketing, branding, store retailing, distribution
and international sourcing ensure we can provide customer offerings
across a range of price points. Done well, these competencies allow us
to maintain and improve our margins as well as grow our revenues.

Competencies help to shape the business and have led to a focus on
“Operational Specialisation” and having a “Least Cost Back Ofﬁce”.

Development

We have undertaken a number of people-based initiatives to improve
Group performance, develop a greater commercial focus and drive
sustainable growth through the development of innovative customer
offerings. This involves developing capability across our stores,
autocentres, distribution centres as well as Head Ofﬁce.

Innovation — whether product or process led — is driven by
participation, engagement and team effort. This allows us to
differentiate ourselves in a crowded marketplace.

Right from the start, we induct and train for great customer service.
Training ranges from a competency framework across the business to
nationally recognised and accredited training programmes for store and
Halfords Autocentre colleagues.

Values Driven

Developing performance and living the Group values of being helpful
depends on having trustworthy, honest, well-trained, enthusiastic and
knowledgeable people who are capable of delivering the plan and living
our values.

Creating the right culture is all about “the way we do things at Halfords”
— the way we behave and the values we live and work by. We believe it
is essential that our people feel engaged, understand their
responsibilities and are held accountable for their actions.

Creating the right mind-set ensures that customers have a great
experience — spending more and returning to Halfords again and
again. We think it is important to celebrate great performance and to
never accept poor performance. This requires talented and passionate
people involved in both frontline service as well as those who work
behind the scenes.

Approximately
11,000
colleagues

20 new
Autocentres
producing
83 new job
opportunities

200 stores
“adopted” by
Head Office
colleagues

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Infrastructure — Systems

We believe that our systems meet our requirements and thus enable us
to perform and to deliver on our promises to both our investors and our
customers, providing a solid platform for driving investor returns and
enabling an enhanced customer experience.

Our systems provide us with effective tools that work all day, every day.
As everyone knows, “retail is all about the detail” and our systems allow
us to see below the surface and work out what is really going on in our
business and across our multi-channel offering.

By being closer to our business we understand those actions we need
to take to stabilise and build momentum on gross margin performance
across the business, reinforcing our growth potential.

We also continue to build resilience into our systems and therefore
strengthen our business. During the year we transitioned our disaster
recovery plan; it is now supported in Somerset, UK and replicated in
Bilbao, Spain.

In terms of customer facing systems, we continue to improve our
multi-channel strategy that connects our stores with an online presence
(www.halfords.com and www.halfordsautocentres.com), providing a
compelling alternative to other online competition.

Change Management

Ongoing systems development including integration and update
roll-outs, enables the necessary change required in the business to
ensure scalability of our business model — strengthening the overall
Halfords proposition.

However, for Halfords it is essential that change is achieved against a
need to continue to deliver “business as usual” as well as “deliver the
key enablers” to drive the execution of our strategy.

Systems are embedded to enable improved productivity, increasing our
ability to respond to the constantly changing retail landscape. Halfords
continues to strengthen its multi-channel teams and further integrate
techniques and knowledge within our core retail business.

Sourcing and Inbound Logistics

We are leveraging our supply chain relationships to develop new,
innovative and exclusive ranges across our store portfolio and online
interface. Direct, proactive and agile global sourcing arrangements help
to sustain gross margin improvements.

Increasingly we are sourcing more product directly from the
international markets. In particular, our ofﬁces in Hong Kong have
continued to investigate and source new sources of supply, building on
our historic sourcing arrangements developed in the Far East.

3.83 million
Reserve
& Collect
transactions
to date

Apple & Android
Apps launched
June 2011

Over 400,000
items available
to order in-store

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

All of our suppliers are subject to our Code of Ethics, based on
auditable procedures consistent with established international
standards. Virtually all of our products are manufactured to EN, BS and/
or ISO standards including ISO 9001 and 14001. External veriﬁcation is
provided by BVQI, an international quality audit company.

Distribution and Outbound Logistics

We continue to upgrade our warehousing, enterprise resource and web
systems to improve the efﬁciency of our store logistics and successful
multi-channel offer.

Our systems are enabling us to compete more effectively. Our
customers can now order up until 6.00 pm for guaranteed next day
delivery, representing an attractive and compelling offer for busy,
time-constrained customers.

Inventory Management

Effective inventory management helps us to achieve more with less,
reducing our inventory holding costs and ensuring we have the right
product, in the right place, at the right time. From time to time, surplus
inventory may accumulate — our integrated systems are three times
more effective at clearance.

Better availability linked to accurate inventory information (achieved
through hand-held terminals and labels that scan) improves forecasting
and leads to increasingly proﬁtable sales.

“Reserve & Collect” and “Order & Collect” integrate our website with
store and Distribution Centre inventories. This increases store footfall
and range opportunities for smaller store formats.

Image:
Distribution

Customer Capture

Our systems and expertise enable us to really understand and gain
insight into our customers’ behaviour — merging multiple databases to
achieve a single, holistic customer view; increasingly being able to
anticipate what our customers want before they know what they want.
Good customer metrics based on the valuable data we get from our
customers — both in our stores and online — enable us to talk to
customers in a more meaningful and focused way. This empowers our
“Helpful” culture and enhances the customer experience.

n
o
i
t
c
u
d
o
r
t
n

Our dynamic web offer builds on our multi-channel proposition and
continues to drive customers into our stores, following their research
powered by our systems, including recommendation functionality based
on both manual and logarithmic prompts. This allows us to improve
attachment rates through upgrade and accessorisation opportunities.

Customers are increasingly attracted by our website promotions that
combine with the convenience of delivery or collection from store,
backed up by in-store services. In addition, mobile applications will
continue to provide many opportunities for assisting in-store customers
as well as those customers away from store.

43 million visits
to website in
FY12

36,000 Order
& Collect
transactions in
FY12

New O&C
delivery
schedules
landed in
March 2012

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Infrastructure — Investment

We are continuously investing to improve the customer offer. Our major
initiatives are focused on our people and our systems, including the role
our distribution centres, autocentres and stores play in creating an
attractive retail offer.

Distribution Centres

Investment in our Coventry Distribution Centre — a 320,000 sq. ft.
customer fulﬁlment centre — is an essential part of our “least cost
back ofﬁce” strategy.

People

During the year we invested in training and development initiatives
across the Group. Focused training ensures everything is right ﬁrst time.
Investment in our people included “Flying Start” in our stores — a
training initiative to ensure that our frontline store staff are trained to
check and ﬁt products on behalf of our customers.

Systems

Our system focus has been the integration of our multi-channel offer,
streamlining and standardising processes as well as building capacity
and resilience into our retail backbone.

As a result, our system upgrades have delivered a “least cost back
ofﬁce” as well as enhanced product availability and resulted in more
accurate order fulﬁlment. Reductions in inventory holding costs have
signiﬁcantly offset ongoing system investment costs.

As our investment has scaled up we have increased our capacity to
deal with customer orders and to handle order information. This
increased capacity and increased intelligence around our customers’
buying decisions helps us to continue to reﬁne our customer
proposition.

Linked to our delivery service we made a major investment in the
launch of a competitive “next day” delivery service for “Order & Collect”
as well as orders delivered direct to customers. Our system software
allows us to know exactly where each product is from order to delivery,
resulting in optimal order accuracy.

For our distribution centres, investment to increase pick accuracy is
vital in improving product availability for our customers. In addition, our
colleagues have undertaken more checking of goods-out before
loading — this improves the integrity of our inventory management
systems, leading to increased delivery accuracy.

Stores

We are investing in upgrading and revitalising our store formats to
ensure they remain relevant and attractive to the changing proﬁle of our
customers. Our test store formats will help to provide feedback on
future-prooﬁng our store portfolio and will improve the customer offer
through creating the right environment, encourage more effective
communication around the purchasing decision and ensure that our
service, people and products reﬂect customers’ needs. In addition, we
increased our Halfords Autocentres footprint, with investment in 20 new
autocentres.

Multi-channel Offering

As we attract new customers it may be that our website is their ﬁrst
contact with our brand — we therefore need to make it user-friendly
and engaging. We are therefore investing to make our online channel
informative and intuitive, combined with good functionality to
complement the physical presence of our stores.

Trading as
Halfords since
1902

1st
choice in core
markets

467 stores
and 260
autocentres

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Channels — Reach and Scale

Our market leading positions across multiple product categories such
as Sat Nav, Audio and DAB radio roll-out (where we hold No. 1 sales
positions) provide us with an opportunity to continue to consolidate a
largely fragmented market.

Our operations provide access to unrivalled economies of scale,
achieved through our extensive national coverage. Our coverage is
supported by a number of elements including our distribution centres,
store footprint, store and multi-channel experience.

Distribution Centres

Having reconﬁgured our distribution network in 2010 to include a
state-of-the-art central distribution centre in Coventry, we are well
placed to meet the needs of our extensive store footprint.

Store Footprint

Halfords maintains an extensive network of great-looking stores,
providing a strong and resilient presence on both the high street and
at prime locations within retail parks with high footfall. “Rightsizing”
of our store portfolio will ensure that our store presence is an enabler
of growth.

Our store network has a national footprint, driving Group revenues. It
also enables us to differentiate our multi-channel offering as the network
provides additional availability, accessibility and service — conﬁgured to
meet the local demographic needs of our national customer base.

We combine our strong retail heritage with technological developments,
offering a strong retail footprint both ofﬂine and online, providing our
customers with an increasingly tailored customer service.

Store and Multi-channel Experience

Our stores are well run and provide dynamic, optimum space for
delivering our customer proposition. To provide a great offer we are
making our stores more family friendly, listing more relevant ranges and
providing a differentiated service designed to make our customers feel
more engaged. Our added expertise and service are difﬁcult for
competing online players and supermarkets to compete against.

Stores act as a consolidation point, drawing in web customers with the
“Reserve & Collect” and “Order & Collect” online propositions as well as
facilitating our retail service offering of checking, building and ﬁtting
products.

Further, our online offering allows us to target categories that customers
are happy to transact with online. As a result, some of our online ranges
are 600% bigger than our in-store ranges — attracting those customers
who are savvy online shoppers.

90% of
customers are
within easy reach
of a store

1.75 million
fewer kilometres
driven

16,000 SKUs
online

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Channels — Brand Resonance

Our brand continues to create domestic growth opportunities. At the
heart of our brand story are our brand values. These values support the
brand in the marketplace and allow us stand out in our key core
categories. Brand extension leverages our previous brand successes
and allows us to tap into new product categories and new product
ranges.

Brand Strength and Values

Our brand is one of our greatest strengths. We have leading positions in
attractive markets, with many of our brands holding No. 1 sales
positions in the UK.

The quality of our products and services continues to drive our
credibility. Our brand remains trusted in the minds of our customers,
underpinned by strong customer relevance and satisfaction.

Brand visibility has been further enhanced following the re-branding of
Halfords Autocentres, ongoing reinvigoration of our store portfolio and
innovative web promotions — providing a high proﬁle both online and
ofﬂine. As a result, c.9% of all sales are conducted online and 86% of
these are collected from our stores.

Brand Extension

We continue to leverage the Halfords brand into new categories and
new product ranges, including the extension of the Halfords brand
name into the servicing arena, supporting our aspirations to expand the
brand in the automotive aftercare market. We believe such initiatives will
deliver customer awareness beneﬁts, resulting in better footfall and
utilisation.

Effective promotion of our brands via our multi-channel offer will
continue to change our revenue mix towards higher value, more
proﬁtable products, services and opportunities.

Brand Management

We have strong brand and category management, ensuring that
Halfords remains a natural destination for customers. This will provide a
catalyst for growth as we continue to ﬁnd reasons and offerings to bring
customers back to us.

Brand management combined with effective customer marketing
signiﬁcantly enhances customer awareness and increases demand for
our products and services. National TV and radio advertising
campaigns continue to support awareness of the Halfords brand.

Our brand management provides a single face to customers so they
connect with the Halfords brand across our offer and through new
products, services and channels. Creating a single view of the customer
for Halfords will enable us to increase relevancy in marketing and build
a greater understanding of our customers.

Our brands enable us to offer products at multiple price points and
speciﬁcations to appeal to a diverse customer base. Sub-brands
include Carrera, Voodoo and Boardman within the cycle category.

Own brands

Key brands

No. 1 UK bike
brand Apollo

Own label
products 49.4%
of revenue, an
increase of 10%

Exclusive
distribution
of Boardman
and Pendleton
brands

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Channels — Customer Focus

Customer Values

Customers want value, personalisation and to trust the advice and
service they receive. At Halfords we have a reputation for providing
unparalleled honest and trustworthy products and service. A
comprehensive range of support services makes Halfords a natural
destination for those whose “life is on the move”.

Customer Centric

To respond to customer values, we think about our customers and put
them ﬁrst. As a customer facing business, we know our customers and
aspire to give them the treatment and service they want and deserve.

We understand that journeys are at the heart of work and family life —
we combine great products, expert advice and service to help our
customers with their “life on the move”.

We recognise that our customers are time poor and increasingly
intimidated by and impatient to “do it themselves”. As cars and
products become increasingly sophisticated there is a reluctance and
lack of expertise to “do it yourself” and as a result customers simply
want convenience and immediacy provided by someone they can trust.

Proactive Customers

Our customers’ pursuit of value, personalisation and trust has been
further empowered by the Internet. More and more customers check
availability online before they visit our stores. Proactive customers get
what they need when they need it.

Proactive Halfords

The needs of our customers continue to change and evolve and we
encourage our customers to be active rather than passive. We want
them to get involved rather than be indifferent. We want them to feel
included rather than excluded.

At Halfords we help and inspire our customers, improving the customer
experience — whether they contact us or we contact them, Halfords
can be counted on as a friend in times of need. We have a progressive
approach to service, ﬁtting many of the products we sell. This often
results in “trading up” and “accessorising” the transaction.

Understanding and acting on customer feedback is at the heart of what
we do — our next generation of customer service is a direct response
to the feedback we have received from customers.

“Helpforce” — a multi-channel, customer services team is geared up to
cater for the future needs of our customers and stores, putting “that’s
helpful, that’s Halfords” at the heart of our business. “Helpforce”
involves a direct customer and store facing team of experts driving all
store queries through one point of contact.

n
o
i
t
c
u
d
o
r
t
n

Customer Proposition

Halfords provides a unique range and service proposition, involving
further advice and ﬁtting services to customers that range from novices
to enthusiasts. This approach results in a good segment sales mix
offering — building competency and capability in higher margin
segments such as our service lines.

Evolving our customer offer, using a competitive combination of range,
price and service to augment our retail offer, provides a convenient,
value-based solution. A consistent customer experience that is
customer ready, customer friendly and customer driven leads to
improved customer service and loyalty.

Relationship Management

Our customer relationship management is based on treating our
customers as individuals and helping to provide them with a solution.
This involves helping our customers to make informed product/service
choices — our knowledgeable and experience-intensive customer
support process increases our service innovation and penetration rates.

For instance, service innovation has boosted average transaction values
as well as pulling in new customer segments. This has allowed us to
differentiate our offering based on our “weﬁt”, “wecheck”,
“weassemble”, “werepair”, “weservice” propositions.

2.6 million wefit
jobs in FY12

Revenue of
£15m from wefit
jobs in FY12, up
c.22%

14,660 brakes4life
sales in FY12,
since its launch
in October 2011

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Products & Services — Friend of the Motorist

Our Aim

We aim to be the No. 1 destination for products and services that
enhance customers’ use of their car. Our range comprises retail Car
Maintenance and Car Enhancement products, augmented with in-store
services delivered through our range of “Do It For Me” offers or through
our dedicated autocentres. Halfords Autocentres provide a range of
services catering for the Car Maintenance market — services, MOTs
through to complete vehicle maintenance packages.

In short, we aim to take the hassle out of motoring for our customers
while maintaining and growing service advantage that provides growth
opportunities that appeal to our investors.

between £8bn and £10bn. It is a fragmented industry and that means
that any consolidation and/or compelling offer has the ability to “move
the needle” and provide a “step-change” in terms of growth
performance for the Group.

Our Position

Halfords is a natural destination retailer for products in the Car
Maintenance and Car Enhancement categories as well as being a
leading chain of UK car service centres providing garage service, auto
repair and MOTs. Our position is likely to further improve as we look to
extend the range and services that we provide as a Friend of the
Motorist.

Market Trends

Our Offer

Sophisticated car production is causing a channel shift amongst
customers from a Do It Yourself (“DIY”) to a Do It For Me (“DIFM”)
attitude.

Global sourcing opportunities provide economies of scale and close
supplier relationships that the fragmented independent garages are
unable to beneﬁt from.

A growing and ageing car parc as cars last longer and consumers are
reluctant to “trade in for new” is underpinning growth in the UK
automotive aftercare market — currently estimated to be worth

Through our Halfords Autocentres we have an opportunity to
consolidate a fragmented market under a strong brand delivering an
homest and trustworthy service. Our retail stores provide us with the
opportunity to deliver car-related products and to extended our services
to cater for both the retail and ﬂeet customer, providing a unique
combination of product and service.

Bulbs stocked
for 98% of the
UK car parc

Wipers
stocked for
93% of the UK
car parc

37 autocentres
opened since
acquisition

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Resources

Products & Services — Best Cycle Shop in Town

Our Aim

Our Offer

In cycling we hold the No. 1 position, selling over a million cycles a year.
We aim to build on this position and become the Best Cycle Shop in
Town enhancing our customers’ use of their cycles.

Market Trends

Social, health and environmental concerns are driving consumers
towards cycling whether for leisure, as a cycling enthusiast or for those
looking to commute. Cycles and associated merchandise is a growing
category and one that we at Halfords look to strengthen with the future
development of our parts, accessories and clothing offer.

Our Position

We are the UK’s leading retailer of cycles, built on a heritage of
providing a range of good quality cycles, supported by an advice and
build service to customise the bike to the needs of the customer.

We offer contemporary and innovative ranges within a product led
market. Our expertise resonates with our customers and our repairs
and servicing proposition is unmatched by others competing in this
space. In expanding our range of parts, accessories and clothing we
will maximise our offer both in-store and online.

Our range provides customers with choice at multiple price points. At
the entry/value end of our range our Trax brand offers a boxed adult
bike to compete directly against competitors appearing within online
price-comparison sites. Apollo, Carrera, Voodoo and Boardman
complete our range of price points, with Boardman representing our
offer at the premium end of the market.

20 new
Boardman
bikes ranged in
FY12

Bike Care Plan
revenue of £3m
in FY12

82 children’s
bikes ranged in
store

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Products & Services — Starting Point for Great Getaways

Our Aim

Our Offer

Our aim is to help our customers make the most of their journeys and
outdoor experiences — helping our customers with their “life on the
move”.

Market Trends

There are a number of category drivers including growth in active
leisure, a desire to holiday more cost-effectively and spending more
precious leisure time with the family.

Consumer trends towards leisure, safety and value for money increases
the attractiveness of this category within our overall portfolio and
provides signiﬁcant growth potential.

Our Position

Brand association with leisure products continues to grow from our
traditional core products of roof boxes to our expanding camping
range.

Products within this category are designed to help enhance journeys,
camping, child travel solutions and mobility products. Product features
include increasing the capacity of carrying goods (roof boxes and
trailers), increasing the safety of the journey (child seats and safety
vests) and providing en route or destination contentment (tents and
camping equipment). The Halfords offer also beneﬁts from a
professional ﬁtting service.

Pampero is an example of Halfords’ brand differentiation — created to
compete with premium brands in the child safety seat category to an
exceptional speciﬁcation. Pampero is exclusive to Halfords and is
available in-store or online.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

116,000 tyre
inflators sold

14,000 snow
socks/chains
sold

430,000 child
seats sold,
including 44,000
Pampero sold

s
a
c
n
a
n
F

Governance

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

GOVERNANCE

Board of Directors

Directors’ Report

Corporate Governance Report 74

Directors’ Remuneration Report

n
n
o
o
i
i
t
t
c
c
u
u
d
d
o
o
r
r
t
t
n
n

I
I

i
i

w
w
e
e
v
v
e
e
R
R
s
s
s
s
e
e
n
n
s
s
u
u
B
B

i
i

s
s
e
e
c
c
r
r
u
u
o
o
s
s
e
e
R
R

e
e
c
c
n
n
a
a
n
n
r
r
e
e
v
v
o
o
G
G

i
i

l
l

s
s
a
a
c
c
n
n
a
a
n
n
F
F

i
i

Read online: halfords.annualreport2012.com/gov

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 eighteen years at Tesco, latterly
as Group Supply Chain Director. He spent the
six years prior to this focused on the
company’s Continental European expansion,
both as Chief Executive of Central Europe
and, before that, as European Corporate
Development Director.

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

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 based
in Hong Kong.

Brings to the Board
Paul brings over 20 years’ experience in Retail
Marketing, Supply Chain, Merchandising, Space
Planning, and Multi-Channel Retailing. His
expertise in Range Management and Far East
sourcing stems from his experience in
purchasing, international business and
cross-country purchasing. Paul combines 25
years’ negotiating experience with exposure to
brand building and licensing.

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
Committees of Premier Farnell plc,
Xchanging plc and Debenhams plc. Dennis
is also Chairman of the Trustees of the Holy
Cross Children’s Trust, a UK registered
charity, which supports children affected by
the AIDS pandemic in a rural area in South
Africa.

Past Roles
Dennis was previously a Non-Executive
Director of Exel plc and EAG Limited and
Finance Director at Cookson Group plc.

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.
n r

Andrew Findlay
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
Andrew has an impressive track record and
extensive ﬁnancial experience in retail and
other competitive, consumer and business
facing industries. Andrew also has
operational experience of cost control and
business restructuring; reﬁnancing and
pension scheme funding; bid defence; HMRC
negotiation; commercial planning and
decision support; non-merchandise
procurement; shared services; ﬁnancial
accounting and reporting; and audit.

Executive

Non-Executive

a Audit Committee
n Nomination Committee
r Remuneration Committee

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Keith Harris
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 n r

Bill Ronald
SENIOR INDEPENDENT DIRECTOR

Joined
17 May 2004

Current Roles
Bill is currently Senior Independent Director
of Dialight plc, Chairman of The Compleat
Food Group and Chairman of the Muscular
Dystrophy Campaign.

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. More recently, Bill
was also Non-Executive Director of Bezier
Limited and Alfesca.

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

David Adams
NON-EXECUTIVE DIRECTOR

Claudia Arney
NON-EXECUTIVE DIRECTOR

Joined
1 March 2011

Current Roles
David is currently Senior Independent
Director of JJB Sports plc, the British Retail
Consortium (Trading) Ltd, and a Non-
Executive Trustee of Walk the Walk, a
breast cancer charity.

Past Roles
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. More recently, David was
the Non-Executive Chairman of Snap
Equity Ltd (Jessops).

Brings to the Board
David brings extensive and very relevant
ﬁnancial and business experience and a
deep knowledge of the retail sector. David is
also the Chairman of the Audit Committee
at JJB Sports plc and has undertaken the
role previously in other companies, both
public and private. In addition, he was a
Chief Financial Ofﬁcer at a plc for almost
10 years and brings signiﬁcant experience
in running a full ﬁnance and adminstration
operation, with additional responsbility held
for property, IT, internal audit, company
secretarial and legal functions.
a n r

Joined
25 January 2011

Current Roles
Claudia is a Board member of Transport
For London, a member of the Advisory
Group to the Shareholder Executive, a
Board Member of Huawei, and a
Non-Executive Director of Which?

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 as
well as managing the public sector and
media businesses. 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
and Managing Director of TheStreet.co.uk
and for Mckinsey.

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

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

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 period ended 30 March 2012.

Principal Activities

Donations

Halfords Group plc is a public limited company incorporated in England
with registered number 04457314, and its registered ofﬁce is 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, from 467 retail stores (2011: 466); and Car
Servicing and repair from 260 autocentres (2010: 240). The principal
activity of the Company is that of a holding company.

Business Review

The Chairman’s Statement on pages 6 to 7, and the Business Review
on pages 10 to 49, including the Finance Director’s Report on pages 34
to 38, provide a review of the business and progress against Key
Performance Indicators (“KPIs”) during the year, 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 Responsibility Report
on pages 44 to 49 which also forms part of this Directors’ Report.

Corporate Governance

The Corporate Governance Report on pages 74 to 81 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 96.

The proﬁt before tax on ordinary activities was £94.1m (2011: £118.1m)
and the proﬁt after tax amounted to £68.4m (2011: £85.5m).

The Directors propose that a ﬁnal dividend of 14.0 pence per ordinary
share be paid on 3 August 2012 to shareholders whose names are on
the register of members at the close of business on 6 July 2012. This
payment, together with the interim dividend of 8.0 pence per ordinary
share paid on 27 January 2012, makes a total for the year of 22.0
pence per ordinary share. The total ﬁnal dividend payable to
shareholders for the year is estimated to be £27.9m. Computershare
Nominees (Channel Islands) Limited, formerly 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 KPIs and the periodic review of various aspects of the
Group’s operations. The Board considers the KPIs listed on pages 18
to 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 £50,000 (2011: £73,000) to
charities in the UK, including donations to BEN, a charity supporting
individuals and families linked to the motor industry and associated
trades.

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 2011 Annual General Meeting (“AGM”) that provided for
limited authority for such expenditure, such authority remaining valid
until the earlier of 2 October 2012 or the conclusion of the AGM to be
held in 2012, and as such the Company will be asking for this limited
authority to be renewed at the AGM to be held on 31 July 2012.

Colleagues

The Board is committed to high standards of customer care and
service provision across the business and recognises that the
involvement of every colleague in this commitment is critical. In
furtherance of this, the Group has established a framework of colleague
communications regarding business performance. The Board’s ongoing
commitment to colleagues’ engagement and development is reinforced
via training initiatives across the business. Colleague share ownership,
facilitated via the availability of a Sharesave Scheme, is encouraged to
further strengthen colleagues’ participation in the development of the
Group’s business and aligns our colleagues’ interests with those of our
shareholders.

The Group is dedicated to the principle of equal opportunity in
employment and ensures that no applicant or colleague receives less
favourable treatment on grounds such as gender, marital status, race,
ethnic origin, religion, disability, sexual orientation, or age, or is
disadvantaged by conditions or requirements which cannot be shown
to be justiﬁed. Fair and equitable employment policies are applied which
seek to promote entry into, and progression within, the Group. The
basis for all appointments is personal ability and competency relevant
to the speciﬁc job criteria.

Full and fair consideration is given to employment applications by
disabled persons wherever suitable opportunities exist, having regard to
their particular aptitudes and abilities. Training and career development
support is provided where appropriate. Should a colleague become
disabled efforts are made to ensure their continued employment with
the Group and retraining provided if necessary.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

All Retail and Autocentre colleagues have been notiﬁed of the whistle-
blowing policy and associated procedure which enables them to report
any concerns on matters affecting the Group or their employment,
without fear of recrimination. This reduces the risk of things going
wrong or of malpractice occurring 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 in relation to gender, race, national origin, disability,
age, religion, sexual orientation or similar. Appropriate policies and
procedures are in place for reporting and dealing with such matters.

Directors

Directors’ Indemnities

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 respect of the Annual
Report and the Financial Statements can be found on page 94.

n
o
i
t
c
u
d
o
r
t
n

The following persons were Directors of the Company during the period
ended 30 March 2012 and at the date of this Annual Report:

Disclosure of Information to Auditors

Dennis Millard

David Wild

Paul McClenaghan

Andrew Findlay

David Adams

Claudia Arney

Keith Harris

Bill Ronald

In accordance with the Company’s Articles of Association and the UK
Corporate Governance Code guidelines, all those persons holding
positions as Directors of the Company on 30 March 2012 will offer
themselves for re-election at the AGM on 31 July 2012.

Directors’ Interests

The Directors’ interests in shares and options over shares in the
Company are shown in the Directors’ Remuneration Report on pages
82 to 91.

In line with the requirements of the Companies Act 2006, each Director
has notiﬁed the Company of any situation in which he or she has, or
could 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 informed
of the authorisation and the terms on which it was given.

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 Company’s
Corporate and IR website. 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 (2011: 59
days). The Company is a holding company and had no trade creditors
at the end of the period ended 30 March 2012.

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.

Read online: halfords.annualreport2012.com/dr

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Report continued

Financial Instruments

The ﬁnancial risk management objectives and policies of the Company
including interest rate, currency and credit risk are highlighted in note
19 of the Company’s Financial Statements.

Major Shareholders

At 31 March 2012, the Company’s register of substantial shareholdings
showed the following interests in three per cent or more of the
Company’s issued ordinary shares:

Holder

Capital Research Global Investors

Artemis Fund Managers

Invesco Trimark

Legal & General Investment
Management

M & G Investments

Number of
shares

% of Issued
share capital

16,947,573

10,746,755

7,696,192

7,117,981

7,775,945

8.50

5.39

3.86

3.57

3.90

The Takeover Directive

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. In accordance with
the Company’s Articles of Association and the UK Corporate
Governance Code, all Directors of the Company stand for re-election
on an annual basis.

Changes to the Company’s 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 Directors and employees under such schemes and plans to
vest on a takeover.

The Company has term and revolving credit facilities and under the
terms of these 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 2011 AGM, shareholders approved a special resolution
authorising the Company to purchase a maximum of 20,583,992
shares, representing 10% of the Company’s issued share capital at
22 June 2011, such authority expiring at the conclusion of the AGM to
be held in 2012. 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 period ended 30 March
2012, the Company purchased 18,084,133 shares as part of this
buyback programme (2011: Nil), representing a nominal value of
£180,841 (2011: £Nil), representing 9.0% of the Company’s issued
share capital as at 30 March 2012. The aggregate consideration
(excluding stamp duty) paid for its shares was £62.3m.

Auditors

At the 2011 AGM, KPMG Audit Plc was appointed as the Company’s
Auditors. KPMG Audit Plc has indicated its willingness to accept
reappointment as Auditors 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.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

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 10 to 49. The ﬁnancial position of the
Group, its cash ﬂows, liquidity position and borrowing facilities are
described in the Finance Director’s Report on pages 34 to 38. In
addition, note 19 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
30 March 2012 the Group had undrawn borrowing facilities of £160m
(1 April 2011: £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, hence they continue to adopt the going concern
basis of accounting in preparing the Financial Statements.

Annual General Meeting

The AGM will be held at the Hyatt Regency Hotel, Bridge Road,
Birmingham, B1 2JZ. 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
30 May 2012

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Corporate Governance Report

“As Chairman, I aim to guide my colleagues on the Board to
deliver effective and accountable leadership for the beneﬁt of
our shareholders, the Company and other stakeholders. My
colleagues on the Board and I take seriously our collective
responsibility for the long-term direction and strategy of the
Group. We are convinced that a strong framework of corporate
governance practices contributes to the success and future of
our business strategy and processes. In the following pages of
this Corporate Governance Report, we seek to illustrate how
we have applied the UK Corporate Governance Code through
the use of committees and delegated decision-making,
supported by risk management and accountability controls, to
provide effective leadership to the business.”

Dennis Millard
Chairman

Statement of Compliance with the UK Corporate Governance Code

For the period ended 30 March 2012, the Board considers that the Group has complied fully with the UK Corporate Governance Code 2010 (“the
Code”). The Code is published by the Financial Reporting Council from whom paper and downloadable versions can be obtained via its website:
www.frc.org.uk. We have outlined in this report how we have complied with the ﬁve main principles of the Code using the same headings as the
main sections of the Code. (cid:116)(cid:116)

Read online: halfords.annualreport2012.com/cgr

The Board of the Company

Dennis Millard

David Wild

Paul McClenaghan

Andrew Findlay

Claudia Arney

David Adams

Keith Harris

Bill Ronald

Designation

Chairman

Chief Executive

Commercial Director

Finance Director

Non-Executive Director

Senior Independent Director

Date of Original
Appointment

Date of Most Recent
Re-election

28 May 2009

4 August 2008

31 March 2007

1 February 2011

25 January 2011

1 March 2011

17 May 2004

28 May 2012

2 August 2011

N.B. All Directors will submit themselves for re-election at the 2012 AGM.

Effective Accountable Leadership

3 Executive
Directors

Andrew Findlay
Finance Director

Separate Chairman

and Chief

Executive

Total Number

of Scheduled

Board meetings: 6

David Wild
Chief Executive

Paul McClenaghan
Commercial Director

Independent
Chairman

Dennis Millard
Chairman

Bill Ronald
Senior Independent
Director

David Adams
Non-Executive
Director

Keith Harris
Non-Executive
Director

5 Non-Executive
Independent
Directors

Claudia Arney
Non-Executive
Director

Directors’ Liability
Insurance in place

Division of Board Responsibilities

for the Board

Schedule of
matters reserved

other Directors

without the

Chairman present

Meetings

2 meetings between
the Chairman and
Non-Executive
Directors without
the Executive
Directors present

Long-term
strategy and
success

1 meeting
between
the Senior
Independent
Director and the

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Leadership — How the Board Operates — Effective Meetings

During the year the Chairman, supported by the Company Secretary,
continued the practice of maintaining a rolling 12-month agenda for
Board and Committee meetings. Agenda items included standing items
such as progress reports from the Executive Directors and the
Company Secretary, as well as periodic items such as: updates from
Committee Chairs, a review of the risk register and internal controls,
strategy, and succession planning. The annual agenda also establishes
the time frame for ﬁnalisation and circulation of the pre-meeting papers.
This ensures that the Directors receive the complete information,
sufﬁciently in advance of the meeting, such that the Board can make
effective decisions within the meeting itself. In this manner, the
Chairman and the Board can have conﬁdence that the yearly cycle of
meetings allows sufﬁcient time for discussion by the Board of each
matter, at the most appropriate meeting in the year, enabling them to
discharge their duties as Directors effectively. Additional meetings were
also held throughout the year when business needs arise.

Leadership — How the Board Operates — Decision-Making

The Board is mindful of its duties and responsibilities to shareholders,
customers, employees and other stakeholders in determining the
long-term strategy and objectives of the Group. Such duties and
responsibilities encompass: monitoring the achievement of business
objectives and management performance; scrutinising the proposed
contractual relationships of the Group; and safeguarding relationships
with, and generating value for, shareholders; within the context of a
sound and robust framework of internal controls and risk management.
Therefore, speciﬁc matters which signiﬁcantly impact on these areas of
the business are reserved for the decision of the Board.

The Board recognises that for productive decision-making at Board
meetings, as well as within the Group, certain decisions should be
considered and made by the Board alone, whilst for other matters it is
appropriate to delegate the Board’s decision-making authority to its
Committees or management. These arrangements are formally
recorded in a Matters Reserved for the Board document which is
reviewed and updated by the Board annually.

Reserved Matters — for the Board

Decisions speciﬁcally reserved for approval by the Board include those
concerning the bounds of its authority, the strategy and business plan
of the Group, any changes to the Group’s capital structure, signiﬁcant
corporate transactions and assessments of the Group’s risk and control
processes.

Reserved Matter

Authority

Strategy and Management

Structure & Capital

Investor Relations

Audit. Financial Reporting &
Controls

Other Business

Time Spent on Board Business

Key Considerations
throughout
the Period

Reports from the Audit,
Remuneration and Nomination
Committees on their activities.
Company Secretary’s Report.
Board Evaluation.

Reviewing long-term vision,
financial performance,
investment and people
initiatives, actual figures against
forecast and commercial
initiatives. Reports from the
Chief Executive, Finance
and Commercial Director.
Group Budget. Store Refresh
programme. Group Strategy.

Share buyback programme.
Liabilities of the Company.

Discussions with brokers.
Shareholder analysis and
feedback.

Consideration and approval
of: Pre-Close announcement,
Final and interim dividend
approvals. Risk Register review.
Approval of the Annual Report
and Accounts. Final results
announcement.

Bribery and CR policies.
Customer insight. Coventry
distribution centre priorities.
NED feedback from store
visits. Tax & Treasury update.
Governance and policies. HR
reports. Car Maintenance and
Cycle category plans. Updates
on the Autocentres business.

Delegated Matters — to Board Committees

The responsibilities of the Board Committees are set out in the
individual Terms of Reference of each Committee which comply with
the Code. The contents of these are discussed further within the
sub-sections that follow on the Committees starting at page 78 and are
also available on the Company’s website.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Corporate Governance Report continued

Delegated Matters — to Executive Directors

The Executive Directors further delegate their responsibilities, via the
Group’s Management Structure illustrated below, in line with a
supporting document: Delegated Authorities. Each Executive Director
and the Company Secretary has overall responsibility via this document
for the relevant business function. The procedures for approving
processes within these functions are clearly outlined establishing how
and by whom approval of a business decision can be made and the
required evidence of such approval. Examples of decisions delegated
in this way are the placement of orders with suppliers, the entering into
a contract with a web design agency, the appointment of professional
health & safety advisors and the agreement of new portfolio deals.

The diagram below illustrates the management structure within
the business.

Halfords Group plc

Halfords Limited

Halfords Autocentres Ltd

Project Board

Leadership Group

Leadership Group
Senior
Management
Team

The diagram below summarises how the Board exercises control over
the activities of the business whilst delegating its decision-making
authority to the Board Committees or the Executive Directors.

Halfords Group plc Board
Matters reserved for the Board

Board Committees
Terms of Reference

Executive Directors
Delegated Authorities

The Matters Reserved for the Board, Terms of Reference and Delegated
Authorities documents combine to create a clear authority matrix
across the Group for timely and effective decision-making. Matters are
either:

Specifically Reserved for the Board; Matters Reserved for the Board

Evidenced by

Leadership — How the Board Operates — Non-Executive
Directors

The Non-Executive Directors help the Executive Directors by
contributing independent challenge and rigour to the Board’s
deliberations and assisting in the development of the Company’s
strategy. In addition, they are responsible for monitoring the
performance of the Executive Directors against agreed goals and
objectives. Their views are essential in the reporting of performance and
in the integrity of the ﬁnancial information, controls and risk
management processes of the Company. In order to carry out these
functions appropriately the Non-Executive Directors meet regularly with
senior management and make periodic site visits and also meet
separately without the Executive Directors present. Senior managers
are also regularly invited to Board meetings to make business
presentations to the Board.

Leadership — How the Board Operates — Senior Independent
Director

Bill Ronald is the Senior Independent Director of the Company and as
such works alongside the Chairman and is available to serve as an
intermediary for the other Directors if necessary. He is also available to
shareholders if direct contact with the Chairman, Chief Executive or
other Executive Directors has failed to resolve the concerns of
shareholders or for which such contact is inappropriate. As Senior
Independent Director he also led the annual review of the performance
of the Chairman.

In addition, should a Director have a concern over any unresolved
business he/she is entitled to require the Company Secretary to minute
the concern. Should the Director later resign over the issue, the
Chairman will bring it to the attention of the Board.

Leadership — Board and Committees

During the year the Board scheduled eight meetings and the
Nomination, Audit and Remuneration Committee four, three and ﬁve
meetings respectively.

Board and Committee Meeting Attendance by the Directors

Group
Board
8

Nomination
4

Audit
3

Remuneration
5

Dennis Millard

David Wild

Paul
McClenaghan

Andrew Findlay

Claudia Arney

David Adams

Keith Harris

Bill Ronald

n/a

Delegated to a Committee for
recommendation, with final
approval given by the Board;

Delegated to a Committee; or

Delegated to Management.

Matters Reserved for the Board
Committee Terms of Reference

* attendance by invitation

Matters Reserved for the Board
Committee Terms of Reference

Matters Reserved for the Board
Delegated Authorities

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Effectiveness — Board Composition

Throughout the period covered by this report, the Board comprised three Executive Directors, the Chairman and four independent Non-Executive
Directors who bring to the Board the following key skills, experience, independence and knowledge:

Independence

Knowledge
of the Group

Skills

Experience

Dennis Millard

David Wild

Andrew Findlay

Paul McClenaghan

Bill Ronald

David Adams

Claudia Arney

Keith Harris

c.3 yrs

c.4 yrs

c.1 yr

c.7 yrs

c.8 yrs

c.1 yr

c.8 yrs

Key

Skills

Leadership

Strategy

Governance

Experience

Retail

Finance

Banking

Digital

Supply Chain

Marketing

Business Development/Brand Building

Corporate

Cross-Functional

The Board considers that it has the right combination of skills,
experience, independence and knowledge to be useful and effective in
meeting the needs of the business. More than half of the Board are
independent Non-Executive Directors. Dennis Millard was appointed
Chairman on 28 May 2009 and reappointed on 28 May 2011. At the
time of his appointment he was considered to meet the independence
criteria. The other Non-Executive Directors are considered by the Board
to be independent in character and judgement.

This combination of individuals and skills ensures that the Board is
sufﬁciently balanced such that no individual or group of individuals can
dominate decision-making and allows for an effective division of
responsibilities within the Board and its Committees. The positions of
Chairman and Chief Executive are held separately. The boundaries of
their remit for running the Board and the business respectively are
available on the Company’s Corporate and IR website. Each Director
devotes sufﬁcient time and attention as is necessary in order to perform
their duties.

Diversity

The Board considers itself diverse in terms of the background and
experience each individual member brings to the Board. To maintain
this, the considerations to be taken into account in each appointment
to the Board are stipulated in the Terms of Reference of the Nomination
Committee which are available on the Company’s Corporate and IR
website. Speciﬁcally, the Nomination Committee must “consider
candidates on merit and against objective criteria, and with due regard
for the benefits of diversity on the Board, including gender” in identifying
and recommending candidates.

Currently one member of the Board is female. This appointment was
made on the basis that Claudia Arney was the best-qualiﬁed candidate
to provide the Board with the necessary support and expertise in
developing the Group’s online consumer and media strategy.

The Company is not generally in favour of setting a ﬁxed quota of
women on the Board. The Nomination Committee will continue to
recommend appointments to the Board based on the existing balance
of skills, knowledge and experience on the Board, on the merit and
capabilities of the nominee and on the time they are able to devote to
the role in order to promote the success of the Company.

Induction and Ongoing Training

Although no new appointments have been made in the year under
review, an induction programme is maintained for new Directors, which
is tailored to include brieﬁngs on the activities of the Group and visits to
operational sites. All Directors are members of the Deloitte Academy, a
training resource that provides support and guidance to boards and
individual directors. Directors are informed of relevant material changes
to laws and regulations affecting the Group’s business and their duties
as Directors. The Company Secretary advises the Board on governance
matters and is available to all Directors for advice as required. All
Non-Executive Directors have embarked on a series of head ofﬁce and
store visits through the year and feedback is provided at Board
meetings.

Effectiveness — Board Committees

The Board has established a number of Committees to assist in the
discharge of its responsibilities. The Company Secretary acts as
secretary to the Committees.

Read online: halfords.annualreport2012.com/cgr

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Corporate Governance Report continued

Only the members of each Committee are entitled to attend its
meetings, although other Directors, professional advisors and members
of the senior management team attend when invited to do so. The
Audit Committee will invite the Auditors 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. A
Disclosure Committee composed of a minimum of two Directors has
been established to approve ﬁnalised market announcements prior to
release.

When the need arises, separate ad hoc committees may be set up by
the Board to consider speciﬁc issues.

Effectiveness — Directors and their Other Interests

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.

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 82 to 91.

Effectiveness — Board Evaluation

In May 2011, the Board undertook an internal evaluation process via:
one-to-one meetings between the Chairman and the other Directors,
one-to-one meetings between the Senior Independent Director and the
other Directors regarding the performance of the Chairman, and Board
and Committee Evaluation Questionnaires. The collated information
was reviewed by the Board and the appropriate Committee, and overall
it was concluded that the performance of the Board as a whole, its
principal Committees and individual Directors was such that each
Director performs at the optimum level for the beneﬁt of the Company.
Following this review and in line with the Code, the Board committed to
an external evaluation for the period.

The Board engaged Egon Zehnder in April 2011 to facilitate the external
evaluation of the Board via a series of one-to-one interviews with each
individual Director. Discussions included: the workings of the Board and
its Committees; the balance of skills, expertise and personalities on the
Board; and the need to consider the Board’s composition in light of the
Company’s strategy of Friend of the Motorist, Best Cycle Shop in Town
and the Starting Point for Great Getaways. Egon Zehnder are expected
to report back to the Board on their ﬁndings in June 2012.

Effectiveness — Re-election

All Directors on the Board on 30 March 2012 will seek re-election at the
Company’s AGM on 31 July 2012 in compliance with the Code and the
Company’s Articles of Association.

Effectiveness — Nomination Committee

Chairman
Dennis Millard

“The Nomination Committee is pleased that the new Board
members and senior Executives in whose appointment we were
involved last year have established themselves well in, and are
providing the fresh insight we anticipated. The Nomination
Committee continues to take an active involvement in
succession planning this year with the appointment of a
number of senior Executives to further boost and complement
the skills and experience brought by the Board and senior
Executives.”

Members
Dennis Millard
(Committee Chairman)

Meetings
Total Number of
Committee meetings: 4

Terms of Reference:
Yes (see website)

David Adams

Keith Harris

Bill Ronald

Claudia Arney

David Wild

Read online: halfords.annualreport2012.com/cgr

With the exception of David Wild, all members of the Committee 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 advisors are invited to attend meetings as appropriate.

Time Spent on Nomination
Committee Business

Delegated Remit —
recommendations to the Board or
for approval by the Committee

Key Considerations
throughout
the Period

Terms of Reference

Composition of the Board and
Committees, and the appointment of
the Senior Independent Director

Succession plans for the Board and
senior management

Appropriateness
for an efficient and
effective Nomination
Committee.

Board diversity.

Executive management
team composition,
strengths, weaknesses.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

The Committee has responsibility for considering the size, structure and
composition of the Board of the Company, for reviewing senior
management succession plans, retirements and appointments of
additional and replacement Directors and making appropriate
recommendations so as to maintain an appropriate balance of skills
and experience on the Board.

The Nomination Committee has established a process for Board
appointments that it considers to be formal, rigorous and transparent
and involves the use of external executive recruitment agencies. This
process includes a review of the skills, experience and knowledge of
the existing Directors, to assess which of the potential shortlisted
candidates would most beneﬁt the balance of the Board having regard
also to the need for succession planning.

Accountability — Audit Committee

Chairman
David Adams

“The role of the Audit Committee is key to ensure full
stakeholder conﬁdence in the ﬁnancial matters of the business.
It helps to ensure that ﬁnancial statements are accurate, and
that controls, policies and procedures are relevant, up to date
and adhered to. This is achieved through regular review,
communication with operational and ﬁnancial management in
the business, through the internal audit function, and reviews
with the external Auditors.”

Members
David Adams
(Committee Chairman)
Keith Harris
Bill Ronald
Claudia Arney

Meetings
Total Number of
Committee meetings: 3

Terms of Reference:
Yes (see website)

Read online: halfords.annualreport2012.com/cgr

All the members of the Audit Committee are independent Non-
Executive Directors. David Adams 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. Each of the other independent Non-Executive Directors on
the Audit Committee has, through their other business activities,
signiﬁcant experience in ﬁnancial matters. The Chairman, senior
members of management and advisors are invited to attend meetings
as appropriate.

The Audit Committee meets according to the requirements of the
Company’s ﬁnancial calendar. The meetings of the Audit Committee
also provide the opportunity for the independent Non-Executive
Directors to meet without the Executive Directors present and to raise
any issues of concern with the Auditors. There have been three such
meetings in the period ended 30 March 2012 and nothing of note was
reported.

The Audit Committee is responsible for making recommendations to the
Board on the appointment of the Auditors and their remuneration, for
reviewing the accounting principles, policies and practices adopted in

Time Spent on Audit
Committee Business

Delegated Remit — approval of

Terms of Reference

Half-year report and interim results

Significant accounting and treasury
policies/practices

External Auditors

Resolutions and corresponding
documents to shareholders at general
meeting including annual report

Internal audit

External audit

Other business

Key Considerations
throughout
the Period

Suitability for the Audit
Committee to deliver
accountability.

Reflective of the
financial situation of
the Group.

Appropriate for the
nature of the Group’s
business.

Continued
appointment,
remuneration including
audit and non-audit
work, independence
and objectivity.

Ensuring that
shareholders have
the appropriate
information to make
informed decisions.

Approval of head of
internal audit function.
Internal control and
risk management
statement within
annual report.

External audit report,
year end audit
strategy and plan.

Security processes
and store assurance.

the preparation of the Interim Report and Annual Report and Financial
Statement and reviewing the scope and ﬁndings of the audit. The Audit
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 Auditors’ independence
including any non-audit services that are to be provided by the Auditors.
The Auditors conﬁrm their independence at least annually. A formal
policy exists which ensures that the nature of the advice to be provided
could not impair the objectivity of the Auditors’ opinion on the Group’s
Financial Statements. This policy was made more robust throughout the
period and only allows the Auditors to be engaged for non-audit
services subject to Audit Committee approval being obtained prior to

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Corporate Governance Report continued

any such appointment. Exceptions to this are the engagement of the
Auditors for the half-year review, and internal support services in
respect of management’s annual internal audit plan.

The Audit 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.

Accountability — Internal Control and Risk Management

Overall responsibility for the system of internal control, reviewing its
effectiveness and ensuring that there is a process to identify, evaluate
and manage any signiﬁcant risks that may affect the achievement of the
Group’s strategic objectives lies with the Board.

The Board and the Audit Committee have reviewed the effectiveness
of the Group’s internal control and risk management systems in
accordance with the Code for the period ended 30 March 2012, and
up to the date of approving the Annual Report and Financial
Statements. The internal control and risk management system 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 internal audit function principally reviews the effectiveness of the
controls operating within the business by undertaking an agreed
schedule of independent audits each year. The Audit Committee
determines the nature and scope of the annual audit programme at the
beginning of each calendar year and revises it from time to time
according to changing business circumstances and requirements.
Whilst directed by Andrew Findlay, the Company’s Finance Director, the
internal audit function is independent in action and reporting, with a
direct line of communication to the Audit Committee Chairman. The
ﬁndings of the independent 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.

Currently, the Company has engaged KPMG to support the internal
audit process. The plan and scope of work for the future is determined
by the Halfords Group Executive management team and the Audit
Committee. KPMG act as a resource to allow managerial access to
appropriately skilled individuals. KPMG do not perform a management
role. It is the intention of the Company to move towards a greater
internal resourcing of the Internal Audit function, and recruitment is
under way for a suitable qualiﬁed Head of Internal Audit, who will build a
team to carry out this work.

The assessment and control of risk are considered by the Board to be
fundamental to achieving corporate objectives. An ongoing process for
identifying and evaluating the signiﬁcant risks faced by the Group and
the effectiveness of related controls has been established by the Board
to ensure an acceptable risk/reward proﬁle across the Group. 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 this process, the Board has established a Risk Management
Group to oversee the implementation of the risk management
framework, co-ordinate risk management activities throughout the
business, and to report to the Board and Audit Committee on risk
issues. The Risk Management Group is chaired by the Company
Secretary and includes senior managers from Store Operations,
Business Systems, Health & Safety, Human Resources, Finance, Store
Assurance, Business Services, Multi-channel, Logistics, and Supply
Chain functions. During the ﬁnancial period to 30 March 2012 and up to
the date of this report the Risk Management Group considered the
Company’s Risk Register and its alignment with the Company’s key
strategic objectives, reporting the ﬁndings to the Board. The Board
considered its appetite for risk in relation to the top 25 risks determining
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 is shown on pages 40 to 43.

Remuneration — Remuneration Committee

Chairman
Keith Harris

“Remuneration of the directors and senior management of a
business should be clearly linked to the performance of the
company and the value generated for shareholders. The
Remuneration Committee upholds this principle by regularly
reviewing the remuneration policy and practices of the
business to ensure that the appropriate balance is maintained.”

Members
Keith Harris
(Committee Chairman)

Meetings
Total Number of
Committee meetings: 5

Dennis Millard

Bill Ronald

Claudia Arney

David Adams

Terms of Reference:
Yes (see website)

Read online: halfords.annualreport2012.com/cgr

All members of the Remuneration Committee are considered to
be independent Non-Executive Directors. Executive Directors
attend Remuneration Committee meetings at the invitation of the
Committee Chairman.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Time Spent on Remuneration
Committee Business

Delegated Remit —
recommendations to the Board or
for approval by the Committee

Key Considerations
throughout
the Period

Terms of Reference

Remuneration policy

Awards under the Company’s
employee and executive share plans

Other business

Appropriate for
the Remuneration
Committee to
function effectively
in establishing
remuneration policy
and levels.

Bonuses for FY11
and FY12. Senior
managers’ salaries.
Future Company-
wide bonus
opportunities.

Consideration of
potential awards.
Performance
conditions.

Presentations on
current trends
within Executive
remuneration and the
use of non-financial
KPIs. Remuneration
benchmarking
presentation by
the Hay Group.
Remuneration
advisors’
independence.

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
members of its Executive management team.

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 82 to 91.
A resolution to approve the Directors’ Remuneration Report will be
proposed at the forthcoming AGM.

Relations with Shareholders

During the period ended 30 March 2012 Bill Ronald served as the
Company’s Senior Independent Director. 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 a Corporate and Investor Relations
website is maintained 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, 31 July 2012 at the Hyatt Regency Birmingham,
Bridge Road, Birmingham, B1 2JZ. The Chairmen of the Remuneration,
Nomination and Audit Committees will be present at the AGM and will
be in a position to answer questions relevant to the work of those
Committees. It is the Company’s practice to propose separate
resolutions on each substantial issue at the AGM. The Chairman will
advise shareholders on the proxy voting details at the meeting.

The Company’s ﬁnancial calendar and other shareholder information is
set out on page 135.

By order of the Board

Alex Henderson
Company Secretary
30 May 2012

Read online: halfords.annualreport2012.com/cgr

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Remuneration Report

“As Chairman of the Remuneration Committee I
present our report on how throughout the period we
have sought to align the offering of competitive
remuneration, to attract and retain high calibre
management, with the achievement of our business
objectives in line with shareholder and other
stakeholder expectations.”

Keith Harris
Chairman, Remuneration Committee

Read online: halfords.annualreport2012.com/drr

Statement of Compliance with Laws and Codes

The Remuneration Committee (the “Committee”) has prepared this report on behalf of the Board in accordance with the UK Corporate Governance
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. This report has been approved by the Committee and the Board, and a resolution approving the report will be proposed to
shareholders at the AGM of the Company on 31 July 2012.

PART A: UNAUDITED INFORMATION
Committee Leadership — Decision-Making — Delegated by the Board

Members include
4 Non-Executive

Directors and the
Chairman of
the Board

Total Number
of Scheduled
Committee

meetings: 5

The Board

Delegated
Decision-
making

— remuneration

policy of Executive
Directors and
senior
management

— employee

share-based
incentive
schemes and any
changes to the
rules of such
schemes

Directors’

experience:

see page 77

Terms of
Reference:
(see website)

Accountability
and
Transparency
in linking
Reward with
Performance

Attendance of
Directors: see page 76

Executive Directors
invited where
appropriate but

are not present

at discussions

on their own

remuneration

The HR Director
and the Company

Secretary also
provided support

to the Committee

Mem bership

External Advisors:
Hay Group and

Deloitte LLP:

see page 89

Meetings

during the year

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 year and the period to the date of this report the
Remuneration Committee, supported by Deloitte LLP:

■ Considered the Group’s remuneration policy.

■ The Committee considered the broad policy continued to be
aligned with the strategy and long-term success of the
business.

■ The Committee considered whether the remuneration
arrangements, including variable, performance-based
elements, continue to be structured to ensure associated
performance remains aligned with the strategic objectives of
the Company and incentivises managers.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

■ Consideration was given to the appropriateness of the

■ The Committee also considered the measures used for the

performance conditions of the Company’s Performance Share
Plan. The Committee considers that the performance measures
that applied to the 2011–14 scheme continue to be appropriate
for the business and therefore these measures will also apply
for the 2012–15 scheme. During the year the Committee
assessed TSR and EPS performance for the 2009–2012
scheme. These targets were not meet and therefore this award
will not vest.

■ The 2011/12 bonus was based 80% on Profits Before Tax

(“PBT”) and 20% on Earnings Per Share (“EPS”) performance.
During the year neither the PBT or the EPS targets were met
and therefore no bonus will be paid to Executive Directors in
respect of 2011/12 performance.

■ Consideration was given to the targets for the Executive
Directors’ and senior managers’ short-term bonus
arrangements for 2012/13. The Committee considered that the
target range previously used was too narrow in the context of
expected performance for 2012/13 and therefore determined
that a range of 92% (zero payout) to 106% (full payout) was
more appropriate.

bonus and agreed that the 80% PBT, 20% EPS arrangements
would be replaced, with future payments being based 75% on
PBT and 25% on a number of key non-financial metrics linked
to the strategy and operation of the business. These metrics
have been selected in order to support the enhancement of
strategic pillars (see page 4) which the Committee ultimately
believes will lead to the creation of shareholder value.

■ When determining bonus payouts for 2012/13, in addition to
considering performance against targets, the Committee will
also consider the underlying performance of the business
and performance against strategic initiatives. It retains the
discretionary authority to increase or decrease the bonus to
ensure that the level of bonus paid is appropriate in the
context of performance and value delivered for shareholders.
Discretion shall in all cases only be exercised within the agreed
boundaries and maxima.

■ The Committee also considered whether it would be

appropriate to disclose a single figure for the total of each
Director’s remuneration. It was decided that at this time, that as
there was no agreed basis for calculation of this figure, that any
disclosure could be misleading. We will, however, keep this
under review as regulations and market practice develop.

Executive Directors’ Remuneration — the Elements

The following pages illustrate how each individual element of
remuneration is speciﬁcally designed to support the achievement of
different corporate objectives.

Remuneration
Policy Principle

Elements of Remuneration

Base Salary

Annual Bonus

Alignment with
Shareholder
Value Generation

Performance Share Plan

Features of the
Remuneration

Company Share Option Scheme

Shareholding Guidelines

Other Beneﬁts

Controls on the Executive

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Remuneration Report continued

Base Salary
(see also Note 1)

Annual Bonus

Performance Share Plan (“PSP”)
(see also Note 2)

Set to be market competitive against
other retail companies of a similar size
for comparable roles.

Reward the achievement of annual
earnings targets and performance
against key strategic goals.

Align Executives’ and shareholders’
interests and reward growth in
shareholder value and earnings.

Remuneration
Policy Principle

Features of the
Remuneration

Paid monthly in cash.

Controls on the
Executive

Annual reviews (subject to any
material changes in responsibilities) of
requisite experience, responsibilities,
performance, commitment, and
efficiency alongside contribution to
corporate.

CEO – maximum award 150% base
salary – 2/3 in cash with 1/3 deferred
in shares for three years.

Maximum core award 150% base
salary.

Finance and Commercial Directors –
100% base salary – full bonus in cash.

Performance multiplier of 1.5 × core
award for exceptional performance
(upper decile).

Bonuses are non-pensionable.

Targets are calibrated to ensure
that they are very stretching and
demanding, with the maximum bonus
only being achievable for exceptional
performance. For FY13 75% of the
annual bonus is dependent upon
Profit Before Tax (“PBT”) and 25% on
a number of key non-financial metrics
linked to the strategy and operation of
the business.

Vests over a three-year performance
period.

50% determined by the Group’s
relative TSR performance measured
against a general retailers comparator
group chosen from the FTSE 350
and the balance of 50% determined
by the Group’s absolute EPS growth
performance.

Alignment with
Shareholder
Value Generation

High calibre and performing Executives
are and continue to be in place to
manage the Company. Current salaries
are set at a competitive level to retain
Executives.

Executives are incentivised to deliver
annual performance with the CEO
further incentivised to manage risk and
align his long-term interests with those
of shareholders.

Challenging and appropriately
stretching targets.
Award delivered in shares to align
Executives with share price movement.

Note 1

Note 2

In October 2011, a Group-wide salary review was undertaken which
took into account remuneration trends, candidate quality and job
location in markets in which the Group had recently recruited. With
respect to the Executives, the salary review also considered executive
remuneration market trends and benchmarking. The salary increases
from 1 April 2012 recommended by the Committee, and approved by
the Board, are detailed below alongside the average percentage
increase awarded across the Group. The Committee was mindful to
ensure that no Director received an increase in excess of the average
across the Group of 2%. The Chief Executive received 2%, an increase
to £517,650, the Finance Director also received 2%, an increase to
£280,500. The Commercial Director’s salary remained at £290,700.

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.

Note 3

The beneﬁcial interests of Directors, serving at the end of the period, in
shares in Halfords Group plc are shown opposite.

The ﬁgures include those of their spouses, civil partners and infant
children, or stepchildren, as required by Section 822 of the Companies
Act 2006.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Company Share Option Scheme (“CSOS”) Shareholding Guidelines

(see also Note 3)

Other Benefits
(see also Note 4)

Direct link to value creation through share price
growth as major objective.

Align Directors’ interests with shareholder
interests.

Market median competitive remuneration.

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.

Executive Directors are required to acquire and
retain shares.

Pension contribution of 15% of base salary

Company car or equivalent allowance

Permanent Health Insurance

Life Assurance Cover

Membership of a Private Medical Insurance
Scheme

Travelling and other expenses

In the event that awards are made under the
CSOS to Executive Directors, the Committee
would review the performance measures and
set targets which are suitably stretching.

Shareholding must be to a value equal to
100% of their base annual salary and Executive
Directors have a five-year period to build this
shareholding following their appointment.

Challenging and appropriately stretching
targets.
Award delivered in shares to align senior
Executives with share price movement.

As long-term shareholders themselves,
Executives are incentivised to consider the
interests of shareholders and shareholder value
creation.

Fully paid Ordinary Shares of 1p each

As at
30 March 2012

As at
1 April 2011

32,500

260,464

146,221

2,850

3,846

11,538

—

32,500

100,000

124,744

—

3,846

11,538

—

Dennis Millard

David Wild

Paul McClenaghan

Andrew Findlay

Keith Harris

Bill Ronald

David Adams

Claudia Arney

There were no changes in the beneﬁcial interests of the Directors in the
Company’s shares between 30 March 2012 and 31 May 2012.

Note 4

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. For 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. The Group’s
contributions during the year are shown in the table on page 90.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Remuneration Report continued

Striking a Balance between Fixed and 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%

100

Fixed

Bonus

LTIP

As outlined above, the remuneration policy is designed to ensure that a
substantial proportion of the Executive Directors’ remuneration is
variable and performance-related. By linking the remuneration of the
individual Executive Director to the performance of the Company, the
Board seeks, as far as possible, to motivate that individual towards
superior business performance and shareholder value creation, and to
only pay rewards when these goals have been realised. Performance
measures are aligned with strategic goals so that remuneration
arrangements are transparent to Directors, shareholders and other
stakeholders.

The chart above seeks to illustrate the overall balance between ﬁxed
and variable remuneration within the current remuneration policy.

Executive Directors’ Service Agreements

Term

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

(1)

Andrew Findlay was appointed to the Board on 1 February 2011
and his service agreement was effective from that date.

Early Termination

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 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.

Mitigation in Termination

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.

Change of Control

The service agreements of Executive Directors do not provide for any
enhanced payments in the event of a change of control of the
Company.

External 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 and in the period ended 30 March
2012 he received £57,000 in fees (7 March to 1 April 2011: £4,750).

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Remuneration for Senior Managers

As for Executive Directors, it is the Company’s policy that a substantial proportion of remuneration should be performance related in order to
encourage and reward superior business performance and shareholder returns and that remuneration should be linked to both individual and
Company performance. Basic salary is targeted at normal commercial rates for comparable roles and is benchmarked on a regular basis. Bonuses
of up to 100% of salary can be earned on the same basis as the Executive Directors.

Senior Executives immediately below the Board also beneﬁt from participation in the PSP, with other key senior managers participating in the CSOS.

Share Plans — Summary

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 10 year shareholder dilution is 2.60% [2011: 4.31%].

n
o
i
t
c
u
d
o
r
t
n

Date of Adoption

Eligibility

More information

Halfords Company Share Option
Scheme (“CSOS”)

May 2004

Halfords Sharesave Scheme

May 2004

Performance Share Plan (“PSP”)

July 2005

The CSOS is a market value option plan which incentivises
senior management to grow the share price. Options are
granted at an exercise price not less than market value at the
date of grant and are normally subject to performance.
Currently, vesting of options is subject to an earnings per
share hurdle.

During the year the Committee considered the principles
behind the establishment of the SAYE scheme in 2011 and
concluded that the current scheme remains appropriate.
Options are granted at an exercise price not less than 80% of
market value at the date of grant. Options may not normally
be exercised until the option holder has completed his or her
savings contract (normally three or ﬁve years) from the date
of commencement of the savings contract. Executive
Directors may also join the Halfords Sharesave Scheme.
During the year awards were granted under the SAYE to
participating eligible employees in the United Kingdom,
Ireland and Hong Kong.

See Note 1 below.

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).

An all-employee SAYE
scheme in which all
Executive Directors are
eligible to participate.

Main incentive vehicle for
Executive Directors and
senior managers
immediately below the
Board with awards generally
made on an annual basis.

Note 1

The PSP targets are summarised in the table below:

For the core award, 30% of the award 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.

Award “Multiplier”
(up to 1.5 × initial award)
i.e. 225% of salary

Core Award
(150% of salary)

TSR Performance Element
(50% of award)

EPS Performance Element
(50% of 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

100% vesting

Upper Quartile performance

11% growth p.a. above RPI

Straight-line vesting

30% vesting

0% vesting

Between Median and
Upper Quartile

Between 4% growth p.a. and
11% growth p.a. above RPI

Median

4% growth p.a. above RPI

Below Median

Below 4% growth p.a. above RPI

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Remuneration Report continued

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 2011 are as follows:

■ Brown Group
■ Carpetright
■ Debenhams
■ Dignity
■ Dixons Retail plc
■ Dunelm Group

■ Greggs
■ Home Retail Group
■ JD Sports Fashion plc
■ Kesa Eletrics
■ Kingfisher
■ Marks & Spencer
■ Morrisons

■ Mothercare
■ Next
■ Sainsbury’s
■ Sports Direct
International

■ Tesco
■ 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
decision-making process provides appropriate safeguards to ensure
that this structure does not incentivise Executives to take an
inappropriate level of risk.

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.

In 2008 and 2009 (the ﬁrst two years of his tenure) the Chief Executive
received awards under the PSP of 200% of base salary; these awards
are not subject to the performance multiplier. On the vesting of any of
this award David Wild was encouraged to retain shares, so enabling
him to achieve the shareholding guidelines (see table on page 85).

Following his appointment, Andrew Findlay was granted a PSP award
of 225% of salary in August 2011. This award was subject to the
performance conditions outlined on pages 84 and 87. If exceptional
performance is delivered then up to 1.5× this award may vest. The
Committee considered that it was appropriate to grant this enhanced
award to Mr Findlay to compensate him for awards he forfeited on
leaving his previous employment.

Details of awards granted to Executive Directors are set out on
page 91.

Performance graph

The following graph shows the TSR performance of the Company since
April 2007, 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

180

160

140

120

100

2007

2008

2009

2010

2011

2012

FTSE 350 General Retailers

Halfords Group

Non-Executive Directors’ Remuneration

The Board as a whole, following a recommendation by the Chief
Executive, determines the fees of the Non-Executive Directors.

Term

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.

Continuation

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 is evaluated
annually.

Compensation for Termination

No compensation would be payable to a Non-Executive Director if his
or her engagement were terminated as a result of him or her 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.

There are no provisions for compensation being payable upon early
termination of the appointment of a Non-Executive Director.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Fees

During the year 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

n
o
i
t
c
u
d
o
r
t
n

Fees

£165,000

£60,000

£45,000

£5,000

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.

Appointment Periods

Dennis Millard

David Adams

Claudia Arney

Keith Harris

Bill Ronald

Date of
appointment

Date of
current
reappointment

Date of
resignation

Unexpired term
at the date of
this report

Expiry date

28 May 2009

29 May 2012

1 March 2011

2 August 2011

25 January 2011

2 August 2011

17 May 2004

2 August 2011

17 May 2004

2 August 2011

—

29 May 2015

— 28 February 2014

—

24 January 2014

26 July 2013

36 months

21 months

20 months

14 months

w
e
v
e
R
s
s
e
n
s
u
B

The terms and conditions and letters of appointment are available on the Company’s Corporate and IR website.

Advisors

Hay Group — During the year continued to provide advice on matters relating to remuneration, including market comparison data and best practice.
No other services are provided to the Group

Deloitte LLP — During the year continued to advise on share-based long-term incentive plans and other remuneration matters. Deloitte also provide
unrelated advisory and tax services to the Group.

The Committee continues to be satisﬁed that the advice received from its advisors is independent.

PART B: AUDITED INFORMATION
The following section provides details of the remuneration, pension and share interests of the Directors for the period ended 30 March 2012 and has
been audited.

Remuneration of Executive Directors

Details of the payments made to Executive Directors were as follows:

David Wild

Paul McClenaghan(1)

Andrew Findlay

Salary
£000

Bonuses
£000

Benefits(2)
£000

513

277

278

—

FY12
Total
£000

540

293

291

FY11
Total
£000

531

287

108

(1) From this gross salary Paul McClenaghan sacriﬁced some of his salary for like-for-like pension contributions to the Halfords Pension Plan.
(2) Beneﬁts include payments made in relation to private health insurance and the provision of a company car.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Governance

Directors’ Remuneration Report continued

Pension Entitlements

Pension contributions to deﬁned contribution pension schemes made by the Group during the period ended 30 March 2012 in respect of qualifying
services of Executive Directors were as follows:

Period ended
30 March 2012
£000

52 Weeks to
1 April 2011
£000

David Wild(1)

Paul McClenaghan(2)

Andrew Findlay(1)

183

(1) Payments are made into a personal fund, the purpose of which is to provide additional retirement beneﬁts.

(2) As a member of the Halfords Pension Plan 2009 Paul McClenaghan has sacriﬁced some of his salary for like-for-like pension contributions.

Remuneration of Non-Executive Directors

Details of the payments made to Non-Executive Directors are shown below:

Dennis Millard

David Adams

Claudia Arney

Keith Harris

Bill Ronald

Period ended 30 March 2012

Basic Fees
£000

SID Fees
£000

Chairman’s
Fees
£000

165

—

2012
Total
£000

165

—

193

2011
Total
£000

165

Directors’ Interests in Share Options

At the beginning of the year and at 30 March 2012, the following Directors had options to subscribe for shares granted under the terms of the
Halfords SAYE.

Options
as at
1 April
2011

4,878

Paul McClengahan

2008 SAYE

2011 SAYE

Total

Granted in
period

Exercised
in the period(1)

Lapsed
in the period

Options
as at
30 March
2012

Exercise
Price
£

Exercisable
from

Exercisable
to

3,085

4,878

—

3,085

1.93

1 Oct 2011

1 April 2012

2.9246

1 Oct 2014 31 March 2015

(1) The market value at the date of exercise was £2.922.

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 30 March 2012, no Directors had options to subscribe for shares granted under the terms of the Halfords CSOS.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

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.

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.

David Wild

Award Date

7 August 2008

3 August 2009

3 August 2010

8 August 2011

Paul McClenaghan

7 August 2008

3 August 2009

3 August 2010

8 August 2011

Andrew Findlay

8 August 2011

Mid-market
price
on date
of awards

Awards
held
1 April 2011

Awarded
during the
period

Dividend

Reinvestment(1)

Lapsed
during the
period

Exercised
during
the year(2)

Awards
held
30 March
2012

Performance
period
3 years to

2.96

3.46

4.10

3.17

2.96

3.46

4.10

3.17

337,643

308,105

159,859

—

254,089

86,099

117,850

89,773

—

142,690

206,525

—

3,343

334,330

— 1 April 2011

22,335

11,583

6,378

—

8,543

6,507

3,582

5,184

—

852

—

— 330,440 30 March 2012

— 171,444 29 March 2013

— 260,467 28 March 2014

85,247

— 1 April 2011

— 126,393 30 March 2012

96,280 29 March 2013

— 146,272 28 March 2014

— 211,709 28 March 2014

(1)

(2)

Following the recommendation of the Committee to reinvest dividends earned on shares awarded since 2009, interim and ﬁnal dividends have
been reinvested in shares at prices between £3.1869 and £4.8110.
The market value at the date of exercise was £2.8716.

Gains made by Directors

The table below shows gains made by individual Directors from the exercise of performance share awards during the ﬁnancial period ended
30 March 2012. The gains are calculated as at the exercise date, although the shares may not have been retained.

2008 PSP (Vested 7 August 2011)

David Wild

Paul McClenaghan

Total gains on performance share awards

FY12
£000

960

245

1,205

FY11(1)
£000

—

(1)

Gains made on the PSP awarded in 2007 due to vest in August 2011 actually vested in March 2010 and gains of £1.1m were disclosed in the
2010 Directors’ Remuneration Report.

2008 SAYE (Vested 1 October 2011)

David Wild

Paul McClenaghan

Total gains on share options

—

The Register of Interests, which is open to inspection, contains full details of Directors’ shareholdings and options. No options have expired
unexercised during the period ended 30 March 2012 and there were no changes in the options held by the Directors between 30 March 2012 and
30 May 2012.

On 30 March 2012, the market price of ordinary shares of Halfords Group plc was 310.6 pence and the range during the period was 269.7 pence to
405.9 pence. For details of the grant dates of options see note 21 on pages 124 to 126.

Keith Harris
Chairman of the Remuneration Committee
30 May 2012

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Financials

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

FINANCIALS

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

95
96

Statement of Directors’ Responsibilities in
Respect of the Annual Report and the
Financial Statements
Independent Auditors’ Report to
the Members of Halfords Group plc
Consolidated Income Statement
Consolidated Statement of Comprehensive
Income
97
Consolidated Statement of Financial Position 98
Consolidated Statement of Changes in
Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Statement of
Cash Flows
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

129
130
131
134
134
135
135

101
102
108
128

99
100

Read online: halfords.annualreport2012.com/ﬁn

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 comply with that law and those
regulations.

The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.

Directors’ Responsibility Statement

The Directors confirm to the best of their knowledge:

the ﬁnancial statements prepared in accordance with IFRS, as
adopted by the European Union, give a true and fair view of the
assets, liabilities, ﬁnancial position and proﬁt of the Company and
the Group; and

the business review includes a fair review of the development and
performance of the business and the position of the Company and
the Group, together with a description of the principal risks and
uncertainties faced.

Approved by order of the Board

Dennis Millard
Chairman
30 May 2012

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Independent Auditors’ Report to
the Members of Halfords Group plc

We have audited the financial statements of Halfords Group plc for the
period ended 30 March 2012 set out on pages 96 to 133. 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.

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.

Respective Responsibilities of Directors and Auditors

Under the Listing Rules we are required to review:

■ the Directors’ statement, set out on page 73, in relation to going

concern;

■ the part of the Corporate Governance Statement on pages 74 to

81 relating to the Company’s compliance with the nine provisions of
the UK Corporate Governance 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
30 May 2012

As explained more fully in the Directors’ Responsibilities Statement set
out on page 94, 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 30 March 2012
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 year
for which the financial statements are prepared is consistent with
the financial statements.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Financials

Consolidated Income Statement

52 weeks to 30 March 2012

52 weeks to 1 April 2011

Before
non-recurring
items

Non-recurring
items
(note 5)

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

Before
non-recurring
items

Non-recurring
items
(note 5)

£m

—

1.9

—

1.9

(0.9)

1.0

Notes

£m

863.1

(390.3)

472.8

(375.6)

97.2

(5.5)

0.5

(5.0)

92.2

(24.8)

67.4

33.7p

33.5p

Total

£m

863.1

(390.3)

472.8

(373.7)

99.1

(5.5)

0.5

(5.0)

94.1

(25.7)

£m

869.7

(384.7)

485.0

(356.9)

128.1

(4.3)

1.8

(2.5)

125.6

(34.7)

68.4

90.9

34.2p

34.0p

43.2p

42.7p

£m

—

(7.5)

—

(7.5)

2.1

(5.4)

Total

£m

869.7

(384.7)

485.0

(364.4)

120.6

(4.3)

1.8

(2.5)

118.1

(32.6)

85.5

40.7p

40.2p

All results relate to continuing operations of the Group.

The notes on pages 108 to 127 are an integral part of these consolidated financial statements.

Download the excel spreadsheet halfords.annualreport2012.com/cis

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Consolidated Statement of Comprehensive Income

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

Notes

68.4

85.5

(0.5)

(0.9)

1.3

(0.2)

(0.3)

(0.6)

67.8

0.1

(4.2)

(1.0)

1.6

1.1

(2.4)

83.1

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

Other comprehensive income for the period, net of income tax

Total comprehensive income for the period attributable to equity shareholders

The notes on pages 108 to 127 are an integral part of these consolidated financial statements.

Download the excel spreadsheet halfords.annualreport2012.com/csci

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

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

Accruals and deferred income — lease incentives

Provisions

Deferred tax liabilities

Total non-current liabilities

Total liabilities

Net assets

Shareholders’ equity

Share capital

Share premium

Investment in own shares

Other reserves

Retained earnings

Total equity attributable to equity holders of the Company

30 March 2012
£m

Notes

1 April 2011
£m

343.9

97.9

441.8

146.7

45.0

0.3

13.4

205.4

647.2

(2.8)

(1.5)

(140.4)

(24.8)

(8.8)

(178.3)

27.1

(149.8)

(28.8)

(2.5)

(0.7)

(181.8)

(360.1)

287.1

2.0

151.0

(14.0)

(0.4)

148.5

287.1

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

(0.6)

0.1

169.8

322.4

The notes on pages 108 to 127 are an integral part of these consolidated financial statements.

The financial statements on pages 96 to 127 were approved by the Board of Directors on 30 May 2012 and were signed on its behalf by:

David Wild
Chief Executive

Andrew Findlay
Finance Director

Company Number: 04457314

Download the excel spreadsheet halfords.annualreport2012.com/csfp

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

Consolidated Statement of Changes in Shareholders’ Equity

Attributable to the equity holders of the Company
Other reserves

Share
capital
£m

Share
premium
account
£m

Investment
in own
shares
£m

Translation
reserve
£m

Capital
redemption
reserve
£m

Hedging
reserve
£m

Retained
earnings
£m

Total
equity
£m

2.1

146.5

(0.6)

0.4

0.2

1.9

128.0

278.5

n
o
i
t
c
u
d
o
r
t
n

—

—
—

—

—
—

—
—
—
2.1

—

—
—

—
—
(0.1)

—
—
(0.1)
2.0

—

—
—

—

—
—

4.5
—

—
—
4.5
151.0

—

—
—

—
—
—

—
—
—
151.0

—

—
—

—

—
—

—
—
—
(0.6)

—

—
—

4.6
—
(18.0)

—
—
(13.4)
(14.0)

—

0.1

—
—

—

0.1
0.1

—
—

—
—
—
0.5

—

(0.5)

—
—

(0.5)
(0.5)

—
—
—

—
—
—
—

—

—
—

—

—
—

—
—
—
0.2

—

—
—

—
—
0.1

—
—
0.1
0.3

—

(4.2)
(1.0)

1.6

1.1

(2.5)
(2.5)

—
—

—
—
—
(0.6)

—

(0.9)
1.3

(0.2)
(0.3)

(0.1)
(0.1)

—
—
—

—
—
—
(0.7)

85.5

—

—
—

—

—
85.5

—
2.4

0.1

(4.2)
(1.0)

1.6

1.1

(2.4)
83.1

4.5
2.4

0.1
(46.2)
(43.7)
169.8

0.1
(46.2)
(39.2)
322.4

68.4

—

—
—

—
68.4

(2.5)
2.1
(44.7)

(0.4)
(44.2)
(89.7)
148.5

(0.5)

(0.9)
1.3

(0.2)
(0.3)

(0.6)
67.8

2.1
2.1
(62.7)

(0.4)
(44.2)
(103.1)
287.1

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

Balance at 2 April 2010
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 changes 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
Share options exercised
Share-based payment transactions
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Balance at 1 April 2011
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 changes 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
Share options exercised
Share-based payment transactions
Purchase of own shares
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Balance at 30 March 2012

The notes on pages 108 to 127 are an integral part of these consolidated financial statements.

Download the excel spreadsheet halfords.annualreport2012.com/cscse

100

Financials

Consolidated Statement of Cash Flows

52 weeks to
30 March
2012
£m

52 weeks to
1 April
2011
£m

Notes

67.4

1.0

68.4

21.1

4.9

(0.5)

5.0

1.2

2.4

(0.9)

25.7

0.9

(3.0)

0.2

(6.6)

0.4

(4.9)

(24.6)

89.7

(0.7)

(2.1)

(17.2)

(20.0)

2.1

(62.7)

353.0

(302.1)

(0.3)

(44.2)

(54.2)

15.5

(4.6)

10.9

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)

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

Amortisation — intangible assets

Foreign exchange (gain)/loss

Net finance costs

Loss on disposal of property, plant and equipment

Equity-settled share-based payment transactions

Fair value (gain)/loss on derivative financial instruments

Income tax expense

Decrease/(increase) in inventories

(Increase)/decrease in trade and other receivables

Increase in trade and other payables

Decrease 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 exercise of share options

Purchase of own 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 increase/(decrease) in cash and bank overdrafts

Cash and cash equivalents at the beginning of the period

Cash and cash equivalents at the end of the period

The notes on pages 108 to 127 are an integral part of these consolidated financial statements.

Download the excel spreadsheet halfords.annualreport2012.com/cscf

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

101

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 1 April
2011
£m

Cash flow
£m

Other non-cash
changes
£m

At 30 March
2012
£m

(4.6)

(86.8)

(91.4)

(0.3)

(11.5)

(11.8)

(103.2)

15.5

(50.9)

(35.4)

0.3

—

0.3

(35.1)

—

(0.9)

(0.3)

0.3

—

(0.9)

10.9

(138.6)

(127.7)

(0.3)

(11.2)

(11.5)

(139.2)

n
o
i
t
c
u
d
o
r
t
n

Non-cash changes comprise finance costs in relation to the amortisation of capitalised debt issue costs of £0.9m (2011: £0.4m) and changes in
classification between amounts due within and after one year.

Cash and cash equivalents at the period end consist of £13.4m (2011: £2.7m) of liquid assets and £2.5m (2011: £7.3m) of bank overdrafts.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

102

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 30 March 2012 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 73, and under the historical cost convention, except where adopted IFRSs 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 30 March 2012, whilst the comparative period covered the 52 weeks to 1 April 2011.

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. Control is achieved where the Company has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. EBTs are accounted for under UITF 32 and are consolidated on the basis that the parent has control,
thus the assets and liabilities of the EBT are included on the Company balance sheet and shares held by the EBT in the Company are presented as a
deduction from equity.

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. All subsidiary undertakings have
been consolidated.

The principal subsidiary undertakings of the Company at 30 March 2012 are detailed in note 4 to the Company balance sheet on page 131.

Business Combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of
the acquiree. Acquisition related costs are recognised as expenses in the period in which the costs are incurred.

The identifiable assets, liabilities and contingent liabilities of the acquired entity that meet the conditions for recognition under IFRS 3 “Business
Combinations” are recognised at their fair value at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over
the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s
interest in the net fair value of these elements exceeds the cost of the business combination, the excess is recognised immediately in the income
statement.

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.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

103

Finance Income

Finance income comprises interest income on funds invested. Income is recognised, as it accrues in profit or loss, using the effective interest rate
method.

Non-recurring Items

Non-recurring items are those items that are unusual because of their size, nature or incidence. The Group’s management consider that these items
should be separately identified within their relevant income statement category to enable a full understanding of the Group’s results.

Earnings Per Share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for
own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options
granted to employees.

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, which are recognised in other comprehensive income.

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.

Employee Benefits

i) 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.

ii) 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 incorporate an assessment of relevant market performance conditions. 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 equity.

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.

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

104

Financials

Accounting Policies continued

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 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.

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.

Intangible Assets

i) Goodwill

Goodwill is initially recognised as an asset at cost and is reviewed for impairment at least annually. Goodwill is subsequently measured at cost less
any accumulated impairment losses. An impairment charge is recognised in profit or loss for any amount by which the carrying value of goodwill
exceeds its recoverable amount.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of
the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired.

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.

ii) Computer Software

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. Software is amortised over three to five years depending on the estimated useful economic life.

iii) Acquired Intangible Assets

Intangible assets that are acquired as a result of a business combination are recorded at fair value at the acquisition date, provided they are
identifiable and capable of reliable measurement.

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; and

■ Favourable leases over the term of the lease.

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

105

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.

n
o
i
t
c
u
d
o
r
t
n

Residual values, remaining useful economic lives and depreciation periods and methods are reviewed annually and adjusted if appropriate.

Impairment of Assets

For 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). For goodwill, an annual impairment review is performed at each balance sheet date.

w
e
v
e
R
s
s
e
n
s
u
B

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 borrowings. 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.

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.

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.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

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 17.

Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset when the reimbursement is certain.

s
a
c
n
a
n
F

106

Financials

Accounting Policies continued

Financial Instruments

Financial Assets

The Group’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Group
becomes party to the contractual provisions of the instrument.

i) 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 determined as the difference between the asset’s carrying amount
and the present value of estimated future cash flows, and is recognised in the income statement in operating expenses.

ii) 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. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank overdrafts in addition to
the definition above.

Financial Liabilities and Equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

The Group’s financial liabilities comprise trade and other payables and borrowings. All financial liabilities are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest method.

i) Bank borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing.
Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the effective interest method.

Finance cost comprises interest expense on borrowings, unwinding of the discount on provisions and the cost of forward foreign exchange contracts.

ii) Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

iii) Equity instruments

Equity instruments issued by the Company are recorded as the proceeds are received, net of direct issue costs. Own shares consist of shares held
within an employee benefit trust and are recognised at cost as a deduction from shareholders’ equity. Subsequent consideration received for the sale
of such shares is also recognised in equity, with any difference between the sale proceeds from the original cost being taken to revenue reserves. No
gain or loss is recognised in the Group Income Statement on transactions in own shares held.

iv) Derivative financial instruments and hedge accounting

Derivative financial instruments are used to manage risks arising from changes in foreign currency exchange rates relating to the purchase of
overseas sourced products. The Group does not hold or issue derivative financial instruments for trading purposes. 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 effective
element of any gain or loss from remeasuring the derivative instrument is recognised directly in the hedging reserve.

The associated cumulative gain or loss is reclassified from the Group Statement of Changes in Equity and recognised in the Group Income Statement
in the same period or periods during which the hedged transaction affects the Group Income Statement. Any element of the remeasurement of the
derivative instrument that does not meet the criteria for an effective hedge is recognised immediately in the Group Income Statement within finance
income or costs.

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
12 months or as a current asset or liability, if the remaining maturity of the hedged item is less than 12 months.

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.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

107

The judgement and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are
detailed below:

Impairment of Assets

Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their
recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows, which includes
management assumptions and estimates of future performance. Details of the assumptions used in the impairment review of goodwill and other
assets are explained in note 10.

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.

n
o
i
t
c
u
d
o
r
t
n

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 17.

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 108 to 127.

w
e
v
e
R
s
s
e
n
s
u
B

Adoption of New and Revised Standards

The following standards and interpretations are applicable to the Group and have been adopted in the current period as they are mandatory for the
year ended 30 March 2012 but either have no material impact on the result or net assets of the Group or are not applicable.

■ IAS 24 “Related Party Disclosures (revised 2009)” — makes changes to the definition of a related party. This amendment has not had a material

impact on the Group’s 2012 consolidated 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. This amendment has not had a material impact on the Group’s 2012 consolidated financial statements.

■ IAS 1 “Presentation of Financial Statements (Amended)” — IAS 1 is amended to clarify that a reconciliation from opening to closing balances is
required to be presented in the statement of changes in equity for each component of equity. IAS 1 is also amended to allow the analysis of the
individual OCI line items by component of equity to be presented in the notes. Previously, such analysis could only be presented in the SOCIE.

■ IFRS 7 “Financial Instruments: Disclosures (Amended)” — IFRS 7 is amended to add an explicit statement that the interaction between qualitative

and quantitative disclosures better enables users to evaluate an entity’s exposure to risks from financial instruments.

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 30 March 2012, 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. “IFRS 7 (Amendments)” — The amendments require additional disclosures about transfers of
financial assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around
the end of a reporting period.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

108

Financials

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.

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 expenses(1)

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 expenses(1)

Operating profit

Net financing expense

Profit before tax

Taxation

Profit for the year

Retail
£m

Car Servicing
£m

52 weeks to
30 March 2012
Total
£m

752.3

110.8

863.1

92.8

1.9

94.7

6.6

—

6.6

99.4

1.9

101.3

(2.2)

99.1

(5.0)

94.1

(25.7)

68.4

Retail
£m

771.6

123.3

(7.5)

115.8

52 weeks to
1 April 2011
Total
£m

Car Servicing
£m

98.1

869.7

7.0

—

7.0

130.3

(7.5)

122.8

(2.2)

120.6

(2.5)

118.1

(32.6)

85.5

(1)

Unallocated expenses have been disclosed to reflect the format of the internal management reports reviewed by the Chief Operating Decision
maker and include an amortisation charge of £2.2m in respect of assets acquired through business combinations (2011: £2.2m).

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

109

Other segment items:

Capital expenditure

Depreciation expense

Amortisation expense

Other segment items:

Capital expenditure

Depreciation expense

Amortisation expense

There have been no transactions between segments in the 52 weeks ended 30 March 2012 (2011: £nil).

2. Operating Expenses

For the period

Selling and distribution costs before non-recurring items

Administrative expenses before non-recurring items

Non-recurring administrative expenses

52 weeks
ended
30 March 2012
Total
£m

Retail
£m

Car Servicing
£m

15.2

19.1

2.7

4.5

2.0

—

19.7

21.1

2.7

n
o
i
t
c
u
d
o
r
t
n

Retail
£m

Car Servicing
£m

52 weeks ended
1 April 2011
Total
£m

16.6

19.1

2.5

6.2

1.3

—

22.8

20.4

2.5

w
e
v
e
R
s
s
e
n
s
u
B

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

318.2

306.5

57.4

(1.9)

55.5

373.7

50.4

7.5

57.9

364.4

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

110

Financials

Notes to the Financial Statements continued

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

Trade receivables impairment

Staff costs (see note 4)

Cost of inventories consumed in cost of sales

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

1.9

90.1

(6.4)

(2.0)

1.2

4.9

20.6

0.5

0.1

155.8

384.7

2.2

87.4

(7.2)

(0.6)

0.1

4.6

19.9

0.5

0.1

144.2

375.6

The total fees payable by the Group to KPMG Audit Plc and their associates during the period was £0.3m (2011: £0.4m), 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

Internal audit services

All other services

52 weeks to
30 March 2012
£000

52 weeks to
1 April 2011
£000

194

—

327

184

136

—

422

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
(2011: £0.1m).

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

111

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 21)

Contributions to defined contribution plans (note 23)

Average number of persons employed by the Group, including Directors, during the period:

Stores/Autocentres

Central warehousing

Head office

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

140.8

129.6

9.7

2.4

2.9

9.4

2.4

2.8

155.8

144.2

Number

11,276

10,886

193

582

148

590

12,051

11,624

Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 82 to 91 which forms 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
30 March 2012
£m

52 weeks to
1 April 2011
£m

2.1

0.3

0.2

1.0

3.6

1.9

0.2

0.3

1.0

3.4

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 (2011: £nil).

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

112

Financials

Notes to the Financial Statements continued

5. Non-recurring Items

For the period

Non-recurring operating expenses:

Lease guarantee provision(a)

Non-recurring items before tax

Tax on non-recurring items(b)

Non-recurring items after tax

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

(1.9)

0.9

(1.0)

7.5

(2.1)

5.4

(a)

A non-recurring expense of £7.5m was incurred in the prior year. This expense related to the creation of a provision for the potential
liabilities arising from lease guarantees provided by Halfords prior to July 1989. The guarantees were provided to landlords of properties
leased by Payless DIY (subsequently 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. In the current year a change in approach to settling the Group’s guarantor
obligations has resulted in a release of £1.9m of the original amounts provided.

(b)

This represents a tax charge at 26% on all current year non-recurring items plus a prior year tax charge of £0.4m arising from the
non-deductibility of two payments made to landlords to release Halfords from its guarantor obligations under those leases. The prior period
represents a tax credit at 28% on these non-recurring costs.

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

Finance costs

Finance income:

Bank and similar interest

Other interest receivable

Finance income

Net finance costs

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

(2.5)

(0.9)

(1.1)

(0.2)

(0.8)

(5.5)

0.1

0.4

0.5

(5.0)

(2.1)

(0.4)

(0.6)

(0.4)

(0.8)

(4.3)

0.9

1.8

(2.5)

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

113

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

n
o
i
t
c
u
d
o
r
t
n

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

26.7

(0.8)

25.9

(0.7)

0.5

(0.2)

25.7

35.7

(4.1)

31.6

(0.2)

1.2

1.0

32.6

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 26% (2011: 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

Impact of change in tax rate on deferred tax balance

Total tax charge for the period

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

94.1

24.5

1.7

0.5

(1.3)

0.5

(0.3)

0.1

25.7

118.1

33.1

1.2

(0.7)

0.7

(2.9)

—

32.6

The 2011 Budget on 23 March 2011 announced that the UK corporation tax rate will reduce to 23% over a period of four years from 2011. The
first reduction in the UK corporation tax rate from 28% to 27% (effective from 1 April 2011) was substantively enacted on 20 July 2010, and
further reductions to 26% (effective from 1 April 2011) and 25% (effective from 1 April 2012) were substantively enacted on 29 March 2011 and
5 July 2011 respectively.

The 2012 Budget on 21 March 2012 announced a further reduction in the corporation tax rate to 24% (effective from 1 April 2012). This was
substantively enacted on 26 March 2012. Further rate reductions in future periods will reduce the UK corporation tax rate to 22% over the next
two years. This will reduce the Company’s future current tax charge accordingly.

The deferred tax liability at 30 March 2012 has been calculated based on future rate of 24% which was substantively enacted at the balance
sheet date.

It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further reduce the
Company’s future current tax charge and reduce the Company’s deferred tax liability accordingly.

In this financial period, the UK corporation tax standard rate was 26% (2011: 28%).

The effective tax rate of 27.3% (2011: 27.6%) differs from the UK corporation tax rate principally due to the non-deductibility of depreciation
charged on capital expenditure, tax charges arising from the settlement of obligations associated with the Focus lease provision and other
permanent differences arising in the period.

The tax charge of £25.7m (2011: £32.6m) includes a charge of £0.9m (2011: credit of £2.1m) in respect of tax on non-recurring items, as
detailed in note 5.

An Income tax charge of £0.3m (2011: £1.1m credit) 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.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

114

Financials

Notes to the Financial Statements continued

8. Dividends

For the period

Equity — ordinary shares

Final for the 52 weeks to 1 April 2011 — paid 14.00p per share (2011: 14.00p)

Interim for the 52 weeks to 30 March 2012 — paid 8.00p per share (2011: 8.00p)

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

28.5

15.7

44.2

29.3

16.9

46.2

In addition, the Directors are proposing a final dividend in respect of the financial period ended 30 March 2012 of 14.00p per share (2011:
14.00p per share), which will absorb an estimated £27.9m (2011: £28.5m) of shareholders’ funds. It will be paid on 3 August 2012 to
shareholders who are on the register of members on 6 July 2012.

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 20) 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 30 March 2012.

The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-recurring items because it better
reflects the Group’s underlying performance.

For the period

Weighted average number of shares in issue

Less: shares held by the Employee Benefit Trust (weighted average)

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
30 March 2012
Number of
shares
m

52 weeks to
1 April 2011
Number of
shares
m

203.8

(3.9)

199.9

1.0

200.9

211.5

(1.1)

210.4

2.4

212.8

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

68.4

(1.9)

0.9

67.4

85.5

7.5

(2.1)

90.9

52 weeks to
30 March 2012

52 weeks to
1 April 2011

34.2p

34.0p

33.7p

33.5p

40.7p

40.2p

43.2p

42.7p

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

115

10. Intangible Assets

Cost

At 2 April 2010

Additions

At 1 April 2011

Additions

At 30 March 2012

Amortisation

At 2 April 2010

Charge for the period

At 1 April 2011

Charge for the period

At 30 March 2012

Net book value at 30 March 2012

Net book value at 1 April 2011

Brand
names and
trademarks
£m

Customer
relationships
£m

Favourable
leases
£m

Computer
software
£m

Goodwill
£m

1.1

—

1.1

—

1.1

0.3

0.4

0.7

0.4

1.1

—

0.4

14.9

—

14.9

—

14.9

0.2

1.7

1.9

1.7

3.6

11.3

13.0

2.3

—

2.3

—

2.3

—

0.1

2.2

2.3

19.7

2.6

22.3

2.1

24.4

11.6

2.5

14.1

2.7

16.8

7.6

8.2

344.5

—

344.5

—

344.5

21.7

—

21.7

—

21.7

322.8

Total
£m

382.5

2.6

385.1

2.1

387.2

33.8

4.6

38.4

4.9

43.3

343.9

346.7

n
o
i
t
c
u
d
o
r
t
n

w
e
v
e
R
s
s
e
n
s
u
B

No intangible assets are held as security for external borrowings.

Included in Computer software are internally generated assets of £0.3m (2011: £0.3m). 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 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, incorporating the strategies and risks of each segment.

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 30 March 2012 and 1 April 2011 are as follows:

Discount rate

Growth rate

Retail

Car Servicing

Notes

2012

10.5%

0.0%

2011

14.2%

0.0%

2012

10.8%

0.0%

2011

14.9%

0.0%

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

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, including a plus or minus 1% change in the discount
rate, would not cause the carrying amounts to exceed the recoverable amounts.

s
a
c
n
a
n
F

116

Financials

Notes to the Financial Statements continued

11 Property, Plant and Equipment

Cost

At 2 April 2010

Additions

Disposals

Reclassifications

At 1 April 2011

Additions

Disposals

Reclassifications

At 30 March 2012

Depreciation

At 2 April 2010

Depreciation for the period

Disposals

At 1 April 2011

Depreciation for the period

Disposals

At 30 March 2012

Net book value at 30 March 2012

Net book value at 1 April 2011

Fixtures,
fittings
and
equipment
£m

Payments on
account and
assets in
course of
construction
£m

Land and
buildings
£m

52.3

5.3

(0.6)

0.5

57.5

3.1

(0.5)

0.1

60.2

23.1

3.0

(0.5)

25.6

3.6

(0.3)

28.9

31.3

31.9

296.0

14.7

(6.5)

6.9

311.1

14.5

(5.0)

0.1

320.7

229.7

17.4

(6.5)

240.6

17.5

(4.0)

254.1

66.6

70.5

7.4

0.2

—

(7.4)

0.2

—

(0.2)

—

0.2

Total
£m

355.7

20.2

(7.1)

—

368.8

17.6

(5.5)

—

380.9

252.8

20.4

(7.0)

266.2

21.1

(4.3)

283.0

97.9

102.6

Payments on account and assets in the course of construction reclassified in the prior period mainly included the costs associated with the new
distribution centre in Coventry.

No fixed assets are held as security for external borrowings.

Included in the above are assets held under finance leases as follows:

As at 30 March 2012

Cost

Accumulated depreciation

Net book value

As at 1 April 2011

Cost

Accumulated depreciation

Net book value

(1) Relates to the Halfords head office building lease, which expires in 2028.

Land and
Buildings(1)

£m

Fixtures,
fittings, and
equipment
£m

12.7

(4.1)

8.6

12.7

(3.6)

9.1

0.8

(0.8)

—

0.8

(0.8)

—

Total
£m

13.5

(4.9)

8.6

13.5

(4.4)

9.1

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

117

Finance lease liabilities are payable as follows:

Minimum
lease
payments
2012
£m

1.0

4.4

13.5

18.9

Interest
2012
£m

Principal
2012
£m

0.7

2.7

4.0

7.4

0.3

1.7

9.5

11.5

Minimum
lease
payments
2011
£m

1.0

4.3

14.7

20.0

n
o
i
t
c
u
d
o
r
t
n

Interest
2011
£m

0.7

2.9

4.6

8.2

Principal
2011
£m

0.3

1.4

10.1

11.8

Less than one year

Between one and five years

More than five years

12. Inventories

Finished goods for resale

2012
£m

146.7

2011
£m

147.6

Finished goods inventories include £9.2m (2011: £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 £16.0m was recognised as an expense in respect of the write-down of inventories (2011: £11.0m) to net realisable value.

No inventories are held as security for external borrowings.

13. 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

2012
£m

12.5

(0.3)

12.2

3.8

29.0

45.0

2011
£m

10.4

(0.3)

10.1

2.8

29.1

42.0

During the period the Group charged the provision with £0.1m (2011: £0.3m) for the impairment of trade receivables and utilised £0.1m
(2011: £0.1m).

The following table shows the age of financial assets that are past due and for which no provision for bad or doubtful debts has been raised:

Neither past due nor impaired

Past due by 1–30 days

Past due by 31–90 days

Past due by 91–180 days

Past due by more than 180 days

2012
£m

11.9

1.7

0.6

0.4

0.3

14.9

2011
£m

10.0

0.9

1.3

0.3

—

12.5

The Group does not have any individually significant customers and so no significant concentration of credit risk.

Based on historic default rates and extensive analysis of the underlying customers’ credit ratings, the Group believes that no impairment
allowance is necessary in respect of trade receivables not past due or past due by up to 30 days.

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

Financial assets in the scope of IAS 39 include all trade receivables and £2.7m (2011: £2.4m) of other receivables.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

118

Financials

Notes to the Financial Statements continued

14. Cash and Cash Equivalents

Cash at bank and in hand

2012
£m

13.4

2011
£m

2.7

The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.

15. Borrowings

Current

Unsecured bank overdraft

Finance lease liabilities

Non-current

Unsecured bank loan and other borrowings(1)

Finance lease liabilities

2012
£m

2.5

0.3

2.8

138.6

11.2

149.8

2011
£m

7.3

0.3

7.6

86.8

11.5

98.3

(1) The above borrowings are stated net of unamortised issue costs of £2.4m (2011: £3.2m).

The Group’s current debt facility came into effect from 5 November 2010 and is a four-year £300m revolving credit facility starting from that date
(with an option to extend by a further year). The facility carries an interest rate of LIBOR plus a margin which is variable based upon the covenant
certificate and which is currently 150 basis points.

The Group had the following undrawn committed borrowing facilities available at each balance sheet date in respect of which all conditions
precedent had been met:

Expiring within 1 year

Expiring between 1 and 2 years

Expiring between 2 and 5 years

2012
£m

1.0

—

159.0

160.0

2011
£m

1.0

—

210.0

211.0

The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £159.0m
(2011: £210.0m) relates to the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.

16. Trade and Other Payables

Current liabilities

Trade payables

Other taxation and social security payable

Other payables

Deferred income — lease incentives

Accruals and other deferred income

Non-current liabilities

Deferred income — lease incentives

2012
£m

81.2

18.7

5.1

4.0

31.4

140.4

2011
£m

80.7

18.1

5.4

3.7

34.1

142.0

28.8

27.7

Contingent consideration of £0.7m (2011: £1.0m) relating to the acquisition of Nationwide Autocentres, payable to certain shareholders
remaining as Directors, was settled in the year. There is no further consideration due in relation to this acquisition.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

119

17. Provisions

At 1 April 2011

Charged during the period

Utilised during the period

Released during the period

At 30 March 2012

Analysed as:

Current liabilities

Non-current liabilities

Central
Europe exit
£m

Property
related
£m

Other
trading
£m

0.8

—

(0.5)

—

0.3

—

15.3

2.4

(5.8)

(2.7)

9.2

6.7

2.5

1.8

1.2

(1.2)

—

1.8

—

n
o
i
t
c
u
d
o
r
t
n

Total
£m

17.9

3.6

(7.5)

(2.7)

11.3

8.8

2.5

The Central Europe exit provision represents the costs associated with the closure of all seven stores trading in the Czech Republic and Poland.

Property related provisions consist of costs associated with vacant property, rent reviews and dilapidations. Also included are prior period
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. In the current year a change in approach to settling the Group’s guarantor obligations has resulted in a release of
£1.9m of the original amounts provided.

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 provision 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 in to the provision amount to take account of this sensitivity.

Provision is also made for loss-making stores and autocentres which management does not expect to become profitable.

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.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

120

Financials

Notes to the Financial Statements continued

18. Deferred Tax

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon in the current and prior reporting
periods.

At 2 April 2010

Credit/(charge) to the income statement

Credit to other comprehensive income

Credit to equity

At 1 April 2011

Credit/(charge) to the income statement

Charge to other comprehensive income

Charge to equity

At 30 March 2012

Property
related
items
£m

Short-term
timing
differences
£m

Share-based
payments
£m

Intangible
assets
£m

(3.7)

1.3

—

(2.4)

(0.1)

—

(2.5)

6.5

(2.2)

1.1

—

5.4

(0.2)

(0.3)

—

4.9

1.7

(1.0)

—

0.1

0.8

(0.2)

—

(0.4)

0.2

(5.0)

0.9

—

(4.1)

0.8

—

(3.3)

Total
£m

(0.5)

(1.0)

1.1

0.1

(0.3)

0.3

(0.3)

(0.4)

(0.7)

Deferred income tax assets and liabilities are offset when the Group has a legally enforceable right to do so and when the deferred income taxes
relate to the same fiscal authority. The offset amounts are as follows:

30 March 2012
£m

1 April 2011
£m

5.1

(5.8)

(0.7)

6.2

(6.5)

(0.3)

Deferred tax assets

Deferred tax liabilities

19. Financial Instruments and Related Disclosures

Treasury Policy

The Group’s treasury department’s main responsibilities are to:

■ Ensure adequate funding and liquidity for the Group;

■ Manage the interest risk of the Group’s debt;

■ Invest surplus cash;

■ Manage the clearing bank operations of the Group; and

■ Manage the foreign exchange risk on its non-sterling cash flows.

Treasury activities are delegated by the Board to the Finance Director. The Finance Director 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.

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. Details of the Group’s current borrowing facilities are contained in
note 15.

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, subject to price fluctuation. The Group
mitigates this risk 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 interest rates and the Group will continue to monitor movements in the swap market.

If interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) were to change
by plus or minus 1% the impact on the results in the Income Statement and equity would be a decrease/increase of £1.2m (2011: £0.9m).

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

121

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.

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 buyback scheme. A separate share buyback scheme was initiated on 7 April 2011.

n
o
i
t
c
u
d
o
r
t
n

The Group manages capital by operating within debt ratios. These ratios are:

■ consolidated EBITDAR (earnings before non-recurring items, finance expense, depreciation, amortisation and rental costs) to consolidated

total net interest payable plus rent; and

■ consolidated total net borrowings to consolidated EBITDA.

Fair Value Disclosures

The fair value of each class of financial assets and liabilities is the carrying amount, based on the following assumptions:

Trade receivables, trade payables and
finance lease obligations, short-term
deposits and borrowings

Long-term borrowings

Forward currency contracts

Fair Value Hierarchy

The fair value approximates to the carrying amount because of the short maturity of these
instruments, using an interest rate of 7.1% for long-term finance lease obligations.

The fair value of bank loans and other loans approximates to the carrying value reported in the
balance sheet as the majority are floating rate where payments are reset to market rates at
intervals of less than one year.

The fair value is determined using the market forward rates at the reporting date and the outright
contract rate.

Financial instruments carried at fair value are required to be measured by reference to the following levels:

■ Level 1: quoted prices in active markets for identical assets or liabilities;

■ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices); and

■ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All financial instruments carried at fair value have been measured by a Level 2 valuation method.

The fair value of financial assets and liabilities are as follows:

Cash and cash equivalents

Loans and receivables

Forward exchange contracts used for hedging (assets)

Total financial assets

Trade and other payables — held at amortised cost

Borrowings at amortised cost

Finance leases

Total financial liabilities

2012
£m

13.4

14.9

0.3

28.6

(109.9)

(141.0)

(11.5)

(262.4)

2011
£m

2.7

12.5

0.3

15.5

(112.1)

(90.0)

(11.8)

(213.9)

Trade and other payables within the scope of IAS 39 include all trade payables, all other payables and £23.6m (2011: £26.0m) of accruals and
deferred income.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

122

Financials

Notes to the Financial Statements continued

19. Financial Instruments and Related Disclosures continued

Credit Risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date
was £28.6m (2011: £15.5m) as detailed in the table above.

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 30 March 2012, 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 and forward foreign exchange contracts.

The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:

Cash and cash equivalents

Trade and other payables

30 March 2012

1 April 2011

USD
£m

4.8

(15.4)

(10.6)

Other
£m

1.0

(0.3)

0.7

USD
£m

—

(13.6)

Other
£m

1.4

(0.3)

1.1

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

2012
Increase/
(decrease)
in equity
£m

10.2

(8.5)

2011
Increase/
(decrease)
in equity
£m

11.0

(8.7)

A strengthening/weakening of sterling, as indicated, against the USD at 30 March 2012 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 relate to the fair value movements on the Group’s forward
contracts that are used to hedge future stock purchases.

Pension Liability Risk

The Group has no association with any defined-benefit pension scheme and therefore carries no deferred, current or future liabilities in respect of
such a scheme. The Group operates a number of Group Personal Pension Plans for colleagues.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

123

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 are 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 £30m, 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 year-end four of the banks
within this group maintained a credit rating of ‘A’ or above. The counterparty credit risk is reviewed in the Treasury Report, which is forwarded to
the Treasury Committee and the Group Treasurer reviews credit exposure on a daily basis.

n
o
i
t
c
u
d
o
r
t
n

The risk is measured through review of forecast liquidity each month by the Group 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. There have been no breaches of covenants
during the reported periods.

The contractual maturities of finance leases are disclosed in note 11. All trade and other payables are due within one year.

The contractual maturity of bank borrowings, including estimated interest payments and excluding the impact of netting agreements is
shown below:

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

30 March 2012
Bank
borrowings
£m

1 April 2011
Bank
borrowings
£m

4.0

143.5

—

151.5

138.6

3.2

95.0

—

101.4

86.8

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 30 March 2012 (1 April 2011).

Due less than one year

Due between 1 and 2 years

Contractual cash flows

Fair value

Receivables
£m

92.2

0.3

92.5

0.3

2012
Payables
£m

(93.4)

(0.3)

(93.7)

(1.5)

Receivables
£m

95.4

1.2

96.6

0.3

2011
Payables
£m

(97.8)

(1.3)

(99.1)

(2.3)

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

124

Financials

Notes to the Financial Statements continued

20. Capital and Reserves

Ordinary shares of 1p each:
Allotted, called up and fully paid

2012
Number of
shares

2012

£’000

2011
Number of
shares

199,383,222

1,994

211,985,998

2011

£’000

2,120

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 decreased by 12,602,776 shares (2011: increased by 1,275,038 shares). During the
period the Company repurchased and cancelled 12,634,493 shares, and 31,717 new shares were issued on exercise of share options by
employees. There has been no significant impact on share premium as a result of the shares issued, with share premium remaining at £151.0m
(2011: £151.0m).

In total the Company received proceeds of £2.1m (2011: £4.5m) from the exercise of share options.

Interest in Own Shares

At 30 March 2012 the Company held in Trust 4,932,009 (2011: 1,108,520) of its own shares with a nominal value of £49,320 (2011: £11,085).
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 30 March 2012 was £15.4m (2011: £3.9m). In the current period 5,449,620 shares were repurchased and transferred into the
Trust, with 1,626,131 reissued on exercise of share options.

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.

21. Share-based Payments

The Group has three share award plans, all of which are equity-settled schemes:

1. Halfords Company Share Option Scheme

The CSOS was introduced in June 2004 and the Company has made annual grants since. Options are granted with a fixed exercise price equal
to the market price of the shares under option at the date of grant. The contractual life of an option is 10 years.

Options granted will become exercisable on the third anniversary of the date of grant, subject to the achievement of a three-year performance
condition. For grants up to 150% of basic salary the options can only be exercised if the increase in earnings per share (“EPS”) over the period is
not less than the increase in the Retail Price Index (“RPI”) plus 3.5% per year. 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.

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.

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.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

125

The TSR element of the options granted under the schemes 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 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 and 2010 under the Performance Share Plan earned final dividends
of 14p per share and were reinvested in shares at a cost of £3.03 per share. Shares awarded in 2009, 2010 and 2011 under the PSP earned
interim dividends of 8p per share and were reinvested in shares at a cost of £3.19 per share.

n
o
i
t
c
u
d
o
r
t
n

The Group Income Statement charge recognised in respect of share-based payments for the current and prior periods is detailed in the
table below:

Share award plan

Company Share Option Scheme (“CSOS”)

Sharesave Scheme (“SAYE”)

Performance Share Plan (“PSP”)

Total charge

30 March 2012
£m

1 April 2011
£m

0.5

0.3

1.6

2.4

0.7

0.3

1.4

2.4

w
e
v
e
R
s
s
e
n
s
u
B

The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP):

For the period ended 30 March 2012

Outstanding at start of year

Granted

Shares representing dividends reinvested

Forfeited

Exercised

Lapsed

Outstanding at end of year

Exercisable at end of year

CSOS

SAYE

PSP

Number
(’000)

WAEP
(£)

Number
(’000)

WAEP
(£)

3,556

950

—

(119)

(529)

3,858

1,449

3.84

2.96

—

3.06

3.63

3.68

3.22

1,395

638

—

(5)

(878)

(242)

908

2.45

2.92

—

3.42

1.93

3.33

3.05

1.93

Number
(’000)

1,752

692

(221)

(623)

(69)

1,615

—

Exercise price range (£)

Weighted average remaining contractual life (years)

2.60 to 5.03

7.5

1.93 to 4.15

1.8

WAEP
(£)

0.00

1.4

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

126

Financials

Notes to the Financial Statements continued

21. Share-based Payments continued

For the period ended 1 April 2011

CSOS

SAYE

PSP

WAEP
(£)

Number
(’000)

WAEP
(£)

Number
(’000)

WAEP
(£)

Number
(’000)

3,698

1,341

—

(925)

(558)

3,556

466

Outstanding at start of year

Granted

Shares representing
dividends reinvested

Forfeited

Exercised

Lapsed

Outstanding at end of year

Exercisable at end of year

Exercise price range (£)

Weighted average remaining
contractual life (years)

3.43

4.87

—

3.87

3.53

3.84

3.52

1,683

295

—

(7)

(322)

(254)

1,395

2.22

4.15

—

2.83

2.76

2.50

2.45

3.11

1,692

320

(129)

(125)

(51)

1,752

2.60 to 5.03

1.93 to 4.15

8.0

0.9

The following table gives the assumptions applied to the options granted in the respective periods shown:

Grant date

Share price at grant date

Exercise price

Expected volatility

Option life (years)

Expected life (years)

Risk free rate

Expected dividend yield

Probability of forfeiture

Weighted average fair value of
options granted

52 weeks to 30 March 2012

52 weeks to 1 April 2011

CSOS

£3.04

£2.96

33%

4.85

1.50%

7.42%

33%

SAYE

£3.04

£2.92

35%

3.5

1.09%

7.42%

44%

PSP

£2.93

£0.00

34%

CSOS

£4.86–£5.03

35%

4.85

— 1.80%–2.15%

7.34% 4.00%–4.08%

30%

33%

SAYE

£5.14

£4.15

39%

3.5

1.49%

4.26%

44%

£0.41

£0.44

£2.02

£1.08

£1.22

£3.65

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.

0.00

0.7

PSP

£4.86

£0.00

41%

—

4.08%

30%

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

127

22. Commitments

Capital expenditure: Contracted but not provided

2012
£m

0.5

2011
£m

1.0

At 30 March 2012, the Group was committed to making payments in respect of non-cancellable operating leases in the following periods:

n
o
i
t
c
u
d
o
r
t
n

Within one year

Later than one year and less than five years

After five years

Land and
buildings
2012
£m

87.0

285.2

325.4

697.6

Other
assets
2012
£m

1.7

3.0

0.4

5.1

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

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 total future minimum receipts of sublet income, which totalled £6.4m (2011: £7.2m).

w
e
v
e
R
s
s
e
n
s
u
B

23. 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 £2.9m (2011: £2.8m).

24. 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 30 March 2012 amounted to £3.9m (2011: £3.9m).

The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.

25. 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 pages 128 to 133.

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 82 to 91. Key management compensation is disclosed
in note 4.

Directors of the Company control 0.23% of the ordinary shares of the Company.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

26. Off Balance Sheet Arrangements

The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

s
a
c
n
a
n
F

128

Financials

Company Balance Sheet

Fixed assets

Investments

Current assets

Debtors falling due within one year

Debtors falling due after one year

Cash and cash equivalents

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

Investment in own shares

Capital redemption reserve

Profit and loss account

Total shareholders’ funds

30 March
2012
£m

1 April
2011
£m

Notes

572.9

570.8

44.1

—

8.6

52.7

(0.3)

52.4

(257.8)

367.5

2.0

151.0

(14.0)

0.3

228.2

367.5

—

40.8

—

40.8

(0.6)

40.2

(146.8)

464.2

2.1

151.0

(0.6)

0.2

311.5

464.2

The notes on pages 131 to 133 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 130.

The financial statements on pages 128 to 133 were approved by the Board of Directors on 30 May 2012 and were signed on its behalf by:

David Wild
Chief Executive

Andrew Findlay
Finance Director

Company number: 04457314

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

129

Reconciliation of Movements in Total Shareholders’ Funds

For the period

Profit for the period

Share options exercised

Purchase of own shares

Employee share options

Dividends

Net (decrease)/increase in total shareholders’ funds

Opening total shareholders’ funds

Closing total shareholders’ funds

52 weeks to
30 March 2012
£m

52 weeks to
1 April 2011
£m

6.0

2.1

(62.7)

2.1

(44.2)

(96.7)

464.2

367.5

n
o
i
t
c
u
d
o
r
t
n

322.7

4.5

—

2.4

(46.2)

283.4

180.8

464.2

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

130

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 30 March 2012, whilst the comparative period covered the 52 weeks to 1 April 2011. 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”.

EBTs are accounted for under UITF 32 and are consolidated on the basis that the parent has control, thus the assets and liabilities of the EBT are
included on the Company balance sheet and shares held by the EBT in the Company are presented as a deduction from equity.

Share-based Payments

The Company operates a number of equity-settled, share-based compensation plans that are awarded to employees of the Company’s subsidiary
undertakings.

In accordance with UITF Abstract 44 “FRS 20 (IFRS 2) – Group and treasury share transactions” the fair value of the employee services received
under such schemes is recognised as an expense in the subsidiary undertakings’ financial statements, which benefit from the employee services. The
Company has recognised the fair value of the share-based payments as an increase to equity with a corresponding adjustment to investments.

Fair values are determined using appropriate option pricing models. The total fair value recognised is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is
based on the number of awards that 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.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

131

Notes to the Financial Statements

1. Profit and Loss Account

The Company made a profit before dividends paid for the financial period of £6.0m (52 week period to 1 April 2011: £322.7m). 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. Fees Payable to the Auditors

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 30 March 2012 the Company expensed £0.1m (2011: £0.2m) in fees relating to KPMG Audit Plc.

n
o
i
t
c
u
d
o
r
t
n

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 82 to 91 which forms part of the audited information.

Investments

Shares in Group undertaking

Cost

As at 1 April 2011

Additions — share-based payments

Additions — increase in subsidiary undertaking investment

At 30 March 2012

£m

570.8

2.1

—

572.9

The investments represent shares in the following subsidiary undertakings as at 30 March 2012 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

Gibraltar

Ordinary shares
percentage owned %

Principal
activities

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.

Principal Subsidiary Undertakings

The principal subsidiary undertakings of the Company at 30 March 2012 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

Retailing of auto parts, accessories, cycles and cycle
accessories

Intermediate holding partnership

Intermediate holding company

Car Servicing

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

—

w
e
v
e
R
s
s
e
n
s
u
B

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

132

Financials

Notes to the Financial Statements continued

Investments continued

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

Falling due after more than one year:

Amounts owed by Group undertakings

2012
£m

44.1

—

2011
£m

—

40.8

Amounts owed by Group undertakings are subject to interest. At 30 March 2012 the amounts bear interest at a rate of 4.83% (2011: 2.07%).

6. Creditors

Falling due within one year:

Accruals and deferred income

Falling due after more than one year:

Bank borrowings (note 7)

Amounts owed to Group undertakings

7. Borrowings

Maturity of debt — bank loans

Expiring between one and two years

Expiring between two and five years(1)

2012
£m

0.3

138.6

119.2

257.8

2012
£m

—

138.6

2011
£m

0.6

86.8

60.0

146.8

2011
£m

—

86.8

(1) The above borrowings are stated net of unamortised issue costs of £2.4m (2011: £3.2m).

Details of the Company’s borrowing facilities are in note 15 to the Group financial statements.

8. Equity Share Capital

Ordinary shares of 1p each:

Allotted, called up and fully paid

2012
Number of
shares

2012

£000

2011
Number of
shares

2011

£000

199,383,222

1,994

211,985,998

2,120

In total the Company received proceeds of £2.1m (2011: £4.5m) from the exercise of share options.

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

133

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 21 of the Group’s financial statements.

Interest in Own Shares

n
o
i
t
c
u
d
o
r
t
n

9. Reserves

At 1 April 2011

Profit for the financial period

Share options exercised

Share-based payment transactions

Purchase of own shares

Dividends

At 30 March 2012

Share
premium
account
£m

151.0

—

151.0

Investment
in own
shares
£m

Capital
redemption
reserve
£m

Profit and
loss account
£m

(0.6)

—

4.6

—

(18.0)

—

(14.0)

0.2

—

0.1

—

0.3

311.5

6.0

(2.5)

2.1

(44.7)

(44.2)

228.2

Total
£m

462.1

6.0

2.1

(62.6)

(44.2)

365.5

w
e
v
e
R
s
s
e
n
s
u
B

The Company settled dividends of £44.2m (2011: £46.2m) in the period, as detailed in note 8 to the Group financial statements.

Included in the profit and loss account is £118m of reserves that are not distributable (2011: £118m).

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.

11. Contingent Liabilities

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.

s
e
c
r
u
o
s
e
R

e
c
n
a
n
r
e
v
o
G

s
a
c
n
a
n
F

134

Financials

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

Weighted average number of shares

52 weeks
to
28 March
2008
£m

53 weeks
to
3 April
2009
£m

52 weeks
to
2 April
2010
£m

52 weeks
to
1 April
2011
£m

52 weeks
to
30 March
2012
£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

218.4m

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

209.5m

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

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

863.1

(390.3)

472.8

(373.7)

97.2

1.9

99.1

(5.0)

92.2

1.9

—

94.1

(24.8)

(0.9)

68.4

34.2p

33.7p

209.1m

210.4m

198.9m

Key Performance Indicators

Revenue growth

Gross margin

Operating margin

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%

52 weeks
to
30 March
2012

-0.8%

54.8%

11.5%

Halfords Group plc
Annual Report & Accounts for period ended 30 March 2012

Online version
halfords.annualreport2012.com

135

Analysis of Shareholders

As at 30 March 2012, the number of registered shareholders was 3,312 and the number of ordinary shares in issue was 199,383,222

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

Results and Financial Diary

Annual General Meeting: 31 July 2012.
Final dividend: 3 August 2012.
Record date: 6 July 2012.
Ex dividend date: 4 July 2012.
Pre-close statement: October 2012.
Half-year report: November 2012.

No. of holdings

% of total
shareholders

No. of
Shares

% of Issued
Share Capital

2,755

142

162

114

83.2

4.3

4.9

1.8

3.4

2.4

3,836,757

1,011,779

3,805,057

4,303,412

24,000,118

162,426,099

3,312

100.0

199,383,222

1,794

1,518

3,312

54.2

45.8

3,151,074

196,232,148

100.0

199,383,222

1.9

0.5

1.9

2.2

12.0

81.5

100.0

1.6

98.4

100.0

Annual General Meeting

The AGM of the Group is to be held on Tuesday 31 July 2012 at the
Hyatt Regency Birmingham, Bridge Road, Birmingham, B1 2JZ.

Each shareholder is entitled to attend and vote at the meeting.