Halfords Group plc
Annual Report & Accounts
for period ended 29 March 2013
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22357-04 11/06/2013 FRONT Proof 11
We help and inspire
our customers with their
life on the move
all whilst
22357-04 11/06/2013 FRONT Proof 11 Contents
Introduction
Business Model
Financial Highlights
Segmental Summary
Market Review
Shareholder KPIs
Retail KPIs
Autocentres KPIs
Chairman’s Statement
Strategy
Strategic Pillars
Group Strategy
Group Chief Executive Officer’s Review
Transforming Halfords
Service Revolution
The H Factor
Stores Fit to Shop
21st Century Infrastructure
Click with the Digital Future
Group Finance Director’s Report
Risks and Uncertainties
Corporate Responsibility Report
Governance
Board of Directors
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
We are
❙ The UK’s leading retailer of automotive and cycling products
❙ The leading operator in garage servicing and auto repair in the UK
❙ Cash generative
❙ Focused on sustainable and profitable revenue growth
We have
❙ Many brands and product categories which hold number one market
Financials
positions in the UK
❙ Unrivalled scale and national coverage and an agile global sourcing
infrastructure
❙ Skills in brand management and maximising marketing opportunities
❙ A service-based proposition
❙ A significant online presence
❙ Thousands of amazing colleagues across our business who are
knowledgeable experts providing advice and a range of fitting and repair
services for customers
We plan to
❙ Maintain our leading core retail and car servicing positions
❙ Source the best products and launch exclusive ranges extending the breadth
and quality of our product ranges
❙ Provide a great customer experience through well-trained, knowledgeable
colleagues, good stock availability and improved store environments
❙ Provide real value solutions, balancing high-quality products with a
competitive combination of range, price, service and product knowledge
❙ Create a service-led digital proposition
❙ Make Halfords great!
Front cover:
Capturing the spirit of British Cycling
in our latest TV advertising campaign
View online:
www.halfordscompany.com/media-centre/videos
Statement of Directors’ Responsibilities
in Respect of the Annual Report and the
Financial Statements
Independent Auditor’s Report to
the Members of Halfords Group plc
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in
Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Statement of Cash Flows
Accounting Policies
Notes to the Financial Statements
Company Balance Sheet
Reconciliation of Movements in
Total Shareholders’ Funds
Accounting Policies
Notes to the Financial Statements
Shareholder and
Customer Information
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
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Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 02
Business Model
Halfords has core competences in marketing, branding, store retailing,
distribution and international sourcing which allow value to be
generated through high quality products via a combination of range,
competitive prices and expert services both in our Retail stores and
Autocentres garages.
Our goal of growing profitable top line revenues in the medium and
long-term follows our strategic thread of “Helping and Inspiring our
Customers with their Life on the Move” and encompasses Supporting
Drivers of Every Car, Inspiring Cyclists of Every Age and Equipping
Families for their Leisure Time. This is delivered through our Car
Maintenance, Car Enhancement, Car Servicing, Cycling and Travel
Solutions categories and Halfords has good opportunities for growth,
consolidating fragmented markets with a national store network and
strong brand management and supplementing this with well-trained,
knowledgeable and service orientated colleagues in-store.
Evolving buyer trends have been met by developing a dynamic web
offer which enables customers to buy online and have their goods
delivered to a local store or direct to home. Customers can also reserve
products online and then collect in-store, offering further opportunities
for our colleagues to interact with our customers.
Augmenting our Retail offer with additional in-store repair and fitting
services further encourages colleague/customer interactions, providing
opportunities to upsell and attach accessories to our products whilst
improving customer service and loyalty and increasing average
transaction values.
Halfords has good opportunities for
growth, consolidating fragmented markets
with a national store network chain and
strong brand management.
Halfords is a trusted brand
in the automotive sector.
Halfords is a trusted brand in the automotive sector and our move
into garage servicing in 2010 was a natural extension to the Halfords
business model. Car Servicing has similar market drivers to our
successful Car Maintenance category and over the last three years
we have grown the business from 224 to 287* autocentres providing
service, repair and MOTs. Halfords provides services at more affordable
prices than most franchised garages and more comprehensively than
many independent garages.
As a retailer Halfords makes a profit from the combination of low-
cost sourcing and our supply chain coupled with excellent marketing
skills and a national store network, leveraging these skills in the car
service sector. We source direct from suppliers around the world who
manufacture products to our designs and rigid specifications and our
distribution team use their specialist knowledge to group and ship
products in line with the our sales plans.
We also create value for our customers by keeping our cost
structure as efficient as possible. The size of our operation means
that we can get advantages of scale and run our back office functions
at least costs.
Our brand is one of our greatest strengths and our strategy is to
leverage this as we grow our Group. We provide a single face to
customers so they can continue to connect with the Halfords brand
across our offer and, through new products, services and channels,
enjoy a great customer experience.
* 287 as at 23 May 2013.
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03
Revenue
+1.0%
£809.5m
+1.5%
£831.6m
+2.7%
£869.7m
+4.6%
£863.1m
–0.8%
£871.3m
+1.0%
1,000
800
600
400
200
0
Underlying Operating Profit
-19.7%
150
120
90
60
30
0
£119.7m
+15.1%
£128.1m
+7.0%
£104.0m
+3.0%
£97.2m
–24.1%
£78.1m
–19.7%
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Profit before Tax
-24.5%
Underlying Profit before Tax
-21.9%
120
100
80
60
40
20
0
£109.7m
+41.5%
£118.1m
+7.7%
£77.5m
–14.1%
£94.1m
–20.3%
£71.0m
–24.5%
150
120
90
60
30
0
£117.1m
+24.0%
£125.6m
+7.2%
£94.4m
+4.7%
£92.2m
–26.6%
£72.0m
–21.9%
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Underlying Basic Earnings per Share
Dividend per Ordinary Share
-17.8%
-22.3%
50
40
30
20
10
0
39.7p
+22.2%
43.2p
+8.8%
32.5p
+10.9%
33.7p
–22.0%
27.7p
–17.8%
25
20
15
10
5
0
20.0p
+25.8%
22.0p
+10.0%
22.0p
maintained
17.1p
-22.3%
15.9p
+5.3%
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 04
Segmental Summary
Group Revenue
£871.3m
D
C
A
A
Retail
B
87%
C
Car Maintenance
27.9%
Car Enhancement
21.3%
Cycling
25.3%
Travel Solutions
11.0%
B
D
Retail
86%
Autocentres
14%
The Halfords Group operates through two reportable segments:
“Retail” and “Autocentres”.
The business has three strategic pillars:
■ Supporting Drivers of Every Car
■ Inspiring Cyclists of Every Age
■ Equipping Families for their Leisure Time
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
multichannel offer which combines website promotion with direct
delivery or collection from store, backed up by in-store services.
Halfords Autocentres provides car service, MOTs, repair and tyres to
both retail and fleet customers 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 prices.
We always seek to leverage national advertising and cross sell between
Retail and Autocentres customers and 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.
We promote both businesses through
a multitude of broadcast, narrowcast and
traditional media presenting our valuable
services which facilitate life on the move
for our customers.
Retail
Halfords Retail employs approximately
10,000 colleagues and sells over 16,000
different product lines in store and
30,000 online with significant ranges in
car parts, in-car technology, child seats,
cycling, roof boxes, outdoor leisure
and camping equipment. Halfords
Retail trades from 466 Retail stores
located throughout the UK and the ROI
and online through halfords.com and
halfords.ie websites.
Autocentres
Halfords Autocentres employs
approximately 1,850 colleagues 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 287*
car-servicing centres located in the
United Kingdom and online through
halfordsautocentres.com
* 287 as at 23 May 2013.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
05
Supporting
drivers of
every car
Inspiring
cyclists of
every age
Equipping
families for their
leisure time
Supporting
drivers of
every car
Turnover
£745.5m
Operating Profit
(before non-recurring items)
£73.6m
Turnover
£125.8m
Operating Profit
£6.3m
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
06
Market Review
The Halfords Group
has a unique place in the
UK; through its Retail and
Autocentres divisions the
Group operates in a number
of diverse marketplaces.
Since the acquisition of Autocentres, Halfords has also consolidated
and strengthened its position in the c.£9bn servicing market. That
market was made up of c.22,000 garages in 2012, but that number is
consolidating, with outlet numbers dropping between 1% and 2%
per annum. Meanwhile, Halfords opens between 20 and 30 new
centres each year.
In the auto accessories and enhancement market, there are a number
of growth stories and opportunities in new technology too. The Sat Nav
market is slowing its decline with a bottoming out of the price deflation
that has occurred over recent years, and new technologies are coming
through which will necessitate an update for many Sat Nav users.
Halfords has also made gains in audio equipment thanks to reduced
competition on the high street, and with the digital switchover on
the horizon, this looks set to continue. No other business can match
Halfords’ skillset and price on Audio fitting and Sat Nav set-up and
demonstration.
Halfords has also recently cemented its position as the UK’s top online
retailer for child car seats, scoring highest in an investigation by Which?
into the best buying and fitting advice available.
With bulbs, blades and batteries becoming
increasingly complex to fit on new vehicles
and the DIY approach to fixing cars shrinking
with each generation of new drivers, the 3Bs
fitting market is worth around £950m.
Halfords Market Review
The Halfords Group has a unique place in the UK; through its Retail
and Autocentres divisions the Group operates in a number of diverse
marketplaces.
Within the Retail segment of the business, Halfords differentiates itself
in the markets of automotive, cycling and outdoor leisure across its
three strategic pillars of Supporting Drivers of Every Car, Inspiring
Cyclists of Every Age and Equipping Families for their Leisure Time.
With 466 locations, Halfords has a favourable market position, being
located less than 20 minutes away from 90% of the UK population.
Halfords.com, in combination with these stores and their experienced
staff, creates multiple channels and configurations for customers, with
in-store Reserve & Collect gathering pace in FY13.
The past 12 months has offered a number of one-off opportunities and
challenges that have affected a lot of Halfords’ core markets. From
once in a lifetime national events to record breaking (for all the wrong
reasons) weather, FY13 has certainly been a year of note.
Supporting Drivers of Every Car
The automotive market was largely unaffected by the exceptional
occurrences of FY13, with only slight developments in the
macroeconomic environment.
The number of cars in the car parc increased by c.1%, yet the service
market shrank slightly as consumers maintain tight spending control.
The increased size of the car parc offers opportunities in the value-
driven auto aftercare market though. With bulbs, blades and batteries
(“3Bs”) becoming increasingly complex to fit on new vehicles and the
DIY approach to fixing cars shrinking with each generation of new
drivers, the 3Bs fitting market is worth around £950m. With fitting
services in demand throughout FY13, Halfords is uniquely placed to
provide a value and hassle-free “Do It For Me” (“DIFM”) level of service
that more and more drivers are set to need.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 07
Providing safety first whilst introducing children to a ‘life on the move’
Inspiring Cyclists of Every Age
Whilst it is unlikely UK cycling will see another year like 2012 any time
soon, with the first ever British Tour de France winner followed by
another hugely successful performance from Team GB’s cyclists at the
London 2012 Olympics, its popularity is expected to grow.
Through its size and network,
Halfords can offer a greater depth of
range, competitive prices and convenient
locations.
Since 2009, with the lingering effects of the financial crisis “staycations”
have become popular in the UK. Continued tough economic
circumstances and low consumer confidence has seen the UK
camping market grow consistently ever since, with a 2012 Mintel report
estimating that there were almost 20 million trips taken by UK residents
in 2011.
Halfords has built on the back of this trend, offering a unique
combination of products and solutions. Through its size and network,
Halfords can also offer a greater depth of range, competitive prices and
more convenient locations.
While the leisure market also suffered greatly due to the adverse
weather in FY13, Halfords has good opportunities to improve its
outdoor offering, with increasing awareness of Halfords as the retailer
of choice for leisure equipment.
With household names such as Sir Bradley Wiggins and Victoria
Pendleton achieving further success and increasing their popularity,
and break-out stars such as Jason Kenny and Laura Trott emerging,
British cycling has never had so many inspirational ambassadors.
However, these events occurred during an extremely poor year for
weather. The Met Office reported that, apart from 2011, it was the
coolest summer since 1998, and the wettest summer for 100 years.
These contrasting fortunes make it extremely difficult to measure the
exact impact of the Olympics, but what is clear is that the cycling
market is buoyant. A Mintel report has estimated that the market
reached c.£700m in 2012, and is set to grow by around 23% over
the next five years. This can be added to the c.£700m cycling parts,
accessories and clothing (“PACs”) market and c.£100m cycling repair
market, which Halfords is also competitive in.
Within the cycling market itself, while already the largest for family
and kids’ bikes, FY13 has seen Halfords increase its presence in the
premium market.
With a strong brand, increasingly skilled workforce, a growing range
of products, an extensive national network of stores and a burgeoning
web presence, Halfords’ credibility as a place for Inspiring Cyclists of
Every Age is improving.
Equipping Families for their Leisure Time
The third of Halford’s strategic pillars is spread across several
fragmented markets, which can be grouped under the umbrella of
camping and outdoor leisure, while also encompassing a wide variety
of strategically chosen leisure impulse products.
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 08
Shareholder KPIs
Capturing value through range up selling
KPI
Definition
Commitment
Annual Performance
2009(1)
2010(1)
2011
2012
2013
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.
£94.4m
£117.1m
£125.6m
£92.2m
£72.0m
Underlying Earnings
per Share (“EPS”)
Underlying profits as defined above divided by the
number of shares in issue.
Net Debt
Bank debt plus finance leases, less cash and cash
equivalents both in-hand and at bank.
EPS is a measure of our investment thesis and as
such we aim to manage revenues and margins and
invest in long-term growth.
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 not required to
fund growth to shareholders.
32.5p
39.7p
43.2p
33.7p
27.7p
£176.2m
£155.5m
£103.2m
£139.2m £110.6m
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.
15.9p
20.0p
22.0p
22.0p
17.1p
Total Revenues(1)
Total sales revenues from all business activities.
The Group is committed to growing sales in all of its
core trading activities.
£809.5m
£831.6m
£869.7m
£863.1m £871.3m
Costs
(as a % of sales)
Group operating expenses from all business activities
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.
39.2%
40.0%
41.0%
43.5%
45.8%
Broadly flat Retail gross margin and a
decline in the Autocentres gross margin,
together with Retail operating costs up
5.3% and the profit drag created by
the Autocentre investment programme,
have contributed to a 21.9% decline in
underlying Profit Before Tax.
As a result of the above decline in profits,
EPS before non-recurring items is down
17.8% year-on-year.
The Group has continued its strong track
record of operating cash generation. Net
cash generated from operating activities
in the year was £93.5m (FY12: £89.7m).
The Board has recommended a final
dividend of 9.1 pence per share (FY12:
14.0 pence). The Board continues to
recognise the importance of dividends but
believes that such dividends should be
prudently covered by earnings.
At £871.3m Group revenues were up
1.0% year-on-year. Retail revenues
at £745.5m were down 0.9%, whilst
Autocentres revenues at £125.8m were
up 13.5%.
Total Group Operating costs before
non-recurring items increased by 6.2%
driven by a 13.1% increase in Support
Centre costs as a result of the investment
in improved recruitment and training in
stores and enhanced Support Centre
capability. The one-off costs associated
with executive team changes were also
included in Support Centre costs.
(1) Figures for the years 2009–2010 relate to the Retail business only.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 09
KPI
Definition
Commitment
Annual Performance
2009(1)
2010(1)
2011
2012
2013
Underlying Profit
Measures the normal underlying performance of the
The Board considers that this measurement of
business after removing non-recurring items.
profitability provides stakeholders with information
on trends and performance.
Underlying Earnings
Underlying profits as defined above divided by the
EPS is a measure of our investment thesis and as
per Share (“EPS”)
number of shares in issue.
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
The Group remains strongly cash generative and
equivalents both in-hand and at bank.
continues to invest in the business. The Board
is committed to maintaining an efficient balance
sheet, returning any surplus capital not required to
fund growth to shareholders.
Dividend per Ordinary
Cash returned to shareholders as a return on their
To maintain this policy whilst retaining the flexibility
Share
investment in the Company.
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
Group operating expenses from all business activities
We are committed to controlling costs and
(as a % of sales)
expressed as a percentage of sales.
the efficient use of resources, both through
cross-functional initiatives and a culture of cost
awareness.
(1) Figures for the years 2009–2010 relate to the Retail business only.
£94.4m
£117.1m
£125.6m
£92.2m
£72.0m
32.5p
39.7p
43.2p
33.7p
27.7p
£176.2m
£155.5m
£103.2m
£139.2m £110.6m
15.9p
20.0p
22.0p
22.0p
17.1p
£809.5m
£831.6m
£869.7m
£863.1m £871.3m
39.2%
40.0%
41.0%
43.5%
45.8%
Broadly flat Retail gross margin and a
decline in the Autocentres gross margin,
together with Retail operating costs up
5.3% and the profit drag created by
the Autocentre investment programme,
have contributed to a 21.9% decline in
underlying Profit Before Tax.
As a result of the above decline in profits,
EPS before non-recurring items is down
17.8% year-on-year.
The Group has continued its strong track
record of operating cash generation. Net
cash generated from operating activities
in the year was £93.5m (FY12: £89.7m).
The Board has recommended a final
dividend of 9.1 pence per share (FY12:
14.0 pence). The Board continues to
recognise the importance of dividends but
believes that such dividends should be
prudently covered by earnings.
At £871.3m Group revenues were up
1.0% year-on-year. Retail revenues
at £745.5m were down 0.9%, whilst
Autocentres revenues at £125.8m were
up 13.5%.
Total Group Operating costs before
non-recurring items increased by 6.2%
driven by a 13.1% increase in Support
Centre costs as a result of the investment
in improved recruitment and training in
stores and enhanced Support Centre
capability. The one-off costs associated
with executive team changes were also
included in Support Centre costs.
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
10
Retail KPIs
Supporting
drivers of
every car
Inspiring
cyclists of
every age
Equipping
families for their
leisure time
KPI
Definition
Strategy
Getting Into Gear
2016
Commitment
Like-for-like
Sales (“LfL”)
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.
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”).
wefit/werepair
revenue
The sales revenue generated from all
our fitting and repair services, including
the sale of Bike Care Plans.
Number of
Stores
Refreshed/
Refurbished
The layout and offering within our
stores is important as the two formats
of choice (Superstore and High Street)
allow us to reach both large and small
catchment areas.
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 and Order & Collect offer and
visiting stores after researching online.
We are committed to maximising
our like-for-like sales opportunities
in whatever economic
environments we find ourselves.
Gross Profit is an important
indicator of the Company’s
financial performance. Within the
business we focus on maximising
cash margin generation.
Expert knowledge, advice and
service remain at the heart of
the Halfords customer offer and
specifically through fitting. This
differentiates and defends the
Halfords offer and generates
attractive levels of return.
Expert knowledge, advice and
service remain at the heart of
the Halfords customer offer and
specifically through fitting. This
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 value
adding services.
2009
-3.3%
2010
+1.3%
2011
-5.5%
2012
-2.3%
2013
-0.7%
Growth in Car Maintenance and Cycle
52.1%
54.4%
54.5%
53.1%
53.3%
Annual Performance
Retail sales performance in FY13 was
acceptable given a demanding trading
environment. Sales were affected by
unseasonal weather in the first and last
quarters and the summer of sport in
between benefitted cycle sales.
Repair alleviated dilutive pressures
from Premium Cycles and stock
clearance. This resulted in a small
increase of 12bps.
We have invested in training, payroll,
colleague numbers and national
marketing to fulfil the demand and
make more customers aware of our
unique offer, and increased the number
of jobs by 32%.
We have invested in training, payroll,
colleague numbers and national
marketing to fulfil the demand and
make more customers aware of our
unique offer, increasing revenues by
36%.
Our refurbishment programme in
FY13 was restricted to relocations and
store rightsizing as well as a series
of laboratory stores from which we
have garnered useful and important
learnings for future store development.
The increase of 260bps was driven
by an increase of 13.7% in Support
Centre costs as a result of the
investment in improved recruitment
and training in stores and enhanced
Support Centre capability, with
particular expertise associated with the
launch of the extended range of PACs.
Online sales grew to £77m in FY13
reflecting an increase in online
penetration to 10.2%. This was driven
by the improved service and a more
competitive offering in areas such as
technology and Cycle Accessories.
There was also strong demand for
Premium Bikes driven in part by the
Olympics effect.
Improvements to delivery lead times for
the services have led to 88% of online
orders now being collected in-store,
providing more opportunities for store
colleagues to engage with our online
customers.
1.70m
2.35m
2.54m
2.98m
3.93m
£9.3m
£11.7m
£12.4m
£15.2m
£20.7m
22
10
26
83
20
39.2%
40.0%
38.4%
40.8%
43.4%
4.7%
6.4%
9.2%
8.9%
10.2%
74%
77%
85%
86%
88%
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com KPI
Definition
Like-for-like
Sales (“LfL”)
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.
Gross Profit
Percentage
Gross profit expressed as a
percentage of sales.
wefit/werepair
The stores offer a fitting/repair
jobs
service when customers purchase
replacement products such as car
bulbs, windscreen wiper blades and
batteries (“3Bs”).
wefit/werepair
The sales revenue generated from all
revenue
our fitting and repair services, including
the sale of Bike Care Plans.
Number of
Stores
Refreshed/
Refurbished
The layout and offering within our
stores is important as the two formats
of choice (Superstore and High Street)
allow us to reach both large and small
catchment areas.
Costs
Operating expenses from the Retail
(as a % of sales)
business activities expressed as a
percentage of sales.
Online Sales
Sales enacted via the web, through
(as a % of total
Reserve & Collect, Order & Collect and
revenue)
Direct Delivery.
% of Web
Customers
% of online sales using the Reserve &
Collect and Order & Collect offer and
Visiting Stores
visiting stores after researching online.
Strategy
Getting Into Gear
2016
Commitment
11
We are committed to maximising
our like-for-like sales opportunities
in whatever economic
environments we find ourselves.
Gross Profit is an important
indicator of the Company’s
financial performance. Within the
business we focus on maximising
cash margin generation.
Expert knowledge, advice and
service remain at the heart of
the Halfords customer offer and
specifically through fitting. This
differentiates and defends the
Halfords offer and generates
attractive levels of return.
Expert knowledge, advice and
service remain at the heart of
the Halfords customer offer and
specifically through fitting. This
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 value
adding services.
Annual Performance
Retail sales performance in FY13 was
acceptable given a demanding trading
environment. Sales were affected by
unseasonal weather in the first and last
quarters and the summer of sport in
between benefitted cycle sales.
Growth in Car Maintenance and Cycle
Repair alleviated dilutive pressures
from Premium Cycles and stock
clearance. This resulted in a small
increase of 12bps.
We have invested in training, payroll,
colleague numbers and national
marketing to fulfil the demand and
make more customers aware of our
unique offer, and increased the number
of jobs by 32%.
We have invested in training, payroll,
colleague numbers and national
marketing to fulfil the demand and
make more customers aware of our
unique offer, increasing revenues by
36%.
Our refurbishment programme in
FY13 was restricted to relocations and
store rightsizing as well as a series
of laboratory stores from which we
have garnered useful and important
learnings for future store development.
The increase of 260bps was driven
by an increase of 13.7% in Support
Centre costs as a result of the
investment in improved recruitment
and training in stores and enhanced
Support Centre capability, with
particular expertise associated with the
launch of the extended range of PACs.
Online sales grew to £77m in FY13
reflecting an increase in online
penetration to 10.2%. This was driven
by the improved service and a more
competitive offering in areas such as
technology and Cycle Accessories.
There was also strong demand for
Premium Bikes driven in part by the
Olympics effect.
Improvements to delivery lead times for
the services have led to 88% of online
orders now being collected in-store,
providing more opportunities for store
colleagues to engage with our online
customers.
2009
-3.3%
2010
+1.3%
2011
-5.5%
2012
-2.3%
2013
-0.7%
52.1%
54.4%
54.5%
53.1%
53.3%
1.70m
2.35m
2.54m
2.98m
3.93m
£9.3m
£11.7m
£12.4m
£15.2m
£20.7m
22
10
26
83
20
39.2%
40.0%
38.4%
40.8%
43.4%
4.7%
6.4%
9.2%
8.9%
10.2%
74%
77%
85%
86%
88%
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 12
Autocentre KPIs
Supporting
drivers of
every car
We continue to target
an opening programme
of between 20 to 30 new
centres per year.
KPI
Definition
Strategy
Getting Into Gear
2016
Commitment
Annual Performance
2009(1)
2010(1)
2011
2012
2013
Like-for-like
Sales
Like-for-like sales represent revenues
from centres trading for more than 12
months.
Fleet Sales
(as a % of Total
Sales)
Sales accessed from car fleet
operators.
Number of
Centres
The number of autocentre servicing
centres within the UK.
Jobs per
Productive per
Week (“jpppw”)
Total jobs undertaken by the centres
divided by the average number
of productive technicians and
apprentices.
Online Bookings
The number of service bookings made
via halfordsautocentres.com against
those made direct with the Centres.
(1) Figures for the years 2009–2010 relate to the business before it was owned by Halfords Group plc.
We are committed to maximising
our like-for-like sales opportunities
in whatever economic environment
we find ourselves.
The Company will continue to
focus on providing dealer quality
services at independent garage
prices.
Our research on the geography
and demographics of the c.£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.
We continue to drive LfL growth
despite operating in a declining market.
+1.2%
+3.4%
-0.6%
+6.1%
+7.0%
This year has seen tough fleet market
conditions. Whilst the number of
vehicles has increased by 2% there
are less fleet cars reaching MOT age,
as they are being sold into the
second-hand car market before they
need maintaining.
We continue to target an opening
programme of between 20 to 30 new
centres per year as well as building a
future pipeline of quality sites.
We continue to utilise spare capacity
with additional Service/Mechanical/
Repairs jobs.
22.6%
26.7%
26.3%
25.2%
22.0%
222
224
240
260
283
13.0
13.7
13.8
14.7
16.0
We continue to invest in our online
presence with a new site and e-diary
proposition launched in April 2013.
97,942
111,261
138,954
199,524
216,875
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
13
KPI
Definition
Strategy
Getting Into Gear
2016
Commitment
Annual Performance
2009(1)
2010(1)
2011
2012
2013
We continue to drive LfL growth
despite operating in a declining market.
+1.2%
+3.4%
-0.6%
+6.1%
+7.0%
Leveraging technology in car servicing
This year has seen tough fleet market
conditions. Whilst the number of
vehicles has increased by 2% there
are less fleet cars reaching MOT age,
as they are being sold into the
second-hand car market before they
need maintaining.
We continue to target an opening
programme of between 20 to 30 new
centres per year as well as building a
future pipeline of quality sites.
We continue to utilise spare capacity
with additional Service/Mechanical/
Repairs jobs.
22.6%
26.7%
26.3%
25.2%
22.0%
222
224
240
260
283
13.0
13.7
13.8
14.7
16.0
We continue to invest in our online
presence with a new site and e-diary
proposition launched in April 2013.
97,942
111,261
138,954
199,524
216,875
Like-for-like
Like-for-like sales represent revenues
Sales
from centres trading for more than 12
months.
Fleet Sales
Sales accessed from car fleet
(as a % of Total
operators.
Sales)
Number of
Centres
The number of autocentre servicing
centres within the UK.
Jobs per
Productive per
Week (“jpppw”)
Total jobs undertaken by the centres
divided by the average number
of productive technicians and
apprentices.
Online Bookings
The number of service bookings made
via halfordsautocentres.com against
those made direct with the Centres.
(1) Figures for the years 2009–2010 relate to the business before it was owned by Halfords Group plc.
We are committed to maximising
our like-for-like sales opportunities
in whatever economic environment
we find ourselves.
The Company will continue to
focus on providing dealer quality
services at independent garage
prices.
Our research on the geography
and demographics of the c.£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.
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 14
Chairman’s Statement
Dennis Millard
Chairman
This has been another difficult year for the UK consumer and Halfords
was also faced with its own particular challenges. Our customers
continued to have their discretionary incomes squeezed and high
fuel prices and insurance costs once again resulted in a decrease in
miles driven by our automotive customers. Whilst reluctant to blame
the weather, the wet summer and record cold winter were certainly
not conducive to the pursuit of outdoor activities by our cycling
and camping customers! Nevertheless, the spirit of the nation was
uplifted by the joy and the resounding success of the Olympics and
Paralympics. All of these macro factors had, in their own way, an effect
on the performance of Halfords and provided us with both challenges
and opportunities.
Group revenues increased by 1.0% with a decline in Retail sales
of 0.9% offset by 13.5% growth in Autocentres. In Retail, the Car
Maintenance category grew strongly, Cycling was down marginally, Car
Enhancement declined at a much lower rate than in prior years and
Travel Solutions, which includes our camping products, also declined.
The growth in sales for Autocentres was due to our investments which
have increased market share, boosted tyre sales and added 23 new
centres. Group gross margin was unchanged at 54.8% with a marginal
rise in Retail and a decrease in Autocentres, due primarily to product
mix. Total underlying operating costs rose by 6.2% due to investment
in colleague headcount, recruitment and training, increased occupation
costs, a rise in marketing spend and investment in new Autocentres.
Interest costs also rose. As a result, underlying profit before tax
decreased by 21.9% to £72.0m and basic EPS by 17.8% to 27.7p
per share. Free cash flow of £71.8m was generated and net debt was
down £28.6m to £110.6m with net debt to EBITDA at 1.1 times.
In July 2012, the Board felt that a change at the top of the organisation
was necessary and David Wild, who had been Group Chief Executive
since August 2008, left the Company. I was asked by the Board to step
up as Interim Executive Chairman until a new Group Chief Executive
was in place. In October 2012, Matt Davies joined Halfords as CEO
and I resumed my non-executive role in November 2012. We are
delighted with Matt’s appointment. It follows his considerable success
at Pets at Home where he had been CEO for some eight years. We
were particularly taken by the exceptional colleague engagement
and customer service levels he had achieved at Pets at Home. These
were two areas that had worryingly slipped in Halfords and the extent
became more evident to me during my executive tenure; it was
therefore critical that this be urgently addressed.
Following his appointment, Matt was tasked with reviewing the current
strategy and plans for the business and the organisational capability.
This has now been completed and the outcome – set out below – is
fully supported by the Board who, along with Matt’s executive team,
were an integral part of the review process.
Firstly, the three pillars of the existing strategy were considered to be
sound but were redefined to the following to inject more passion and a
clearer purpose:
■ Supporting Drivers of Every Car
■ Inspiring Cyclists of Every Age
■ Equipping Families for their Leisure Time.
Secondly, it was considered that the plans in place for the Autocentres
business to increase its network by 20 to 30 centres per annum and
invest in capability were also sound, and that the returns that would be
generated and the opportunities to continue to take market share were
attractive.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
15
The three pillars of the
existing strategy were
considered to be sound but
were redefined to inject
more passion and a clearer
purpose.
Driving attachment sales and return customers with bike care plans
For the Retail business, the review underscored the need to invest in
our colleagues to enable them to best serve customers and to invest
in our store, operations and IT infrastructures. The most pressing need
was to address the root causes of our less than optimum service
offer and ethic. Crucially, the key to success was to put in place plans
to deliver top line growth that, in turn, would restore profitability and
produce attractive and sustainable returns for our shareholders. These
plans, which have been named Getting Into Gear 2016, are fully laid
out in the Annual Report and will be implemented over the next three
years. They are summarised as follows:
— Service Revolution: introducing a marked step change in the
quality of our service offer by investing in training, staffing and in-
store capability.
— The H Factor: reasserting our authority across our key categories
to excite our customers.
— Stores Fit to Shop: investing in our store estate to raise standards
and improve our customer experience.
— 21st Century Infrastructure: investing in systems and
infrastructure.
— Click with the Digital Future: creating a contemporary and
competitive service-led digital offer.
The specific initiatives underpinning these plans are now in place and
the key milestones, or KPIs, by which we will measure our progress are
set out in this report. Crucially, both our annual and long-term incentive
plans will be similarly aligned. Over the three year period it is envisaged
that some £100m of Retail Capital Expenditure will be necessary,
c.£40m more than prior run rates. In addition, revenue investment of
£7m–£14m will be made in FY14 primarily in our colleague capability;
however, this will be dependent upon performance and revenue
generation. This will have the inevitable consequence on earnings and
cash flows in the next three years but will set up the business for an
attractive and sustainable future in the years ahead.
We have carefully considered the financial implications of the new
strategy and concluded that, given the need to maintain a robust
balance sheet and our desire to rebuild our dividend cover to a more
sustainable level, our dividend should be rebased. The Board has thus
recommended a final dividend of 9.1 pence per share, a reduction of
35.0% on the prior year, resulting in a full-year dividend of 17.1 pence,
down 22.3%. The intention would be to reset the full year dividend
for the next three years to around 14 pence per share which would
enable us to remain within our gearing target of net debt to EBITDA of
1.5 times and, over the period, converge towards a more sustainable
dividend cover of 2 times.
On behalf of the Board, I would like to thank all of our 12,000
colleagues for their patience and commitment during a difficult year.
Also, I thank them for the enthusiastic manner in which they have
embraced the new direction and for their dedication to raising service
levels for our customers. The new executive team under Matt is
taking shape well and they are up for the challenges and opportunities
ahead. Lastly, I would like to thank my Board colleagues for their
dedication, counsel and support in what has been a very eventful
year. Paul McClenaghan, who left the Board last month, did so with
our best wishes.
In conclusion, the new financial year has started in a positive vein
and encouraging progress is already being made on some of our key
initiatives. Most notably, however, is the sense of purpose, excitement
and engagement that is evident throughout the organisation – this
bodes well for the years ahead.
Dennis Millard
Chairman
23 May 2013
Introduction22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 16
Read online:
halfords.annualreport2013.com/strategy
22357-04 11/06/2013 FRONT Proof 11 Strategy
Strategic Pillars
Group Strategy
Chief Executive Officer’s Review
Transforming Halfords
Service Revolution
The H Factor
Stores Fit to Shop
21st Century Infrastructure
Click with the Digital Future
Finance Director’s Report
Risks and Uncertainties
Corporate Responsibility Report
17
y
g
e
t
a
r
t
S
18
20
24
34
36
38
40
42
44
46
52
56
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com Our mission is to
Help and Inspire Customers
with their Life on the Move.
The existing pillars will
evolve into: Supporting
Drivers of Every Car;
Inspiring Cyclists of Every
Age; and Equipping Families
for their Leisure Time.
18
Strategic Pillars
Supporting
drivers of
every car
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.
Inspiring
cyclists of
every age
We deliver a compelling range of own-brand
cycles and complement these with a
knowledgeable, skilful and competitive
cycle-service offering.
Equipping
families for their
leisure time
Through a wide range of Leisure products
and accessories, from tents to camping and
caravanning accessories, we help customers
make the most of their leisure time.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
19
466 stores giving a national coverage for in car entertainment
Copy to come
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.
Strengths
✔✔ Contemporary and innovative ranges drive a
product-led market.
✔✔ Competitive international buying maintains
good margins.
✔✔ Effective promotion of own brands through
multichannel offer.
✔✔ New cycle ranges: Apollo, Carrera, Voodoo,
Boardman and Pendleton.
Strengths
✔✔ Value driven environmentally friendly
solutions for leisure and holidaying.
✔✔ Tight integration with multichannel drives
sales of price-led ranges.
✔✔ Consistent growth in camping as Halfords
becomes known for helping its customers
with their life on the move.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy 20
Group Strategy
Group Strategy and Key Performance Indicators
Halfords has a very clear place in the UK retail market. It is an iconic
British brand with a fantastic heritage, having over 100 years’ presence
on the retail High Street, both in cycling and aftermarket car products.
Our offer remains as relevant to our customers as it has always been
and, considering the busy lives of today’s consumers, we seek to
provide healthy and enjoyable lifestyle solutions through our Cycling
and Travel Solutions products and time-saving solutions via our Do It
For Me repair and fitting services.
Price
Value
Service
Products
Brand and Heritage
Our Group strategy is built on the Halfords vision that We Help and
Inspire our Customers with their Life on the Move. However, as we
have continued to develop this strategy we are now looking to deliver
this vision and to maximise returns for our shareholders by focusing on
the specific priorities required to create a sustainable business servicing
our customers’ needs for many years to come.
The execution of our
three-pillar strategy remains
central to our aim to build
a sustainable business that
drives profitable top line
sales growth.
Group Strategy Description
The execution of our three-pillared strategy remains central to our aim
to build a sustainable business that not only drives profitable top line
sales growth in the medium to long-term, but also seeks to promote a
strong culture of work ethic and enjoyment with a focus on colleague
development, combined with a determination to provide exceptional
customer service, thus adding value for both our customers and our
shareholders.
However, we have refocused these pillars to deliver clear purpose and
definition to our customers and create a passionate and emotional
connection between them, our colleagues and our products.
Previously
Refocused
Supporting
drivers of
every car
Inspiring
cyclists of
every age
Equipping
families for their
leisure time
Within these three pillars our strategy is to drive top line sales growth
from our core business. In Retail this means our 466 stores, our Retail
website and product categories in which we hold leading market
positions and in our Autocentres business through our 283 autocentres
and halfordsautocentres.com. We intend to do this by focusing on our
Getting Into Gear 2016 programme, the key elements of which are:
1. Service Revolution;
2. The H Factor;
3. Stores Fit to Shop;
4. 21st Century Infrastructure; and
5. Click with the Digital Future.
Each of these elements is explored in more detail on pages 34 to 45.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
21
A Strategy Focused on Execution
Previously
We help and inspire
our customers with their
life on the move
Strategic Pillars
Refocused
We help and inspire
our customers with their
life on the move
Strategic Pillars
Enablers
Portfolio
Web
Operations
Marketing
People
Supporting
drivers of
every car
Inspiring
cyclists of
every age
Equipping
families for their
leisure time
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy
22
Group Strategy continued
With our heritage in bikes
we aim to Inspire Cyclists
of Every Age with our
unsurpassed product ranges
and brands and
with quality service and
expertise.
As part of our three-pillared strategy and supported by our key
priorities we will continue to offer a unique range of products which
is constantly innovated and extended. This is to be matched by an
unparalleled honest and trustworthy service delivered by our
well-trained, enthusiastic and knowledgeable colleagues in-store, at
the Autocentres and online to help our customers, from novices to
enthusiasts, 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 24/7
online, with a market leading multichannel offer available to order or
reserve online, with delivery to store or direct to home. Our Autocentres
network can deal with planned and emergency work alike.
We provide our customers with solutions that are backed by true brand
heritage and that offer real value by balancing high quality products
with a competitive combination of range, price and service and in
the Autocentres garages we provide dealership quality services at
independent garage prices.
We provide our customers with
solutions that are backed by true brand
heritage and offer real value.
Demonstrating full solutions with combined storage and cycle transport systems
By delivering these we aim to ensure that our customers see Halfords
as the No.1 destination for all of the products that we offer, thus
enhancing our customers’ use of their car, their bikes and their leisure
activities.
We aim to Support Drivers of Every Car by re-establishing Halfords
as the auto-specialist, 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 or alternatively we are able to do it for them. We are
dedicated to providing the right level of service for our customers from
stocking the right products both in-store and online at competitive
prices, complemented by a 7 days a week on-demand fitting service
within our Retail stores to a full service and repair offer through the
national coverage afforded by our Autocentres garages.
With our heritage in bikes we aim to Inspire Cyclists of Every Age with
our unsurpassed product ranges and brands and with quality service
and expertise 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 or Pinarello racing bike. We aim to build on
our service and brand credentials as well as providing a wide range of
PACs — contributing to the growing popularity of cycling as a healthy
and environmentally friendly form of transport.
With the development of our own ranges of camping equipment (such
as Urban Escape), the continued supply of Gelert camping equipment
and accessories and the enhancement of our caravanning accessories
we will seek to Equip Families for their Leisure Time. The demand for
a more active leisure time and the desire for the enjoyment of simple
family pleasures, such as camping and caravanning gives Halfords the
opportunity to engage with our customers and help them make the
most of their time outdoors and to help them get there.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 23
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy 24
Group Chief Executive Officer’s Review
Matt Davies
Group Chief Executive
Introduction
Halfords Retail sales performance in FY13 reflected a demanding
trading environment. Sales were affected by unseasonal weather in
the first and last quarters and by a summer of sport in between which
particularly benefitted cycle sales. In the year under review, Halfords
Retail delivered three quarters of positive like-for-like (“LfL”) sales
growth, following a number of consecutive negative LfLs in preceding
quarters, supported by online Retail revenue growth of 15.9%.
potentially remain around this level as the business approaches nearer
2x dividend/earnings cover over the medium term. This would reflect
a more-sustainable level for the business, the requirement to invest as
set out later and the maintenance of a robust balance sheet.
Retail
Sales for the year were £745.5m, down 0.9% on the prior year and
down 0.7% on an LfL basis. The sales mix and continued focus on cash
returns resulted, as expected, in a broadly-flat Retail gross margin.
Our Autocentres performance was satisfactory against a backdrop of a
declining market and particular challenges in the fleet sector.
Cycling
Throughout the period the business has taken advantage of the
opportunities presented and we have focused on improving our offer
through service. Particular progress was made in the Car Maintenance
category where we have invested in training and extra colleagues to
carry out our wefit fitting service; this has driven extra sales.
FY13 Review
Summary of Group Results
Sales were £871.3m, up 1.0% and up 0.3% on an LfL basis. Group
gross margin was flat at 54.8%. Total underlying operating costs rose
by 6.2% due to the continuing inflationary environment, our strategic
investments to support our Retail service offer and the continued
expansion of our Autocentres business. Underlying Group earnings
before interest, tax and non-recurring items were £78.1m, which
compares with £97.2m in FY12. Profit before tax and non-recurring
items was £72.0m and earnings per share before non-recurring items
were 27.7p, down 21.9% and 17.8% respectively.
Group inventory and capital expenditure continued to be managed
tightly, with Retail stocks down 9.2% on the prior year. Autocentres
inventory was £1.3m, flat on the prior year. The cash flow performance
was robust with free cash flow of £71.8m generated against £70.4m in
the prior year. Net debt at the year-end was down £28.6m to £110.6m,
with net debt:EBITDA remaining at a ratio of 1.1:1.
The Board has recommended a final dividend of 9.1 pence per share,
a reduction of 35.0% on the prior year (FY12: 14.0 pence). If approved,
this will be paid on 2 August 2013 to shareholders on the register at
the close of business on 5 July 2013. The proposed full-year dividend
is 17.1 pence (FY12: 22.0 pence). The 35.0% reduction of the final
dividend would have the effect of similarly rebasing future dividend pay-
outs. It is anticipated that the FY14 full-year dividend would be reset
to around 14 pence per share and that the full-year dividend would
After a disappointing start to the year, it was a particularly strong summer
for Cycling sales. The enthusiasm surrounding British successes in
the Tour de France, Olympics and Paralympics helped fuel a stronger
demand for cycles, cycle products and cycle accessories and we
capitalised on this with our agile trading stance. The strong demand for
premium cycles continued throughout the year, particularly our exclusive
Boardman and Pendleton ranges. We were pleased to add to our ranges
with the introduction of Pinarello cycles, the brand ridden by Team Sky
and used by Sir Bradley Wiggins to win the Tour de France.
During the second half overall cycle sales were affected by a poorer
Christmas for kids and mainstream bikes, which continued into the final
quarter as the prolonged winter weather delayed the start of the family
cycling season. Cycling LfL sales were down 0.6% for the year. Online
Cycling Parts, Accessory and Clothing (“PACs”) sales were up 26.5% in
the final quarter as we began to introduce new ranges ready for a full-
scale launch of our enhanced PACs proposition in the new financial year.
Car Maintenance
LfL sales of Car Maintenance products and services grew by 5.1%,
helped by the prolonged period of winter weather. Demand for our
wefit service continues to build as we invest in this category and more
customers look to us for expert help with basic Car Maintenance
solutions. We fitted 35.2% of the bulbs, wiper blades and batteries we
sold, up 890 basis points on last year. We invested in training, payroll,
colleague numbers and national marketing to fulfil the demand and
make more customers aware of our unique offer. The 3Bs parts and
labour market is estimated to be worth around £950m and we only
have a c.11% share*. In the year we also leveraged our market-leading
position with timely promotions like our deals on Castrol oil.
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25
We now fit 35.2% of the
bulbs, wiper blades and
batteries (“3Bs”) we sell,
up 890 basis points on
last year.
Encouraging engagement with qualified staff
Car Enhancement
In Car Enhancement LfL sales decreased by 4.2%. This was a much
slower rate of decline than in previous periods. Sat Nav sales have been
a significant drag on the business over the last few years but during the
second half of the year sales were flat. We also made market-share gains
in both Sat Nav and Car Audio. Audio sales grew by an encouraging
2.8% due to good execution and the authority of our range, established
through our close partnership with the world’s leading technology
brands. We are closer to the significant medium-term opportunity around
Digital Radio and further share gains here mean we have now captured
around three-quarters* of this growing market.
Travel Solutions
There was reduced demand for camping and touring products due to
the generally poor weather both last summer and this spring. Our Travel
Solutions category saw an LfL sales decline of 6.8%. One highlight was
the sale of breathalysers during the summer and again this spring as
they became a requirement for Continental travel and motorists visited
Halfords for our exclusive Alcosense range. Child Car Seats remain a
product range facing intense pricing and competitive pressure and,
during the year, we continued to manage this category for cash.
Online
Online revenues grew by 15.9% and represented 10.3% of Retail sales
which compares with 8.9% in the prior year. We continue to focus
on improving our online experience for customers and we invested
in website capability; for instance the launch of a new search engine,
Fred Hopper, that will make it easier for online shoppers to search
and navigate our site. We also introduced our new 24-hour Reserve
& Collect service and rebalanced our promotions to focus more on
product price rather than percentage discounting.
Autocentres
Autocentres sales were £125.8m, up 13.5% overall and represented
a 7.0% LfL uplift on the prior year. The second-quarter LfL sales
growth of 12.4% was the strongest since we acquired the business in
February 2010 and the business has now enjoyed nine consecutive
quarters of LfL growth.
Growth was driven by our investment in marketing, the development
of our tyre proposition, our exclusive brakes4life offer and the
contribution from new centres. The significant increase in lower-margin
tyre sales resulted in a 221bps decline in gross margin, with margins in
our non-tyre business benefitting from scale.
We continue to acquire new retail customers whilst retaining a high
level of existing customers. However, fleet-customer acquisition has
been less satisfactory with material short-term challenges in this sector.
Twenty-three new centres were opened in the year bringing our total at
the end of the year to 283 centres. We will continue to selectively and
appropriately invest in new centres to significantly grow our network
over the years ahead, targeting a further 20 to 30 new openings in
FY14.
Halfords Business Review
Introduction
The fall in Group profitability over recent years illustrates the need
for sustainable and profitable revenue growth over the medium and
long-term to offset ongoing cost inflation. We must strengthen our
proposition and customer offer in an environment where shopping
patterns are changing and competition is increasing. As a result
the Board asked me to carry out a review of the business with the
management team and bring forward a plan to reposition Halfords to
meet the challenges now and that lie ahead.
My conclusion is that Halfords is a good business with a clear strategic
framework in place. However, there is some repositioning necessary to
move Halfords from being good to being great; we must act now. Our
single most important objective is to drive profitable sales growth and
to do this through leveraging our expertise.
Following our review we have launched Getting Into Gear 2016,
a clear programme of operational plans designed to significantly
improve our Retail customer experience. This programme will focus
on supporting our colleagues to deliver consistent friendly expertise,
improve our store environment, strengthen the authority of our offer
and build our infrastructure and digital capabilities. The investment
required is anticipated to reduce short-term Retail profitability but is
designed to deliver sustainable revenue and profit growth together with
sustainable shareholder value.
*
(Source: management estimates)
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Group Chief Executive Officer’s Review continued
Three-Pillared Strategy
Last year Halfords launched a new strategy that focused on three
core pillars:
Halfords Autocentres
A central part of our strategy of Supporting Drivers of Every Car is our
newest business, Halfords Autocentres.
■ Friend of the Motorist
■ Best Cycle Shop in Town
■ Starting Point for Great Getaways
We believe this is the right strategic framework and the new
programme of activity we are initiating is designed to support and
drive these three pillars which we have redefined slightly to introduce a
clearer purpose and more passion.
Our mission is to Help and Inspire Customers with their Life on the
Move. The existing pillars have evolved to become:
■ Supporting Drivers of Every Car
■ Inspiring Cyclists of Every Age
■ Equipping Families for their Leisure Time
Our two critical pillars are Auto and Cycling with the third pillar giving
us the flexibility to extend our range, introduce innovative products and
leverage space. Ninety percent of our focus needs to be on Auto and
Cycling as these markets are significant and, with good execution, we
can grow our share as well as the overall market.
Halfords is a trusted brand in the automotive sector, so the move into
garage servicing was a natural extension of the Halfords business
model. We now offer customers end-to-end solutions, from car parts
to the fitting of bulbs, blades and batteries in our Retail stores and full
servicing, MOTs and repairs at our Autocentres.
Our review concluded that our strategy for Autocentres is sound and
the Autocentres business provides a significant growth opportunity
for the Group. However, we also concluded that the short-term profit
expectations discussed at the time of acquisition were overly optimistic.
These short-term expectations didn’t fully consider the implications of
a rapid expansion of the chain through new-centre openings, nor the
impact of the auto-aftercare market environment which has been more
difficult than expected in the period since acquisition. The economic
down turn has particularly hit motorists through escalating fuel and
insurance costs. In response motorists have reduced mileage and cut
back on other costs where possible – including car servicing. As a
result we estimate the overall market has contracted by around 5% in
the last three years*.
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Despite this Halfords has grown its Autocentre retail LfL sales by 4.3%
in the same period, over 9% better than the market. This was achieved
through better use of existing Autocentres capacity. We have recruited
thousands of new customers by rebranding the estate and nationally
advertising. We also offer customers a wider range of products like
tyres and our innovative brakes4life offer.
well and, as we expand, our buying leverage creates value. However,
the contribution from new centres is outweighed by the investments
needed for the opening programme. It is predominantly these new-
centre investments that are holding back overall short-term profitability
together with investments in the infrastructure to support a business
growing at the pace of Autocentres.
The Auto-Aftercare market provides Halfords with an opportunity for
further growth. It is estimated to be worth around £9bn* and Halfords
only has a small share – our 283 centres represent less than 2% of
the market.
The market is also highly fragmented and capacity is declining. There
are some 22,000 garage sites and 1–2% leave the market each year.
The complexities of new cars and the investments required make it
more difficult for small operators to compete. By contrast Halfords has
increased Autocentre chain numbers by around 27% since acquisition
and invested heavily to support growth.
Halfords is well placed to take market share. We are a recognised
strong brand in Auto-Aftercare which is a key advantage – as trust
is one of the main factors affecting motorists’ choice of garages. So
our proposition of dealership quality work at more affordable prices,
supported by a high level of customer service is a compelling one. We
can also leverage national advertising and cross-sell between Retail
and Autocentre customers.
The short-term issue for the business is the drag created by our
new-centre opening programme. Our core centres are performing
Having reviewed the business, we believe that Autocentres is a great
growth opportunity for us. We have a clear strategy for the future
being executed by the Autocentres management team and we can
build a business of significant scale. Operationally we will increase
what we sell to our existing customers by focusing services on the
“Big4”: Service, MOT, Repair and Tyres. We will support these sales
through innovations like Sunday openings, new product packages and
refreshing our website to make booking a service or selecting a tyre
even easier.
Through proven marketing routes we will drive more footfall to our
Autocentres. We will grow our share of the fleet market by developing
our presence with existing customers and attracting and developing
new customers.
Our new-centre opening programme will continue with 20–30 new
centres planned per annum requiring a capital investment of around
£6m per annum. We also anticipate that the market will return to
growth as maintenance and repairs return to more normalised levels.
Over the medium-term we expect to see profitability build as critical
mass is reached in the business.
*
(Source: management estimates using data from Halfords Autocentres, SMMT, DFT and
Castrol Trend Tracker)
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Group Chief Executive Officer’s Review continued
Service is at the heart
of our proposition as we
estimate two thirds of our
products require some level
of assistance.
Halfords Retail
Our review of Halfords Retail addresses the significant challenges we
face and sets out a programme of activity to reposition the business; to
move us from good to great as we prepare Halfords for the future and
put it on a path to consistently drive profitable top-line growth.
Our sales are supported by a core of colleagues who are
knowledgeable experts. On our day the service we provide is hard to
beat. However, our review shows that service levels are inconsistent
and this and other aspects of the Halfords experience frustrate
customers; many are now choosing to shop elsewhere.
Halfords has a very strong place in UK retail. We have an excellent
brand that shoppers in Britain have grown up with and there’s no doubt
in a customer’s mind what Halfords stands for and what we sell. We
are the nation’s leading cycle retailer, selling over 1m cycles a year
and we are the go-to destination for motorists. So our products and
services are relevant for today’s customers and key parts of our offer,
especially those which are service related, are unique to Halfords.
The categories in which Halfords operates provide good opportunities
for growth. For instance, the Cycle market is buoyant and the
popularity of Cycling is growing. The market for Cycles is worth around
£700m* and Halfords has a c.20–25% share*. The market for PACs
is a similar size; we only have c.15% share in this market. Last year
the entire Cycling market grew by 8.5% and over the next five years
is anticipated will grow by around 23%**. In the Cycle Repair market,
worth c.£100m*, we estimate having only a c.8% share. Our focus in
FY13 on Cycle Repair produced sales growth of 25.3% and we are
implementing a strategy for further growth in this category in FY14.
Halfords also has good potential for growth in Retail Car Maintenance.
The 3Bs parts and labour market is estimated to be worth around
£950m* and we only have a c.11% market share. Wefit is a unique
offer and we have invested in colleagues, training, advertising and held
wefit weekends to raise awareness. The 50.5% growth this year in the
number of 3B fitting jobs and the associated growth of 10.9% in parts
sales illustrate how much customers welcome this service and what an
area of ongoing opportunity it is.
Halfords is in a strong position to make the best of these market
opportunities if we can present the right offer to customers. We
have great expertise and heritage and a nationwide store network.
Meanwhile our global sourcing infrastructure can supply excellent
products from the world’s leading manufacturers at least-cost to our
customers – for instance our exclusive range of Boardman cycles,
which combine industry-leading designs with prices that are around
15% lower than a cycle of comparable specification.
One measure of this is the Halfords Net Promoter Score, which
assesses the propensity of customers to recommend our services to
others. The Halfords score was, until very recently, close to that of a
value retailer; this is a long way adrift from the score of a specialist,
where we ought to be.
Meanwhile the competition is escalating in our core categories, such
as from online Cycling specialists. As a result our profitability is being
eroded. In the last 13 quarters, 10 have seen Retail LfL sales declines.
Our revenues have gone from c.£812m in FY10 to c.£746m in FY13.
Halfords must generate profitable revenue growth over the medium and
long-term; the key action that will drive sales is better customer service.
We have thousands of amazing people but we haven’t supported them
to do the job they aspire to. This was evident in the 12,000 comments
we received in last year’s Colleague Engagement Survey which was
packed with suggestions on how to support colleagues in their roles
and help them help customers.
Our conclusion is that we must focus on customer service and deliver
a great customer experience. To do this we have to improve colleague
engagement, develop their friendly expertise consistently across our
estate and use it to drive sales. Through our colleagues’ product
knowledge and our range authority we can re-build our credentials as
a specialist retailer. We must also improve our stock availability, retail
disciplines, our store environment and overall customer experience.
All these improvements must be made as we position ourselves for a
digital future.
Our focus is to create a business with belief in the quality of its
products and services and where friendly expertise is at its core.
To deliver this the Getting Into Gear 2016 programme has been
launched and is specifically designed to drive profitable and sustainable
top-line growth. Whilst a lot of work is already underway the complete
programme will take around three years to deliver.
*
**
(Source: management estimates)
(Source: Mintel 2013)
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Getting Into Gear 2016
Getting Into Gear 2016 has the following key elements for our Retail
business:
1. Service Revolution – introducing a step change in customer
service across Halfords stores.
2. The H Factor – reasserting our proposition authority to Support
Drivers of Every Car, Inspire Cyclists of Every Age and Equip
Families for their Leisure Time.
3. Stores Fit to Shop – investing to raise the Halfords store estate to
a standard that is acceptable and operable.
4. 21st Century Infrastructure – systems and infrastructure to
support service and sales.
5. Click with the Digital Future – creating a service-led digital
proposition.
1. Service Revolution
Service is Halfords’ key area of focus. Service is at the heart of our
proposition as we estimate around two-thirds of our Retail products
require some level of assistance. Increasingly we are making a merit of
this and service is becoming a product in its own right.
The level of service we aspire to is something that supermarkets will
never be able to deliver. It also gives us a competitive advantage
over the online, pure-play retailers who have no stores or colleagues
on the ground to support their sales. But we have to improve to deliver
the promise.
Friendly, expertise-based service is fundamental to profitable and
sustainable sales growth. When customers have a better experience
at Halfords they will spend more with us and recommend us to their
friends. The Service Revolution will ensure customers are served by
colleagues who are enthusiastic about their role at Halfords and the
products and services we offer.
Our new programme makes our people a focus of our KPIs and our
store-incentives programme will now be linked to service as well as
sales. We are changing the way we recruit and develop, revising rotas
and scheduling and amending contracted hours to make sure we
always have colleagues available to serve customers.
We are opening new Halfords Academies to provide the training
that colleagues need; we are also launching 3-Gears, a qualification
programme that trains and rewards colleagues for gaining expertise.
Gear 1
Gear 1 applies to all colleagues and is completed over their first three-
month period with Halfords. We use structured e-learning modules
that cover retail skills, product knowledge and customer service. The
outcome is that all store colleagues will be qualified to serve customers.
Gear 2
Gear 2 involves a nine-month training programme which leads to an
expert level of product knowledge, with a specialism in either Auto &
Leisure or Cycling. Tuition is both through e-learning and face-to-face
training programmes. There are regular refresher courses for Gear 2
colleagues and a pay award for those who attain this level.
Gear 3
Gear 3 colleagues are our Gurus. They are product experts who are
qualified to train others. They keep their skills and knowledge current
and market leading - through workshops, attending product and trade
shows and by linking with and visiting suppliers. Our Gurus also receive
leadership development and a pay award. We anticipate having two
Gurus per store.
The 3-Gears programme profoundly changes our expectations of our
colleagues and sends a clear message on the focus of their role and
the importance we place on helping them succeed.
Unfortunately, we have let other pressures and processes get in
the way of service and our focus on recruitment, development and
retention has not been what it should be; consequently colleague
turnover is very high.
This particular investment is one of the most important we will make
as we commit a total of £7m Retail operating-cost investment in FY14
across the Service Revolution and the pay review. A further £7m of
operating cost will be invested in Retail colleagues this year across
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Group Chief Executive Officer’s Review continued
Growing success with extended range of Pendleton branded bikes
Cycle Repair, Fitting and incentives, depending on volumes and
performance.
To give customers better service we are also working on our basic retail
disciplines. We have not been delivering to a high enough standard on
many of these; that is now changing.
There is a lot of work underway to improve our retail disciplines. For
instance we are removing unnecessary task from colleagues so they
can focus more time on customers. Store-friendly deliveries will take
place out of hours and won’t interfere with service. Deliveries will also
be organised in a way that takes less time to check in and unload.
Finally we are moving to pick-friendly warehouses so colleagues can
easily find and replenish stock.
We also know that availability has been a key area where our service
has disappointed customers. To improve we have introduced efficient
hand-held scanners in each store that support us counting stock and
maintaining the overall integrity of our stock file.
The business is currently holding an historic low of stock as a result of
some improved processes and old stock clear-outs; however, in some
areas this has impacted store availability and overall trading capability.
During FY14 we anticipate investing an incremental £15m–20m in
Retail stock. Part of this is natural rebuild but the majority will support
improved in-store availability and our ambitions in PACs.
2. The H Factor
Reasserting our proposition authority is a priority we are labelling the
H Factor.
Halfords has some award-winning products in many areas of the
business but our analysis concludes we need to do even better
for our customers. This means better product development and
design, stronger value and better space allocation to support growth
opportunities in new or existing ranges.
By the end of the summer we plan to have rebalanced c.100 stores,
moving child seats downstairs in stores with mezzanine floors,
releasing space to cycling, better segmenting our Cycle offer and
reallocating space away from the Car Enhancement category.
Halfords has some award
winning products in many
areas . . . better product
development and design,
stronger value.
Our research also demonstrates the need to focus on our core areas
and to rebuild our credentials as a specialist retailer across the Auto
and Cycling ranges. We believe more authority is a route to competitive
advantage and that specialism is something we should celebrate.
Innovation is key and we will work harder to delight our customers and
colleagues. We plan more special buys and to use our third pillar to
trade against. For instance we have just bought 1,000 inflatable kayaks
that we will retail at £99.99 as an exciting addition for family holiday
adventures this summer.
Our initiatives within our motoring pillar include a new partnership with
battery supplier, Yuasa, to introduce electronic diagnostic terminals into
every store. This allows us to reset a car’s electronic system after work
on the battery of a modern stop/start car, something no other retailer is
doing on such a large scale.
The government is expected to commit to a digital radio switch-over
later this year. We are preparing for this opportunity with new audio
ranges built through excellent relations with the world’s leading radio
manufacturers.
To Inspire Cyclists of Every Age we are planning to make this The Year
of the Cycle at Halfords, building on the momentum created around
the Olympics last year. We have a series of range re-launches planned,
including our exclusive Voodoo and Boardman ranges. We are adding
several new models to the successful Pendleton range and later in the
year we are re-launching a new range of Apollo bikes. We have also
just been appointed by Sky as their technical partner for Sky Rides
across the country. This will help promote our Cycle Repair offer to the
150,000 participating cyclists alongside the Sky brand.
Meanwhile the launch of 15,000 PACs lines is going live this month and
we are advertising our Cycle Repair offer on the radio and in the press.
To Equip Families for their Leisure Time we have just launched our
new camping range, incorporating Vango for the first time, a brand
synonymous with camping, as well as a new range of camping
accessories.
This momentum will continue, with greater innovation to create more
excitement for our customers.
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3. Stores Fit to Shop
We have reviewed our store estate and concluded there is no good
reason to reduce our store numbers significantly, as c.99% of our 466
stores generate a cash profit.
Our focus on driving profitable sales growth will keep the number of
loss-making stores to a minimum. Over the next three years we will
resize where we get the opportunity and will close a few stores as part
of business as usual. We plan to make the space we occupy work
harder and utilise our estate to support our digital ambitions. Nearly
90% of online transactions are already picked up in-store; once in
store, we have the advantage of offering extra service.
We are also reviewing our multichannel infrastructure as well as the
operations of our fleet. Like many other retailers, the Halfords IT system
has much room for improvement. Our systems have been modified to
reflect increasing demands but are no longer suitable for our current
or future needs. In the short-term, we have a number of ‘must do’
core projects to complete, including a data-centre relocation, a SAP
upgrade and a new store voice and data network. We are investing in
our IT infrastructure and have recently recruited an IT Director to lead
this work.
Together with our digital plans we will invest c.£38m of capital
expenditure over the next three years in our IT and Digital plans.
We do need more stores in Greater London where we are currently
under-represented. Over the coming years we will focus on achieving a
higher level of store-penetration inside the M25.
5. Click with the Digital Future
Building our digital proposition is a key route to driving future top-line
growth and maintaining our ongoing relevance.
We intend to maximise lease flexibility so we can manage our estate
efficiently from a trading perspective. This involves securing more
break clauses on lease renewals with our landlords and leveraging our
position to mitigate rent-increase pressures.
In summary we don’t anticipate any significant change in overall store
numbers.
In terms of the look and feel of our stores there’s a lot of work to
do. Much of our estate is no longer at an acceptable standard of
presentation and significantly lags behind our customers’ expectations,
especially cyclists, where a fresh and modern store environment is
so important.
Last year we began to design a store format for the future with a trial
of a number of so-called ‘laboratory stores’. We have reviewed the
progress of these stores throughout the year. There are some very
positive learnings but overall we don’t believe the design is right for
roll-out. We have initiated a project to define a format that combines
a more coherent customer journey, a focus on one centralised desk
to support sales and service, introduces more live displays, brings our
Cycle Repair and wefit offer to the fore and supports us to trade the
overall store environment harder.
Work is well underway and we expect to have three stores up and
running in the new format (York, Coventry and Evesham) by the end
of the summer; we anticipate c.10–15 stores in the new format by the
end of FY14.
Over the next three years we expect to fully refurbish c.150 stores and
modernise all our cycling departments. This will require an investment
of c.£50m of capital expenditure.
4. 21st Century Infrastructure
The business has successfully completed the reorganisation of our
distribution network around a central distribution centre in Coventry
and a specialised cycle centre in Redditch. We are now focusing our
supply-chain work on supporting our service in-store, consistent
stock availability and digital ambitions. We have started a trial of
air-lock deliveries where stock is delivered overnight, to be worked on
before the store opens in the morning so that it doesn’t detract
from colleagues serving customers and doesn’t incur the costs of a
night shift.
Our ambition is to create a service-led digital proposition. Of all retailers
Halfords has the opportunity to be truly multichannel – combining
the best of the web with friendly expertise in-store. Our digital review,
in conjunction with an external consultancy, shows that our current
multichannel proposition doesn’t provide a satisfactory customer
experience. We are therefore putting in place a schedule of work that
centres on a new website aligned around our three strategic pillars so
that customers can shop in dedicated product zones. The site will be
optimised for tablets and mobile devices, as these currently account
for around 24% of online Retail sales; usage is expected to double over
the next few years. We will also develop community features, live chats,
integrated dynamic content, improved customer account management
and help pages.
We are working to improve our online fulfilment, especially on Reserve
& Collect, stock availability, our returns capabilities and staff training
to improve service levels in-store. Our recent focus on stock in the
second half of the year has already resulted in improvements in our
Reserve & Collect net promoter scores.
Investment
Through our review we believe we now have the right key priorities and
have detailed and clear action plans in place.
We have the opportunity to be a specialist retailer with real service and
product authority in core categories. Our ranges will be more innovative
and will be designed to excite and delight customers. Our stores will
be more inspirational environments where customers want to shop
and where they will be greeted by knowledgeable colleagues who offer
friendly expertise.
Under Getting Into Gear 2016 we will be investing around £100m
in Retail capital expenditure over three years which is an incremental
£40m against previous run-rate guidance. Around £50m of the
investment will be targeted directly at stores.
We also intend to invest around £21m in Retail operating costs in FY14
over and above our FY13 expenditure, of which c.£11m is volume and
performance dependent. Key elements of this will be to support the
Service Revolution and to support an uplift in LfL sales.
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Group Chief Executive Officer’s Review continued
Milestones
We have set operational milestones for both internal and external use. These are not financial metrics but sustainable profitability will flow from the
delivery of these milestones. The following are some of the milestones that will support our target of £1bn of Group revenues in FY16:
Milestones: Colleagues
3-Gears
All qualifying colleagues through Gear 1
FY14
✔
FY15
FY16
50% colleagues through Gear 2
80% colleagues through Gear 2
Two Gear 3 colleagues per store
Reduce % of colleagues
leaving within 3 months
Colleague Engagement
(Group)
<12.5%
<10%
>85%
Milestones: Operational
Autocentres opened
Launch PACs
Annual PACs sales growth
Cycle Repair sales growth
Cycle departments brought up to date
Full store refits
Launch new Retail website
Mobile & tablet optimised site launched
Milestones: Customers
Net Promoter Score
Stores working stock outside
peak trading hours
>60%
>65%
>70%
25%
Majority of stores
✔
✔
FY15
20–30
20%
25%
180
c.60
✔
✔
✔
✔
FY16
20–30
20%
25%
180
c.75
FY15
FY16
✔
✔
✔
FY14
20–30
✔
25%
100
10–15
✔
✔
FY14
✔
✔
Current Activity
Many of our strategic projects that will reposition Halfords Retail are already underway.
The results of this year’s Colleague Engagement Survey shows that we have made significant progress from last year’s results – taking our Group
colleague engagement score from 64% to 77%.
We are already seeing a step change in retail standards across our business.
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The new management team is taking shape. Rob Swyer was
appointed as Retail Director, David Durie as Marketing Director,
Anna Barsby as IT Director and, most recently, Emma Fox as
Commercial Director.
The 3-Gears programme was launched to our store managers at our
recent spring conference and the first training has taken place. Our
new recruitment website is already in operation and our new store
format plan is taking shape.
We have appointed a new advertising agency, Mother; they are
currently working on our summer campaign.
We have begun trialling out-of-hours delivery to stores.
Thousands of new PACs lines are being launched online this month,
which is the culmination of a long period of planning and preparation.
We have also started to improve our credentials within the communities
in which we operate. We have run a series of Kids Bikes Workshops
over the Easter period, teaching thousands of kids basic bike
maintenance skills and hopefully enthusing the next generation of
cyclists and Halfords customers.
Conclusion
Our review concludes that Halfords fulfils an important role for its
customers. Their busy lives and leisure time rely on the products and
services that we provide. We have a huge competitive advantage if we
can deliver on our promise of friendly expert service and inspire and
excite more people to shop with us.
The plans we are putting in place are essential to reposition Halfords
to meet the challenges ahead. We are targeting delivering profitable
revenue growth over the medium and long-term.
There is a lot of activity now underway at Halfords to execute this
programme. At this stage we anticipate that profits in FY14 may reduce
as we invest. It is anticipated that Group EBITDA may not exceed
current levels until FY16.
The Board is acutely aware of the importance of Halfords’ dividend to
our shareholders. However, our need to invest whilst maintaining both
an appropriate level of earnings cover and a robust balance sheet has
led the Board to recommend a rebasing of the dividend. Taking this
action will ensure Halfords has a robust foundation on which to build
and to maximise longer-term shareholder returns.
On behalf of the Board, I would like to thank all of our colleagues for
their immense contribution and commitment to the progress of our
business and the implementation of our plan to reposition Halfords.
Matt Davies
Group Chief Executive
23 May 2013
Halfords engaging the next generation of cyclists through our Kids Holiday Bike Clubs
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy 34
Transforming Halfords
Sit cu iusto eleifend eloquentiam. In elitr mediocrem nec, mea te dico cons, nulla vocent ad mei.
Halfords is a good business with
a really clear strategic framework
in place. However, there is some
repositioning necessary to move
Halfords from being good to being
great. Our single most important
objective is to drive profitable
sales growth over the medium and
long-term, and to do this through
leveraging our expertise.
Over the next three years we shall
be delivering a programme to make
Halfords great!
This programme – Getting Into Gear
2016 – is specifically designed to
drive profitable top line growth and
will transform Halfords.
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35
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy 36
Service Revolution
Enhancing value through expert advice
To deliver the step change we want to achieve in customer experience,
we have embarked upon a series of changes to how we get the best
from our people.
The service revolution is made up of the following key activities
■ improving our approach to recruiting the very best people
■ providing a structured development programme for all – our 3-Gears
programme
■ paying colleagues based on level of skill and expertise
■ incentivising all colleagues in-store to drive sales and a great
customer experience through net promoter scores (“NPS”)
■ reducing time spent on non-value adding tasks and increasing
customer contact
Recruiting the very best people – we have streamlined our recruitment
process, trained all store managers to recruit, introduced the latest
screening techniques to ensure we hire colleagues with the right
attitude – people who love customers.
The 3-Gears programme – all colleagues now undertake a structured
three month induction (Gear 1), followed by a nine month programme
(Gear 2) which includes workshops, e-learning and demonstrated
expertise on the shop floor. By the end of the financial year we will
also have launched Gear 3 for a limited group of colleagues which
will establish them as real technical experts in automotive & leisure or
cycling.
These changes will allow colleagues to
deliver friendly expert service to customers
and are key to driving our top line growth.
Learn to Earn – once Gear 2 is reached, colleagues will receive a
meaningful increase in pay, so long as they maintain the higher level
of expertise. Similarly with Gear 3. The benefit of this approach is that
colleagues will be motivated to learn more and maintain their skills, the
increased pay will also help with attraction of high calibre people and
improve retention levels, all of which benefit customer experience.
One bonus scheme for all – all store colleagues are now incentivised to
drive the top line and to improve the customer experience (measured
through NPS and mystery shopping). The scheme targets are based
quarterly and accumulated through the year, but paid out annually,
which again helps with improving colleague retention.
Task reduction – as well as increasing contract time for customer
service advisers, we are reducing tasks that have no direct benefit to
customers (smarter deliveries, less administration, etc.) so that we can
use our time better to serve customers.
These changes will allow colleagues to deliver friendly expert service to
customers and are key to driving our top line growth.
FY14 Operational Milestones
■ All qualifying colleagues through Gear 1.
■ Group Net Promoter Score greater than 60%.
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The 3-Gears Programme
Gear 3
Gear 2
Gear 1
Gear 3
■ Guru
■ Qualified to train others
■ Training through
— Workshops
— Product shows
— Supplier visit
■ Leadership development
■ Pay award
Gear 1
■ All Colleagues
■ Completed in 3 months
■ Structured e-learning
— Retail Skills
— Product knowledge
— Customer Service
■ Qualifications to serve our customers
Gear 2
■ 9 month Training
■ Expert level of product knowledge
■ Specialise in auto & leisure or cycle
■ E-learning
■ Training and Tuition
■ Regular refresh
■ Pay award
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The H Factor
Reasserting our Motoring proposition
The H Factor — reasserting our proposition authority
Over the years Halfords had become the natural destination for
Automotive, Cycling and Travel Solution products and services that we
offer; however, more recently this authority in our range and products
has waned as our proposition no longer inspired our customers and
our service levels were inconsistent.
However, we have the building blocks to once again be the “place to
shop” for our products and to give our customers the confidence that
“what they want”, we stock. We already stock great cycling products;
from kids’ bikes, family bikes, and commuter bikes right up to the
premium Boardman and Pinarello bikes. We also carry a wide range of
automotive after-market products from car cleaning to bulbs, blades
and batteries through to our Halfords Autocentres garages providing a
wide range of service, maintenance and repair expertise. Our camping
brands, including Gelert, CampingGaz, Outwell, Vango and our own
brand Urban Escape, provide families with the equipment to enjoy their
leisure time.
We are driven by the need to bring passion and excitement back to
our stores, we need to attract customers back to browse our stores,
be excited by the innovative products on offer, by the solutions we can
offer them in their busy lives and be awed by the level of specialism
and associated knowledge and expertise of our colleagues.
By the end of the summer we will
have rebalanced some 100 stores with a
focus of moving child seats downstairs in
stores, releasing space to cycling, better
segmenting our Cycle offer and taking
space away from car enhancement.
Consequently over the next few years we are going to restore and
celebrate our specialism in our the three core pillars. We will continue
Supporting Drivers of Every Car by increasing our coverage of the
UK car parc, and looking to reduce delivery time to our stores for
the product lines we don’t regularly carry. This will complement and
supplement our 3Bs fitting offer where we have seen the number of
jobs grow by c.32% in FY13 as more of our customers become aware
of this cost-effective, hassle-free solution to their busy lives. We will
continue to Inspire Cyclists of Every Age with our wide ranging cycle
offer from our range of children’s bikes and matching accessories; such
as the Apollo Cupcake bike, helmet & bell through to our premium
brands of Boardman and the recently introduced Pinarello.
We will seek to mirror our success in our 3Bs fitting offer by committing
resources in-store and developing our 3-Gears programme to build
our cycle repair offer, delivering a significant revenue stream and
increasing our authority as a comprehensive cycle shop. By the end
of the summer we will have rebalanced some 100 stores with a focus
of moving child seats downstairs in stores, releasing space to cycling,
better segmenting our Cycle offer and taking space away from car
enhancement. Our customers will be able to find what they want when
they want it, engaging with knowledgeable colleagues who can build
trust and confidence and revenues.
In providing trustworthy solutions to our customers, supporting their
use of both the car and the bike, Halfords is already Equipping Families
for their Leisure Time and as we continue to develop this area from
camping products to caravan accessories, we will continue to look to
excite both colleagues and customers through the introduction of new
leisure products that build on Halfords’ authority in bikes and cars and
drives revenue growth in this area.
All of this must recreate and enhance the H Factor: the confidence
and trust with which customers can turn to Halfords as the natural
destination for their automotive, cycling and leisure products.
FY14 Operational Milestones
■ Cycle Repair sales growth.
■ Launch PACs.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 39
Reproduced with kind permission from Mountain BikingUK.
22357-04 11/06/2013 FRONT Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comStrategy 40
Stores Fit to Shop
Stores Fit to Shop
We need to bring passion and excitement back to our stores! Do our
customers shop at Halfords because they need to or because they
enjoy the visit? A large number of our stores are not of an acceptable
standard, they lag behind our customers’ expectations, fuelling the
impression that our offer is tired and boring.
During last year we announced a trial of laboratory stores and whilst
these were successful in certain areas, e.g. cycle segmentation,
collection points, changing rooms, we concluded that these models
are not the answer to revitalising our estate; that we could do better.
We need to make the stores less sterile and we want to build an
emotional connection with our customers, a desire to shop at Halfords,
an anticipation of shopping in pleasant surroundings, and an eagerness
to use our stores as a means to shop Halfords in different ways, be
that in-store or online. A place to enjoy the shopping experience rather
than endure it.
We plan to step change the improvement in store environment to
surpass customer expectations, to make them warm agreeable places
to shop. It is important that our stores feel fresh and modern and
support the digital customer, the smartphone user, and the online
buyer. Approximately 90% of our online sales are collected in-store.
We must also leverage our store space better to maximize our sales
opportunities. We will continue to invest in cycle segmentation,
provide changing rooms to support our cycle clothing ambitions, a
major revenue growth opportunity, build our authority in 3Bs through
dedicated product zones and also extend these product specific zones
to other products such as child seats. Helping our customers shop our
stores for the products they want and need supported by dedicated
and knowledgeable colleagues.
To help us in this ambition we have initiated programme 50:39. A
programme, named after Sir Bradley Wiggins’ winning time in the
Olympic Time Trial event and designed to deliver engagement with our
customers’ shopping experience by implementing the learnings from
specific laboratory-store successes. These stores will up the level of
emotional engagement, provide a more coherent customer journey,
focus on one centralised desk to support sales and service, introduce
more live displays, bring our cycle repair and wefit offer to the fore and
support us to trade the overall store environment harder.
All this must create a compelling environment that excites customers,
improves the experience and emotional engagement of our customers
and our colleagues in-store, and bring passion back to Halfords!
FY14 Operational Milestones
■ 10–15 full store refits.
■ 75 Cycling departments brought up to date.
■ 20–30 Autocentres opened.
These stores will up the level of
emotional engagement and provide a
more coherent customer journey.
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21st Century Infrastructure
Our Supply Chain and IT infrastructure needs to support our service
focus in-store and our digital ambitions.
Our IT systems are out of date and in need of upgrading. In common
with many retailers new business opportunities have been supported
to bespoke changes to existing systems. As a result our systems
landscape is complex and expensive to maintain with changes to
support new business opportunities taking too long to implement and
being too costly.
Our Supply Chain needs to adapt to deliver better on shelf availability
and ensure colleagues can focus on serving customers rather than
being blinded by the task of stocking shelves. We also need to put
in place the capacity and capability to support our ambitious digital
growth strategy and make the customer experience seamless between
stores and online.
We have started a trial of airlock
deliveries where stock can be delivered
overnight.
We have started a trial of airlock deliveries where stock is delivered
overnight and can be worked first thing in the morning before the store
opens. We intend to roll this to further stores over the next 12 months.
To improve availability we have invested in new hand-held scanners
in each store that together with new processes support us counting
stock and maintaining the overall integrity of our stock file. We’re also
getting back to a real focus on good old-fashioned stock management
disciplines.
We’ve already started a number of core IT infrastructure projects
including the upgrade of SAP, the installation of a new faster store
network and the move of our data centre. Beyond these we will look
to invest in world class, scalable systems that support our digital and
service growth ambitions in order to drive profitable sales growth.
FY14 Operational Milestones
■ 25% of all stores working stock outside peak trading hours.
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Click with the Digital Future
Click with the Digital Future
To support our 21st century ambitions of interacting with our
customers in as many exciting ways as possible and thereby driving
engagement and revenue growth, we need to embrace the digital
future. Our young customers may not be embracing the automobile as
their parents once did, but they are the i-generation seeking innovative
ways of shopping and interacting with products.
Halfords is well placed to take advantage of this phenomenon
with most of our products being well suited to online display and
demonstration and we are able to offer 2.5 times more SKUs (stock-
keeping units) online than in-store. The mobile version of our site
enables our customers to research and purchase online while they are
on the move. Mobile traffic and revenues have experienced significant
growth and over 40% of all visits and almost a third of our online sales
are now through these devices. The Halfords App and quick response
(“QR”) codes at the point of sale are other mobile innovations that we
have introduced to enhance our customers’ buying experience; they
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 800,000 visits to our App
last year and around 15,000 QR codes were scanned.
However, unfortunately, even with all this work the multichannel
experience provided to our customers remains average at best. As
mentioned earlier our logistics solution does not support our ambitions
and we experience strong competition in certain categories from pure
play retailers.
We must invest in our digital future to
make Halfords a market leading integrated
multichannel business centred around our
three pillars.
We had mixed success in FY13 where we have seen a sustained
increased online participation in Baby & Child products, Bikes, PACs
and Car Parts, although online participation lags behind the wider
market in other categories. However, we continue to see compelling
revenue opportunities in PACs and Camping.
With our ambition to drive profitability revenue growth over the medium
and long-term we must invest and improve our web-based offer.
Over the next 12 months we plan to provide a much better website
experience. It will be aligned around our three product pillars so if you
are a cyclist, you will shop in a dedicated cycling site where we won’t
be trying to sell you engine oil – maybe just a few energy bars. This will
then develop into a cycle shop we can be proud of by the end of 2014
with community features, live chat and integrated dynamic content.
This redesign will make our site easier to search and navigate, provide
personalised merchandising and create passion in our products
through online communities. It will attract more customers; inspire,
inform and convince customers to buy our products; enable them to
transact and checkout easily and securely; and with the right support
will ensure that goods are delivered/collected on time. This will ensure
a pleasing shopping experience that results in customers returning to
the site.
We must invest in our digital future to make Halfords a market leading
integrated multichannel business centred around our three pillars.
FY14 Operational Milestones
■ Launch new Retail website.
■ Mobile and Tablet optimised site launched.
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Group Finance Director’s Report
Andrew Findlay
Group 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.
Total Operating costs before non-recurring items increased to
£399.0m (FY12: £375.6m), of which Retail represented £323.4m
(FY12: £307.0m), Autocentres £73.8m (FY12: £66.4m) and unallocated
costs £1.8m (FY12: £2.2m). Unallocated costs represent amortisation
charges in respect of intangible assets acquired through business
combinations (the acquisition of Nationwide Autocentres Ltd in
February 2010), which arose on consolidation of the Group.
All references to Group represent the consolidation of the Halfords
(“Halfords Retail”/“Retail”) and Halfords Autocentres (“Halfords
Autocentres”/“Autocentres”) trading entities.
Net finance costs for the year were £6.1m (FY12: £5.0m).
Group Profit Before Tax and non-recurring items for the year was down
21.9% at £72.0m (FY12: £92.2m).
Financial Results
Group Revenue
Gross Profit
EBIT
Finance Costs
Profit Before Tax and
non-recurring items
Profit Before Tax after
non-recurring items
EBITDA
FY13
£m
871.3
477.1
78.1
(6.1)
FY12
£m
863.1
472.8
97.2
(5.0)
Change
+1.0%
+0.9%
-19.7%
+22.0%
Net non-recurring expenses of £1.0m (FY12: income £1.9m) during
the year represented costs of £1.2m in respect of two onerous lease
contracts, asset impairment costs of £0.8m to support the “Stores
Fit to Shop” initiative, and non-recurring income of £1.0m from the
partial release of the Focus DIY lease guarantee provision, recognised
as a non-recurring cost in FY11, resulting from better than anticipated
settlements.
72.0
92.2
-21.9%
Group Profit Before Tax for the year after non-recurring items was
down -21.9% at £72.0m (FY12: £92.2m).
71.0
103.4
94.1
123.6
-24.5%
-16.3%
Halfords Retail
All items above are shown before non-recurring items unless otherwise stated.
EBITDA means earnings before non-recurring items, finance costs, tax, depreciation and
amortisation.
The “FY13” accounting period represents trading for the 52 weeks to
29 March 2013 (“the year”). The comparative period “FY12” represents
trading for the 52 weeks to 30 March 2012 (“the prior year”).
Group revenue in FY13, at £871.3m, was up +1.0% and comprised
Retail revenue of £745.5m and Autocentres revenue of £125.8m. This
compared to FY12 Group revenue of £863.1m, which comprised Retail
revenue of £752.3m and Autocentres revenue of £110.8m.
Group gross profit at £477.1m (FY12: £472.8m) represented 54.8%
of Group revenue (FY12: 54.8%), reflecting an increase in the Retail
business of 12 basis points (“bps”) and a gross margin of 63.7%
(FY12: 65.9%) in the Autocentres business.
Sales
Gross Profit
Gross Margin
Operating Costs before
non-recurring items
Operating Profit before
non-recurring items
Non-recurring (expense)/income
Operating Profit after non-recurring
items
EBITDA
FY13
£m
745.5
397.0
53.3%
FY12
£m
752.3
399.8
53.1%
(323.4)
(307.0)
73.6
(1.0)
72.6
94.6
92.8
1.9
94.7
114.6
Revenue for the Retail business of £745.5m reflected, on a constant-
currency basis, a like-for-like sales decline of -0.7%. Non like-for-like
stores contributed £1.6m revenue in the year, with total revenue
declining -0.9%.
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47
Group revenue in FY13, at
£871.3m, was up 1.0% and
comprised Retail revenue
of £745.5m and Autocentres
revenue of £125.8m.
Supporting City Centre cycle racing through the Halfords Cycling Tour Series 2012
Cycling revenues were down 0.4% with the benefit of the Olympics
offset by poor early-summer and final-quarter weather.
The adverse pressures will be partly offset by the continued focus on
higher-margin Car Maintenance fitting and Cycle Repair.
Car Maintenance revenues were up +5.1%, primarily driven by the
success of the Bulbs, Blades and Batteries (“3Bs”) fitting initiative, and
helped by extended cold winter conditions.
It is anticipated that Halfords Retail will continue to generate a gross
margin of over 50% throughout the medium-term.
Car Enhancement revenues were down -4.2%, a significantly better
comparable performance than in recent years, with growth in Audio
and a reduced decline in Sat Nav sales.
Travel Solutions revenues were down -6.8%, with camping revenues
being impacted by the lack of any conducive summer weather
conditions. Child car seats declined due to the continued focus on
managing the category for cash.
Revenue for the Retail business is split by category below:
Cycling
Car Maintenance
Car Enhancement
Travel Solutions
Total
FY13
(%)
29.6
32.6
24.9
12.9
100.0
FY12
(%)
29.5
30.8
25.8
13.9
100.0
Gross profit for the Retail business at £397.0m (FY12: £399.8m)
represented 53.3% of sales, 12bps up on the prior year (FY12: 53.1%).
This was a result of increased Car Maintenance parts and fitting
revenues, with lower levels of shrinkage as a result of the focus on
Retail disciplines in the period. Sales of winter chemicals also enhanced
gross margin, though there were a number of opposing influences,
including the intra-category mix within Car Enhancement and the
increased focus on the exit of old inventories. The success of lower-
margin premium-cycle sales also had a dilutive impact on margin.
Operating costs before non-recurring items were £323.4m
(FY12: £307.0m), up 5.3% on the prior year. The breakdown is set
out below.
Store Staffing
Store Occupancy
Warehouse & Distribution
Support Costs
Total Operating Costs
before non-recurring items
FY13
£m
85.1
140.1
28.5
69.7
FY12
£m
80.1
138.1
27.5
61.3
Change
+6.2%
+1.5%
+3.6%
+13.7%
323.4
307.0
+5.3%
Note: To align this year’s cost breakdown, the above figures reflect a prior year reallocation
of carriage costs from Store Occupancy to Warehouse & Distribution upon the launch of
the 24-hour Reserve & Collect fulfilment proposition, and a realignment of Warehouse &
Distribution management costs from Support Costs to Warehouse & Distribution.
In line with the objective to capture the Car Maintenance parts and
fitting market opportunity, payroll hours were invested in 3Bs fitting
activity during the year with over 450 additional fitters recruited in time
for winter peak trading. This, together with investment in training time
in both technical and employee engagement skills, and the underlying
uplift in national minimum-wage rates, led to a +6.2% increase in Store
Staffing costs.
Store Occupancy costs increased by +1.5% year on year. Business
rate increases of +2.2% and continued pressure from upward-only rent
reviews were partially mitigated by continued rent negotiations and a
reduction in other property-related costs.
The Retail gross margin is anticipated to decline by 125–175bps in
FY14 reflecting the normalisation of mix, more aggressive ongoing
clearance, plus increased activity to emphasise our value credentials.
This includes increased use of “WIGIGs” (“when it’s gone it’s gone”)
and establishing more ‘KVI’ (key value indicators) products. The
decline also includes the impact of the full-scale launch online of
third-party-branded, lower-margin Cycling parts, accessories and
clothing (“PACs”) and the continued influence of premium-bike sales.
Warehouse & Distribution costs increased by +3.6% driven by the
anticipated increase in carriage costs associated with the enhanced
24-hour multichannel fulfilment offering launched in March 2012.
Support Costs increased by +13.7% as a result of the investment
in improved recruitment and training in stores and enhanced
Support Centre capability (Procurement, IT, Human Resources and
Multichannel), with particular expertise associated with the launch of
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Group Finance Director’s Report continued
Car Maintenance
revenues were up 5.1%,
primarily driven by the
success of the Bulbs,
Blades and Batteries
(“3Bs”) fitting initiative,
and helped by extended
cold winter conditions.
the extended range of PACs. The one-off costs associated with the
change of Chief Executive, Commercial Director and Retail Director
were also included within Support Costs.
To support Halfords’ plans the Board anticipates a year-on-year
increase in FY14 Retail operating expenses of around +6%, a
significant proportion of which is dependent on volumes/performance.
Some of the costs associated with these plans are expected to
increase further in FY15 with, for example, the annualisation of pay
awards linked to the newly-launched 3-Gears training programme.
It is anticipated that Halfords Retail will generate low double-digit
EBITDA margins throughout the medium term (FY13: EBITDA Retail
margin 12.7%).
Halfords Autocentres
Sales
Gross Profit
Gross Margin
Underlying Operating Costs
Underlying Operating Profit
One-off Support Centre Relocation
Costs
Statutory Operating Profit
EBITDA
FY13
£m
125.8
80.1
63.7%
(73.8)
6.3
—
6.3
8.8
FY12
£m
110.8
73.0
65.9%
(66.0)
7.0
(0.4)
6.6
9.0
Autocentres generated total revenues of £125.8m (FY12: £110.8m),
an increase of +13.5% on the prior year. Non like-for-like centres
generated £8.3m of incremental revenue in the year. Twenty-three
new Autocentres opened in the year and took the total number of
Autocentre locations to 283 as at 29 March 2013. The increase in
revenues from the like-for-like centres reflected the impact of enhanced
media support and investment, growth in tyre sales, as well as the
success of online bookings which represented 12% of total FY13
Autocentres revenues.
Gross profit at £80.1m (FY12: £73.0m) represented a gross margin
of 63.7% against a prior year margin of 65.9%, driven primarily by
increased volumes of lower-margin tyre sales, which represented
15.8% of total sales (FY12: 11.2%). Underlying Service, MOT and
Repair margins were underpinned by improvements in parts buying.
It is anticipated that Halfords Autocentres will deliver a broadly-flat
gross-margin performance throughout the medium-term.
Autocentres’ underlying operating profit was down 10.0% at £6.3m
(FY12 £7.0m) reflecting the continuing investment in the business
in capability and training, the cost associated with the opening of
23 new centres together with the related expansion of the support-
centre structure. Halfords is committed to the continued investment in
the Autocentres business to secure long-term growth and has targeted
the opening of a further 20–30 new centres in FY14. Autocentres’
earnings before interest, tax, depreciation, amortisation and non-
recurring items in FY14 is expected to be marginally ahead of that
in FY13.
It is anticipated that Halfords Autocentres will generate a mid-to-
high single-digit EBITDA margin throughout the medium term (FY13:
EBITDA Retail margin 7.0%).
Portfolio Management
The store and centre portfolio at the end of the year comprised 466
stores (end of FY12: 467) and 283 Autocentres (end of FY12: 260).
The following table outlines the changes in the Retail store portfolio
over the year:
Number Stores
Relocation
5 Durham, Chester, Oxford, Blanchardstown,
Chingford
Leases re-
negotiated
10 Stafford, Coventry, Norwich, Dartford,
Weymouth, Plymouth, Evesham, Bognor,
Putney, Scarborough
Downsize
5 Ipswich, Guildford, Peterborough,
Southampton, Cheltenham
Opened
Closed
— —
1 Preston
Within Retail, five stores were relocated to smaller/cheaper units, five
stores were downsized, and ten leases were re-signed with re-geared
lease terms.
In Autocentres, the portfolio was extended by 23 centres to 283 in the
year, with four opened after the year end.
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49
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-year term at inception and with an average
lease length of 7.5 years.
In the year, one store was closed (Preston, Ribbleton Lane) in line with
its lease expiry; no Autocentres were closed.
Net Non-Recurring Expenses
The following table outlines the components of the net non-recurring
expenses incurred in the year.
Onerous lease charges
Asset impairment charges
Release of Focus DIY lease guarantee
provision
Net non-recurring (expenses)/income
FY13
£m
(1.2)
(0.8)
1.0
(1.0)
FY12
£m
—
—
1.9
1.9
Onerous lease charges of £1.2m in respect of two properties were
recognised during the year, reflecting the challenging property market
for vacant properties, and the high cost to exit lease agreements.
£0.8m of assets from certain stores were impaired as a result of the
investment in laboratory-store development.
At the end of FY11, an exceptional charge of £7.5m was recognised
in respect of a provision for property leases to which Halfords was a
guarantor, triggered by the demise of the Focus DIY retail chain. At
30 March 2012 the provision was £3.1m, reflecting the settlement
of a number of leases and utilisation for ongoing rent, insurance and
service charges, and had reduced further at 29 March 2013 to £1.0m
as a result of a £1.0m release relating to a lease settlement and £1.1m
utilisation.
Finance Expense
The net finance expense was £6.1m (FY12: £5.0m). The expense
included a £0.8m accelerated amortisation of facility fees in the current
year. This follows the Board’s decision to refinance the bank facility,
which expires in November 2014. The underlying net finance expense
was broadly flat year-on-year and the net financing cost in FY14 is
anticipated to be marginally lower compared to FY13.
Taxation
The taxation charge on profit for the financial year was £18.3m (FY12:
£25.7m), including a £0.1m charge (FY12: £0.9m) in respect of tax on
non-recurring items. The full-year effective tax rate of 25.7% (FY12:
27.3%) is higher than the UK corporation tax rate (24.0%) principally
due to the non-deductibility of depreciation charged on capital
expenditure and other permanent differences arising in the year.
The FY14 effective tax rate is anticipated to be 23–24%.
Earnings Per Share (“EPS”)
Basic EPS before non-recurring items was 27.7 pence (FY12: 33.7 pence),
a 17.8% decrease on the comparable year. Basic EPS after non-recurring
items was 27.2 pence (FY12: 34.2 pence). Basic weighted-average shares
in issue during the year were 194.3m (FY12: 199.9m).
Dividend
The Board has recommended a final dividend of 9.1 pence per share,
a reduction of 35.0% on the prior year (FY12: 14.0 pence). If approved,
this will be paid on 2 August 2013 to shareholders on the register at
the close of business on 5 July 2013. The proposed full-year dividend
is 17.1 pence (FY12: 22.0 pence).
The 35.0% reduction of the final dividend would have the effect of
similarly rebasing future dividend pay-outs. It is anticipated that the
FY14 full-year dividend would be reset to around 14 pence per share
and that the full-year dividend would potentially remain around this level
as the business approaches nearer 2x dividend/earnings cover over
the medium term. This would reflect a more-sustainable level for the
business, the requirement to invest and the maintenance of a robust
balance sheet
Capital Expenditure
Capital investment in the year totalled £18.8m (FY12: £19.7m)
comprising £13.2m in Retail and £5.6m in Autocentres. Consistent with
prior years, management has continued to adopt a prudent approach
with regard to capital investment and has focused on investments
generating material returns.
Within Retail, £5.8m was invested in stores, including the laboratory
store concepts, relocations and right-size activity, and general capital
spend relating to store roofing/flooring and security. Additional
investments in Retail infrastructure included a £5.0m investment in IT
systems, with further development in the online proposition, £1.4m in
logistics and £1.0m in central facilities.
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50
Group Finance Director’s Report continued
Expert knowledge is at the heart of our fitting offer
A further £5.6m (FY12: £4.5m) was invested in Autocentres to drive
the centre roll-out plan and upgrade centre equipment, especially in
relation to the delivery of the tyre-fitting proposition.
The current bank loan facility expires in November 2014. The Board
has approved refinancing of the Group’s debt funding in the current
financial year.
The Retail capital expenditure requirement in FY14 is anticipated to
be around £32m, whilst the respective investment in Autocentres is
anticipated to be around £6m.
Treasury Policy
The Group’s treasury department’s main responsibilities are to:
To support the delivery of Getting Into Gear 2016, Retail capital
expenditure is expected to total around £100m between FY14 and FY16.
Inventories
Group inventory held at the year-end was £133.2m (FY12: £146.7m),
down -9.2% on the prior year. Autocentres inventory was £1.3m, flat
on the prior year.
The management of inventory remains a key area of focus for the Retail
business; however, management recognises the need to ensure that
availability meets customer expectations and supports the business’s
profitable-sales growth aspirations. During FY14 we anticipate investing
£15–20m in extended levels of Retail inventory.
The Autocentres business model is such that only small levels of
inventory are held within the centres, with most parts being acquired on
an as-needed basis.
Cash Flow and Borrowings
The Group has continued its strong track record of operating cash
generation.
Net cash generated from operating activities in the year was £93.5m
(FY12: £89.7m). After taxation, capital expenditure and net finance
costs, free cash flow of £71.8m (FY12: £70.4m) was generated.
Reported net debt was lower than anticipated due to the expectation
of settlement of a number of prior-year outstanding tax computations
in FY13. These account for c.£20m and are fully provided for within the
balance sheet; it is anticipated that this provision will crystallise in FY14.
Group net debt of £110.6m (FY12: £139.2m) represented a year-on-
year decrease of £28.6m. At this level, the ratio of Net Debt to 12-month
EBITDA was 1.1:1 (FY12: 1.1:1). It is anticipated that this ratio will reach
no more than c.1.5:1 throughout the medium-term.
■ Ensure adequate funding and liquidity for the Group;
■ Manage the interest risk of the Group’s debt;
■ Invest surplus cash;
■ Manage the clearing bank operations of the Group; and
■ Manage the foreign exchange risk on its non-sterling cash flows.
Treasury activities are delegated by the Board to the Finance Director
(“FD”). The FD controls policy and performance through the line
management structure to the Group Treasurer and by reference to
the Treasury Committee. The Treasury Committee meets quarterly 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 through 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.
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Group net debt of
£110.6m (FY12 £139.2m)
represented a year-on-year
decrease of £28.6m.
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 + or – 1% the impact on the results in the Income Statement
and equity would be a decrease/increase of £1.0m (FY12: £1.2m).
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
April 2011 and April 2012, the Group managed its capital structure
partly through a share buy-back scheme.
The Group manages capital by operating within debt ratios. These ratios
are lease adjusted net debt to Earnings Before Interest, Tax, Depreciation
and Amortisation (“EBITDA”) and fixed charge cover. Lease-adjusted net
debt is calculated as being net debt and leases capitalised at eight times,
as a multiple of EBITDA plus operating lease charges. Fixed charge
cover is calculated as being EBITDA plus operating lease charges as a
multiple of interest and operating lease charges.
Credit Risk
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date
was £32.1m (FY12: £28.6m).
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 29 March 2013, 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.
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.
Liquidity Risk
The Group ensures that it has sufficient cash or loan facilities to meet all
its commitments when they fall due by ensuring that there is sufficient
cash or working capital facilities to meet the cash requirements of the
Group for the current Business Plan. The minimum liquidity level is
currently set at £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, in line with
Treasury Policy. The counterparty credit risk is reviewed in the Treasury
report, which is forwarded to the Treasury Committee and the Treasurer
reviews credit exposure on a daily basis.
The risk is measured through review of forecast liquidity each month by
the Treasurer to determine whether there are sufficient credit facilities
to meet forecast requirements, and through monitoring covenants on a
regular basis to ensure there are no significant breaches, which would
lead to an “Event of Default”. Calculations are submitted bi-annually
to the club bank agent. There have been no breaches of covenants
during the reported periods.
Andrew Findlay
Group Finance Director
23 May 2013
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52
Risks and Uncertainties
Strategic Pillars
Supporting
drivers of
every car
Inspiring
cyclists of
every age
Equipping
families for their
leisure time
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 72 to 81 describes the systems and internal control processes through which the Directors identify,
assess, manage and mitigate risks.
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.
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53
Key Risks and Uncertainties
Mitigation
Strategic
Pillar
Getting Into Gear
2016
Economic
The economy is a major influence on consumer
spending. Trends in employment, inflation,
taxation, consumer debt levels, weather and
interest rates impact consumer expenditure in
discretionary areas. Changes in Government
policies (e.g: Cycle2Work, DAB switchover) 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 if 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.
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. Our Click with the
Digital Future initiative will provide an improved
multichannel experience.
The Group has a Quality Assurance and
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. Our H Factor initiative
will improve product development and design.
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Risks and Uncertainties continued
Key Risks and Uncertainties
Mitigation
Strategic
Pillar
Getting Into Gear
2016
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, or through unavailability of
stock as a result of disruption to the supply
chain (e.g: unavailability of a distribution centre).
Ultimately the protection of Halfords’ brand and
position in its core markets will be sustained
by unique and extensive product offerings
and a multichannel approach to sales in our
stores and a high-service-based customer
proposition in our stores and autocentres.
This is complemented by training from Cytech
(Cycles), RoSPA, and the Institute of Motor
Industries, ensuring that colleagues at both
stores and centres are capable of supporting
the Halfords brand. Training will be further
enhanced by our Service Revolution initiative.
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
innovative 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 this will be enhanced by our Service
Revolution initiative. 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. Repairs are subject
to extensive quality assurance processes. The
business has developed and tested continuity
plans.
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Stocking a vast range of bulbs covering most of the UK car market
Key Risks and Uncertainties
Mitigation
Strategic
Pillar
Getting Into Gear
2016
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,
multichannel and distribution systems, could
potentially compromise our operational capability
for a period of time. With ambitious growth plans
for our multichannel offer, our trading capacity
could be affected by internal and external
systems’ resilience and interdependencies.
Dependence on Key Management
Personnel
The success of the Group’s business depends
upon its senior management closely supervising
all aspects of its business, in particular, the
operation of the stores and autocentres,
including the appropriate training of in-store and
centre colleagues, and the design, procurement
and allocation of merchandise.
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 Support Centre. 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 additional
access to a further data support centre
elsewhere in the UK in case of a major incident.
We have recently recruited an IT Director to
oversee enhancements to our IT infrastructure.
Our Remuneration Policy outlined on page
83 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.
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Corporate Responsibility Report
Aim to Win and Earn Trust – Corporate Responsibility
Halfords aims to contribute positively to the communities and
environment in which we operate. We recognise that acting responsibly
in all our operations, and towards our colleagues, customers and
stakeholders, also benefits our business and our brand. Throughout
the year our Commercial Director was responsible for ensuring that
our corporate responsibility policy was aligned with the strategic aims
of our business. Executive management monitors achievement of
related KPIs.
Recognising that ultimately Halfords is a business and so our
focus is on operating our business to provide our customers with
high quality products and services, and to generate value for our
shareholders, we continually strive to improve upon the management
of our environmental, social and corporate governance impact. It is
essential that we live our values by continually monitoring our exposure
and responding to safeguard not only our business, but also the
environment and the societies in which we operate.
In support of this, we have been looking to expand our corporate
responsibility initiatives in recent years. During the period, we
commenced a work inclusion programme with Bikeworks, which is
discussed further at page 61, and appointed a dedicated Community
& CSR Manager to develop the opportunities that Halfords has to
make a positive contribution to our local communities, as described at
page 60. Further information will be made available on our Corporate
Website as the developments progress and will be described fully in
next period’s annual report and accounts.
Our new 3-Gears
programme also introduces
a training and colleague
qualification programme that
puts expertise at our core.
Work as a Team — Workplace
Colleagues
As the many faces of our business, our colleagues are fundamental
to the achievement of our customer experience ambitions. We strive
to be an employer of choice, where commitment to good service
standards and our values is both celebrated and rewarded. Our
colleagues are expected to be customer-focused, helpful individuals
who work as a team to earn trust of our customers in our product and
service knowledge so inspiring our customers to invest in products
and services from our stores and autocentres – in so doing our
colleagues aim to win. In return for this, we offer our colleagues equal
opportunities to work in a fulfilling and stimulating environment and
further develop their careers within the Group on the basis of merit.
To provide our colleagues with the knowledge to empower them to
confidently deliver great service, c.80% of our Retail fitting colleagues
(excludes store managers and duty managers) are accredited
(2013: 6,092; 2012: 5,780), whilst around 60% (2012: c.60%) of our
Autocentres colleagues hold an industry-recognised qualification.
There are currently 160 apprentices (2012: c.140) participating in
the Autocentres training academy apprenticeship programme, a
three-year fully funded technician programme leading to the Institute
of Motor Industry NVQ 3 and Diploma, as well as an Automotive
Technician Accreditation assessment. Our IMI accredited Academy of
Learning delivers a range of technical and management qualification
opportunities to Autocentres colleagues.
Our new 3-Gears programme also introduces a training and colleague
qualification programme that puts expertise at our core and has the
potential to revolutionise our approach to building colleague expertise
and our customers’ experience.
Retail Staff Holding Accredited Fitting Qualifications
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
5,780
6,092
4,800
4,000
2010
2011
2012
2013
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57
Diversity amongst our Colleagues
Number of Cycles Stocked
We are committed to operating as an equal opportunities organisation
whilst recognising that the nature of our business is more likely to
attract certain profiles of colleagues than others. Our commitment to
diversity is upheld by the Board as described at page 75 and our Equal
Opportunities policy sets out our commitments and expectations as
regards diversity, colleague behaviours and how colleagues are treated
within the business.
Women Colleagues Employed by the Group
50
40
30
20
10
0
25%
Total
Women
29%
Women
in-store
16%
Women
in DC
49%
Women
in SC
1%
Women
in
Autocentres
2009
2010
2011
2012
2013
Accessibility
As a household brand, our stores and autocentres should be
accessible to customers and colleagues alike. We work hard to deliver
our products and services in surroundings that are as comfortable and
convenient to work and shop in as possible.
Health and Safety Management
Halfords is committed to high standards of occupational health and
safety to minimise the risk of injuries and ill health to employees,
contractors, customers, visitors and others who come into contact
with the business. Our overall annual incident rate remains below the
benchmarks of the industries we operate in.
Think Customer — Marketplace
We are committed to helping and inspiring our customers with their life
on the move by:
■ Continuing to be the largest retailer of bicycles and cycling-related
products, stocking a wide range of 177 bicycles suitable for
every taste and budget for beginners, intermediate cyclists and
enthusiasts alike.
200
180
160
140
120
100
80
60
40
20
0
178
170
179
189
177
160
150
50
60
71
73
77
82
82
2007
2008
2009
2010
2011
2012
2013
■ Total Bikes ■ Child Bikes
■ Delivering over 13,500 Cycle2Work schemes to date for private and
public sector organisations of varying types and sizes.
■ Assisting our customers to keep their vehicles on the road for longer
by providing high-quality car maintenance products in stores and car
servicing and initiatives, such as brakes4life, a lifetime replacement
of brake pads and brake shoes, at our autocentres.
■ Supporting the Automotive Technician Accreditation (ATA) scheme
to ensure our technicians’ knowledge remains current, enabling
them to deliver efficient servicing to our customers
We recognise that whilst our customers seek quality, reliable products
and/or services at reasonable prices, they also expect us to carry
out business responsibly. We work hard to ensure that our products
meet our high standards, which are consistent with or stronger than
relevant legislation, international conventions and codes of practice.
For example, our autocentres fit parts which meet OE standards not
only maintaining the warranties on our customers’ vehicles but meeting
legislative requirements. In addition, we have our own quality control
systems in place as well as a mystery shopper programme to ensure
that our expected standards are upheld. The external organisations
VOSA and Trading Standards also monitor our activities. We also take
advantage of opportunities to work closely with trade associations,
research institutes, standards authorities, universities and government
organisations to improve performance standards and safety, and
develop and influence best practice. For example, our Autocentres
CEO is heavily involved in the VOSA modernisation programme.
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58
Corporate Responsibility Report continued
Similarly, we place high standards on our selected suppliers,
maintaining an Ethical Trading policy which we expect our suppliers to
sign up to. This policy is available on our Corporate Website. We will
visit manufacturing sources to verify their quality procedures, supply
chain arrangements and interactions with their local communities. Our
suppliers are expected to, like us, seek to improve their offering and
reduce any undue impact on local stakeholders and their localities
generally.
Ethical Trading Audits
150
136
91.0
135
120
105
90
75
60
45
30
15
0
2010
■ ■ Number of audits undertaken % of suppliers covered
2011
2009
2012
2013
The potential impact that our business could have on our stakeholders
and the wider world is considered throughout the product or services’
lifecycle when we make decisions on choice of offer, packaging and
procedures. One such example is that the majority of our products
are imported so we are careful to monitor our carbon emissions and
restrict our use of airfreight. Typically we ship products, which once
landed in the UK, travel via rail to our Distribution Centres in the
Midlands.
We place high standards
on our selected suppliers,
maintaining an Ethical
Trading policy which we
expect our suppliers to
sign up to.
Tonnes of Product Airfreighted
200
180
160
140
120
100
80
60
40
20
0
187.043
177.020
89.204
67.641
60
29.045
36.817
11.781
3,500
3,000
2,500
2,000
1,500
1,000
500
0
67
41
69
61
78
93
41
2008
2010
■ ■ Containers moved by rail % of total Containers moved
2012
2009
2011
2013
Our Autocentres business uses small vans which are route managed
not dedicated in order to make deliveries as efficient and minimise the
environmental impact as practicable.
Throughout the year, our People Team worked closely with Which?
Magazine regarding childseat fitting training at Halfords, and as part
of the umbrella Digital Radio UK with members of the SMT Working
Group for DAB conversion, including the design of an accredited
installation and approval of DAB programme.
111
113
2007
2008
2009
2010
2011
2012
2013
99.8
99.9
95.9
95
Number of Containers moved by Rail
76
51
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59
Be Helpful — The Environment
We recognise that our business can have a direct, as well as an
indirect, effect on the environment. We are committed to understanding
any impact that our products, stores, autocentres, Support Centre and
delivery fleet have on the environment so that we can work to improve
the management of them. We acknowledge that in some cases such
environmental impact management can result in improved performance
within our supply chain. We have identified the following areas as
overall objectives in managing our environmental responsibilities:
Fuel Efficiency
Distance driven by fleet delivering
products to stores
6,233,896
(FY12: over 7,000,000) km
Greenhouse Gas emissions
(converted using DEFRA’s 2012
Freight Transport conversion
factor of 1.10316)
6,876,984
(FY12: over 6,000,000) kg CO2e
per vehicle km
Our overall greenhouse gas emissions have stayed broadly flat this
year as we continue to better utilise our Main and Cycling Distribution
Centre, improve the management of store deliveries and use larger and
double-decker trailer units to carry more stock per vehicle.
Natural Resources
Retail store water consumption
-3.1 (FY12: -12.4) %
Car batteries recycled by Retail
stores
1725 tonnes (broadly equivalent to
115,000 batteries)
In our stores, we continue to invest in “smart” water meters which
help us to identify water leaks at an early stage so as to help reduce
our water consumption. As motor vehicle servicing centres, our
autocentres are continually disposing of “motor vehicle” related waste
safely.
Autocentre water consumption
(average)
206 (FY12: 183) cm3
Percentage of Autocentre waste
recycled
60%
Car batteries recycled by
Autocentres
3,891 batteries
Tyres recycled by Autocentres
297,482 (2012: 197,200)
Oil recycled by Autocentres
950,957 (2012: 876,300) litres
Average Water Consumption per Unit (kWh)
220
158.52
153.69
206
183
200
180
160
140
120
100
80
60
40
20
0
Retail
2012
Retail
2013
Autocentres
2012
Autocentres
2013
Energy and Reducing CO2 Emissions
Average consumption of gas per
autocentre
-4.6% (FY13: 60,744,
FY12: 63,670kWh)
Average consumption of
electricity per autocentre
-9.7% (FY13: 27,838,
FY12: 30,834kWh)
Average consumption of gas per
store
-39% (FY13: 50,520,744*
FY12: 36,466,880kWh)
Average consumption of
electricity per store
-3% (FY13: 49,381,659
FY12: 50,974,409kWh)
* The increase year on year was due to the prolonged winter period.
We continue to add energy management systems to our new properties
and implement specific action plans around voltage reduction.
Total Energy Usage per Store and Autocentre (kWh)
55000000
50000000
45000000
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
Group
Gas
2012
Group
Gas
2013
Group
Electricity
2012
Group
Electricity
2013
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60
Corporate Responsibility Report continued
Inspire Others — Community
Charity of the Year
Across our stores and autocentres, we partnered with Cancer
Research UK for a two-year period, ending on 29 March 2013.
Activities in the past year included the CycleSlam, colleague donation
stations in all stores and autocentres, auctions and participation in their
Dryathlon campaign.
Apprenticeships
We operate the largest independent Apprentice Scheme in the motor
industry via our autocentres. In twenty years of operation, we offered
employment to the majority of apprentices who completed the three-
year scheme.
A dedicated Community & CSR Manager was appointed in January
2013 to look at how the Group engages with its local community and
in so doing inspires others. In recent months, the following initiatives
have been launched:
Re~Cycle
At the beginning of April 2013, Halfords began a long-term partnership
with Re~Cycle, a UK charity that sends unwanted bikes to Africa. In
some areas of Africa, a bike can be the only means of transport and
owning a bike enables people to travel to work, school and carry
goods and passengers, whilst small scale farmers and traders can
reach customers further afield. The bikes can similarly be an invaluable
resource for travelling health workers and provide access to training
and employment, helping to improve lives in a sustainable way.
However, bikes can be too expensive for the majority and additionally
the skills to maintain them might not exist, whereas millions of unused
bikes go to waste in sheds and garages in the UK. Through our
partnership, we plan to work with Re~Cycle to build on the fantastic
work it has already achieved since 1997 to increase the number of
bikes sent to Africa and also raise funds to help the charity grow.
BEN
In our Autocentres we agreed a long-term partnership with BEN,
the dedicated charity for those who work, or have worked, in the
automotive and related industries, as well as their dependants.
Kids Bikes Workshops
At the beginning of Easter, we began to offer a free Kids Holiday Bike
Club for children to help create closer links with each store’s local
community. Run during the school holidays, the workshops show
children – and their parents – the key things to check on a bike,
providing a perfect starting point for children to go back home and,
together with their parents, make sure their bikes are safe. Over Easter,
nearly 2,500 children, plus their parents, attended a workshop.
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61
Free Kids Holiday Bike
Club for children to help
create closer links with each
store’s local community.
Bikeworks
Bikeworks & Halfords changing lives through cycling
Bikeworks began working in partnership with Halfords in the summer
of 2012 with Halfords supporting Bikeworks’ “Cycle into Work”
programme which gives individuals from disadvantaged backgrounds
the opportunity to change their lives around and gain employment in
the cycling industry.
Bikeworks conducts outreach work in the community where individuals
undertake short “Build a Bike” courses learning the basics of bike
maintenance. Participants then have the opportunity to apply to
join the full “Cycle into Work” programme where trainees are put
through a programme of accredited training in cycle mechanics and
customer service alongside “soft” skills training in communication and
interpersonal skills.
Towards the end of Cycle into Work trainees undertake work
placements within Halfords stores which if successful can develop into
permanent roles.
So far Halfords has helped Bikeworks to achieve these outcomes:
■ 48 people have completed Build a Bike courses
■ 20 individuals have gone through the Cycle into Work programme
■ 9 graduates have so far secured employment at Halfords stores
■ 18 trainees successfully completed work placements at Halfords
stores.
On 6 March 2013, our new CEO Matt Davies attended a graduation
ceremony at Bikeworks where successful graduates were presented
with a tool kit worth £150 supplied by Halfords. The event was a great
success. Taking away a quality tool kit meant a lot to individuals as
recognition of their success and hard work.
Case study — Leo
Leo is a young man from Hackney, East London. Before
coming to Bikeworks Leo had not been involved in any training or
employment for some time.
Leo progressed really well through Cycle into Work showing
strong ability in cycle mechanics ultimately gaining level 2 City &
Guilds accreditation with flying colours. During his time on Cycle
into Work Leo also successfully completed a work placement at
Halfords Stoke Newington and is now employed on a full-time
basis at Halfords in Tottenham.
The work we have been doing with Halfords has been a fantastic
partnership. Not only are we helping our trainees secure a better
future but at the same time supporting Halfords’ desire to become
famous for cycling by providing skilled mechanics to the business
so it’s a win win situation.
We believe that by working together we can achieve much more
over the next few years and are excited about the future of the
partnership.
Dave Miller — Managing Director (Bikeworks)
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62
Read online:
halfords.annualreport2013.com/governance
22357-04 11/06/2013 MIDDLE Proof 11 Governance
Board of Directors
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
63
64
68
72
82
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Board of Directors
Dennis Millard
Chairman
n (Chair)
r
Matt Davies
Group Chief Executive
n
Dennis Millard
Chairman
Joined 28 May 2009
Additional Roles Held
Matt Davies
Group Chief Executive
Joined 4 October 2012
Additional Roles Held
Chairman of Smiths News plc and a Non-Executive Director and Senior
Independent Director of Debenhams plc and Premier Farnell plc.
Matt is a Non-Executive Director at the Dunelm Group plc.
Past Roles
His former appointments include Group Finance Director of Cookson
Group plc, Finance Director of Medeva plc, Non-Executive Director of
Exel plc and a member of the Economic Affairs Committee of the CBI.
Brings to the Board
Dennis has a broad commercial and financial experience in the
retail, service, distribution and manufacturing sectors in the UK and
internationally. Dennis is a member of the South African Institute of
Chartered Accountants and holds an MBA from the University of
Cape Town.
Past Roles
Matt was Chief Executive of Pets At Home for eight years having
originally joined as Finance Director in 2001.
Brings to the Board
Under Matt’s leadership, Pets at Home developed into a market-
leading UK retailer, offering an outstanding customer experience. The
approach was to create a strong culture of work ethic and enjoyment
amongst colleagues combined with a determination to provide
exceptional customer service. Matt also has in-depth experience
in corporate finance with Rothschild and Hawkpoint and extensive
financial experience in the consumer-facing retail sector with both
Caudwell Communications and as Finance Director of Pets at Home.
Dennis is a keen cyclist and rides a Boardman Road Team Carbon.
Last year he participated in the Dallaglio Flintoff Cycle Slam Ride 2012
from Olympia to London and the Deloitte Ride Across Britain. He is
also an avid surfer and keen golfer.
Matt rides a Boardman Air Pro and can often be found on a weekend
cycling the lanes of the Lake District with his family and friends. His two
dogs Archie and Bear form a big part of his life!
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Andrew Findlay
Group Finance Director
Bill Ronald
Senior Independent Director
a
n
r
a Audit Committee
n Nomination Committee
r Remuneration Committee
Andrew Findlay
Group Finance Director
Joined 1 February 2011
Past Roles
Bill Ronald
Senior Independent Director
Joined 17 May 2004
Additional Roles Held
Prior to his appointment, Andrew was Director of Finance, Tax and
Treasury at Marks and Spencer Group plc. Prior to this, he held
senior finance roles at the London Stock Exchange and at Cable and
Wireless, both in the UK and US. Andrew qualified as a chartered
accountant with Coopers & Lybrand.
Brings to the Board
A track record in retail and other competitive, consumer and business
facing industries. Andrew has experience of: operational and
commercial finance, refinancing and pension scheme funding; bid
defence; non-merchandise procurement; shared services; financial
accounting, tax and audit.
Andrew’s first car was a Hillman Imp under which he spent many an
hour fixing! He now rides a Carrera TDF at weekends when he gets the
chance.
Bill is currently Chairman of Dialight plc, Chairman of The Compleat
Food Group, Chairman of Fever Tree and Chairman of the Muscular
Dystrophy Campaign.
Past Roles
Bill spent 23 years in a variety of roles within the Mars Corporation
ending up as Managing Director of the UK confectionery operation
and Vice-President of Masterfoods Europe. More recently, Bill was also
CEO of Uniq plc and a 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.
Bill rides a Carrera Crossfire but prefers skis in the winter.
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Board of Directors continued
Keith Harris
Independent Non-Executive
Director
a
n
r (Chair)
David Adams
Independent Non-Executive
Director
a (Chair)
n
r
Keith Harris
Independent Non-Executive Director
Joined 17 May 2004
Additional Roles Held
David Adams
Independent Non-Executive Director
Joined 1 March 2011
Additional Roles Held
Keith is currently on the Boards of Cooper Gay (Holdings) Limited and
Sellar Investments Limited.
Past Roles
Previously Keith was Executive Chairman of Seymour Pierce Limited
following its acquisition from Investment Management Holdings plc,
Chairman of the Football League, Chief Executive of HSBC Investment
Bank plc and a Benfield plc board member.
Brings to the Board
Keith brings extensive experience of public company governance,
particularly in the field of executive remuneration.
David is the Chairman of two privately held businesses — Musto Ltd
and Park Cameras Ltd, a Non-Executive Director of the British Retail
Consortium (Trading) Ltd , and a Director and Trustee of Walk The
Walk, the breast cancer charity.
Past Roles
David was the Deputy Chief Executive and Finance Director of House
of Fraser until its sale in 2006, and was Executive Chairman of Jessops
plc then Non-Executive Chairman of Snap Equity Ltd (after Jessops
was taken private) until early 2012. Previous Non-Executive roles include
Chairman of Moss Bros plc and Alexon plc , and Non-Executive Director
at Ottakars, Eidos, Whittard of Chelsea, JJB Sports and HMV.
Brings to the Board
He brings extensive and relevant experience from over 25 years in retail.
David has been a plc Finance Director for 10 years and has had two
other Audit Committee Chair roles in plc companies in the last three
years.
David is a keen tennis player and golfer, and a fair weather cyclist!
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Claudia Arney
Independent Non-Executive
Director
a
n
r
Claudia Arney
Independent Non-Executive Director
Joined 25 January 2011
Additional Roles Held
Claudia is a Non-Executive Director of Telecity Group PLC, and of
Which? She is Chair of the Public Data Group, and a member of the
Advisory Boards of the Shareholder Executive, and of Huawei.
Past Roles
Claudia was the Group Managing Director, Digital at EMAP Inform
until late 2010 where she led the development and execution of online
publishing strategy as well as managing the public sector and media
divisions. Prior to this she was Director of the Enterprise and Growth
Unit at HM Treasury, which she joined from Goldman Sachs where
she was an Executive Director. She has also worked at FT.Com, and
Mckinsey, and was Managing Director of TheStreet.co.uk from 1998
to 2000.
Brings to the Board
Claudia brings extensive experience of strategy formulation and business
development, particularly in the online consumer and media space.
Claudia and her family are keen campers and are regularly found out
and about in their Urban Escape Kurai tent. Destinations have ranged
from France to Scotland to their back garden, and all have been much
enjoyed.
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Directors’ Report
The Directors present their report and the audited financial statements of Halfords Group plc (the “Company”) together
with its subsidiary undertakings (the “Group”) for the period ended 29 March 2013.
Halfords Group plc
Registered Number
04457314
Registered Office Address
Icknield Street Drive, Washford West, Redditch, Worcestershire, B98 0DE
Country of Incorporation
England and Wales
Type
Public Limited Company
Principal Activities
Whilst the Company is a holding company, the Group is a retailer of automotive, leisure and cycling products
operating, as at 29 March 2013, from 466 retail stores (2012: 467); and offers Car Servicing and repair from
283 autocentres (2012: 260).
Summary of General Disclosures (incorporated into this Directors’ Report)
The following information required to be disclosed in this Directors’ Report has been provided by the Company:
A review of the Group’s business activities and progress against key performance indicators (“KPIs”), together with the factors
likely to affect its future development, performance and position, including the principal risks and uncertainties facing the Group
within the Chairman’s Statement
and Business Review.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities within the Finance Director’s Report.
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 within Note 19 to the Group
Financial Statements.
The Statement of Compliance with the UK Corporate Governance Code and description of the Group’s corporate governance
framework within the Corporate Governance Report.
A summary of how the Company recognises its responsibility to its colleagues, customers, environment, and community through
various initiatives within the Corporate Responsibility Report.
The Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements.
Board of Directors
Directors including interests and indemnities
Auditor
Going Concern
Political Donations
Supplier Payment Policy
Share Capital, Major Shareholders and Authority to Purchase Shares
AGM
Leadership
Role of the Board
Non-Executive Directors
Effectiveness
Composition of the Board
Independence
Diversity
Board Evaluation
Board Committees
Nomination Committee
Accountability
Audit Committee
Internal Control & Risk Management
Remuneration Committee
Relations with Shareholders
at pages:
6 to 13
14 to 15
18 to 61
46 to 51
130 to 133
72 to 81
56 to 61
104
64 to 67
69
69
70
70
71
71
71
72
75
79
81
81
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Profits and Dividends
The Group’s results for the year are set out in the Consolidated Income
Statement on page 104. The profit before tax on ordinary activities was
£71.0m (2012: £94.1m) and the profit after tax amounted to £52.7m
(2012: £68.4m). The Board proposes that a final dividend of 9.1 pence
per ordinary share be paid on 2 August 2013 to shareholders whose
names are on the register of members at the close of business on
5 July 2013. This payment, together with the interim dividend of
8 pence per ordinary share paid on 24 January 2013, makes a total
for the year of 17.1 pence per ordinary share. The total final dividend
payable to shareholders for the year is estimated to be £17.7m.
Computershare Nominees (Channel Islands) 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 8
to 13 are appropriate measures for the delivery of the strategy of the
Group via its Retail and Autocentres divisions.
Directors
The following persons were Directors of the Company during the
period ended 29 March 2013 and unless otherwise stated at the date
of this Annual Report:
Dennis Millard
David Wild (resigned 18 July 2012)
Matt Davies (appointed 4 October 2012)
Paul McClenaghan (resigned 12 April 2013)
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 29 March 2013 will offer
themselves for re-election at the AGM on 30 July 2013(1). Matt Davies,
who was appointed on 4 October 2012, will stand for election at
the AGM.
(1) As Paul McClenaghan resigned his directorship on 12 April 2013, he will not be offering
himself for re-election.
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 101. 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 were considered and approved by the Board in accordance with
the Company’s Articles of Association and each Director informed of the
authorisation and any terms on which it was given.
Directors’ Indemnities
The Company maintains liability insurance for its Directors and officers.
The Directors of the Company, and the Company’s subsidiaries, have the
benefit of a third-party indemnity provision, as defined by section 236 of
the Companies Act 2006, in the Company’s Articles of Association.
Auditor
At the 2012 AGM, KPMG Audit Plc was appointed as the Company’s
Auditor. KPMG Audit Plc has indicated its intention to notify the
Company of its orderly wind down of business so that this statutory
entity would cease to act as Auditor of the Company. A resolution
proposing the appointment of KPMG LLP, an intermediate parent of
KPMG Audit Plc, is expected to be contained in the Notice of the AGM
and will be put to the shareholders at the meeting.
Disclosure of Information to the Auditor
So far as the Directors are aware, there is no relevant audit information
of which the Auditor is unaware and the Directors have taken all
reasonable steps to ascertain any relevant audit information and ensure
the Auditor is aware of such information. The Directors are responsible
for maintaining the integrity of financial information including this Annual
Report, together with other financial statements, presentations and
announcements on the Company’s corporate website. Legislation
in the UK concerning the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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Directors’ Report continued
The Group’s strategic
objectives are monitored by the
Board through KPIs and the
periodic review of various aspects
of the Group’s operations.
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.
A whistleblowing policy and procedure enables colleagues to report
concerns on matters affecting the Group or their employment, without
fear of recrimination. In addition, the Group takes a zero-tolerance
approach to matters of discrimination, harassment and bullying in all
aspects of its business operations, including in relation to gender, race,
national origin, disability, age, religion or sexual orientation. Appropriate
policies and procedures are in place for reporting and dealing with such
matters.
Donations
During the year the Group contributed £50,000 (2012: £50,000) to
charities in the UK, including donations to BEN, a charity supporting
individuals and families linked to the motor industry and associated
trades, and Cancer Research UK, its Charity Partner until the end of
the financial year.
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 2012 Annual General Meeting (“AGM”) that provided for
limited authority for such expenditure, such authority remaining valid
until the earlier of 29 September 2013 or the conclusion of the AGM
to be held in 2013, and as such the Company will be asking for this
limited authority to be renewed at the AGM to be held on 30 July 2013.
Going Concern
With effect from 5 November 2010 the Group secured a four-year
£300m revolving credit facility (extendable by a further year) and at
29 March 2013 the Group had undrawn borrowing facilities of £197m
(30 March 2012: £160m). 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.
Colleagues
The Group has established a framework of colleague communications,
including a monthly colleague magazine, to provide colleagues with
information on matters of concern to them and business performance,
as well as to encourage the engagement of every colleague in the
Board’s commitment to high standards of customer care and service
provision. This is reinforced via training initiatives across the business,
details of which can be found on pages 29, 37 and 56, and the
facilitation of colleague share ownership via a Sharesave Scheme.
The Group is dedicated to the principle of equal opportunity in
employment. No potential or current 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.
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71
Supplier Payment Policy
The Group does not follow any formal code of practice on payment,
agreeing terms and conditions for transactions when orders for goods
or services are placed, and including relevant terms in contracts,
as 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 as at 29 March 2013
for the Group was 57 days (2012: 59 days). The Company is a holding
company and has no trade creditors.
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.
Share Capital
Details of the Company’s share capital, including changes during the
year in the issued share capital and details of the rights attaching
to the Company’s ordinary shares, are set out in Note 20 on page
134. All ordinary shares, including those acquired through Company
share schemes and plans, rank equally with no special rights. All
shareholders are entitled to attend and speak at the general meetings
of the Company, appoint proxies, receive any dividends, exercise voting
rights and transfer shares without restriction. There are no known
arrangements which may restrict the transfer of shares or voting rights.
The Company has term and revolving credit facilities which require
the Company in the event of a change of control to notify the facility
agent and, if required by the majority lenders, these facilities may be
cancelled. 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.
Rules relating to the appointment or removal of the Directors, and their
powers, are contained within the Company’s Articles of Association,
which in accordance with legislation can only be changed with
shareholder approval.
Major shareholders
At 29 March 2013, the Company’s register of substantial shareholdings
showed the following interests of 3% or more of the Company’s issued
ordinary shares:
Holder
Norges Bank
Invesco Limited
Legal & General Group Plc
BlackRock, Inc
Number of
shares
% of issued
shares
6,036,869
9,036,967
9,671,846
11,021,000
3.03
4.53
4.85
5.54
Authority to Purchase Shares
At the 2012 AGM, shareholders approved a special resolution
authorising the Company to purchase a maximum of 19,906,322
shares, representing less than 10% of the Company’s issued share
capital at 19 June 2012, such authority expiring at the conclusion of
the AGM to be held in 2013.
Annual General Meeting
The AGM will be held at the Crowne Plaza Birmingham NEC, Pendigo
Way, National Exhibition Centre, Birmingham, B40 1PS on Tuesday
30 July 2013. 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
23 May 2013
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72
Corporate Governance Report
Building the range of parts, accessories and clothing
Statement of Compliance with the UK Corporate
Governance Code
For the period ended 29 March 2013 the Board considers that the
Group has complied fully with the UK Corporate Governance Code
2010 except where Dennis Millard stood in as Interim Executive
Chairman between 18 July 2012 and 21 November 2012 as described
on page 74 and except with respect to the ongoing service of
Keith Harris and Bill Ronald as described on page 75. 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.
As a Board we are committed to
continually reviewing and refreshing
the Group’s Corporate Governance
framework. Examples throughout
the year were the implementation
of stronger Delegated Authority
arrangements and the Group
Treasury and Tax Strategy and policy
documents.
Dennis Millard
Chairman
To allow for effective decision-making within the Group, the Board maintains a schedule of matters formally reserved for its decision, coupled with a
schedule delegating other decisions to its Committees, Executive Directors and management. In summary:
Matters Reserved
for the Board
Include:
■ Authority e.g. division of responsibilities and review of its
Available on our Corporate Website.
own performance.
■ Strategy and Management e.g. approval of the annual
operating and capital expenditure budgets and any material
changes thereto.
■ Structure and Capital e.g. changes to structure or listing
status.
■ Investor Relations
■ Contracts e.g. significant corporate transactions.
■ Audit, Financial Reporting and Controls e.g. reviewing
the effectiveness of the Group’s risk and control processes
to support its strategy and objectives.
■ Nominations to the Board
■ Executive Remuneration
Board Committees
The terms of reference of each Committee establish its
responsibilities; these are summarised on pages 78 to 81.
Available on our Corporate Website.
Executive Directors
and Management
Day-to-day decisions are delegated to the Executive Directors
and management via established procedures for approving
decisions within business functions. Examples of decisions
delegated in this way are approval of adverts, signature of
day-to-day contracts, engaging of new suppliers, entering into
tenders and promotional activity.
A formal delegated authorities document confirms
how and by whom approval can be obtained and what
evidence is required of such approval. This document
has been reviewed during the year, and tighter controls
have been put in place.
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Leadership
The Role of the Board
Values and
standards
Review
management
performance
Shareholders,
customers,
employees and
other stakeholders
Collective
Responsibilities
of the Board
Right resources
to deliver
Risk management
and accountability
controls
Long-term
direction and
strategy
Responsibility
Specific Actions
Shareholders, customers, employees and
other stakeholders.
Acting in the best interests of the
Company to generate value for
shareholders.
Monitoring material customer
service issues including resultant
activities, e.g. Which? report, Service
Revolution.
Employee engagement survey,
review of bonus scheme and
whistleblowing process.
Risk management and accountability
controls.
Consideration and approval
of all regulatory and statutory
announcements, including those
pertaining to results and dividends.
Review of the risk management
strategy and systems of internal
controls.
Approval of corporate governance
arrangements and policies, including
Group Treasury and Tax Strategy and
Policy documents, Health & Safety
policy, and introduction of tighter
delegated authority arrangements.
Long-term direction and strategy.
Two full days dedicated to strategy
discussions.
Regular review of forecast versus
actual financial performance.
Regular updates on the progress of
key strategic initiatives.
Right resources to deliver.
Management performance.
Values and standards.
Consideration of commercial
initiatives such as logistics and
business systems improvements.
Clear division of responsibilities
between Chairman and Chief
Executive available on our Corporate
website.*
Monitoring of colleague retention
data.
Implementation of a regular colleague
engagement survey and analysis of
results.
Regularly reviewing of standard
agenda and special management
reports.
Interlinking of management
performance to non-financial, as well
as financial, KPIs.
CSR and Community programmes
e.g. Bikeworks, Charity Partnerships,
Kids Holiday Bike Clubs
More frequent visits by the Non-
Executive Directors to stores,
autocentres and the Support Centre.
Introduction of regular meetings
between colleagues and senior
management.
* From 18 July 2012 to 21 November 2012 Dennis Millard held the role of both Chairman and Chief Executive when he stood in as Interim Executive Chairman following David Wild’s departure.
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Corporate Governance Report continued
The Company has appropriate Directors’ Liability Insurance in place.
The table below shows the composition of the Board and its Committees, and sets out the number of meetings attended by each individual
throughout the period.
Role
Date of
Appointment
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Scheduled: 14
Scheduled: 3
Scheduled: 6
Scheduled: 3
Meeting Attendance
* indicates attendance by invitation
The Board†
Board Member
Dennis Millard
Chairman and Chair of Nomination
Committee
28 May 2009
Matt Davies
David Wild
Chief Executive (current)
Chief Executive (former)
Andrew Findlay
Finance Director
4 October 2013
4 August 2008
1 February 2011
Paul McClenaghan Commercial Director (former)
31 March 2007
Bill Ronald
Senior Independent Director
David Adams
Non-Executive Director and Chair
of Audit Committee
17 May 2004
1 March 2011
Claudia Arney
Non-Executive Director
25 January 2011
Keith Harris
Non-Executive Director and Chair
of Remuneration Committee
17 May 2004
14
3
7
14
13
14
13
14
14
3*
1*
2*
3*
2*
3
3
3
3
6
2*
2*
n/a
n/a
6
6
6
6
3
1
n/a
n/a
n/a
3
3
3
3
†
Includes David Wild who resigned on 18 July 2012, Matt Davies who was appointed on 4 October 2012 and Paul McClenaghan who resigned on 12 April 2013.
The Senior Independent Director, Bill Ronald:
■ is available to act as an intermediary for the other Directors or a
sounding board for the Chairman as required;
■ leads meetings with the other Non-Executive Directors without the
Chairman at least annually to appraise his performance; and
■ can be contacted by shareholders if direct contact with the
Chairman, Chief Executive or other Executive Directors has
not alleviated their concerns, or if such contact would not be
appropriate.
Concerns over any unresolved business can be recorded on behalf
of a Director in the minutes of the relevant meeting. At the time of
resignation, a Non-Executive Director is able to raise any concerns in
a written letter to the Chairman who will bring such concerns to the
attention of the Board.
The Board recognises that it is preferable that the position of Chairman
and Chief Executive are not held by the same individual and maintains
a clear division of the responsibilities of these two roles. However, from
18 July 2012 to 21 November 2012 Dennis Millard acted as Interim
Executive Chairman whilst the Company undertook a search for a
new Chief Executive. It was felt that Dennis Millard was best placed to
lead the Company during this brief period of four months due to his
knowledge and experience of the Company. Following the presentation
of the Group’s interim results on 21 November 2012 the Company
returned to the position of having a separate Chairman and Chief
Executive in compliance with the UK Corporate Governance Code.
Non-Executive Directors
The Non-Executive Directors are responsible for providing independent
challenge and rigour to deliberations by:
■ contributing to strategy discussions;
■ considering the reporting of performance by managers against
agreed goals and objectives, and providing critique where
necessary;
■ ensuring the financial information, risk management and controls
processes of the Group are appropriately vigorous;
■ undertaking regular meetings with senior management and periodic
visits to stores and autocentres;
■ meeting together regularly without the Executive Directors present;
and
■ considering Executive Director remuneration and succession
planning.
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Effectiveness
The Composition of the Board
The Directors possess an appropriate combination of skills, experience,
independence and knowledge of the Company to collectively act in
the best interests of the Company via the Board and its Committees,
without responsibilities or decision-making being dominated by any
one individual or small group. Each Director commits sufficient time
and attention as is necessary to discharge their duties.
Skills*
9
9
3
6
Diversity
The Terms of Reference of the Nomination Committee state that
potential candidates should be considered “on merit and against
objective criteria, and with due regard for the benefits of diversity
on the Board, including gender”. The Board, which includes one
female member, considers the background and experience brought
to the Board by each individual to contribute to its diversity. In any
recruitment, the Board prefers to select the best-qualified candidate
to provide the Board with the support and expertise required to
implement its long-term strategy, rather than to fulfil any fixed quota.
In recommending new appointments to the Board, the Nomination
Committee considers the existing balance of skills, knowledge and
experience on the Board, the capabilities of the nominees and the
time they have available to commit to the Company when making
recommendations to the Board.
Leadership
Strategy
Governance
Business
Development/
Brand Building
* Includes David Wild who resigned on 18 July 2012, Matt Davies
who was appointed on 4 October 2012 and Paul McClenaghan who
resigned on 12 April 2013.
All the Non-Executive Directors are considered by the Board to
be independent in character and judgement. As at 17 May 2013,
both Keith Harris and Bill Ronald will have served as Non-Executive
Directors of the Company for nine years. The Board acknowledges
that under the UK Corporate Governance Code it should determine
whether service of more than nine years from the date of first election
of each individual affects their independence. The Board considers
that both Keith Harris and Bill Ronald continue to be independent in
character and judgement. Nevertheless a process has commenced to
recruit two new Non-Executive Directors to replace both Bill Ronald
and Keith Harris in the year ahead and thus both Keith Harris and Bill
Ronald will offer themselves for re-election.
62.5%*
Percentage of
Directors who are
Independent
* Shows the percentage of Directors
considered independent in character
and judgement throughout the period.
Executive*
Non-
Executive*
Male*
Female*
* Shows situation as maintained throughout the period to 29 March 2013. On 12 April 2013,
Paul McClenaghan resigned and so the Company now has two Executive Directors and six
male members of the Board.
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Corporate Governance Report continued
Appointments to the Board
Knowledge of the Company*
During the period, Matt Davies was recruited as Chief Executive.
Egon Zehnder International (“EZI”) were engaged by the Company to
conduct the search for suitable candidates and short-listed several
candidates who met individually with members of the Board. Feedback
from these one-to-one meetings was fed back to the Chairman. The
Nomination Committee subsequently met to discuss the potential
appointment and to recommend the appointment of Matt Davies to
the Board, which met on 3 October 2012 to formally approve the
appointment.
Experience*
7
5
2
5
Retail
Finance
Banking
Corporate
* Includes David Wild who resigned on 18 July 2012, Matt Davies who was appointed on
4 October 2012 and Paul McClenaghan who resigned on 12 April 2013.
0-3 years*
3-6 years*
6-9 years
Evaluation
Egon Zehnder International (“EZI”) conducted a Board Effectiveness
Review (the “EZI report”) during May 2012. The process comprised:
■ circulation of a pre-discussion guide
■ meetings of c.2 hours between EZI and each Board member and
the Company Secretary
■ review of the EZI report with the Chairman
■ circulation of the EZI report to the Board
■ discussion of the EZI report at the Board meeting in June 2012 with
EZI consultants in attendance
■ individual feedback to the Chairman from EZI and the Senior
Independent Director
■ individual feedback to the other Directors from the Chairman
The overall conclusion of EZI was that the levels of engagement
and openness throughout the process were very high and EZI
were encouraged that the Board were so keen to enhance Board
effectiveness. The Board remains mindful of the conclusions of the EZI
report and continues to look for ways to improve.
Re-election
In compliance with the Code and the Company’s Articles of
Association, all Directors on the Board as at 29 March 2013, except for
Paul McClenaghan, will seek re-election at the Company’s AGM. Matt
Davies who was appointed to the Board on 4 October 2012 will offer
himself for election at the AGM.
2
2
3
9
Digital
Supply
Chain
Marketing
Cross-
functional
* Includes David Wild who resigned on 18 July 2012, Matt Davies who was appointed on
4 October 2012 and Paul McClenaghan who resigned on 12 April 2013.
Development and Support
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. The Chairman, with the assistance of the Company
Secretary, prepared a comprehensive induction programme for Matt
Davies when he joined the Company. This included: extensive store
and distribution centre visits and on-site discussions with store and
distribution centre colleagues; one-to-one meetings with the senior
management teams; and the provision of induction materials covering
the operational and organisational structure of the business, as well as
the strategic aims and key initiatives of the Company.
Ongoing resources available to the Directors to maintain and develop
their knowledge are:
■ membership of the Deloitte Academy, a training and guidance
resource for boards and directors;
■ a programme of head office and store visits through the period;
■ regular reviews with the Chairman to identify any training and
development needs;
■ advice and the services of the Company Secretary on governance,
relevant legislative changes affecting the business or their duties as
directors; and
■ access to independent professional advice at the Company’s
expense.
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Board Committees
Directors and their Other Interests
The Board discharges some of its responsibilities via Nomination, Audit
and Remuneration Committees, and more detail about these follows
this section. The Company Secretary also acts as the secretary to each
Committee. Whilst not entitled to attend, other Directors, professional
advisors and senior management attend when invited to. The Auditor
attends certain Audit Committee meetings by invitation. No member
is present at Nomination and Remuneration Committee discussions
pertinent to them.
Senior members of the finance and treasury teams manage the day-to-
day treasury needs of the Group via a Treasury Committee chaired by
the Finance Director.
Final market announcements are approved prior to release via a
Disclosure Committee made up of a minimum of two Directors.
Other ad hoc committees may be set up by the Board to consider
specific issues.
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 101.
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78
Corporate Governance Report continued
Nomination Committee
Chairman
Dennis Millard
“The Nomination Committee is encouraged to see the
impact that Matt Davies’ appointment, and those of other
senior executives recently appointed, is having on colleagues
and the generation of refreshing ideas within the business.
Egon Zehnder International have worked well alongside the
Nomination Committee throughout the year both in relation
to Matt’s appointment, and the external board evaluation.”
Meetings
3
Other Members
Matt Davies
David Adams
Keith Harris
Bill Ronald
Claudia Arney
The Nomination Committee is chaired by Dennis Millard and, with the
exception of Matt Davies (formerly David Wild), all members of the
Committee are considered independent. 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 that as all
Non-Executive Directors sit on the Committee, the Chairman of the
Group should chair the Committee. Senior members of management
and advisors are invited to attend meetings as appropriate.
Annual Activity
The Committee has responsibility for:
■ considering the size, structure and composition of the Board of the
Company;
■ 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.
Standing Items
One-Off Considerations
Update on CEO recruitment
Update on CEO recruitment
and recommendation of the
appointment of Matt Davies
July 2012
Executive management
succession plans
Non-Executive Director
succession plans
Committee evaluation
September 2012
March 2013
Review size, structure and
composition of the Board
Terms of Reference
Confirm Directors standing for
re-election at AGM
Approve Committee
memberships
Confirm Committee Chairman
attendance at AGM
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Accountability
Audit Committee
Chairman
David Adams
“The Audit Committee is pleased to see that the Head of
Internal Audit appointed during the period is commencing
the process towards the annual audit plan for future years
being completed by the in-house team. The Audit Committee
will continue to monitor and review the effectiveness of the
Group’s internal control and risk management systems with
the support of this new resource.”
Other Members
Keith Harris
Bill Ronald
Claudia Arney
Meetings
3
All the members of the Audit Committee are independent Non-
Executive Directors. Having been the Deputy Chief Executive
and Finance Director of the House of Fraser Plc, David Adams
is considered by the Board to have recent and relevant financial
experience and so the requisite experience to chair the Committee.
Each of the other independent Non-Executive Directors 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 two such
meetings in the period ended 29 March 2013 and nothing of note was
reported.
79
Annual Activity
The Audit Committee is responsible for:
■ making recommendations to the Board on the appointment of the
Auditor, including on independence, non-audit work undertaken
(against a formal policy) and remuneration;
■ reviewing the accounting principles, policies and practices adopted
throughout the Period;
■ assisting 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;
■ ensuring that an effective system of internal financial and non-
financial controls is maintained; and
■ approving a formal whistleblowing 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, and includes arrangements to
investigate and respond to any issues raised.
Standing Items
One-Off Considerations
May 2012
Recommend the Preliminary
Statement to the Board for
approval
Update on compliance and
strategic initiatives
Recommend to the Board
approval of the Annual Report
Approval of the Non-audit Fee
Policy
Review of External Auditor’s
Report
Review Statement of External
Auditor’s Independence
Review of Internal Auditor’s Full-
Year Report
Group Whistleblowing Policy
Committee Evaluation
November 2012
Recommend to the Board
the approval of the Interim
Statement
Review of Internal Audit Half-
Year Report
External Auditor’s Non-Audit
Fees
Terms of Reference
January 2013
Review and Recommendation
of External Auditor’s Fees
Approval of External Auditor’s
Annual Programme
Approval of Internal Auditor’s
Annual Strategy
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Corporate Governance Report continued
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 29 March 2013,
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
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.
During the period ended 29 March 2013, the Company engaged
KPMG to support the internal audit process. KPMG do not perform
a management role. An experienced in-house Head of Internal Audit
and Risk was appointed in October 2012 and it is planned that
following further recruitment, the annual audit plan for future years
will be completed by an in-house team supplemented by specialist
consultants as necessary.
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 which cover both the Retail and Autcocentres
businesses 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
senior Executives on the effectiveness of the identification of major
risks and of the monitoring of internal controls within their areas of
responsibility.
During the year, we reviewed our risk management system. Key
elements now include:
■ oversight by the Head of Internal Audit and Risk;
■ regular meetings and workshops to identify and discuss key risks
and mitigations with a broad sample of Group senior management
and Executives;
■ review of the corporate risk register in terms of completeness and
accuracy with Executive team; and
■ Audit Committee discussion of the latest corporate risk register and
the risk management system with subsequent reports to the Board.
During the financial period to 29 March 2013 and up to the date of this
report the risk management system 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 30 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 52 to 55.
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81
Remuneration
Remuneration Committee
Chairman
Keith Harris
“The Committee has looked to ensure that our Remuneration
Policy is appropriate not only to attract and retain a high-
calibre CEO, but to incentivise all colleagues to deliver a
sustainable business based on the Company’s strategy,
leading ultimately to an increase in shareholder value.”
Other Members
Dennis Millard
Meetings
6
Bill Ronald
David Adams
Claudia Arney
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.
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.
■ Determining 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 including pension rights; any compensation
payments; and the implementation of Executive incentive schemes.
In accordance with the Committee’s Terms of Reference, no
individual 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 101.
A resolution to approve the Directors’ Remuneration Report will be
proposed at the forthcoming AGM.
Relations with Shareholders
During the period ended 29 March 2013 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.
During the period under review the Chief Executive, Finance Director
and 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 also brings
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 of communication during the year with all of
the Company’s shareholders. The Board recognises the importance
of the Internet as a means of communicating widely, quickly and cost-
effectively and a Corporate and Investor Relations website facilitates
communication with shareholders. Information available online includes
copies of the full and half-year financial statements, press releases,
corporate governance information, the Terms of Reference for the
Audit, Nomination and Remuneration Committees and the Matters
Reserved for the Board. The Company’s financial calendar and other
shareholder information, which are also available online, are set out on
page 147.
The Board welcomes the opportunity to meet with shareholders and
to hear their views and answer their questions about the Group and
its business at the Company’s AGM which will be held on Tuesday,
30 July 2013 at the Crowne Plaza Birmingham NEC, Pendigo Way,
National Exhibition Centre, Birmingham, B40 1PS. 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.
By order of the Board
Alex Henderson
Company Secretary
23 May 2013
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Directors’ Remuneration Report
Dear shareholder,
FY13 continued to be a challenging year for many retailers. At Halfords
we responded to these challenges by announcing in April 2012 a
revised strategy to deliver a sustainable business.
This, therefore, has been a year of embedding the processes,
procedures and incentives across the business to deliver this new
strategy.
During the year David Wild resigned, and following this resignation the
Board recruited Matt Davies as the new CEO. He was appointed to the
Board in October 2012.
In light of these changes, the Committee has looked to ensure that our
Remuneration Policy is appropriate not only to attract and retain a high-
calibre CEO, but to incentivise all colleagues to deliver a sustainable
business based on the Company’s strategy, leading ultimately to an
increase in shareholder value.
The Committee has faced three major challenges during the year.
1. Recruitment arrangements for the new CEO
In attracting a new CEO the Committee looked not only at the annual
package required to attract a high-calibre individual, but also at how
to incentivise that individual against the need to develop a sustainable
business and shareholder value, aligning his remuneration with these
goals. More details about these arrangements can be found on pages
85 and 96 to 97. The Committee therefore decided it was appropriate,
as part of his recruitment package, to make him a CEO Co-investment
award.
On recruitment the new CEO invested £500,000 in Halfords shares. He
was then awarded a maximum matching share award of 3.5 times his
investment. These matching shares may vest over a period between
three and five years from award based on achieving stretching share
price performance targets. The Committee believes this plan was
necessary to recruit this high-calibre individual and will incentivise him
to generate significant value for shareholders.
2. Annual Bonus performance measures
As set out in the Remuneration Report last year, the Committee
decided to include in 2012/13 bonuses an element based on the
achievement of key strategic goals which the Committee ultimately
believes will lead to the creation of shareholder value. The bonus
is therefore based 75% on PBT and 25% on strategic goals. For
2013/14, the Committee determined that the strategic objectives
would be linked to the delivery of the Company’s strategy of delivering
sustainable and profitable revenue growth through Helping and
Inspiring our Customers with their Life on the Move and the delivery of
the Getting Into Gear 2016 programme.
3. Review of the performance measures for the Performance
Share Plan (“PSP”)
Our strategic focus for the medium-term is on putting in place
the foundations to deliver a sustainable business, focusing on an
authoritative range of products, colleague and service excellence,
digital participation and helpful store environments with the ultimate
goal of delivering profitable top line revenue growth and therefore
creating shareholder value. As a consequence, during the year the
Committee reviewed the performance measures used for the PSP. The
Committee determined that Total Shareholder Return and Earnings per
Share were no longer the most suitable mechanisms for measuring and
incentivising the successful delivery of this strategy.
The Committee is currently consulting with shareholders regarding the
most suitable performance conditions for use in aligning the Executives
with the delivery of the Company’s strategy, these proposed changes
and final details will be provided in a Stock Exchange announcement,
once finalised, and next year’s Directors’ Remuneration Report.
Remuneration received in respect of 2012/13
A salary review conducted during the year resulted in an increase of
1.8% in October 2012 for all colleagues except the Executive Directors.
The CEO earned a bonus of 37.5% of salary and the Executive
Directors earned bonuses of 20% of salary. The Committee determined
that this level of bonus was appropriate, reflecting strong performance
against key strategic objectives during the year. PSP awards granted
in 2010 will lapse in 2013 because the EPS and TSR targets were
not met.
Remuneration reporting
In light of industry consultations in 2012 and the publication of draft BIS
regulations, which will apply for Halfords for the 2013/14 year-end, the
Committee has sought to introduce new disclosures into the Directors’
Remuneration Report. We hope shareholders find these changes
useful.
Priorities for 2013/14
The priorities for the Committee in the forthcoming year continue to be
to ensure that the Company’s policy is aligned with the strategy and
long-term sustainable success of the business.
In summary the Committee has dealt with a number of changes
over the last year both specific to the Company and in response
to Government consultations and is committed to ensuring that
the Company’s remuneration arrangements are designed to drive
sustained shareholder value and that the proper levels of transparency
are maintained.
Yours faithfully
Keith Harris
Chairman of the Remuneration Committee
23 May 2013
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Executive Remuneration Policy
The Remuneration Committee seeks to support the delivery of the Group’s corporate strategy through establishing appropriate remuneration
arrangements. Our goal is to build a strong long-term business by delivering ongoing sales growth and sustainable shareholder returns through the
delivery of authoritative ranges of products, colleague and service excellence, digital participation and helpful store environments.
Consequently, the overall 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:
■ Attract and retain – Enable the Group to attract and retain management of the right calibre with the necessary financial, retail, customer service,
and digital skill sets required to deliver a sustainable business model and drive shareholder returns. Remuneration arrangements are set at
levels which are appropriate to achieve this goal without paying more than is necessary. Benchmarking exercises are undertaken at appropriate
intervals to inform the position of executives’ pay relative to the market, and without seeking to “match the median” to identify and mitigate the
risk of losing strong performers.
■ Variable pay linked to the delivery of the strategy – Provide management with the opportunity to earn competitive remuneration through annual
and long-term variable-based pay arrangements that are designed to support delivery against key strategic objectives. Performance measures
are aligned with strategic goals so that remuneration arrangements are transparent to Executives, shareholders and other stakeholders.
Different elements of executive pay are delivered over the short and longer terms and are designed to ensure that a substantial proportion of the
Executives’ remuneration is variable and performance-related.
■ Executives as shareholders – Align management’s interests with those of shareholders by incentivising management to deliver the Group’s
long-term strategy of a sustainable, growing business and thus enhance shareholder value. A significant portion of reward is delivered in shares
to create alignment of interests.
■ Sustainable performance – Remuneration arrangements are designed to support the sustainable delivery of performance and to prevent
excessive risk taking.
The overall balance is illustrated on page 86.
Fixed Pay
(26% – 100% of pay
depending on
performance)
Base Pay
Benefits
Pension
Performance Related Pay (0% – 74%% of pay depending on performance)
Annual
Long-term
Annual Bonus – Based on delivery of
financial and strategic objectives
Performance Share Plan – Awards vesting at the end of a 3-year
performance period dependent on the delivery of performance conditions
aligned to business strategy.
Co-Investment Share Award – One-off award to CEO only. CEO was
required to invest £500,000 into shares with the opportunity to earn
matching shares based on meeting share price performance targets over
years 3, 4 and 5 of a 5-year performance period.
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84
Directors’ Remuneration Report continued
Key Elements of Remuneration Policy
Purpose and link
to strategy
Operation
Maximum
Opportunity
Performance Measures
n/a
n/a
Changes in
the Year
None
Base Salary
Annual Bonus
Base salary is set at
an appropriate level
to attract and retain
management of the
right calibre with the
necessary financial,
retail, customer
service, and digital
skill sets required to
deliver a sustainable
business model and
drive shareholder
returns.
To incentivise
executives to
achieve annual
earnings targets
and performance
against strategic
goals. The CEO is
further incentivised
to manage risk and
align his long-term
interests with those
of shareholders
through deferral into
shares.
Policy is to position
salaries at around
median levels,
subject to experience
and performance
and without seeking
to “match the
median”. Executive
Directors and
executive managers’
remuneration is
benchmarked at
appropriate intervals
compared to other
companies of a
similar size and
complexity and
compared to other
UK listed retailers.
Targets set annually
to ensure they
are appropriately
stretching for the
delivery of threshold,
target and maximum
performance.
For the CEO, two-
thirds of the bonus
is paid in cash with
one-third deferred
in shares for three
years.
For the Finance
Director, the bonus is
paid in cash.
Bonuses are non-
pensionable.
All Executive
Directors will be
measured against
PBT and the
Strategic project
goals which
are determined
each year by the
Committee to ensure
continued focus
on the Company’s
ongoing strategy.
The Committee has
selected new project
goals for 2013/14
which are aligned
with our strategy of
building a sustainable
business.
CEO: Maximum
award 150% of base
salary.
Finance Director:
Maximum award
100% of base salary.
On appointment, the Committee
agreed that the CEO should
participate in an annual bonus
for his period from appointment
on 4 October 2012 to the end of
the financial year, 29 March 2013.
His maximum bonus opportunity
for this period was set at 50%
of this normal maximum (i.e.
75% of his full year base salary),
with two-thirds paid in cash and
one-third deferred into shares
for a period of three years. 50%
of the bonus was based on
PBT performance and 50% was
based on the delivery of key
personal performance objectives.
75% of the bonus is based on
the achievement of PBT targets.
25% of the bonus is based on
the achievement of strategic
project goals.
PBT targets range from 92% of
budget, where payment is zero
to 106% of budget for maximum
payment.
In determining whether any
bonus are payable the Committee
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.
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Changes in
the Year
None
Purpose and link
to strategy
Operation
Maximum
Opportunity
Performance Measures
n/a
n/a
Benefits
Pensions
Performance
Share Plans
CEO
Co-Investment
Award
Attract and retain
management of
the calibre required
to execute the
Company’s strategy.
Enable the
Company to offer
market competitive
remuneration through
the provision of
additional retirement
benefits.
To attract and
retain executives
of the right calibre,
whilst aligning their
interests with those
of our shareholders
by incentivising them
to deliver against the
three-year Company
Strategy that
seeks to create a
sustainable business
and maximise returns
to shareholders.
To recruit and retain
a high-calibre CEO,
whilst aligning his
interests with those
of our shareholders
and rewarding
growth in share
price.
Director
Shareholding
Guidelines
To align Directors’
interests with those
of our shareholders
and to incentivise
the delivery of the
corporate strategy,
thus creating value
for all shareholders.
Base salary for
executives is
supplemented with a
car plus fuel or cash
allowance, private
health insurance and
life assurance.
Defined contribution
funding to the
Halfords Pension
Plan or payments
into a personal fund.
n/a
None
CEO: 20% of base
salary.
FD: 15% of base
salary.
Annual awards of
shares and vesting
over a three-year
performance period
Maximum core
award 150% of base
salary.
Performance
multiplier of 1.5x
core award for
exceptional
performance.
The Committee is currently
consulting with shareholders
regarding proposed new
measures and will provide
final details a Stock Exchange
announcement when finalised
and in the DRR next year.
The CEO was
required to invest
£500,000 in Halfords
shares to participate
in this plan.
The maximum
number of matching
shares is 3.5x
the number of
investment shares
acquired.
Share price performance targets
set in years 3, 4 and 5.
During the year
the Committee
considered the
performance
measures used
for the PSP and is
proposing to change
the measures
to create better
alignment with our
three-year strategic
priorities.
Introduced during
the year as a one-off
incentive on the
appointment of the
new CEO.
n/a
n/a
None
The CEO can
receive an award of
matching shares that
vest over a period of
between three and
five years.
Executive Directors
are required to
acquire and retain
shares with a value
equal to 100% of
their annual base
salary. Executive
Directors have a five-
year period to build
this shareholding
following their
appointment.
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Directors’ Remuneration Report continued
Remuneration Policy for New Hires
When hiring a new Executive Director, the Committee will seek to align the remuneration package with the above policy. However, to ensure that
the right calibre of individual is appointed to the Board the Committee retains discretion to make remuneration proposals that are outside this
standard policy where it considers it is necessary to do so. In determining the appropriate arrangements the Committee may look to benchmark
the role and remuneration against its peer group and may also take into account other relevant factors such as the remuneration levels of other
Executive Directors and the type of remuneration being offered.
The Committee may also make arrangements to compensate the new Executive for ‘loss’ of existing remuneration benefits when leaving a
previous employer. In doing so the Committee may take account of the form in which they were granted, the relevant performance conditions and
the length of the time that the performance periods have to run.
Remuneration Arrangements in Different Performance Scenarios
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 charts below illustrate remuneration arrangements in different performance scenarios. The assumptions for each scenario are outlined below:
Threshold performance
On-target performance
Stretch target performance
■ Fixed pay (base salary, benefits and pension) only
■ Fixed pay
■ 90% of salary annual bonus payout for CEO, 60% of salary annual bonus payout for Finance Director
■ 100% of salary payout under the Performance Share Plan
■ CEO only – Award annualised by one-third to take account of one-off nature of award, 30% of matching share
award vests
■ Fixed pay
■ 150% of salary annual bonus payout for CEO, 100% of salary annual bonus payout for Finance Director
■ 225% of salary payout under the Performance Share Plan
■ CEO only – Award annualised by one-third to take account of one-off nature of award, 100% of matching
share award vests
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
£0.63m
100%
£0.34m
100%
£1.81m
42%
25%
33%
£0.93m
46%
18%
36%
Fixed (salary,
benefits
and pension)
Annual Bonus
Performance
Share Plan
£2.27m
41%
33%
26%
£1.25m
50%
23%
27%
CEO
CFO
Threshhold
CEO
CFO
Target
CEO
CFO
Stretch
Executive director
Matt Davies (CEO)
Andrew Findlay (CFO)
Base salary
£500,000
£280,500
Benefits
£28,636
£16,335
Pension
£100,000
£41,250
Total fixed
remuneration
£628,636
£338,085
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Share Arrangements in Place
The Company had adopted three share plans: The Halfords Sharesave Scheme; the Halfords Company Share Option Scheme (“CSOS”), a market
value share option plan; and the Halfords Performance Share Plan (“PSP”).
In 2012 the Company also made the new CEO a one-off Co-Investment Share Award. This was made under Listing Rule 9.4.2, where the
long-term incentive scheme arrangements are for an “individual whose appointment as a director is being contemplated and the arrangement is
established specifically to facilitate, in unusual circumstances the recruitment and retention of the relevant individual”. It is currently not intended
that further Co-Investment Share Awards will be made.
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 3.34%.
Plan
Halfords
Sharesave
Scheme
(“SAYE”)
Halfords
Company
Share Option
Scheme
(“CSOS”)
Halfords
Performance
Share Plan
(“PSP”)
CEO
Co-Investment
Award
Date of
Adoption Eligibility
May 2004 An all-employee SAYE scheme in which all Executive
Directors are eligible to participate.
May 2004 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).
July 2005
The PSP is intended to be the main incentive vehicle for
Executive Directors and senior executives immediately
below the Board, with awards generally made on an
annual basis.
More Information
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.
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.
Awards granted under the plan are subject to
performance conditions and vest over a three year
period.
January
2013
Chief Executive only
A one-off award made under Listing Rule 9.4.2 on the
appointment of a new CEO in October 2012.
The CEO invested £500,000 into Halfords shares and
received a maximum matching award of 3.5 shares for
each invested share. Matching shares may vest subject
to achieving share price performance targets over a
period between three and five years.
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Directors’ Remuneration Report continued
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. The Company is aware that companies are encouraged to consider notice periods of less than
12 months, and in contracting with the new CEO it was agreed that a notice period of six months was appropriate. The notice periods of the
other Executive Directors remain limited to 12 months. The Committee will continue to review this policy, to ensure that it is more in line with the
Company’s overall remuneration policy.
Matthew Davies
Andrew Findlay(1)
Paul McClenaghan(2)
Date of Service Agreement
Notice Period
4 October 2012
16 November 2010
9 May 2005
6 months
12 months
12 months
(1)
(2)
Andrew Findlay was appointed to the Board on 1 February 2011 and his service agreement was effective from that date.
Paul McClenaghan resigned on 12 April 2013.
Early Termination of contract
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 in accordance with the appropriate notice periods. 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 (six months for the CEO) of the
Executive Director’s then salary, benefits and pension contributions, which he would have received during the contractual notice period, the sum
of which shall be payable in 12 monthly instalments (six for the CEO). In respect of any bonus entitlement earned during a financial period prior
to termination of employment this will be calculated by the Remuneration Committee, if the Director is deemed by the Committee to be a Good
Leaver, on a pro rata basis by reference to their period of service in the financial period in which their employment is terminated. If the Director’s
employment is terminated in circumstances that the Committee reasonably believes that they cannot be designated a Good Leaver the Director
shall forfeit any entitlement to a bonus payment.
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, 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. In Good Leaver circumstances the Executive Director might be offered a lump sum termination payment paid at the time
they cease employment which in all cases will be less than he would receive if he were to be paid his annual salary over 12 months (six months for
the CEO).
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.
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89
Loss of Office Payments
The Company’s policy towards exit payments is that under no circumstances will they exceed the contractual obligations afforded to the Executive
Director and contained within their contract of employment. There are a number of ways in which an Executive Director can leave the business and
each circumstance is dealt with differently in respect of how exit payments are calculated.
Share plans – leaver treatment
The treatment of outstanding share awards in the event that an Executive Director leaves is governed by the relevant share plan rules. The following
table summarises leaver provisions under the executive share plans. In specific circumstances the Committee may exercise its discretion to modify
the policy outlined if the rules of the share plan allow such discretion.
Halfords Company Share Option
Scheme
Halfords Performance Share Plan
CEO Co-Investment Award
‘Good leavers’ as determined
by the Committee
Leavers in other circumstances
(other than gross misconduct)
The Committee may determine that awards should
vest at the time of leaving taking into account
performance. The exercising of any such vest must
take place within 6 months of the leaving date.
Awards normally lapse on leaving unless the
Committee determines otherwise.
6 months from the date of leaving to exercise
vested but unexercised options.
6 months from leaving to exercise options.
Awards may vest at the end of the performance
period, generally taking into account time in
employment and performance.
Alternatively the Committee may determine that
awards should vest at the time of leaving, generally
taking into account time in employment and
performance.
12 months from vesting to exercise options if
awards structured as nil-cost options.
The Committee may determine that matching
shares may vest at the normal vesting date or at
the time of leaving based on performance taking
into account time in employment.
12 months from vesting to exercise matching
shares.
Awards normally lapse on leaving.
12 months to exercise vested but unexercised
options (if applicable) unless the Committee
determines otherwise.
Unvested Matching Shares normally lapse on
leaving.
12 months to exercise any Matching Shares that
have vested at cessation of employment.
The leavers treatment under the Halfords Sharesave Scheme is determined in accordance with HMRC provisions.
In the event of gross misconduct all outstanding share awards would generally be forfeited.
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Directors’ Remuneration Report continued
Non-Executive Directors’ Remuneration Policy
The fees of Non-Executive Directors shall be reviewed every two years to ensure that they are in line with market norms so that the Company
can attract and retain individuals of the appropriate calibre and any changes to said fees will be approved by the Board as a whole following a
recommendation from the Chief Executive.
Current fees for Non-Executive Directors are as follows:
Chairman
Base fee
Additional fees
Senior Independent Directors
Committee Chairman (Audit and Remuneration)
£165,000
£45,000
£15,000
£5,000
None of the Non-Executive Directors has an employment contract with the Company. However, each has entered into a letter of appointment
with the Company confirming their appointment for a period of three years, unless terminated by either party giving the other not less than three
months’ notice or by the Company on payment of fees in lieu of notice.
The appointment period for each Non-Executive Director is set out below:
Director
Dennis Millard
Bill Ronald
David Adams
Claudia Arney
Keith Harris
Date of
Appointment
Date of Current
Appointment
Date of
resignation
28 May 2009
29 May 2012
17 May 2004
2 August 2011
1 March 2011
2 August 2011
25 January 2011
2 August 2011
17 May 2004
2 August 2011
Unexpired
term at the
date of this
Report
24 months
2 months
9 months
8 months
2 months
Expiry Date
29 May 2015
26 July 2013
–
–
– 28 February 2014
–
–
24 January 2014
26 July 2013
Their 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 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.
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.
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Outside Appointments
Halfords recognises that its Executive Directors may be invited to become Non-Executive Directors of other companies. Such non-executive duties
can broaden experience and knowledge which can benefit Halfords. Subject to approval by the Board, Executive Directors are allowed to accept
non-executive appointments and retain the fees received, provided that these appointments are not likely to lead to conflicts of interest. David
Wild is a Non-Executive of Premier Foods plc and between 31 March 2012 and 19 July 2012 received fees of £17,161 and Matt Davies is a Non-
Executive Director of Dunelm Group plc and between 4 October 2012 and 29 March 2012 received fees of £15,000.
Remuneration Arrangements elsewhere in the Group
The remuneration policy for executive managers in the Group is similar to the policy for Executive Directors as set out in this report — a substantial
proportion of remuneration is performance related in order to encourage and reward superior business performance and shareholder returns and
remuneration is linked to both individual and Company performance. Basic salary is targeted at normal commercial rates for comparable roles and
is benchmarked at appropriate intervals. 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.
Increases to Executive managers’ base salaries are considered at the same time as all other colleagues across the Group and other than
benchmarking increases to ensure that the Group is attracting and retaining the right calibre of executive, increases are in line with all colleagues.
Increases have been as follows — October 2012: 1.8% (Executive Directors: £Nil), April 2012: 2% (Executive Directors: 2%).
All of the Group’s c.12,000 colleagues are eligible to join the Halfords Sharesave Plan (SAYE) after they have served one complete month’s service.
At the same time they are all eligible for some form of quarterly or full year bonus, although the type, limits and performance conditions vary
according to job level. Senior managers and other key management individuals are invited to join the Company Share Option Scheme.
In 2012/13 all newly appointed colleagues and other existing colleagues who had experienced a ‘joining-trigger’ event were eligible to join
the Halfords Pension Plan 2009. All members of the Pension Plan are required to make a minimum contribution of 3% and the Company also
contributes a minimum of 3%, dependent on length of service and seniority. The Company has also made plans to auto enrol all other colleagues
as appropriate.
Dialogue with Shareholders
The views of our shareholders are very important to the Committee and it is our policy to consult with our largest shareholders in advance of
making any material changes to the executive remuneration arrangements. The Committee is currently consulting with major shareholders
regarding the proposed changes to the PSP performance conditions.
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Directors’ Remuneration Report continued
How the remuneration policy will be implemented for 2013/14
Base salary
Base salaries were last reviewed with effect from 1 October 2012 when no increases were awarded to Executive Directors. Current salaries are as
follows:
CEO
Finance Director
£500,000
£280,500
In reviewing Executive Directors’ responsibilities the Committee determined that the Group’s Finance Director, Andrew Findlay, had assumed Board
responsibility for a number of areas of the business, most importantly that of IT. This was considered by the Board to be a vital role in the delivery
of the Company’s Getting Into Gear 2016 programme and as such the Committee considered it appropriate that Andrew receive an increased
salary from 1 October 2013 of £325,000.
Annual bonus
The annual bonus opportunity for 2013/14 will remain unchanged as follows:
CEO
Finance Director
■ Maximum opportunity of 150% of base salary
■ two-thirds paid in cash
■ one-third paid in Halfords shares deferred for
three years
■ Maximum opportunity of 100% of base salary
■ Paid in cash
The annual bonus for 2013/14 will continue to be based 75% on Profit Before Tax (“PBT”) performance and 25% based on performance against
strategic objectives. PBT targets range from 92% of budget, where payment is zero, to 106% of budget for maximum payment.
The Committee reviews the goals included in the strategic objectives portion of the bonus to ensure that remains appropriate. For 2013/14 the
Committee determined that the strategic objectives should be linked to the delivery of the Company’s long-term strategic goal is to deliver growth
in top line revenues. The Executive Team have considered the Getting Into Gear 2016 programme discussed on pages 29 to 32 and 34 to 35
and have identified measures that will determine the successful delivery of each initiative and these also represent the strategic non-financial KPIs
that will form part of the Executive Team’s 2013/14 annual bonus plan.
Strategy
Execution Priority
Measure
Top Line Revenue Growth Service Revolution
The H Factor
Stores Fit to Shop
21st Century Infrastructure
Click with the Digital Future
Net promoter score – an industry-wide measure of customer service.
Colleague engagement – a core measure of levels of commitment and advocacy
amongst Halfords employees.
Value added sales – a combination of our fitting, accessory and attachment
sales growth.
Delivering an effective economic model for retail stores through the 50:39
project.
Value added Sales.
Value added Sales.
In determining whether any bonuses are payable the Committee 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.
Performance Share Plan
The market environment continues to be challenging for retailers. Our strategic focus is on putting in place the foundations to deliver a sustainable
business in the future, focusing on an authoritative range of products, colleague and service excellence, digital participation and helpful store
environments with the ultimate goal of delivering profitable top line revenue growth and therefore creating shareholder value. As a consequence
during the year the Committee reviewed the performance measures used for the PSP and determined that Total Shareholder Return and Earnings
Per Share were no longer the most suitable mechanisms for measuring and incentivising the successful delivery of this strategy.
Core awards made under the PSP will continue to be 150% of base salary with the opportunity to earn up to 1.5x this level if exceptional
performance is achieved.
The Committee is currently consulting with shareholders regarding these proposed changes and details will be provided in a Stock Exchange
announcement when finalised and in next year’s report.
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How the remuneration policy was implemented in 2012/13
Single remuneration figure for 2012/13
Bonus
(due in respect
of FY13)(2)
Base Salary
Benefits
Pension
PSP (due in
respect of
performance
period ended
FY13)(1)
Single Figure
2013
Single Figure
2012
David Wild
(resigned 19 July 2012)
Matt Davies
(appointed 4 October 2012)
Andrew Findlay
Paul McClenaghan
(left on 12 April 2013)
Totals
150,981
—
24,256
22,647
246,795
280,500
290,700
968,976
187,500
56,100
58,140
301,740
14,318
16,335
17,338
72,247
50,000
41,250
57,413
171,310
—
—
—
—
—
197,884
617,000
498,613
394,185
—
339,000
423,591
350,000
1,514,273
1,306,000
(1) Shares were awarded in August 2010 in respect of the Halfords Share Performance Plan for the performance period April 2010 to March 2013 (see page 100). In May 2013 the performance
conditions for these shares were measured. The Remuneration Committee deemed that none of these conditions had been reached and that all shares award under the 2010 scheme would
lapse. The measurement of the performance conditions for the 2010–2013 scheme is given on pages 95 to 96.
(2) Calculation of the Bonus payable in respect of the period ended 29 March 2013 is given on page 94.
Calculation of FY12 Single figure comparative
Bonus
(due in respect
of FY12)
—
—
—
—
—
Base Salary
513,000
—
278,000
277,000
1,068,000
Benefits
27,000
—
13,000
16,000
56,000
Pension
77,000
—
48,000
57,000
182,000
PSP (due in
respect of
performance
period ended
FY12)(3)
—
—
—
—
—
Single Figure
2012 (4)
617,000
—
339,000
350,000
1,306,000
David Wild
Matt Davies
(appointed 4 October 2012)
Andrew Findlay
Paul McClenaghan
Totals
(3) Shares were awarded in August 2009 in respect of the Halfords Share Performance Plan for the performance period April 2009 to March 2012 (see page 100). In August 2012 the performance
conditions for these shares was measured. The Remuneration Committee deemed that none of these conditions had been reached and that all shares award under the 2009 scheme would
lapse.
(4) All 2012 figures have been rounded to the nearest thousand as per the Annual Report & Accounts 2012.
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Directors’ Remuneration Report continued
Salary and Benefits
The last Group-wide salary review was undertaken in October 2011 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. Salary increases not exceeding 2% were made to all Group colleagues, including some Executive
Directors in April 2012 following no increases in the previous 12 months. In October 2012 the Group reverted to the normal review timing and
further increases of 1.8% were made to Group colleagues; however, Executive Directors were excluded from this round of increases.
Annual Bonus for 2012/13
Annual Bonus for 2012/13 for the Finance Director and Commercial Directors was based 75% on Group PBT and 25% on key strategic projects.
These key projects included delivering an increase in the Company’s Fitting proposition; increasing the range of parts, accessories and clothing on
offer in the Company’s Cycling category; the development of new store formats; driving the Autocentres business; and improving both Colleague
and Customer engagement with the Halfords brand.
Annual Bonuses reported in the above table and payable in May 2013 for the financial period ended 29 March 2013 were calculated as follows.
Performance
Bonus
Opportunity
(% of salary)
Below
Threshold
Threshold
75%
0%
92%
Target
100%
Measure
PBT
Stretch
Bonus
awarded
(% of salary)
106% PBT for the year of £72.0m
during the year was
below the level required
for threshold levels of
performance and therefore
0% is payable in relation to
this proportion.
Strategic Projects
25%
0%
n/a
25%
n/a
20%
The Remuneration Committee have discretion to judge whether they believe that each of these projects has been attained and to the extent that
they believe they have been achieved. In deliberating on each KPI the Committee concluded that the following percentage achievements had
been realised:
— Fitting proposition;
Increase in Revenues from Fitting by 36%.
— Cycling parts, accessories
15,000 SKU’s ready for launch in June 2013.
and clothing;
— Development of new store
formats;
— Driving the Autocentres
business;
— and improving both
Colleague and Customer
engagement with the
Halfords brand.
Development of laboratory stores. Review and
learnings for FY14 50:39 Project.
Integration of Halfords Autocentres into Group
Support Centre and opening of 23 new centres.
Colleague Engagement score increased from
64% in 2012 to 77% in April 2013.
100%
50%
50%
100%
100%
—
—
—
—
—
20%
On appointment, the Committee agreed that the CEO should participate in an annual bonus for his period from appointment on 4 October 2012 to
the end of the financial year, 29 March 2013. His maximum bonus opportunity for this period was set at 50% of this normal maximum (i.e. 75% of
his full year base salary), with two-thirds paid in cash and one-third deferred into shares for a period of three years. Fifty per cent of the bonus was
based on PBT performance and 50% was based on the delivery of key personal performance objectives which were considered by the Committee
to be key objectives for the initial period of his tenure. These included reviewing and formulating a new strategy, undertaking a review of the
executive committee organisational capability and improving employee engagement.
The Committee reviewed the achievement of the new CEO’s bonus targets and concluded that he had met all of the personal performance
objectives set on his appointment in October 2012. The key objectives included: a review of the business and the formulation of a new strategy;
a review of the organisational capability of the business; the creation of a new executive management team; and, a positive movement in the
Colleague Engagement score (which increased from 64% to 77%). Although the Group achieved profits in line with the guidance that was indicated
to the market after the new CEO’s appointment, it was considered by the Committee that, given the profit performance of the Group relative to
original budget and initial market guidance, no award for the profit element of his bonus be made. Thus 50% of the available pro rata bonus was
payable, of which one-third would be deferred into shares.
The Committee reviewed the annual bonus payout in the context of the performance of the underlying business during the year and the delivery
against strategy and determined that the level of bonus paid was appropriate in this context.
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Benefits
Benefits include payments made in relation to private health insurance and the provision of a company car or equivalent cash allowance.
Pension
Pension payments represent contributions made either to defined contribution pension schemes or personal funds, the purpose of which is to
provide additional benefits, made by the Group during the period to 29 March 2013 in respect of qualifying services of the Executive Directors.
Paul McClenaghan sacrificed some of his salary for like-for-like contributions to the Halfords Pension Plan.
Performance share plan
2010 awards based on performance between 27 March 2010 and 29 March 2013
Awards granted in 2010 were subject to the following performance conditions:
Award “Multiplier” (up to 1.5 x initial award) i.e. 225% of salary.
1.5 x initial award vesting
TSR Performance
Element (50% of
award)
EPS Performance
Element (50% of
award)
Upper Decile
performance
16% growth p.a.
above RPI
Core Award
(150% of salary)
Straight-line vesting Between Upper Quartile
and Upper Decile
performance
Between 11% growth
p.a. and 16% growth
p.a. above RPI
100% Vesting
Straight-line vesting
Upper Quartile
performance
11% growth p.a. above
RPI
Between Median
and Upper Quartile
performance
Between 4% growth p.a.
and 11% growth p.a.
above RPI
30% Vesting
Median performance
4% growth p.a.
above RPI
0% Vesting
Below Median
performance
Below 4% growth p.a.
above RPI
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Directors’ Remuneration Report continued
TSR and EPS performance is assessed on an independent basis. However, to ensure that the PSP continued to support sustainable performance,
the multiplier for one measure is only applied if performance is at least at the threshold level for the other measure. The companies included in the
TSR comparator group for awards granted in 2010 are as follows:
Brown Group; Carpetright; Carphone Warehouse; Debenhams; Dignity; Dixons Retail plc (formerly DSG International); Dunelm Group; Game Group
(de-listed on 3 April 2012); Greggs; Home Retail Group; JD Sports Fashion plc; Darty (formerly Kesa Electricals); Kingfisher International; Marks &
Spencer Group; Morrison (WM); Mothercare; Next; Sainsbury (J); Sports Direct; Tesco; WH Smith.
Based on TSR performance between 27 March 2010 and 29 March 2013, Halfords was ranked 16th against the comparator group and therefore
no portion of the TSR element of the award will vest. EPS growth between FY10 and FY13 was below that of RPI over the same period and
therefore no portion of the EPS element of the award will vest. The 2010 PSP award will therefore lapse in full in August 2013.
Outstanding PSP awards
PSP awards granted in 2011 and 2012 are subject to the same performance conditions as those outlined above for the 2010 PSP award. The
companies included in the TSR comparator group are based on the FTSE 350 general retail and food retail companies on the date of grant.
CEO Co-Investment Award
On appointment the Company made the CEO a Co-Investment Award, the details of which are set out in the Stock Exchange announcement
issued on his appointment. This Award is designed to recruit and retain an executive of calibre required to run the business and to incentivise the
CEO to deliver exceptional shareholder value creation through the achievement of share price performance targets.
This plan was adopted for the sole purpose of making a one-off award to the Group’s new CEO and was adopted under Listing Rule 9.4.2 where
the long-term incentive scheme arrangements are for an “individual whose appointment as a director is being contemplated and the arrangement
is established specifically to facilitate, in unusual circumstances, the recruitment and retention of the relevant individual”. It is currently intended that
no further awards either to the Group’s CEO or other executives will be made under this plan.
Under the Plan the CEO invested £500,000 into Halfords shares, acquiring 164,056 shares at 302.22p per share. The CEO was then awarded
a maximum matching award of 3.5✕ the number of invested shares (574,196 shares). Subject to continued employment these shares may vest
up to a third in November 2015, up to two-thirds in November 2016 and in full in November 2017, depending on the following Threshold (30%
vesting) and Maximum (100% vesting) share price performance targets of Halfords:
November
2015
2016
2017
Threshold
350p
385p
425p
Maximum
400p
440p
485p
Share Price performance will be assessed using the average mid-market closing share price for the 30 days following the announcement of the
Interim results for the relevant year (normally November). At each relevant vesting date the CEO may decide to either exercise any portion of the
award that has vested based on performance at that time (in which case any unvested shares in that tranche in respect of which the share price
target has not been met will lapse) or roll forward that tranche in full to be subject to performance testing at the next vesting date. In the latter case
(“roll-forward”) the Participant will forfeit the right to exercise any awards that had become capable of vesting at the earlier vesting date.
Matching shares were granted in the form of nil cost options. Vested options can be exercised until the 10th anniversary of the date of grant.
Matching shares may accrue additional shares related to dividends.
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Prior to vesting the Committee will satisfy themselves that the achievement of the Share Price Target is a genuine reflection of the Company’s
underlying financial performance and may adjust the level of vesting accordingly. The Committee may determine that Matching Shares can be
scaled back before exercise for circumstances such as material misstatement, the individual being responsible for serious reputational damage to
the Company, or in circumstances where the Company suffers serious losses.
The Committee believes that the design of the plan is appropriate and necessary to recruit an individual of the CEO’s calibre and that the structure
will incentivise him to drive exceptional business performance.
Shareholding guidelines
The Committee believes that it is important that Executive Directors are also long-term shareholders in the business because as such Executives
are incentivised to deliver the corporate strategy, thus creating value for all shareholders.
Matt Davies
Andrew Findlay
Paul McClenaghan
Shareholding Guidelines (% of base salary)
Current Shareholding
Current Value (based on share price on 29 March 2013)
Current % of Salary
100%
164,056
£510,706
102%
100%
4,900
£15,254
5%
Date by which guideline should be complied with
4 October 2017
1 February 2016
100%
100,000
£311,300
107.1%
—
Paul left on
12 April 2013
These figures include those of their spouse or civil partner and infant children, or stepchildren, as required by Section 822 of the Companies Act
2006. There was no change in theses beneficial interests between the 29 March 2013 and 23 May 2013.
Loss of Office Payments
David Wild resigned from the business on 19 July 2012 and was paid his contractual obligations, the details of which were set out in the Stock
Exchange announcement issued at the date of his resignation. Mr Wild shall receive a total of payment of £645,399 comprising salary and benefits
for his notice period. This is being made in 12 equal instalments and Mr Wild has a duty to mitigate by making reasonable efforts to obtain suitable
alternative employment. Paul McClenaghan who left the business on 12 April 2013 was treated as a Good Leaver and allowed to retain his PSP
awards which will vest on a pro rata basis in relation to the time of the performance period and his leaving date. He was also paid a lump sum of
£218,025 being equivalent to nine months’ salary in full and final settlement of any contractual obligations.
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Directors’ Remuneration Report continued
TSR performance graph
The following graph shows the TSR performance of the Company since April 2008, 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.
TSR Graph
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
Halfords Group
FTSE 350 General Retailers
Source: Thompson Datastream
Importance of Pay
The Committee is aware of the importance of pay across the Group in delivering the Group’s strategy and of shareholder views on executive
remuneration and the relation of these payments to other cash disbursements. The following table shows the relationship between the Company’s
financial performance, payments made to shareholders, payments made to tax authorities and expenditure on payroll.
EBITDA
PBT (underlying)
Payments to Shareholders;
Dividend
Share Buyback
Payments to Tax Authorities(1);
Corporation Tax
Payroll Taxes
Other Taxes(2)
Payments to Employees;
Wages & Salaries
Including Directors(4)
2013
£103.4m
£72.0m
£42.7m
£0.9m
£18.2m
£25.2m
£102.8m(3)
2012
£123.6m
£92.2m
£44.2m
£62.3m
£24.6m
£33.2m
£55.4m
£153.5m
£1.51m
£150.8m
£1.31m
(1)
(2)
(3)
(4)
Includes payments made to both UK & Irish tax authorities
Includes net VAT collected
Includes Business Rates of £34.7m
Based on the single figure calculation, not all of which is included within wages and salary costs.
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Members of the Committee
During the year and the period to the date of this report the Remuneration Committee (the “Committee”) consisted of Keith Harris, Chairman;
Dennis Millard; Bill Ronald; David Adams; and Claudia Arney.
Annual Activity
During the year and the period to the date of this report the Committee has;
One-Off Considerations
Considered the introduction of non-financial KPIs as metrics for the
Annual Bonus.
Standing Items
May 2012
Approved Directors Remuneration Report for 2012.
Discussed Annual Bonus parameters for FY13.
Considered the appropriateness of the performance conditions of
the Company’s Performance Share Plan. The Committee considered
the performance measures that applied to the 2012–15 scheme and
concluded that these continue to be appropriate for the business.
Assessed TSR and EPS performance for the 2009–2012 Performance
Share Plan. These targets were not met and therefore this award will
not vest.
Assessed EPS performance for the 2009–2012 Company Share
Option Scheme. These targets were not met and therefore this award
will not vest.
July 2012
Granted awards under the Company’s Performance Share Plan and
Company Share Option Scheme.
Considered the quantum of any termination payments to be made on
the exit from the business of David Wild.
Approved the chosen non-financial KPIs for inclusion in the FY13
Annual Bonus Plan.
Considered the remuneration package for a new CEO, Matthew Davies.
Considered and approved the terms of the CEO Co-Investment award.
Considered changes to the performance conditions of the Halfords
Performance Share Plan.
September 2012
January 2013
March 2013
Considered the Group’s remuneration policy to ensure the broad
policy continued to be aligned with the strategy and long-term
success of the business.
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.
Consideration was given to the performance conditions and targets
for the Executive Directors’ and senior managers’ short-term bonus
arrangements for 2013/14.
May 2013
Approved Directors’ Remuneration Report for 2013.
Considered the use of new performance conditions for the Halfords
Performance Share Plan in order to give Executive Directors
convergence with the share price targets associated with the Co-
Investment Plan.
Assessed TSR and EPS performance for the 2010–2013 Performance
Share Plan. These targets were not met and therefore this award will
not vest.
Requested that the Chairman of the Committee consulted with the
Company’s major shareholders to discuss possible changes to the
performance conditions of the Company’s Performance Share Plan.
Assessed EPS performance for the 2010–2013 Company Share
Option Scheme. These targets were not met and therefore this award
will not vest.
Considered the achievement of the 2012/13 bonus performance
conditions.
Approved the Committee’s Terms of Reference.
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Directors’ Remuneration Report continued
Advisors
During the year the Committee has been supported by Jonathan Crookall, People Director, and Alex Henderson, Company Secretary. The CEO
and CFO may also on occasion attend Committee meetings on the request of the Committee but are not present when their own remuneration
is discussed. The Committee also engaged with Deloitte LLP, who have advised on the implementation, rules and performance conditions of the
Halfords Group plc 2012 Co-Investment Plan, performance measures for the PSP, remuneration reporting and other remuneration matters. Deloitte
are founding members of the Remuneration Consultants Group and adhere to the Remuneration Consultants Group Code of Conduct when
dealing with the Committee. The Committee considers their advice to be independent and impartial. Fees paid to Deloitte for this advice
were £68,100.
Shareholder voting
Halfords remains committed to ongoing shareholder dialogue and carefully reviews voting outcomes on remuneration matters. In the event of a
substantial vote against a resolution in relation to Directors’ remuneration, Halfords would seek to understand the reasons for any such vote, and
would detail any actions in response to it in the Directors’ Remuneration Report.
The following table sets out actual voting in respect of our last report in 2012:
% of votes
For 2011/12 Directors’ Remuneration Report (2012 AGM)
For
98.7%
Against
1.3%
5,636,814 votes were withheld in relation to this resolution (c.3% of shareholders).
Audited information
Directors’ Emoluments as disclosed in the Company’s financial statements:
David Wild
(resigned 19 July 2012)
Matt Davies
(appointed 4 October 2012)
Andrew Findlay
Paul McClenaghan
(Left on12 April 2013)
Base Salary
Bonus
Benefits
Pensions
2013
2012
517,650(1)
246,795
280,500
290,700
—
—
—
—
24,256
22,647
530,000
540,000
14,318
16,335
50,000
41,250
311,113
349,600
—
291,500
17,338
57,413
364,840
293,500
(1)
Includes £366,669 as compensation for loss of office.
Halfords Group plc 2005 Performance Share Plan
Mid-market
price on date
of awards
Awards held
30 March
2012
Award
Date
Awarded
during the
period
Dividend
Reinvest-
ment(1)
Forfeited
during the
period
Lapsed
during the
period
Exercised
during the
year
Awards held
29 March
2013
Performance
period
3 years to
David Wild
3 August
2009
3 August
2010
8 August
2011
Paul
McClenaghan
3 August
2009
3 August
2010
8 August
2011
3 August
2012
8 August
2011
3 August
2012
Andrew
Findlay
3.46
330,440
4.86
171,444
3.00
260,467
3.46
126,393
4.86
96,280
3.00
146,272
—
—
—
—
—
—
8289
8,633
13,155
2.20
—
198,502
4,486
3.00
211,709
—
18,983
2.20
—
191,537
4,329
21,671
352,111
—
11,244
182,688
17,082
277,549
—
134,682(2)
—
—
—
—
—
—
—
—
30 March
2012
29 March
2013
28 March
2014
30 March
2012
29 March
2013
28 March
2014
3 April
2015
28 March
2014
3 April
2015
—
—
—
—
—
—
—
—
—
—
—
104,913
159,427
202,988
230,692
—
195,866
(1) Following the recommendation of the Remuneration Committee to reinvest dividends earned on shares awarded since 2009, interim and final dividends have been reinvested in shares at prices
between £2.1347 and £4.8110.
(2)
In August 2012 the Remuneration Committee measured the performance conditions of 2009 Performance Share Plan award and deemed that none of the performance conditions had reached
median levels and therefore the whole award should lapse.
22357-04 11/06/2013 MIDDLE Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 101
Halfords Group plc 2012 Co-Investment Plan
Awards held
30 March
2012
Awarded
during the
period
Dividend
Reinvest-
ment(1)
Lapsed
during the
period
Exercised
during the
year
Awards held
29 March
2013
Performance
period
3–5 years
Award
Date
Matt Davies
28 January
2013
— 574,196(1)
—
—
574,196 November
2015
November
2016
November
2017
(1) This award represents 3.5 times Matthew Davies’ initial investment of 164,056 shares purchased at a price of 302.22p on 4 October 2012.
Non-Executive Directors
Fees
Director
Role
Dennis Millard
Chairman
Bill Ronald
Senior Independent Director
David Adams
Audit Committee Chairman
Claudia Arney
NED
Keith Harris
Remuneration Committee Chairman
Senior
Independent
Director
Committee
Chairman
Fees
Executive
Chairman
Fees(1)
Fees
2013
2012
—
15,000
—
—
—
—
—
5,000
—
5,000
50,000
165,000
215,000
165,000
45,000
45,000
45,000
45,000
60,000
50,000
45,000
50,000
60,000
50,000
45,000
50,000
(1) Following the resignation of David Wild on 19 July 2012, the Board asked Dennis Millard, non-executive Chairman, to become interim Executive Chairman with immediate effect. The
Remuneration Committee approved the payment of £50,000 to Dennis for his services as Executive Chairman. Such flat fee would cover the length of any period that Dennis might serve in this
position. He continued in this position until 21 November 2012. Matt Davies was appointed CEO of the Company on 4 October 2012.
Non-Executive Director Shareholding
Director
Dennis Millard
Bill Ronald
David Adams
Claudia Arney
Keith Harris
2013
40,000
11,538
6,000
21,052
3,386
2012
32,500
11,538
—
—
3,846
These figures include those of their spouses, civil partners and infant children, or stepchildren, as required by Section 822 of the Companies Act
2006. There was no change in these beneficial interests between 29 March 2013 and 23 May 2013.
Keith Harris
Chairman of the Remuneration Committee
23 May 2013
22357-04 11/06/2013 MIDDLE Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comGovernance
102
Read online:
halfords.annualreport2013.com/financials
22357-04 11/06/2013 BACK Proof 11 Financials
Statement of Directors’ Responsibilities
in Respect of the Annual Report and the
Financial Statements
Independent Auditor’s Report to the
Members of Halfords Group plc
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
104
105
106
107
Consolidated Statement of Financial Position 108
Consolidated Statement of Changes in
Shareholders’ Equity
Consolidated Statement of Cash Flows
109
110
103
Notes to Consolidated Statement of Cash Flows 111
Accounting Policies
Notes to the Financial Statements
Company Balance Sheet
Reconciliation of Movements in Total
Shareholders’ Funds
Accounting Policies
Notes to the Financial Statements
112
118
138
139
140
141
i
l
s
a
c
n
a
n
F
i
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 104
Statement of Directors’ Responsibilities in Respect of the Annual
Report & Accounts
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:
a)
b)
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 the Board
Dennis Millard
Chairman
23 May 2013
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
Independent Auditor’s Report to
the Members of Halfords Group plc
105
We have audited the financial statements of Halfords Group plc for the
year ended 29 March 2013 [set out on pages [104] to [143]]. The
financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU. The
financial reporting framework that has been applied in the preparation
of the Parent Company financial statements is applicable law and UK
Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in
an Auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement [set
out on page [104]], 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 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 Financial Reporting Council’s website at www.frc.org.
uk/auditscopeukprivate.
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 29 March 2013
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; and
■ 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.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
■ adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
■ the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
■ certain disclosures of Directors’ remuneration specified by law are
not made; or
■ we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
■ the Directors’ statement, set out on page 70, in relation to going
concern;
■ the part of the Corporate Governance Statement on pages 72 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.
Greg Watts (Senior Statutory Auditor)
for and on behalf of KPMG Audit plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
23 May 2013
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials
106
Consolidated Income Statement
For the period
52 weeks to 29 March 2013
52 weeks to 30 March 2012
Before
non-recurring
items
Non-recurring
items
(note 5)
Revenue
Cost of sales
Gross profit
Operating expenses
Results from operating activities
Finance costs
Finance income
Net finance expense
Profit before income tax
Income tax expense
Profit for the financial period
attributable to equity shareholders
Earnings per share
Basic
Diluted
Notes
1
2
3
6
6
7
9
9
£m
871.3
(394.2)
477.1
(399.0)
78.1
(6.3)
0.2
(6.1)
72.0
(18.2)
53.8
27.7p
27.5p
£m
—
—
—
(1.0)
(1.0)
—
—
—
(1.0)
(0.1)
(1.1)
Before
non-recurring
items
Non-recurring
items
(note 5)
£m
863.1
(390.3)
472.8
(375.6)
97.2
(5.5)
0.5
(5.0)
92.2
(24.8)
67.4
£m
—
—
—
1.9
1.9
—
—
—
1.9
(0.9)
1.0
Total
£m
871.3
(394.2)
477.1
(400.0)
77.1
(6.3)
0.2
(6.1)
71.0
(18.3)
52.7
27.2p
26.9p
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)
68.4
34.2p
34.0p
All results relate to continuing operations of the Group.
The notes on pages 118 to 143 are an integral part of these consolidated financial statements.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
Consolidated Statement of Comprehensive Income
107
Profit for the period
Other comprehensive income
Foreign currency translation differences for foreign operations
Cash flow hedges:
Fair value changes in the period
Transfers to inventory
Transfers to net profit:
Cost of sales
Income tax on other comprehensive income
7
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period attributable to equity shareholders
The notes on pages 118 to 143 are an integral part of these consolidated financial statements.
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
Notes
52.7
68.4
—
2.8
(0.7)
(0.1)
(0.7)
1.3
54.0
(0.5)
(0.9)
1.3
(0.2)
(0.3)
(0.6)
67.8
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials
108
Consolidated Statement of Financial Position
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
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
The notes on pages 118 to 143 are an integral part of these consolidated financial statements.
29 March 2013
£m
30 March 2012
£m
Notes
10
11
18
12
13
19
14
15
19
16
17
15
16
17
18
20
20
20
342.2
90.6
0.3
433.1
133.2
53.8
1.9
7.9
196.8
629.9
(4.3)
(0.2)
(144.9)
(26.3)
(7.4)
(183.1)
13.7
(114.2)
(29.7)
(4.2)
—
(148.1)
(331.2)
298.7
2.0
151.0
(13.2)
0.9
158.0
298.7
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
The financial statements on pages 106 to 111 were approved by the Board of Directors on 23 May 2013 and were signed on its behalf by:
Matt Davies
Chief Executive
Andrew Findlay
Finance Director
Company Number: 04457314
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com Consolidated Statement of Changes in Shareholders’ Equity
109
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
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
Total comprehensive income for the period
Profit for the period
Other comprehensive income
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 29 March 2013
2.1
151.0
(0.6)
—
—
—
—
—
—
—
—
—
—
(0.1)
—
—
(0.1)
2.0
—
—
—
—
—
—
—
—
—
—
—
—
—
2.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
—
4.6
—
(18.0)
—
—
(13.4)
(14.0)
—
—
—
—
—
—
—
0.8
—
—
—
—
0.8
(13.2)
0.5
—
(0.5)
—
—
—
—
(0.5)
(0.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The notes on pages 118 to 143 are an integral part of these consolidated financial statements.
0.2
—
—
—
—
—
—
—
—
—
—
0.1
—
—
0.1
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
(0.6)
169.8
322.4
—
—
(0.9)
1.3
(0.2)
(0.3)
(0.1)
(0.1)
—
—
—
—
—
—
(0.7)
68.4
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
—
52.7
52.7
2.8
(0.7)
(0.1)
(0.7)
1.3
1.3
—
—
—
—
—
—
0.6
—
—
—
—
—
2.8
(0.7)
(0.1)
(0.7)
1.3
52.7
54.0
—
0.1
(0.9)
0.3
(42.7)
(43.2)
158.0
0.8
0.1
(0.9)
0.3
(42.7)
(42.4)
298.7
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 110
Consolidated Statement of Cash Flows
52 weeks to
29 March
2013
£m
52 weeks to
30 March
2012
£m
Notes
Cash flows from operating activities
Profit after tax for the period, before non-recurring items
Non-recurring items
Profit after tax for the period
Depreciation — property, plant and equipment
Impairment charge
Amortisation — intangible assets
Foreign exchange gains
Net finance costs
Loss on disposal of property, plant and equipment
Equity-settled share based payment transactions
Fair value gains on derivative financial instruments
Income tax expense
Decrease in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase/(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 (decrease)/increase 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
I.
I.
The notes on pages 118 to 143 are an integral part of these consolidated financial statements.
53.8
(1.1)
52.7
19.9
0.8
5.4
—
6.1
1.7
0.1
(0.9)
18.3
13.5
(8.9)
6.6
0.3
0.3
(4.2)
(18.2)
93.5
—
(3.7)
(16.7)
(20.4)
0.8
(0.9)
202.0
(239.0)
(0.3)
(42.7)
(80.1)
(7.0)
10.9
3.9
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
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
Notes to Consolidated Statement of Cash Flows
111
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 30 March
2012
£m
Cash flow
£m
Other non-cash
changes
£m
At 29 March
2013
£m
10.9
(138.6)
(127.7)
(0.3)
(11.2)
(11.5)
(139.2)
(7.0)
37.0
30.0
0.3
—
0.3
30.3
—
(1.7)
(1.7)
(0.3)
0.3
—
(1.7)
3.9
(103.3)
(99.4)
(0.3)
(10.9)
(11.2)
(110.6)
Non-cash changes comprise finance costs in relation to the amortisation of capitalised debt issue costs of £1.7m (2012: £0.9m) and changes in
classification between amounts due within and after one year.
Cash and cash equivalents at the period end consist of £7.9m (2012: £13.4m) of liquid assets and £4.0m (2012: £2.5m) of bank overdrafts.
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112
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 29 March 2013 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 70, 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 29 March 2013, whilst the comparative period covered the 52 weeks to 30 March 2012.
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 and 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 29 March 2013 are detailed on page 141 in note 4 to the Company balance sheet, which
can be found on page138.
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.
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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 considers that these
items should be separately identified within their relevant income statement category to enable a full understanding of the Group’s results.
Earnings Per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for
own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted
to employees.
The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-recurring items. A reconciliation of
this alternative measure to the statutory measure required by IFRS is given in note 9.
Foreign Currency Translation
Functional and Presentation Currency
The consolidated financial statements are presented in pounds sterling, which is the Group’s presentation currency, and are rounded to the nearest
hundred thousand, except where it is deemed relevant to disclose the amounts to the nearest pound. Items included in the financial statements of
the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).
Transactions and Balances
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date,
monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date.
Translation differences on monetary items are taken to the income statement with the exception of differences on transactions that are subject to
effective cash flow hedges, 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 in which 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.
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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 in which 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.
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;
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■ Motor vehicles are depreciated over 3 years;
■ Fixtures, fittings and equipment are depreciated over 4 to 10 years according to the estimated life of the asset;
■ Computer equipment is depreciated over 3 years; and
■ Land is not depreciated.
Depreciation is expensed to the income statement within operating expenses.
Residual values, remaining useful economic lives and depreciation periods and methods are reviewed annually and adjusted if appropriate.
Impairment of Assets
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.
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 is 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.
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.
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.
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Accounting Policies continued
ii) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and 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.
The judgements and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are
detailed below:
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Impairment of Assets
Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their
recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows, which
includes management assumptions and estimates of future performance. Details of the assumptions used in the impairment review of goodwill and
other assets are explained in note 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.
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 118 to 143.
Adoption of new and revised standards
The following standard is applicable to the Group and has been adopted in the current period as it is mandatory for the year ended 29 March 2013
but either has no material impact on the result or net assets of the Group or is not applicable.
■ IAS 12 (Amendment): “Income taxes” — The amendments introduced a presumption, for deferred tax purposes, that recovery of the carrying
amount of an investment property will normally be through sale.
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. The Group does not believe the adoption of these standards or interpretations would have a
material impact on the consolidated results or financial position of the Group.
■ IAS 1 (Amendment): “Presentation of financial statements” amends how components of other comprehensive income are presented. The
amendments require the grouping of items of other comprehensive income into items that might be reclassified to the income statement in
subsequent periods and items that will not be reclassified to the income statement in subsequent periods.
■ IFRS 7 (Amendment): “Financial Instruments: Disclosures” amends disclosure requirements to require information about all recognised financial
instruments that are set off in accordance with paragraph 42 of IAS 32.
■ IFRS 10: “Consolidated financial statements” replaces the guidance of control and consolidation in IAS 27 and SIC 32: Consolidation —
special purpose entities. The core principle that a consolidated entity presents a Parent and its subsidiaries as if they were a single entity
remains unchanged, as do the mechanics of the consolidation.
■ IFRS 11: “Joint arrangements” requires joint arrangements to be accounted for as a joint operation or as a joint venture depending on the
rights and obligations of each party to the arrangement. Proportionate consolidation for joint ventures will be eliminated and equity accounting
will be mandatory.
■ IFRS 12: “Disclosure of interests in other entities” requires enhanced disclosures of the nature, risks and financial effects associated with the
Group’s interests in subsidiaries, associates, joint arrangements and unconsolidated structures entities.
■ IFRS 13: “Fair value measurements” explains how to measure fair value and aims to enhance fair value disclosures. The standard does not
change the measurement of fair value but codifies it in one place.
■ IAS 27 (Revised): “Separate financial statements” makes revisions to the requirements for separate financial statements prepared by a Parent
or an investor in a joint venture or associate.
In addition to the above, amendments to a number of standards under the annual improvements project to IFRS have been endorsed by the EU
but not yet adopted. None of these amendments are expected to have a material impact on the Group’s financial statements.
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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
29 March 2013
Total
£m
745.5
125.8
871.3
73.6
(1.0)
72.6
6.3
—
6.3
79.9
(1.0)
78.9
(1.8)
77.1
(6.1)
71.0
(18.3)
52.7
Retail
£m
752.3
92.8
1.9
94.7
52 weeks to
30 March 2012
Total
£m
Car Servicing
£m
110.8
863.1
6.6
—
6.6
99.4
1.9
101.3
(2.2)
99.1
(5.0)
94.1
(25.7)
68.4
(1) Unallocated expenses have been disclosed to reflect the format of the internal management reports reviewed by the Chief Operating Decision Maker and include an amortisation charge
of £1.8m in respect of assets acquired through business combinations (2012: £2.2m).
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52 weeks
ended
29 March 2013
Total
£m
Retail
£m
Car Servicing
£m
13.2
17.4
0.8
3.6
5.6
2.5
—
—
18.8
19.9
0.8
3.6
Retail
£m
Car Servicing
£m
52 weeks ended
30 March 2012
Total
£m
15.2
19.1
2.7
4.5
2.0
—
19.7
21.1
2.7
Other segment items:
Capital expenditure
Depreciation expense
Impairment expense
Amortisation expense
Other segment items:
Capital expenditure
Depreciation expense
Amortisation expense
There have been no significant transactions between segments in the 52 weeks ended 29 March 2013 (2012: £nil).
2. Operating expenses
For the period
Selling and distribution costs, before non-recurring items
Non-recurring selling and distribution costs
Administrative expenses, before non-recurring items
Non-recurring administrative expenses
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
336.1
—
336.1
62.9
1.0
63.9
400.0
318.2
—
318.2
57.4
(1.9)
55.5
373.7
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120
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
Impairment of property, plant and equipment
Trade receivables impairment
Staff costs (see note 4)
Cost of inventories consumed in cost of sales
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
1.7
91.0
(5.5)
(0.9)
1.7
5.4
19.4
0.5
0.8
0.2
166.8
384.1
1.9
90.1
(6.4)
(2.0)
1.2
4.9
20.6
0.5
—
0.1
155.8
384.7
The total fees payable by the Group to KPMG Audit Plc and their associates during the period was £0.3m (2012: £0.3m), in respect of the
services detailed below:
For the period
Fees payable for the audit of the Company’s accounts
Fees payable to KPMG Audit Plc and their associates for other services:
The audit of the Company’s subsidiary undertakings, pursuant to legislation
Other services supplied pursuant to such legislation
Internal audit services
All other services
52 weeks to
29 March 2013
£000
52 weeks to
30 March 2012
£000
30
205
15
21
—
271
30
194
15
76
12
327
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
(2012: £0.1m).
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 121
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
29 March 2013
£m
52 weeks to
30 March 2012
£m
153.5
10.2
0.1
3.0
166.8
140.8
9.7
2.4
2.9
155.8
Number
Number
11,535
11,276
211
651
193
582
12,397
12,051
Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 82 to 101 which forms part of
these financial statements.
Key management compensation
For the period
Salaries and short-term benefits
Compensation for loss of office
Social security costs
Pensions
Share based payment charge
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
2.1
0.8
0.4
0.3
0.1
3.7
2.1
—
0.3
0.2
1.0
3.6
Key management compensation includes the emoluments of the Board of Directors and the emoluments of the Halfords Limited and Halfords
Autocentres management Boards.
Balances outstanding at the year-end totalled £0.9m (2012: £nil).
5. Non-recurring items
For the period
Non-recurring operating expenses:
Lease guarantee provision (a)
Onerous lease provision (b)
Impairment of Property, Plant and Equipment (c)
Non-recurring items before tax
Tax on non-recurring items (d)
Non-recurring items after tax
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
(1.0)
1.2
0.8
1.0
0.1
1.1
(1.9)
—
—
(1.9)
0.9
(1.0)
(a) A non-recurring expense of £7.5m was incurred in 2011. This expense related to the creation of a provision for the potential liabilities arising from lease guarantees provided by Halfords prior
to July 1989. The guarantees were provided to landlords of properties leased by Payless DIY (now part of Focus DIY) when both Halfords and Payless DIY were under ownership of the Ward
White Group. Focus DIY entered into administration in May 2011. In the current year the continued settlement of the Group’s guarantor obligations has resulted in a release of £1.0m (2012:
£1.9m) of the original amounts provided.
(b) A charge incurred in the period relating to stores where the present value of expected future cash flows is deemed to be insufficient to cover the lower of cost of exit or value in use.
(c)
Impairment charge in respect of property, plant and equipment where the carrying amount of these assets has been deemed to exceed the recoverable amount.
(d) The tax charge of £0.1m represents a tax rate of 24% applied to non-recurring items after adjusting for the non-deductibility of the asset impairment charge and settlements to release
Halfords from its guarantor obligations under the leases. The prior period 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.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 122
Notes to the Financial Statements continued
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
Other interest payable
Finance costs
Finance income:
Bank and similar interest
Other interest receivable
Finance income
Net finance costs
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
(2.1)
(1.7)
(1.2)
(0.1)
(0.7)
(0.5)
(6.3)
0.2
—
0.2
(6.1)
(2.5)
(0.9)
(1.1)
(0.2)
(0.8)
—
(5.5)
0.1
0.4
0.5
(5.0)
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
7. Taxation
For the period
Current taxation
UK corporation tax charge for the period
Adjustment in respect of prior periods
Deferred taxation
Origination and reversal of timing differences
Adjustment in respect of prior periods
Total tax charge for the period
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
For the period
Profit before tax
UK corporation tax at standard rate of 24% (2012: 26%)
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 overseas tax rates
Impact of change in tax rate on deferred tax balance
Total tax charge for the period
123
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
21.5
(1.8)
19.7
(1.8)
0.4
(1.4)
18.3
26.7
(0.8)
25.9
(0.7)
0.5
(0.2)
25.7
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
71.0
17.1
1.2
(0.2)
—
1.9
(1.4)
(0.4)
0.1
18.3
94.1
24.5
1.7
0.5
(1.3)
0.5
(0.3)
—
0.1
25.7
A reduction in the UK corporation tax rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and
further reductions to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012
and 3 July 2012 respectively. This will reduce the Company’s future current tax charge accordingly. The deferred tax asset at 29 March 2013
has been calculated based on the rate of 23% substantively enacted at the balance sheet date.
The March 2013 Budget announced that the rate will further reduce to 20% by 2015 in addition to the planned reduction to 21% by 2014
previously announced in the December 2012 Autumn Statement. It has not yet been possible to quantify the full anticipated effect of the
announced further 3% rate reduction, although this will further reduce the Company’s future current tax charge and reduce the Company’s
deferred tax asset accordingly.
In this financial period, the UK corporation tax standard rate was 24% (2012: 26%).
The effective tax rate of 25.7% (2012: 27.3%) differs from the UK corporation tax rate principally due to the non-deductibility of depreciation
charged on capital expenditure and other permanent differences arising in the period.
The tax charge of £18.3m (2012: £25.7m) includes a charge of £0.1m (2012: £0.9m) in respect of tax on non-recurring items, as detailed
in note 5.
An Income tax charge of £0.7m (2012: £0.3m) 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.
The Group engages openly and proactively with tax authorities both in the UK and internationally where the Group trades and sources
products. The Group’s Tax Policy is reviewed annually by the Board and is shared with HM Revenue & Customs (‘‘HMRC’’). The Group is fully
committed to complying with all of its tax payment and reporting obligations throughout the business.
In FY13 the contribution to the UK Exchequer from both taxes paid and collected exceeded £147.2m with the main taxes including
corporation tax £16.9m, net VAT £61.8m, PAYE £16.3m, Employees National Insurance Contributions £7.9m, Employers National Insurance
Contributions £10.1m and Business Rates £34.2m.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials
124
Notes to the Financial Statements continued
8. Dividends
For the period
Equity — ordinary shares
Final for the 52 weeks to 30 March 2012 — paid 14.00p per share (2012: 14.00p)
Interim for the 52 weeks to 29 March 2013 — paid 8.00p per share (2012: 8.00p)
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
27.2
15.5
42.7
28.5
15.7
44.2
In addition, the Directors are proposing a final dividend in respect of the financial period ended 29 March 2013 of 9.10p per share (2012:
14.00p per share), which will absorb an estimated £17.7m (2012: £27.2m) of shareholders’ funds. It will be paid on 2 August 2013 to
shareholders who are on the register of members on 5 July 2013.
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 29 March 2013.
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
29 March 2013
Number of
shares
m
52 weeks to
30 March 2012
Number of
shares
m
199.1
(4.8)
194.3
1.5
195.8
203.8
(3.9)
199.9
1.0
200.9
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
52.7
1.0
0.1
53.8
68.4
(1.9)
0.9
67.4
52 weeks to
29 March 2013
52 weeks to
30 March 2012
27.2p
26.9p
27.7p
27.5p
34.2p
34.0p
33.7p
33.5p
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 125
10. Intangible assets
Cost
At 1 April 2011
Additions
At 30 March 2012
Additions
Disposals
At 29 March 2013
Amortisation
At 1 April 2011
Charge for the period
At 30 March 2012
Charge for the period
Disposals
At 29 March 2013
Net book value at 29 March 2013
Net book value at 30 March 2012
Brand
names and
trademarks
£m
Customer
relationships
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
1.1
—
1.1
—
—
1.1
0.7
0.4
1.1
—
—
1.1
—
—
14.9
—
14.9
—
—
14.9
1.9
1.7
3.6
1.7
—
5.3
9.6
11.3
2.3
—
2.3
—
—
2.3
—
0.1
0.1
0.1
—
0.2
2.1
2.2
22.3
2.1
24.4
3.7
(12.6)
15.5
14.1
2.7
16.8
3.6
(12.6)
7.8
7.7
7.6
344.5
—
344.5
—
—
344.5
21.7
—
21.7
—
—
21.7
322.8
322.8
Total
£m
385.1
2.1
387.2
3.7
(12.6)
378.3
38.4
4.9
43.3
5.4
(12.6)
36.1
342.2
343.9
No intangible assets are held as security for external borrowings.
Included in computer software are internally generated assets of £0.3m (2012: £0.3m). Product rights of £0.2m, which are fully amortised,
have been included within Brand names and trademarks.
Goodwill of £253.1m (2012: £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 29 March 2013 and 30 March 2012 are as follows:
Discount rate
Growth rate
Retail
Car Servicing
Notes
1
2
2013
8.1%
0.0%
2012
10.5%
0.0%
2013
9.0%
1.0%
2012
10.8%
0.0%
Notes:
1 Pre-tax discount rate applied to the cash flow projections.
2 Growth rate used to extrapolate cash flows beyond the three year budget period.
The Directors are confident that a reasonably possible change in the key assumptions, including a +/- 1.0% change in the discount rate,
would not cause the carrying amounts to exceed the recoverable amounts.
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126
Notes to the Financial Statements continued
11. Property, plant and equipment
Cost
At 1 April 2011
Additions
Disposals
Reclassifications
At 30 March 2012
Additions
Disposals
Reclassifications
At 29 March 2013
Depreciation
At 1 April 2011
Depreciation for the period
Disposals
At 30 March 2012
Depreciation for the period
Impairment charge
Disposals
At 29 March 2013
Net book value at 29 March 2013
Net book value at 30 March 2012
No fixed assets are held as security for external borrowings.
Included in the above are assets held under finance leases as follows:
As at 29 March 2013
Cost
Accumulated depreciation
Net book value
As at 30 March 2012
Cost
Accumulated depreciation
Net book value
(1) Relates to the Halfords support centre building lease, which expires in 2028.
Fixtures,
fittings
and
equipment
£m
Payments on
account and
assets in
course of
construction
£m
Land and
buildings
£m
57.5
3.1
(0.5)
0.1
60.2
4.2
(5.2)
—
59.2
25.6
3.6
(0.3)
28.9
3.8
—
(4.7)
28.0
31.2
31.3
311.1
14.5
(5.0)
0.1
320.7
9.9
(84.5)
—
246.1
240.6
17.5
(4.0)
254.1
16.1
0.8
(83.3)
187.7
58.4
66.6
0.2
—
—
(0.2)
—
1.0
—
—
1.0
—
—
—
—
—
—
—
—
1.0
—
Land and
Buildings(1)
£m
Fixtures,
fittings, and
equipment
£m
12.7
(4.6)
8.1
12.7
(4.1)
8.6
0.8
(0.8)
—
0.8
(0.8)
—
Total
£m
368.8
17.6
(5.5)
—
380.9
15.1
(89.7)
—
306.3
266.2
21.1
(4.3)
283.0
19.9
0.8
(88.0)
215.7
90.6
97.9
Total
£m
13.5
(5.4)
8.1
13.5
(4.9)
8.6
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com Finance lease liabilities are payable as follows:
Minimum
lease
payments
2013
£m
1.0
4.5
12.4
17.9
Interest
2013
£m
Principal
2013
£m
0.7
2.6
3.4
6.7
0.3
1.9
9.0
11.2
Minimum
lease
payments
2012
£m
1.0
4.4
13.5
18.9
Less than one year
Between one and five years
More than five years
12
Inventories
Finished goods for resale
127
Interest
2012
£m
0.7
2.7
4.0
7.4
2013
£m
133.2
Principal
2012
£m
0.3
1.7
9.5
11.5
2012
£m
146.7
Finished goods inventories include £16.7m (2012: £9.2m) 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 £15.0m was recognised as an expense in respect of the write-down of inventories (2012: £16.0m) 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
2013
£m
16.6
(0.5)
16.1
7.7
30.0
53.8
During the period the Group charged the provision with £0.2m (2012: £0.1m) for the impairment of trade receivables and utilised £nil
(2012: £0.1m).
The following table shows the age of financial assets 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
2013
£m
18.3
1.5
1.8
0.6
0.1
22.3
2012
£m
12.5
(0.3)
12.2
3.8
29.0
45.0
2012
£m
11.9
1.7
0.6
0.4
0.3
14.9
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 £6.2m (2012: £2.7m) of other receivables.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 128
Notes to the Financial Statements continued
14. Cash and cash equivalents
Cash at bank and in hand
2013
£m
7.9
2012
£m
13.4
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
(1) The above borrowings are stated net of unamortised issue costs of £0.7m (2012: £2.4m).
2013
£m
4.0
0.3
4.3
103.3
10.9
114.2
2012
£m
2.5
0.3
2.8
138.6
11.2
149.8
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
2013
£m
1.0
196.0
—
197.0
2012
£m
1.0
—
159.0
160.0
The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £196.0m
(2012: £159.0m) 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
2013
£m
84.9
10.6
6.1
3.5
39.8
144.9
2012
£m
81.2
18.7
5.1
4.0
31.4
140.4
29.7
28.8
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 129
17. Provisions
At 30 March 2012
Charged during the period
Utilised during the period
Released during the period
At 29 March 2013
Analysed as:
Current liabilities
Non-current liabilities
Central
Europe exit
£m
Property
related
£m
Other
trading
£m
0.3
—
(0.3)
—
—
—
—
9.2
3.9
(2.5)
(1.0)
9.6
6.0
3.6
1.8
1.2
(1.0)
—
2.0
1.4
0.6
Total
£m
11.3
5.1
(3.8)
(1.0)
11.6
7.4
4.2
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 the continued settlement of the Group’s guarantor obligations has resulted in a release of
£1.0m (2012: £1.9m) of the original amounts provided.
Other trading provisions comprise 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 into 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 are expected to be additional obligations as a result of the rent review, which forms part of
the Group’s unavoidable cost of meeting its obligations under the lease 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.
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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 1 April 2011
Credit/(charge) to the income statement
Charge to other comprehensive income
Charge to equity
At 30 March 2012
Credit/(charge) to the income statement
Charge to other comprehensive income
Credit to equity
At 29 March 2013
Property
related
items
£m
Short-term
timing
differences
£m
Share-based
payments
£m
Intangible
assets
£m
(2.4)
(0.1)
—
—
(2.5)
1.5
—
—
(1.0)
5.4
(0.2)
(0.3)
—
4.9
(0.6)
(0.7)
—
3.6
0.8
(0.2)
—
(0.4)
0.2
0.1
—
0.3
0.6
(4.1)
0.8
—
—
(3.3)
0.4
—
—
(2.9)
Total
£m
(0.3)
0.3
(0.3)
(0.4)
(0.7)
1.4
(0.7)
0.3
0.3
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:
29 March 2013
£m
30 March 2012
£m
4.2
(3.9)
0.3
5.1
(5.8)
(0.7)
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 (“FD”). The FD controls policy and performance through the line
management structure to the Group Treasurer and by reference to the Treasury Committee. The Treasury Committee meets quarterly 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 through negotiating fixed purchase costs or maintaining flexibility over the specification of finished products produced
by its supply chain to meet fluctuations.
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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 + or – 1% the impact on the results in the Income Statement and equity would be a decrease/increase of £1.0m (2012: £1.2m).
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 April 2011 and April 2012, the Group managed its capital structure
partly through a share buy-back scheme.
The Group manages capital by operating within debt ratios. These ratios are lease adjusted net debt to Earnings Before Interest, Tax,
Depreciation and Amortisation (“EBITDA”) and fixed charge cover. Lease adjusted net debt is calculated as being net debt and leases
capitalised at eight times, as a multiple of EBITDA plus operating lease charges. Fixed charge cover is calculated as being EBITDA plus
operating lease charges as a multiple of interest and operating lease charges.
Fair Value Disclosures
The fair values of each class of financial assets and liabilities is the carrying amount, based on the following assumptions:
Trade receivables, trade payables and
finance lease obligations, short-term
deposits and borrowings
Long-term borrowings
The fair value approximates to the carrying amount because of the short maturity of these
instruments, using an interest rate of 7.1% for long-term finance lease obligations.
The fair value of bank loans and other loans approximates to the carrying value reported in the
balance sheet as the majority are floating rate where payments are reset to market rates at
intervals of less than one year.
Forward currency contracts
The fair value is determined using the market forward rates at the reporting date and the outright
contract rate.
Fair Value Hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
■ Level 1: quoted prices in active markets for identical assets or liabilities;
■ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
■ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
All financial instruments carried at fair value have been measured by a Level 2 valuation method.
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
2013
£m
7.9
22.3
1.9
32.1
(121.6)
(104.0)
(11.2)
(236.8)
2012
£m
13.4
14.9
0.3
28.6
(109.9)
(141.0)
(11.5)
(262.4)
Trade and other payables within the scope of IAS 39 include all trade payables, all other payables and £30.6m (2012: £23.6m) of accruals and
deferred income.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 132
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 £32.1m (2012: £28.6m) 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 29 March 2013, 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
29 March 2013
30 March 2012
USD
£m
—
(15.9)
(15.9)
Other
£m
0.4
(0.5)
(0.1)
USD
£m
4.8
(15.4)
(10.6)
Other
£m
1.0
(0.3)
0.7
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
2013
Increase/
(decrease)
in equity
£m
4.1
(3.3)
2012
Increase/
(decrease)
in equity
£m
10.2
(8.5)
A strengthening/weakening of sterling, as indicated, against the USD at 29 March 2013 would have increased/(decreased) equity and profit or
loss by the amounts shown above. This analysis is based on foreign currency exchange rate variances that the Group considered to be
reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain
constant.
There are no material movements in the income statement. The movements in equity relates to the fair value movements on the Group’s
forward contracts that are used to hedge future stock purchases.
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.
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Liquidity Risk
The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient
cash or working capital facilities to meet the cash requirements of the Group for the current Business Plan. The minimum liquidity level is
currently set at £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, in line with Treasury Policy. The counterparty credit risk is reviewed in the Treasury
report, which is forwarded to the Treasury Committee and the Treasurer reviews credit exposure on a daily basis.
The risk is measured through review of forecast liquidity each month by the Treasurer to determine whether there are sufficient credit facilities
to meet forecast requirements, and through monitoring covenants on a regular basis to ensure there are no significant breaches, which would
lead to an “Event of Default”. Calculations are submitted bi-annually to the club bank agent. 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
29 March 2013
Bank
borrowings
£m
30 March 2012
Bank
borrowings
£m
3.6
106.3
—
—
109.9
103.3
4.0
4.0
143.5
—
151.5
138.6
The following table provides an analysis of the anticipated contractual cash flows for the Group’s forward currency contracts. Cash flows
receivable in foreign currencies are translated using spot rates as at 29 March 2013 (30 March 2012).
Due less than one year
Due between 1 and 2 years
Contractual cash flows
Fair value
Receivables
£m
36.7
—
36.7
1.9
2013
Payables
£m
(34.9)
—
(34.9)
(0.2)
Receivables
£m
92.2
0.3
92.5
0.3
2012
Payables
£m
(93.4)
(0.3)
(93.7)
(1.5)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 134
Notes to the Financial Statements continued
20. Capital and Reserves
Ordinary shares of 1p each:
Allotted, called up and fully paid
2013
Number of
shares
2013
£000
2012
Number of
shares
2012
£000
199,063,222
1,991
199,383,222
1,994
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 320,000 shares (2012: decreased by 12,602,776 shares). During the
period the Company repurchased and cancelled 320,000 shares, and no new shares were issued in the period. There has been no significant
impact on share premium as a result of the share transactions, with share premium remaining at £151.0m (2012: £151.0m).
In total the Company received proceeds of £0.8m (2012: £2.1m) from the exercise of share options.
Interest in Own Shares
At 29 March 2013 the Company held in Trust 4,651,810 (2012: 4,932,009) of its own shares with a nominal value of £46,518 (2012:
£49,320). 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 29 March 2013 was £15.0m (2012: £15.4m). In the current period no shares (2012: 5,449,620 shares) were
repurchased and transferred into the Trust, with 280,199 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 four 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.
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3. Performance Share Plan
The introduction of a Performance Share Plan (“PSP”) was approved at the Annual General Meeting in August 2005 awarding the Executive
Directors and certain senior management conditional rights to receive shares. Annual schemes have been approved for each year from 2005.
The extent to which such rights vest will depend upon the Company’s performance over the three year period following the award date. The
vesting of 50% of the awards will be determined by the Company’s relative total shareholder return (“TSR”) performance and the vesting of the
other 50% by the Company’s absolute EPS performance against RPI. The Company’s TSR performance will be measured against the FTSE
350 general retailers as a comparator group. No retesting will be permitted.
The TSR element of the options granted under the 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 2010 and 2011 under the Performance Share Plan earned final dividends
of 14p per share and were reinvested in shares at a cost of £2.13 per share. Shares awarded in 2010, 2011 and 2012 under the PSP earned
interim dividends of 8p per share and were reinvested in shares at a cost of £3.54 per share.
4. Co-Investment Share Plan
In 2012 the Company adopted the Halfords Group plc 2012 Co-Investment Plan. This plan was adopted for the sole purpose of making a
one-off award to the Group’s new CEO. No further awards either to the Group’s CEO or other Executives will be made under this plan.
On 4 October 2012 the new CEO purchased 164,056 Halfords Group plc shares at a price of 302.22 pence per share and will be entitled to
receive Matching Shares equivalent to a maximum of 3.5 times this investment. Subject to continued employment these shares may vest up
to a third in November 2015, up to two-thirds in November 2016 and in full in November 2017, depending on the following Threshold (30%
vesting) and Maximum (100% vesting) share price performance by Halfords:
November
2015
2016
2017
Threshold
Maximum
350p
385p
425p
400p
440p
485p
Matching Shares have been granted in the form of nil cost options, with the participant having until the tenth anniversary of the date of grant
to exercise the options, and will lapse on a pro rata basis if the required number of Investment Shares is not retained to the final vesting date.
At each relevant vesting date the participant can decide to exercise any portion of the award that has vested based on the performance at
that time (in which case any unvested shares in that tranche in respect of which the share price target has not been met will lapse) or roll
forward that tranche in full subject to performance testing at the next vesting date. In the latter case the participant will forfeit the right to
exercise any awards that had become capable of vesting at the earlier vesting date.
The Participant will be entitled to receive an amount equivalent to the dividends that would have been paid either in cash or on a reinvested
basis in shares during the period from grant to exercise in respect of the number of Matching Shares that vest.
The Barrier Black–Scholes Model is an adapted Black–Scholes Model and is used to calculate the estimated fair values of the Co-Investment
Plan Options to include the impact of the share price based performance conditions. Using this method the fair value of the options granted
has been estimated to be £1.35 per share.
The Group Income Statement charge recognised in respect of share-based payments for the current period is £0.1m (2012: £2.4m).
The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP) for all share award
plans except for the Co-Investment Plan, details of which are covered above.
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Notes to the Financial Statements continued
21. Share Based Payments continued
For the period ended 29 March 2013
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)
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
Exercise price range (£)
Weighted average remaining
contractual life (years)
CSOS
SAYE
PSP
Number
(’000)
WAEP
(£)
Number
(’000)
WAEP
(£)
3,858
2,176
—
—
(209)
(634)
5,191
1,127
3.68
2.20
—
—
3.07
3.42
3.10
3.25
908
2,166
—
(69)
(73)
(581)
2,351
67
3.05
1.56
—
2.27
2.60
2.83
1.76
2.60
Number
(’000)
1,615
631
133
—
—
(1,163)
1,216
—
2.20 to 5.03
1.56 to 4.15
7.8
2.1
WAEP
(£)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1.8
CSOS
SAYE
PSP
WAEP
(£)
Number
(’000)
WAEP
(£)
Number
(’000)
3,556
950
—
—
(119)
(529)
3,858
1,449
WAEP
(£)
3.84
2.96
—
—
3.06
3.63
3.68
3.22
Number
(’000)
1,395
638
—
(5)
(878)
(242)
908
16
2.45
2.92
—
3.42
1.93
3.33
3.05
1.93
1,752
692
84
(221)
(623)
(69)
1,615
—
2.60 to 5.03
1.93 to 4.15
7.5
1.8
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 29 March 2013
52 weeks to 30 March 2012
CSOS
£2.25
£2.20
35%
10
4.85
0.66%
9.80%
33%
SAYE
£2.20
£1.56
31%
3
3.5
0.31%
9.88%
44%
PSP
£2.25
£0.00
31%
3
3
—
9.80%
30%
CSOS
£3.04
£2.96
33%
10
4.85
1.50%
7.42%
33%
SAYE
£3.04
£2.92
35%
3
3.5
1.09%
7.42%
44%
£0.24
£0.36
£1.64
£0.41
£0.44
£2.02
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
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1.4
PSP
£2.93
£0.00
34%
3
3
—
7.34%
30%
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 22. Commitments
Capital expenditure: Contracted but not provided
137
2013
£m
1.3
2012
£m
0.5
At 29 March 2013, the Group was committed to making payments in respect of non-cancellable operating leases in the following periods:
Within one year
Later than one year and less than five years
After five years
Land and
buildings
2013
£m
84.5
274.0
299.1
657.6
Other
assets
2013
£m
2.1
3.9
0.3
6.3
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
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 £5.5m (2012: £6.4m).
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 £3.0m (2012: £2.9m).
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 29 March 2013 amounted to £4.1m (2012: £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 138 to 143.
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 101. Key management compensation is disclosed
in note 4.
Directors of the Company control 0.18% of the ordinary shares of the Company.
26. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 138
Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors falling due within 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
29 March
2013
£m
30 March
2012
£m
Notes
4
5
6
6
8
9
9
9
9
573.0
572.9
51.6
2.9
54.5
(0.3)
54.2
(293.1)
334.1
2.0
151.0
(13.2)
0.3
194.0
334.1
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
The notes on pages 118 to 143 are an integral part of the Company’s financial statements.
The Company has elected to prepare its financial statements under UK GAAP and the accounting policies are outlined on page 140.
The financial statements on pages 106 to 111 were approved by the Board of Directors on 23 May 2013 and were signed on its behalf by:
Matt Davies
Chief Executive
Andrew Findlay
Finance Director
Company number: 04457314
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
Reconciliation of Movements in Total Shareholders’ Funds
139
For the period
Profit for the period
Shares options exercised
Purchase of own shares
Employee share options
Dividends
Net decrease in total shareholders’ funds
Opening total shareholders’ funds
Closing total shareholders’ funds
52 weeks to
29 March 2013
£m
52 weeks to
30 March 2012
£m
9.3
0.8
(0.9)
0.1
(42.7)
(33.4)
367.5
334.1
6.0
2.1
(62.7)
2.1
(44.2)
(96.7)
464.2
367.5
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials
140
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 29 March 2013, whilst the comparative period covered the 52 weeks to 30 March 2012. The
accounts are prepared under the historical cost convention, except where Financial Reporting Standards require an alternative treatment in
accordance with applicable UK accounting standards and specifically in accordance with the accounting policies set out below.
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.
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.
The Company has taken the available exemption not to provide disclosures required by FRS 29 “Financial instruments: disclosures”.
Share based Payments
The Company operates a number of equity-settled, share based compensation plans that are awarded to employees of the Company’s subsidiary
undertakings.
In accordance with UITF Abstract 44 “FRS 20 (IFRS 2) — Group and treasury share transactions” the fair value of the employee services received
under such schemes is recognised as an expense in the subsidiary undertaking’s financial statements, which benefit from the employee services.
The Company has recognised the fair value of the share based payments as an increase to equity with a corresponding adjustment to investments.
Fair values are determined using appropriate option pricing models. The total fair value recognised is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.
At each balance sheet date, the Company revises its estimates of the number of share incentives that are expected to vest. The impact of the
revision of original estimates, if any, is recognised as an adjustment to equity, with a corresponding adjustment to investments, over the remaining
vesting period.
Investments
Investments in subsidiary undertakings are stated at the original cost of the investments. Provision is made against cost where, in the opinion of the
Directors, the value of the investments has been impaired.
Dividends
Final dividends are recognised in the Company’s financial statements in the period in which the dividends are approved by shareholders. Interim
equity dividends are recognised in the period they are paid.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
Notes to the Financial Statements
141
1. Profit and Loss Account
The Company made a profit before dividends paid for the financial period of £9.3m (52 week period to 30 March 2012: £6.0m). 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 29 March 2013 the Company expensed £nil (2012: £0.1m) in fees relating to KPMG Audit Plc.
3. Staff Costs
The Company has no employees other than the Directors. Full details of the Directors’ remuneration and interests are set out in the
Remuneration Report on pages 82 to 101 which forms part of the audited information.
4.
Investments
Shares in Group undertaking
Cost
As at 30 March 2012
Additions — share based payments
At 29 March 2013
£m
572.9
0.1
573.0
The investments represent shares in the following subsidiary undertakings as at 29 March 2013 and the fair value of share based
compensation plans that are awarded to employees of the Company’s subsidiary undertakings.
Subsidiary undertaking
Halfords Holdings (2006) Limited
Halfords Holdings (Jersey) 1 Limited
Halfords Holdings (Jersey) 2 Limited
Halfords Ireco 1 Limited
* Registered in England and Wales.
Incorporated
in
Great Britain*
Jersey
Jersey
Gibraltar
Ordinary shares
percentage owned %
Principal
activities
100
100
100
100
Intermediate holding company
Intermediate holding company
Intermediate holding company
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 29 March 2013 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†
* Shares held indirectly through subsidiary undertakings.
† Wholly owned indirectly through subsidiary undertakings.
Principal activity
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories, cycles and cycle
accessories
Intermediate holding partnership
Intermediate holding company
Car servicing
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding partnership
% Ownership of
ordinary equity shares
100
100
100
100
—
100
100
100
100
100
100
—
Halfords Holdings (Jersey) 1 Limited and Halfords Holdings (Jersey) 2 Limited are incorporated and registered in Jersey. Halfords Ireco 1
Limited and Halfords Ireco 2 Limited are incorporated and registered in Gibraltar. All other subsidiary undertakings are incorporated in Great
Britain and registered in England and Wales. The only subsidiaries to trade during the year were Halfords Limited and Halfords Autocentres
Limited.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials 142
Notes to the Financial Statements continued
5. Debtors
Falling due within one year:
Amounts owed by Group undertakings
2013
£m
51.6
51.6
2012
£m
44.1
44.1
Amounts owed by Group undertakings are subject to interest. At 29 March 2013 the amounts bear interest at a rate of 4.83% (2012: 4.83%).
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)
2013
£m
0.3
0.3
103.3
189.8
293.1
2013
£m
103.3
—
103.3
2012
£m
0.3
0.3
138.6
119.2
257.8
2012
£m
—
138.6
138.6
(1) The above borrowings are stated net of unamortised issue costs of £0.7m (2012: £2.4m).
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
2013
Number of
shares
2013
£000
2012
Number of
shares
2012
£000
199,063,222
1,991
199,383,222
1,994
During the current period the Company’s share capital decreased by 320,000 shares (2012: decreased by 12,602,776 shares). During the
period the Company repurchased and cancelled 320,000 shares, and no new shares were issued in the period. There has been no significant
impact on share premium as a result of the share transactions, with share premium remaining at £151.0m (2012: £151.0m).
In total the Company received proceeds of £0.8m (2012: £2.1m) from the exercise of share options.
Potential Issue of Ordinary Shares
The Company has four employee share option schemes. Further information regarding these schemes can be found in note 21 to the Group’s
financial statements.
Interest in Own Shares
At 29 March 2013 the Company held in Trust 4,651,810 (2012: 4,932,009) of its own shares with a nominal value of £46,518 (2012:
£49,320). 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 29 March 2013 was £15.0m (2012: £15.4m).
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com 143
9. Reserves
At 30 March 2012
Profit for the financial period
Share options exercised
Share based payment transactions
Purchase of own shares
Dividends
At 29 March 2013
Share
premium
account
£m
Investment
in own
shares
£m
Capital
redemption
reserve
£m
Profit and
loss account
£m
151.0
(14.0)
—
—
—
—
—
—
0.8
—
—
—
151.0
(13.2)
0.3
—
—
—
—
—
0.3
228.2
9.3
—
0.1
(0.9)
(42.7)
194.0
Total
£m
365.5
9.3
0.8
0.1
(0.9)
(42.7)
332.1
The Company settled dividends of £42.7m (2012: £44.2m) in the period, as detailed in note 8 to the Group’s financial statements.
Included in the profit and loss account is £118m of reserves that are not distributable (2012: £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 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 29 March 2013 amounted to £4.1m (2012: £3.9m).
The Company’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of
other Group companies.
12. Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comFinancials
144
Read online:
halfords.annualreport2013.com/information
22357-04 11/06/2013 BACK Proof 11 Shareholder and
Customer Information
Five Year Record
Key Performance Indicators
Analysis of Shareholders
Company Information
146
146
147
147
145
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22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com
146
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
53 weeks
to
3 April
2009
£m
52 weeks
to
2 April
2010
£m
52 weeks
to
1 April
2011
£mm
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
209.1m
210.4m
52 weeks
to
30 March
2012
£m
863.1
(390.3)
472.8
(373.7)
52 weeks
to
29 March
2013
£m
871.3
(394.2)
477.1
(400.0)
97.2
1.9
99.1
(5.0)
92.2
1.9
—
94.1
(24.8)
(0.9)
68.4
34.2p
33.7p
199.9m
78.1
(1.0)
77.1
(6.1)
72.0
(1.0)
—
71.0
(18.2)
(0.1)
52.7
27.2p
26.9p
194.3m
Key Performance Indicators
Revenue growth
Gross margin
Operating margin
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%
52 weeks
to
29 March
2013
+1.0%
54.8%
8.8%
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com Analysis of Shareholders
147
As at 29 March 2013, the number of registered shareholders was 3,054 and the number of ordinary shares in issue was 199,063,222.
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
No. of holdings
% of total
shareholders
No. of
Shares
% of Issued
Share Capital
2,517
152
166
63
83
73
82.5
5.0
5.4
2.1
2.7
2.3
3,389,045
1,085,456
3,759,997
4,551,987
19,589,501
166,687,236
3,054
100.0
199,063,222
1,793
1,261
3,054
58.7
41.3
3,339,949
195,723,273
100.0
199,063,222
1.7
0.5
1.9
2.3
9.8
83.8
100.0
1.7
98.3
100.0
Company Information
Results and Financial Diary
Annual General Meeting: 30 July 2013.
Final dividend: 2 August 2013.
Record date: 5 July 2013.
Ex dividend date: 3 July 2013.
Half-year report: November 2013.
Annual General Meeting
The AGM will be held at the Crowne Plaza Birmingham NEC, Pendigo
Way, National Exhibition Centre, Birmingham, B40 1PS on Tuesday
30 July 2013.
Each shareholder is entitled to attend and vote at the meeting.
Registered & Head Office
Halfords Group plc
Icknield Street Drive
Redditch
Worcestershire
B98 0DE
Registrars
Capita IRG Plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Auditors
KPMG Audit Plc
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
Joint Brokers
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
J.P.Morgan Cazenove
10 Aldermanbury
London
EC2V 7RF
Solicitors
Clifford Chance
10 Upper Bank Street
London
E14 5JJ
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.comShareholder and Customer Information 148
Shareholder Notes
22357-04 11/06/2013 BACK Proof 11Halfords Group plc Annual Report & Accounts 2013online versionwww.halfords.annualreport2013.com l
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22357-04 11/06/2013 FRONT Proof 11
Corporate and IR website
www.halfordscompany.com
Commercial website
www.halfords.com
Online Annual Report 2013
halfords.annualreport2013.com
Online Annual Report 2012
halfords.annualreport2012.com
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