Halfords Group Annual Report 2014

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FY2014 Annual Report · Halfords Group

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GettinG
into
Gear

Halfords Group plC
annual report and aCCounts
for tHe period ended 28 MarCH 2014
Stock code: HFd

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23157.04 Proof 7 10-06-2014

We Help and inspire
our CustoMers WitH
tHeir life on tHe MoVe

iMaGes

1 Products available
digitally from all

refreshed stores.

2 wefit service growth
supported by Gears

training programme.

3 Refreshed cycle retail

presentation.

4 All smiles, Halfords
now one of the

Sunday Times 25

Best Big Companies

to Work For.

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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

Read more
halfords.annualreport2014.com

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23157.04 Proof 7 10-06-2014halfords.annualreport2014.comstock code: hfdHalfords Group plcannual report and accounts 2014strateGic reportstrateGystrateGic reportoverviewstrateGic reportperformancestrateGic reportriskGovernancefinancialssHareHolderinformationWelCoMe to Halfords

we aim to deliveR a seRvice
that WoWs eveRy time.

“i went into your store in Grimsby last
night and spoke with one of your car seat
specialists, alan. i just wanted to say how
wonderful he was, so helpful, friendly and
informative. i would definitely recommend
to my ‘mummy’ friends that they go to
halfords.”

LM, Grimsby

“i had wonderful service when i recently
purchased a Boardman cycle from
merthyr tydfil. hefin took care of me and
i couldn’t have asked for a more thorough
and professional experience. hefin was
extremely knowledgeable and customer-
focused. to be honest, i was quite baffled
at the start of the process but all soon
became clear with the explanations given by
hefin. he was informative, professional and
extremely helpful, all with great humour.”

Customer, Merthyr Tydfil

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014“i would like to say a big, big thank you to
Graham who helped me when i had a flat
tyre. my whole car was full of christmas
food, including frozen food. as an oaP, i was
all on my own and worried but Graham took
all the worry from me, inflated my tyre and
checked i was oK. he went the extra mile
for me.”

Customer, Dagenham

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inteGrated reportinG

WHy inteGrated
reportinG?

An integrated report provides a concise overview
of how value is generated for all stakeholders. In
essence how we manage risk, strategy and ethics in
a sustainable way.

The global drive for public companies to
transparently report on sustainable competitive
advantage with a view to the short, medium and long
term impact on stakeholder value has informed our
first integrated report.

Our primary focus in this report is on shareholder
value generation but this report also demonstrates
how we interact with other stakeholders.

an inteGRated RePoRt PRovides a concise
oveRview of HoW Value is Generated for all
stakeHolders. in essence how we manaGe RisK,
stRateGy and ethics in a sustainaBle Way.

WHat’s CHanGed in tHis report
Strategic focus and future orientation -
The business model has evolved to provide
greater clarity of our ability to create value in
the short, medium and long term, and to its
use of and effects on the capitals.

Connectivity of information - Signposting
for interrelated factors has improved with
more signposting from the business model
(see page 6) and material issues (see
page 8).

Stakeholder relationships - The nature

and quality of our relationships with our key
stakeholders have been outlined, along
with the material issues that relate to those
groups and how we are engaging with them
(see page 8).

Materiality - Information has been

disclosed about matters that substantively
affect our ability to create value over the
short, medium and long term (see page 64).

Conciseness - Repetition has been

removed where possible to provide a more
intuitive and logical signposting throughout
our integrated report.

Reliability and completeness - Material
matters both positive and negative have
been approached in a fair, balanced and
understandable way and without material
error.

Consistency and comparability - A

commitment to provide performance KPIs
with 5 year comparisons throughout the
document has been achieved. Although
some narrative content is provided in
a language that is consistent with the
Halfords brand, the framework and the use
of plain English provides greater clarity of
information and enables comparisons with
other organisations.

paGe
06

ouR uPdated Business model
PRovides a moRe comPaRaBle
model, Value proposition and
reVenue streaMs, all cleaRly
linKed to fuRtheR content.

paGe
44

sustainaBility activities and
Corporate responsiBility aRe
siGnPosted and hiGhliGhted.

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014WHat next?

Integrated reporting is evolving and this, our first
integrated annual report, is an important step in the
journey. In future reports, we will seek to:

❱ Incorporate measurement of the broader value we

deliver to the UK.

❱ Explore the connections and interdependencies
between the resources and relationships that
sustain our business and to which we contribute.

❱ Demonstrate how integrated reporting affects

thinking in our business.

❱ Develop further our approach for identifying and

prioritising material issues.

find out More
International Integrated Reporting Council:
www.theiirc.org

paGe
08

ouR taBle of mateRial issues
PRovides Guidance on ouR
aPPRoach to a sustainaBle
Business.

paGe
64

ouR risk reportinG PRovides
linKs and maPPinG to ouR
Material issues.

taKinG a ResPonsiBle and sustainaBle
aPPRoach to RunninG ouR Business means
BeinG totally focused on helPinG and
insPiRinG ouR customeRs.

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Business Model

COST STRUCTURE

KEY PARTNERS

465
STORES

303
AUTOCENTRES

c. 12,000
COLLEAGUES

■ PRODUCT
DESIGNERS
■ PRODUCT
MANUFACTURERS

■ TRAINING &
ACCREDITATION

■ BRAND OWNERS

■ PARTS FACTORS

Related ‘Getting into Gear’ strategic activities:

■ IT & NETWORK
PROVIDERS

■ REGULATORS

P26

KEY RESOURCES

KEY ACTIVITIES

■ BRANDS
■ 465 STORES
■ 303 AUTOCENTRES
■ CATEGORY EXPERTISE

■ c.12,000 COLLEAGUES
■ CASH GENERATION
■ COMPETITIVE FUNDING
■ HALFORDS ASIA SOURCING

■ MARKETING
■ RETAILING, BUYING
■ ONLINE FULFILLMENT

■ INVENTORY & DISTRIBUTION
■ TRAINING & PEOPLE
DEVELOPMENT

Related ‘Getting into Gear’ strategic activities:

P26

Related ‘Getting into Gear’ strategic activities:

P26

CENTRALISED
DISTRIBUTION
CENTRES

VALUE
PROPOSITION
P24

HELPING AND INSPIRING
OUR CUSTOMERS WITH
THEIR LIFE ON THE MOVE

LEVERAGING
ECONOMIES OF SCALE
AND SCOPE

REVENUE STREAMS

RETAIL SALES
& ADD-ON SERVICES

A unique product and service offer for motorists, cyclists and
families which provides an unmatched combination of service,
convenience and range for a life on the move.

SERVICE

RANGE

PRICE

QUALITY

SERVICE THAT ‘DELIGHTS’. RANGE YOU CAN RELY ON. PRICES YOU CAN TRUST.

QUALITY YOU CAN TRUST.

CHANNELS
■ TV, RADIO, EMAIL AND HIGH STREET ADVERTISING
■ STORE COLLECTION OR HOME DELIVERY
■ OMNICHANNEL ROUTES

CUSTOMER RELATIONSHIPS
■ ‘WE DO MORE FOR YOU’
■ LOW COST FITTING, BUILDING SERVICE
■ KNOWLEDGEABLE HELPFUL COLLEAGUES
■ <20m DRIVE FOR 90% OF POPULATION

Related ‘Getting into Gear’ strategic activities:

P26

Related ‘Getting into Gear’ strategic activities:

P26

CAR SERVICING

CUSTOMER SEGMENTS
OUR PILLARS

P24

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014
HALFORDS.ANNUALREPORT2014.COM
STOCK CODE: HFD

HALFORDS GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2014

KEY PARTNERS
We work with a number of key partners both inside and outside our business. Our Apollo,
Carrera and Boardman ranges are designed in-house and manufactured in factories in
the Far East. Our Hong Kong office organises and manages the production lead times
and arranges shipments to the UK.

Our store colleagues are very important to us in delivering the customer service that we
aspire to. Our 3-Gears training programme has been introduced to ensure that consistent
product knowledge and service is delivered to our customers across all our stores. See
pages 28 to 30 for more details.

IT systems are very important to us, both in store and in the Support Centre and parts
are in need of upgrading. During the year we have begun the upgrade of our core SAP
operating platform and improved the speed of the PEDs used in-store. See pages 37 to
38 for details.

KEY RESOURCES
We have a number of key brands in both the Auto and Cycling categories, across car
parts, in-car technology, child seats, cycling, roof boxes, outdoor leisure and camping
equipment and these are sold across our 465 nationwide stores. Our 303 autocentres
offer a full service, maintenance and repair service across all car marques. Within these
establishments our c.12,000 colleagues are a major key resource as it is they that

are face-to-face with our customers on a daily basis. See pages 28 and 34 for more
information.

Halfords is a cash generative business having generated £39.5m of free cashflow in
the year (see pages 53 and 63) and is well supported by its banking syndicate having
renegotiated a new facility in September 2013 (see page 62).

KEY ACTIVITIES
Our key activities are all designed to help and inspire our customers with their life on
the move through our Getting into Gear strategy (pages 26 to 39). As a retailer Halfords
makes a profit from the combination of low cost sourcing and supply chain coupled
with excellent marketing skills and a national store network, leveraging these skills in
the car service sector by running an efficient service offer and profits from scale and
efficiency. Halfords provides services cheaper than most franchised garages and more
comprehensively than many independent garages.

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

VALUE PROPOSITIONS
Halfords is a great business – it’s the nation’s leading cycle retailer and the “go to”
destination for motorists. Our products and services are as relevant to today’s customers
as they were when we started out over 100 years ago. Customers’ needs aren’t
changing but their expectations. We are setting out to grow our business by attracting
more customers; encouraging them to buy more products and/or services; and
persuading them to visit our stores and autocentres more often. To do this we make four
promises; Halfords offers:

Prices you can trust

Quality you can trust

Range you can rely on

Service that delights

PRICE
We want our customers to have confidence in our prices. We want them to feel they are
getting value for money. We shall be introducing new impulse promotions and ‘bundled‘
prices - rather than selling a product then the fitting we want to introduce prices with no
hidden costs. We have already introduced ‘rounded’ prices doing away with the 99p as
we feel customers are cynical of this type of pricing. It is very important to our growth
plans that we offer prices our customers trust.

QUALITY
Product quality is another important aspect of ‘value for money’. In listening to our
customers we have made changes to our products. We want customers to have
confidence that their purchases will last. During the year we have made our Quality
Guarantee on all Halfords Advanced socket sets, a no quibble one. We used to exempt
moving parts but having listened to the customer, it is really important to be able to offer a
total lifetime guarantee. We want customers to trust our quality.

RANGE
Our range of products is very important to us. We have a strong range and category
management, ensuring that Halfords remains a natural destination for our customers.
These ranges and categories contribute to the brand that is Halfords and we must
continue to bring products to our customers that they can rely on. See page 33 for our
Apollo story.

SERVICE
In order to improve service to our customers we have focused on four clear objectives.
To make Halfords a great place to work; to provide stores that we are proud of; to have
services that make us the best and to delight every customer. See pages 28 to 30 for
more details.

CHANNELS
We want to create a compelling shopping experience that excites customers, improves
their knowledge of products and services and their emotional engagement with our
brand.

We have 465 retail stores and 303 autocentres in which to engage with customers
face-to-face and building our digital proposition is also a key route to driving future topline
growth and maintaining our ongoing relevance.

CUSTOMER RELATIONSHIPS
Customers are our life-blood. Fundamental to a profitable and sustainable sales growth
is our ability to offer a friendly-expertise based service, where customers have a better
experience at Halfords than they would at other non-service based retailers and spend
more with us and recommend us to their friends. Our 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 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 PILLARS
SUPPORTING DRIVERS OF EVERY CAR
Through our core categories of Car Maintenance, Car Enhancement and Car Servicing
we provide services and expertise to take the hassle out of motoring. See page 22 for
more information.

INSPIRING CYCLISTS OF EVERY AGE
Halfords is the largest player in the cycling market, reflecting its scale positioning and also
the successful extension of its ranges into the premium segment of the cycle market in
recent years. See page 23 for more information.

EQUIPPING FAMILIES FOR THEIR LEISURE TIME

This third category pillar occupies the smallest element of Halfords Retail sales. It is
spread across several fragmented markets, which can be grouped under the umbrella of
camping and outdoor leisure. See page 23 for more information.

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strateGiC report > oVerVieW

Material issues

halfords’ vision is to Help and Inspire our Customers with their Life on the
Move by offering unique in-store services and a compelling product range
with expert services. the table below identifies the key stakeholders with
whom we interact to achieve this vision and outlines how and why we
engage with them.

Customers

Colleagues

investors

Communities

see

suppliers

Media

Government

WHy We
enGaGe

Customers want value, personalisation
and to trust the advice and service they
receive. We want to know how we are
performing so we can deliver unparalleled
honest and trustworthy products and
services.

Our colleagues are fundamental to the
achievement of our customer experience
ambitions.

As a publicly listed company we need to
provide fair, balanced and understandable
information to instil trust and confidence
and allow informed investment decisions
to be made.

We aim to contribute positively to the

The strength of our brand relies heavily

As a business to consumer company

Policies and regulatory changes may

communites and environment in which

on the high standards of our carefully

we need strong omnichannnel

provide both opportunities and risk to

we operate.

selected suppliers in order for us to

exposure in order to connect with

our operations. Working closely with

deliver market leading products and

customers and our wider stakeholder

the Government allows us to ensure

services.

audience.

that our products and services evolve

to any changing market conditions.

Value for money

Career opportunities

Future-orientated information

Impact of Group activities on the wider

Quality management

Reliable range, product and pricing

Transport policies and schemes

Material
issues

Customer service

Pay and conditions

Risk information

Developing future customers

Cost efficiency

Transparency of reliable and timely

CO2 reduction strategies

community

information

Group information

Convenience

Training and development

Operating and financial performance

Ethical Trading policy

Range

Innovation

Dividend

Colleague engagement

Access to management

Service Revolution

3-Gears Training programme

Integrated reporting

Re~Cycle Partnership

Far East trading office developing

Product videos and peer reviews

Cycle to work policy campaigning

WHat are
We doinG

The ‘H’ Factor

Listening : surveys and colleague groups

Consistent KPIs provided through clear
and regular updates

Stores Fit to Shop

‘Accelerate’ management development
courses

Responding to investor queries and
meeting requests

21st Century Infrastructure

Recognition and reward

Recognition in Social Responsibility
investor indices e.g. FTSE4Good

Click with the Digital Future

Annual colleague engagement survey

Onley Prison Workshops giving training

Logistics efficiencies and environmental

TV & Radio advertising campaigns

DAB Radio working groups

and employment opportunities for

management

ex-offenders

Free Kids’ Holiday Bike clubs

Supplier conferences

E-mail and PR customer engagement

Driver training and vehicle safety

Cub Scouts Cyclist Activity badge

workshops

Stores will donate payroll hours to

engage with local charities

enhancements

Improving Twitter, Facebook and You

Engaging with VOSA, DVLA, TSI, ASA

Tube content

and HSE

Monitoring and responding to

comments and concerns on social

channels

Speed to market

Security of supply

mutually beneficial relationships

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014Customers

Colleagues

investors

Communities

see
more:

Page 44

suppliers

Media

Government

Customers want value, personalisation

Our colleagues are fundamental to the

As a publicly listed company we need to

and to trust the advice and service they

achievement of our customer experience

provide fair, balanced and understandable

WHy We

enGaGe

receive. We want to know how we are

ambitions.

performing so we can deliver unparalleled

honest and trustworthy products and

services.

information to instil trust and confidence

and allow informed investment decisions

to be made.

We aim to contribute positively to the
communites and environment in which
we operate.

The strength of our brand relies heavily
on the high standards of our carefully
selected suppliers in order for us to
deliver market leading products and
services.

As a business to consumer company
we need strong omnichannnel
exposure in order to connect with
customers and our wider stakeholder
audience.

Policies and regulatory changes may
provide both opportunities and risk to
our operations. Working closely with
the Government allows us to ensure
that our products and services evolve
to any changing market conditions.

Material

issues

Value for money

Career opportunities

Future-orientated information

Impact of Group activities on the wider
community

Quality management

Reliable range, product and pricing
information

Transport policies and schemes

Customer service

Pay and conditions

Risk information

Developing future customers

Cost efficiency

Transparency of reliable and timely
Group information

CO2 reduction strategies

Convenience

Training and development

Operating and financial performance

Ethical Trading policy

Range

Innovation

Dividend

Colleague engagement

Access to management

Speed to market

Security of supply

WHat are

We doinG

The ‘H’ Factor

Listening : surveys and colleague groups

Consistent KPIs provided through clear

and regular updates

Service Revolution

3-Gears Training programme

Integrated reporting

Re~Cycle Partnership

Far East trading office developing
mutually beneficial relationships

Product videos and peer reviews

Cycle to work policy campaigning

Onley Prison Workshops giving training
and employment opportunities for
ex-offenders

Logistics efficiencies and environmental
management

TV & Radio advertising campaigns

DAB Radio working groups

Stores Fit to Shop

‘Accelerate’ management development

Responding to investor queries and

Free Kids’ Holiday Bike clubs

Supplier conferences

E-mail and PR customer engagement

Driver training and vehicle safety
enhancements

Cub Scouts Cyclist Activity badge
workshops

Stores will donate payroll hours to
engage with local charities

Improving Twitter, Facebook and You
Tube content

Engaging with VOSA, DVLA, TSI, ASA
and HSE

Monitoring and responding to
comments and concerns on social
channels

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courses

meeting requests

21st Century Infrastructure

Recognition and reward

Recognition in Social Responsibility

investor indices e.g. FTSE4Good

Click with the Digital Future

Annual colleague engagement survey

STRATEGIC REPORT > OVERVIEW

GROUP HIGHLIGHTS

REVENUE
+7.9%

£869.7m
+4.6%

£863.1m
-0.8%

£831.6m
+2.7%

PROFIT BEFORE TAX
+2.3%

£939.7m
+7.9%

£871.3m
+1.0%

£118.1m

+7.7%

£109.7m
+41.5%

£94.1m

-20.3%

£72.6m
+2.3%

£71.0m
-24.5%

UNDERLYING BASIC
EARNINGS PER SHARE
+4.0%

43.2p

+8.8%

39.7p
+22.2%

33.7p

-22.0%

28.8p
+4.0%

27.7p
-17.8%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

UNDERLYING
EBITDA
-2.2%

UNDERLYING PROFIT
BEFORE TAX
+1.1%

DIVIDEND PER
ORDINARY SHARE
-16.4%

£153.2m

+6.5%

£143.8m
+11.4%

£123.6m

-19.3%

£103.4m
-16.3%

£101.1m

-2.2%

£125.6m

+7.3%

£117.1m
+24.0%

£92.2m

-26.6%

£72.0m
-21.9%

£72.8m

+1.1%

20.0p
+25.8%

22.0p
+10.0%

22.0p
0.0%

17.1p
-22.3%

14.3p
-16.4%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

GROUP REVENUE
£939.7M

Travel Solutions
10.5%

Autocentres
14.6%

Car Maintenance
27.2%

Retail
85.4%

Car Enhancement
19.7%

RETAIL COLLEAGUES
THROUGH GEAR 1
90%

NEW WEBSITES
LAUNCHED
WWW.HALFORDS.COM
WWW.HALFORDSAUTOCENTRES.COM

Cycling
28.0%

RETAIL NPS SCORE
72%

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WWW.Halfords.annualreport2014.CoM
stoCk Code: Hfd

Halfords Group plC
annual report and aCCounts 2014

strateGiC report > oVerVieW

CHairMan’s letter

ouR mission is to
Help and inspire our
CustoMers WitH tHeir
life on tHe MoVe.
each element of ouR
stRateGy, which has
the CustoMer at tHe
forefront, has Been
PuRsued with viGouR
in Both ouR Retail
and autocentRes
Businesses.

In May 2013 we set out the Getting into Gear
strategy for our Retail business that we would pursue
and the growth plans for our Autocentre business.
We are now a year into the journey and progress
has been very encouraging across a broad front.
The ride so far has been exciting, the pace high and
the year has been very busy, touching all parts of
Halfords. The response of our colleagues has been
enthusiastic and heartening. Their engagement
with the many initiatives that Matt Davies and his
executive team have introduced has been infectious
and this has begun to have the desired effect:
increasingly engaged, well trained and committed
colleagues serve our customers better. There is still
a way to go but I would like to commence this letter
by thanking all of our c.12,000 colleagues for a job
well done.

Our mission is to Help and Inspire our Customers
with their Life on the Move. Each element of our
strategy, which has the customer at the forefront,
has been pursued with vigour in both our Retail
and Autocentres businesses. In essence, the thrust
of our strategy is: to bring about a step change in
the quality of our service offer to our customers by
investing in colleague training, staffing and capability;
reasserting our authority in our key product and
services categories; investing in our store and
Autocentres standards and estates and in our
systems; and creating a more contemporary and
competitive omnichannel offer. The report that follows
sets out the progress we are making and what still
needs to be done.

Transparent measurement of our progress is critical,
as is linking this to our remuneration and incentive
structures throughout the organisation. In the report
we have also set out in detail our Shareholder, Retail
and Autocentre KPIs and our performance this year
at pages 52 to 63. Progress has been encouraging.
However, most heartening has been the improvement
in our service delivery with customer response,
as measured by our Net Promoter Scores (NPS),
showing a significant and sustained improvement
across both businesses. Given where we were a year
ago this is particularly pleasing. Once again, there is
still some way to go.

The financial performance of Retail was better than
we had expected at the commencement of the
year. Retail sales of £803m were up 7.6% on a
like-for-like (LFL) basis with a stellar performance in
the Cycling category with LFL sales rising 19.4%.
Car Maintenance was up 4.9% and online sales,
primarily Click & Collect, rose a healthy 17.7%. Retail
gross margin was down as we cleared inventory,

12/06/2014 14:21:02

in may 2013 we set
out the GettinG into
Gear strateGy foR
ouR Retail Business
that we would PuRsue
and the GroWtH plans
foR ouR autocentRe
Business.

Halfords AR2014-Strategic Report.indd 11

STRATEGIC REPORT > OVERVIEW

CHAIRMAN’S LETTER CONTINUED

INVESTMENT IN
OUR STORES,
INFRASTRUCTURE AND
COLLEAGUES OF SOME
£100M OVER THE NEXT
THREE YEARS REMAINS
ON TRACK.

as planned, and due to the strong growth of the
lower-margin Cycling category. Retail operating costs
rose, commensurate with the significant investment
we made, and are making, in the training and
development of our colleagues, better colleague
store and centre coverage, higher activity levels and
increased incentives as most operational and strategic
milestones were reached. This resulted in Retail
operating profit of £75.2m for the year, up 2.2%.

Driving the progress and performance of the Retail
business is largely a new management team that
Matt brought together during the year. Andrew
Findlay (Finance & IT) and Jonathan Crookall
(People), who have been with the Company for
over three years, were joined by Rob Swyer (Retail/
Stores), Emma Fox (Commercial/Marketing/Digital)
and Jason Keegan (Supply Chain). The impact of the
new team has been immediate and effective.

The financial performance of Autocentres was
disappointing. Sales increased by 8.6%, boosted
by an increase of 23 to 303 centres during the year,
with LFL sales down 0.1%. Despite an increase in
gross margin, operating profit decreased £2.0m to
£4.3m. Midway through the year there was a change
in leadership and Andrew Findlay temporarily took
over the reins and successfully began a process
of gradual improvement. He has now handed over
the baton to Andy Randall who joined us in March
2014. The business is now travelling better than this
time last year and Andy will be given the time and
resource to get ‘under the bonnet’ of the business.
In November we will present a fresh view of the way
forward for Autocentres.

Investment in our stores, infrastructure and
colleagues of some £100m over the three years in
our Getting into Gear plan remains on track. In the
year, £30.4m of spend on stores, IT infrastructure
and on new Autocentres was outlaid, some
£12.0m more than the previous year. In addition, an
incremental investment of £17.0m in Retail inventory

to achieve the right levels and product ranges was
made. Despite these outlays and a one-off tax
payment of £21.0m, cash flow was once again
robust and net debt decreased to £99.6m with
gearing at a comfortable 1.0 times net debt:EBITDA.

Group underlying profit before tax of £72.8m
is marginally up on last year but exceeded our
expectations set out over a year ago. Earnings per
share (before non-recurring items) of 28.8p were up
4% and the Board is recommending a final dividend
of 9.1p, taking the total for the year to 14.3p. It is our
intention to maintain a c.2x dividend cover over the
medium term, growing full-year dividends broadly in
line with earnings per share.

One of the most truly inspiring aspects of the year
has been the involvement by colleagues at all levels
in a large number of community initiatives. For
example, a partnership was forged with Re~Cycle, a
charity that collects and ships second-hand bicycles
to community networks in Africa. There the bicycles
are repaired, thereby providing employment, and are
then made available to disadvantaged communities.
Through two events, customers responded
generously by donating over 10,000 of their old
bikes to this cause. Kids’ Holiday Bike Club events
were held in-store where children were taught how
to maintain their bikes and road safety; the response
was fantastic and over 20,000 children and parents
attended. Halfords has also been confirmed as the
Official Mechanics Partner for the 2014 Sky Ride
Big Bike series, spanning 14 events nationwide and
supporting over 100,000 cyclists this summer. There
were also many other local events and the buzz
that these community activities produce throughout
Halfords is tangible; it is no doubt that it was one of
the key factors that saw our colleagues vote Halfords
as one of the Top 25 Best Big UK Companies to
Work For.

Halfords AR2014-Strategic Report.indd 12

23157.04 Proof 7 10-06-2014

16/06/2014 16:29:49

BeloW

1 Enhanced car

maintenance product

promotion.

Improved layout in

refreshed store.

opposite
Enthusiasts increasingly

attracted to Halfords.

The new financial year has started positively and the
progress being made with all aspects of our strategy
continues apace. The ambitious targets we set at the
outset of the Getting into Gear Retail strategy remain
both valid and achievable.

Dennis Millard
Chairman
21 May 2014

It is a joy and a privilege to chair the Halfords Board
and to work with Matt and his team. It is therefore
with sadness that we say goodbye to Bill Ronald
and Keith Harris who leave the Board at the end
of May 2014 after 10 years’ service. Both joined at
the initial listing of Halfords in 2004 and have been
a source of much sound advice and support to me
and fellow Board members, for which I thank them.
It gives me pleasure to welcome Helen Jones who
joined the Board in March 2014. Helen is currently
a senior executive at Caffé Nero and, prior to that,
was CEO of the Zizzi Restaurants group and was
also responsible for successfully launching the Ben &
Jerry’s brand in the UK and Europe. She will provide
valuable brand positioning and marketing and
experience in managing multiple-outlet networks.

Read more
halfords.annualreport2014.com

12/06/2014 14:21:09

23157.04 Proof 7 10-06-2014halfords.annualreport2014.comstock code: hfdhalfords Group plcannual report and accounts 2014strateGic reportstrateGystrateGic reportoverviewstrateGic reportperformancestrateGic reportriskGovernancefinancialsshareholderinformationstrateGiC report > strateGy

CHief exeCutiVe’s introduCtion

tHe CyClinG
CateGory Was tHe
standout perforMer
thRouGhout the yeaR,
with lfl GroWtH of
19.4% ReflectinG
fuRtheR maRKet-shaRe
Gains.

halfords Retail delivered a strong
performance in the year as the
business repositions to offer a
significantly-enhanced customer
experience. the work undertaken
in areas such as stock availability,
product ranges and marketing was
accompanied by a material uplift in
investment.

The Retail categories are in better shape and the
Retail management team has been strengthened
by several key appointments. Getting into Gear
has got off to a busy start and the early signs are
encouraging; there will be much work to do over
the coming years. New leadership of Autocentres is
aligned with the Group’s service-based priorities so
that, in the fullness of time, Halfords will offer an even
better end-to-end customer experience.

suMMary of Group results
Halfords Retail produced a strong sales performance
with like-for-like (“LFL”) revenue growth of 7.6% and
online growth of 17.7% reflecting a number of factors
including improved stock availability, colleague
engagement, stronger product ranges and a more-
effective marketing approach. Average weather
conditions were also more favourable for Cycling
during the year. Despite improvements in the second
half that delivered 2.0% LFL sales growth, the
Autocentres performance did not reflect its market-
share potential over the full year, with FY14 revenues
increasing by 8.6%, accompanied by flat LFL sales;
new leadership of Autocentres was appointed at the
end of the year.

Sales of £939.7m were up 7.9% year-on-year and
up 6.5% on a LFL basis. Group gross margin fell by
110 basis points to 53.7%. Total operating costs rose
by 6.9% primarily as a result of the increase in store-
colleague investment and incentives. Investment in the
expansion of our Autocentres business continued as
the business added 20 centres (net). Group earnings
before finance costs, tax and non-recurring items
(“EBIT”) were £77.8m, which compares with £78.1m
in the prior year.

Earnings before non-recurring items, finance costs,
depreciation and amortisation (“EBITDA”) were down
2.3% to £101.1m. Profit before tax and non-recurring
items was £72.8m and earnings per share before
non-recurring items were 28.8p, up 1.1% and 4.0%
respectively.

Group inventory and capital expenditure continued
to be managed tightly, although the planned levels of
additional Retail stock to improve on-shelf availability
led to a 12.8% increase in Group inventories on the
prior period; Autocentres inventory was up £0.1m on
the prior year. Against the backdrop of a significant
uplift in investment and a one-off tax settlement of
£21.0m, the cashflow performance was robust with
free cashflow of £39.5m generated against £71.8m
in the prior year. Net debt at the end of the year was
down £11.0m at £99.6m, with a non-lease-adjusted
12-month net debt: EBITDA ratio of 1.0:1 versus
1.1:1 in the prior period.

The Board has recommended a final dividend of
9.1 pence per share (FY13: 9.1 pence), taking
the full-year dividend to 14.3 pence per share. If
approved, the final dividend will be paid on 1 August
2014 to shareholders on the register at the close of
business on 4 July 2014. In the light of the guidance
given twelve months ago, the Board will now look to
maintain a c.2× dividend cover over the medium

Halfords AR2014-Strategic Report.indd 16

12/06/2014 14:21:10

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014the Results
illustRate how
halfoRds is BeGinninG
to Build Both its
PRoPosition and
a siGnifiCantly-
enHanCed retail
CustoMer experienCe.

term, growing full-year dividends broadly in line with
earnings per share. Given the operating cash flow
profile of the business the Board also now anticipates
the ratio of future interim and final dividend payments
to move toward 30:70.

operational reVieW: retail
Sales were £803.1m, up 7.7% on the previous year
and 7.6% on an LFL basis.

In FY14 Cycling was the largest Retail category by
sales and was the standout performer throughout
the year. LFL growth of 19.4% reflected improved
execution, a successful Christmas for children’s bikes,
more-conducive weather conditions and sustained
interest in Cycling as a leisure activity. The cycle offer
was enhanced during the year, with refreshes of the
Apollo and Boardman ranges particularly engaging
customers. Representing over one third of premium-
cycle sales, Cycle-To-Work revenues grew by 14.8%.
Halfords also implemented a major acceleration of
its presence in the Cycling Parts, Accessories and
Clothing market (”PACs”). This activity was combined
with the appointment of additional Cycling capability,
including the creation of a Head of PACs role and, with
a more-effective marketing approach, every Cycling
sub-category grew, including 15.8% growth in PACs,
28.6% growth in Cycle Repair and 29.9% growth in
Premium Bike sales.

LFL sales of Car Maintenance products and services
grew by 4.9%. Sales in the second half were
hampered by mild winter conditions versus a cold
and snowy prior year. However the sale and fitting of
bulbs, blades and batteries (“3Bs”) again represented
the largest single element of the category and
growing demand emanated from the building of
awareness of the wefit service, this year via the TV
and radio ‘Cheaper than a Favour’ campaign.

Car Enhancement LFL revenues decreased by 0.1%.
Representing nearly a quarter of category sales, Car
Cleaning revenues grew by 13.7%, boosted by the
re-merchandising of the range to emphasise the
strength of Halfords’ branded offer. Key price points
were also targeted to improve value perception. Sat
Nav sales, down 8.1% in the year, continued to be
impacted by the effects of a structurally-declining
market, whilst Audio sales grew 1.1%.

Travel Solutions LFL revenues increased by 2.1%,
with additional clearance and more-compelling
offers driving improved sales of camping and travel-
equipment products.

Online Retail revenues grew by 17.7% and
represented 11.3% of total Retail sales (FY13:
10.3%). The growth was driven by the first phase of
Halfords.com’s relaunch in November 2013, leading
to substantially-increased conversion rates. Whilst
over half of online Retail sales were represented by
the Cycling category, a consistent 88% of online
orders were collected in store during the period.

In the year total in-store service income included
within all of the above categories increased by 17.4%
to £24.3m, with the majority of revenues flowing from
3Bs fitting and Cycle Repair.

operational reVieW: autoCentres
Total Autocentres revenues were up 8.6% and, on a
LFL basis, down 0.1%. Despite improvements in the
second half, this performance reflected operational
and market challenges the business faced. 23 new
Autocentres were opened and three were closed
in the year, taking the total number of Autocentre
locations to 303. Halfords is committed to the
continued investment in the Autocentres business to
secure medium-term growth, though the business
plans to refocus the centre-opening programme on
fewer and larger new centres. Halfords will continue to
close sub-optimal centres as a matter of course.

operational reVieW suMMary
The Halfords Retail performance was strong,
driven by self-help actions and, although weather
conditions were favourable for the Cycling category,
they were adverse for Car Maintenance. The results
illustrate how Halfords is beginning to build both
its proposition and a significantly-enhanced Retail
customer experience. With Autocentres focusing
on the enhancement of its service proposition,
underpinned by further investment, the business will
deliver a more consistent and engaging experience
for its Autocentre customers.

Halfords Business reVieW
Halfords’ mission is to Help and Inspire our
Customers with their Life on the Move within the
following categories: Supporting Drivers of Every
Car, Inspiring Cyclists of Every Age and Equipping
Families for their Leisure Time.

Equipping Families for their Leisure Time gives the
flexibility to extend the range, introduce innovative
products and leverage space. However the vast
majority of management’s focus is currently on Auto
and Cycling as these markets are significant and,
with strong execution, management anticipates
sustainable opportunities for growth.

The Retail strategy, Getting into Gear, is based on
the following five elements designed to significantly
enhance the customer experience:

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 the business
is proud of

4. 21st Century Infrastructure — systems and
infrastructure to support service and sales

5. Click with the Digital Future — creating a

service-led digital proposition

Halfords AR2014-Strategic Report.indd 17

12/06/2014 14:21:10

CHief exeCutiVe’s introduCtion Continued

iMaGes

1 Further wefit growth.

Improved customer

experience from our
Service Revolution.

3 Training fuels our
differentiated offer.

serViCe reVolution

Highlights include a new recruitment process that
involves centralised online application, telephone
screening, interviews in store with role play and an
in-store audition before an appointment is made.
Since launch nearly 55,000 applicants were screened
for around 1,000 vacancies. This new approach
significantly raised the quality of new colleagues.

The 3-Gears training programme was launched with
virtually all eligible colleagues having completed Gear 1
by the end of the year. A number of colleagues began
Gear 2 before the end of the year. 50% of colleagues
are anticipated to complete Gear 2 by March 2015.
Two colleagues per store will pass the Gear 3 guru
level by the end of FY16.

Colleague engagement is central to the Getting Into
Gear strategy, so it was particularly encouraging to see
an increase in the latest Group colleague engagement
survey score to 80% (FY13 77%). The result was
underpinned by the good news that Halfords was
recently voted as one of the 25 Best Big Companies
to Work For in the UK (see The Sunday Times Best
Companies To Work For 2014). These scores were
reflected in a rise in the Retail net promoter score to
72% from a run rate of around 55% in the prior year.

tHe ‘H’ faCtor

A revitalisation of the Retail product range was
enhanced by the appointment of a new Commercial
Director in September 2013. Examples of the refresh
in the period included upgraded ranges of Boardman
and Apollo cycles, trials of cycle finance in-store,
extended ranges online, the introduction of wearable
fitness technology and a revised private-label hierarchy
that included the new Halfords Essentials brand.

The business also focused on the balance between
third-party and private-label brands. The third-party
Tenn brand in Cycling clothing was introduced in
the period, whilst the upweighted focus on Kärcher
pressure washers compared against a reduced focus
on the Halfords-branded offer in Car Cleaning. Global
brands such as General Electric were also introduced
within the Car Maintenance category. Attention has
been paid to the execution of marketplace offers
at the front of store, as well the introduction of
interactive merchandising.

stores fit to sHop

Three refreshed stores were opened at the end of July
2013 wherein Halfords created a modern, engaging
and friendlier store environment that encourages
browsing and more interaction with colleagues. At the
period end, 27 stores were trading in the new format,
with a further c.50 stores planned for refresh in the new
financial year. The stores refreshed so far are delivering
results in line with management’s plans and investment
criteria. Halfords will continue improving its portfolio
of Cycling departments by the end of FY16 after 100
were refreshed in the period.

21st Century infrastruCture

A key focus within the Getting Into Gear programme
is infrastructure, particularly across IT systems and
capability. Examples of the progress made include
the upgrade to SAP, the core Retail operating system,
completed in May 2014. New chip & PIN pads in
store saved customers an average of 19 seconds
per transaction, and to help colleagues, the business
installed laptop computers in stores to make it easier
to progress through the 3-Gears training programme.
New VOIP technology across the store estate also
enabled colleagues to serve customers more effectively
and at reduced cost.

halfoRds cReated
a Modern, enGaGinG
and friendlier store
enVironMent that
encouRaGes BRowsinG
and moRe inteRaction
with colleaGues.

Halfords AR2014-Strategic Report.indd 18

12/06/2014 14:21:13

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014aWard WinninG year

We were finalists in the Business Charity Awards
in two categories: Charity Partnership – Retail
and Leisure; and CSR Team. The Business
Charity Awards are run by Third Sector magazine
to recognise the outstanding contribution made
by businesses in the UK to good causes.

We are also pleased to have been confirmed as
an International CSR Excellence Award winner,
in recognition of our commitment to community
and corporate social responsibility.

The appointment of a new Supply Chain Director was
followed by a trial to deliver more frequently to store,
benefitting stock availability and potentially saving a
significant element of courier cost related to the Click
& Collect proposition.

CliCk WitH tHe diGital future

The goal of Click with the Digital Future is to create
a much-improved online and omnichannel Retail
experience. Phase One of the website relaunch went
live in November 2013, with a different tone of voice
to make the website more emotionally engaging and
inspiring. A new home page included more-intuitive
navigation to help all customers find what they are
looking for more easily and with far fewer clicks. The
system of checkout was reshaped to help customers
complete their transaction more simply; this was
designed to reduce the risk of abandoned baskets.
Customers also now pay for their entire Click &
Collect transactions in store. Further enhancements
will be completed in due course, including social-
network interactions and upgraded ‘my account’
functionality.

autoCentres
The investment plan continued as new centres
were opened and the business looks to improve the
consistency of in-centre service. Expenditure was
directed to improving the infrastructure, from new
IT systems to more-efficient processing systems,
enabling more effective centre management. As service
is central to the Halfords strategy, colleague incentives
were changed in the year to embed customer-service
metrics, such as net promoter scores; colleague
engagement continued to improve this year.

This customer-centric plan is vital as the business
extends its differentiation from key competitors.
Autocentres will also better leverage the relationship
with the Retail stores. Andy Randall was appointed
in March 2014 to lead the business and is focused
on delivering a significantly-enhanced experience for
Autocentre customers.

CoMMunity enGaGeMent
This was the first year of a major step-up in activity
designed to leverage Halfords’ specialist credentials in
local areas through community engagement.

In FY14 over 20,000 children and parents attended a
Kids’ Bike Workshops in store to learn the basics of
how to look after their bike, with 97% of parents likely
to recommend the summer workshop to others. In
FY15, together with the Easter holiday, stores will run
the workshop in the summer and during the October
half-term week, promoted through schools and links
with children’s organisations such as UK Youth and
Children’s University. Halfords now partners with the
Scouts Association and supports the Cub Cyclist
Activity badge. Building on this success, Halfords will
also offer a tailored workshop in schools, focused on
year-six pupils as they progress through Bikeability
(formerly called cycling proficiency), as well as teachers
seeking additional life skills to support their pupils’
transition to senior school.

The partnership with Re~Cycle (the charity that sends
unwanted bikes to Africa) went from strength to
strength. In FY14 Halfords helped Re~Cycle double
the number of containers sent to Africa through the

world’s largest bike trade-in event, with over 10,000
unwanted bikes donated at Halfords stores, diverting
over 150 tonnes of waste to a sustainable alternative
and generating £1.5m in new bike sales. In addition
to more trade-in events in FY15, Halfords will also
trial accepting bike donations at over 75 stores and
will continue fundraising to support the £10 it costs
to send a bike to Africa, with over £90,000 raised so
far. In FY15 stores will also receive ‘community’ hours
to support additional local-community activity, helping
them to build closer relationships with their local
communities.

Halfords has also been confirmed as the Official
Mechanics Partner for the 2014 Sky Ride Big Bike
series, spanning 14 events nationwide and supporting
over 100,000 cyclists this summer. These free one-day
events offer cyclists of all ages and abilities the chance
to ride their bike on traffic-free streets or on cycle
paths and parks in the heart of towns and cities across
Britain. Halfords cycle mechanics will be a key part of
the day, keeping cyclists on the move assisting with
essential adjustments, cabling and tube replacements.

Halfords is also trialling a Cycle Repair Academy in
Onley Prison, where a number of prisoners close to
their release dates are being trained as bike mechanics
with a view to being employed in Halfords stores, once
released. This programme will provide Halfords with
potentially very loyal, trained and motivated colleagues
whilst at the same time supporting the broader goal of
rehabilitation of offenders.

Current aCtiVity
As Halfords becomes more of a Cycling business in the
first half of the year, a Summer Of Cycling lies ahead,
with major launches imminent within the Halfords
cycle range. The fastest growing and second-largest
volume brand in the range, Carrera, will undergo a
complete refresh in the summer. I am particularly
pleased to see Kona and Mongoose, two formidable
global Cycling brands, added to our growing list of
superb cycle options. The Pinarello brand of cycles will
soon be available at 43 stores with around 50 models
onlin today. These launches will coincide with a busy
summer of Cycling events, with the recent Giro d’Italia
Big Start in Belfast, the Tour de France’s Le Grande
Départ in Yorkshire in July and the Commonwealth
Games in Glasgow in July and August.

Halfords Retail’s auto business also has a busy period
ahead, with the launch of Car Parts Direct by the end
of summer 2014, wherein around 130,000 car-part
SKUs will be available for prompt pick-up at Halfords
stores or through home delivery. A number of smaller
accretive opportunities will be progressed, including
the sale of powersport and leisure batteries, the sale
online of car registration plates as well as the ranging of
scooter helmets.

On behalf of the Board, I would like to thank all
colleagues for their immense contribution and
commitment to the progress of Halfords and the
implementation of the plan to reposition the
business. It has been a pleasure to work with you over
the past year.

Matt Davies
Chief Executive
21 May 2014

Halfords AR2014-Strategic Report.indd 19

12/06/2014 14:21:13

RePositioninG to offeR
a siGnifiCantly-enHanCed
CustoMer experienCe.

Halfords AR2014-Strategic Report.indd 20

12/06/2014 14:21:15

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014retail
halfords Retail employs approximately 9,000
colleagues and sells around 9,000 product lines
in store with significant ranges in car parts, in-car
technology, child seats, cycling, roof boxes, outdoor
leisure and camping equipment. halfords Retail
trades from 465 retail stores located throughout
the uK and the Roi and online through
halfords.com and halfords.ie websites.

autoCentre
halfords autocentres employs approximately 3,000
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 303 car servicing
centres located in the united Kingdom and online
through halfordsautocentres.com.

turnoVer
£803.1m

operatinG profit (before non-recurring items)
£75.2m

turnoVer
£136.6m

operatinG profit
£4.3m

Read more
halfords.annualreport2014.com

12/06/2014 14:22:28

23157.04 Proof 6 10-06-2014halfords.annualreport2014.comstock code: hfdhalfords Group plcannual report and accounts 2014strateGic reportstrateGystrateGic reportoverviewstrateGic reportperformancestrateGic reportriskGovernanceFinancialsshareholderinFormationstrategic rePort > Performance

shareholder kPis

KPI

Underlying Profit

Definition

Commitment

Annual Performance

2010

2011

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

Group revenues were up 7.9% year-on-year, however Group gross

£117.1m

£125.6m

margin fell by 110 basis points and operating costs rose by 6.7%. This

and the continued investment in another 20 autocentres meant that

underlying profit rose by 1.1% year-on-year.

2012

£92.2m

2013

£72.0m

2014

£72.8m

Underlying Earnings per Share

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

EBITDA

Earnings before Interest, Tax, Depreciation and Amortisation

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 Board considers that this measurement of profitability
is a viable alternative to underlying profit and uses this
measure to incentivise management.

As a result of the increase in underlying profit before tax EPS rose by

39.7p

43.2p

33.7p

27.7p

c.4%.

The reduction in Group EBITDA is as a result of a £2m reduction in

£143.8m

£153.2m

£123.6m

£103.4m £101.1m

Autocentres operating profits.

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.

The Board has recommended a final dividend of 9.1 pence per share

20.0p

22.0p

17.1p

Total Revenues

Total sales revenues from all business activities

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

Net Debt

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

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

Free Cash Flow

Cash generated from activities, less taxation, capital
expenditure and net finance costs

The Group has a track record of robust cash generation
which the Board intends to continue.

(FY13: 9.1 pence). The Board continues to recognise the importance

of dividends but believes that such dividends should be prudently

covered by earnings and will continue to maintain a c.2× dividend

cover over the medium term.

At £939.7m Group revenues were up 7.9% year-on-year. Retail

£831.6m

£869.7m

£863.1m

£871.3m £939.7m

revenues at £803.1m were up 7.7%, whilst Autocentres revenues at

£136.6m were up 8.6%.

The Group has continued its strong track record of operating cash

£155.5

£103.2m

£139.2m

£110.6m

generation.

Free cash flow FY14 is stated after a one-off tax payment of £21.0m

142.8m

£96.4m

£70.4m

£71.8m

in order to settle prior year tax laibilities and also reflects continued

capital investment.

28.8p

14.3p

£99.6m

£39.5m

images

Improved signage and

displays in refreshed

stores.

Halfords AR2014-Performance.indd 52

12/06/2014 14:22:32

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014www.halfords.annualrePort2014.com
stock code: hfd

halfords grouP Plc
annual rePort and accounts 2014

KPI

Definition

Commitment

Annual Performance

Underlying Profit

Measures the normal underlying performance of the

The Board considers that this measurement of profitability

business after removing non-recurring items

provides stakeholders with information on trends and

Group revenues were up 7.9% year-on-year, however Group gross
margin fell by 110 basis points and operating costs rose by 6.7%. This
and the continued investment in another 20 autocentres meant that
underlying profit rose by 1.1% year-on-year.

2010

2011

£117.1m

£125.6m

2012

£92.2m

2013

£72.0m

2014
£72.8m

Underlying Earnings per Share

Underlying profits as defined above divided by the number

EPS is a measure of our investment thesis and as such we

of shares in issue

aim to manage revenues and margins and invest in long-

As a result of the increase in underlying profit before tax EPS rose by
c.4%.

39.7p

43.2p

33.7p

27.7p

28.8p

performance

term growth.

EBITDA

Earnings before Interest, Tax, Depreciation and Amortisation

The Board considers that this measurement of profitability

The reduction in Group EBITDA is as a result of a £2m reduction in
Autocentres operating profits.

£143.8m

£153.2m

£123.6m

£103.4m £101.1m

is a viable alternative to underlying profit and uses this

measure to incentivise management.

Dividend per Ordinary Share

Cash returned to shareholders as a return on their

To maintain this policy whilst retaining the flexibility to invest

investment in the Company

when opportunities are identified.

Total Revenues

Total sales revenues from all business activities

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

trading activities.

The Board has recommended a final dividend of 9.1 pence per share
(FY13: 9.1 pence). The Board continues to recognise the importance
of dividends but believes that such dividends should be prudently
covered by earnings and will continue to maintain a c.2× dividend
cover over the medium term.

At £939.7m Group revenues were up 7.9% year-on-year. Retail
revenues at £803.1m were up 7.7%, whilst Autocentres revenues at
£136.6m were up 8.6%.

20.0p

22.0p

17.1p

14.3p

£831.6m

£869.7m

£863.1m

£871.3m £939.7m

Net Debt

Bank debt plus finance leases, less cash and cash

The Group remains strongly cash generative and continues

equivalents both in-hand and at bank

to invest in the business. The Board is committed to

The Group has continued its strong track record of operating cash
generation.

£155.5

£103.2m

£139.2m

£110.6m

£99.6m

maintaining an efficient balance sheet, returning any surplus

capital not required to fund growth to shareholders.

Free Cash Flow

Cash generated from activities, less taxation, capital

The Group has a track record of robust cash generation

expenditure and net finance costs

which the Board intends to continue.

Free cash flow FY14 is stated after a one-off tax payment of £21.0m
in order to settle prior year tax laibilities and also reflects continued
capital investment.

142.8m

£96.4m

£70.4m

£71.8m

£39.5m

images

Improving attachment

rates through

presentation and

training.

Halfords AR2014-Performance.indd 53

12/06/2014 14:22:38

retail kPis

KPI

Definition

Strategy

Execution

Commitment

Annual Performance

Like-for-like sales

Like-for-like-sales represent revenues
from stores trading for greater than 365
days and include revenues denominated
in foreign currencies translated at
constant rates of exchange

Gross Profit Percentage

Gross Profit expressed as a percentage
of Sales

Gross Profit

Gross Profit expressed as actual GBPs

Underlying EBITDA

Earnings before Interest, Tax,
Depreciation and Amortisation

In-store Services

The stores offer a fitting/repair service
when customers purchase replacement
products such as car bulbs, windscreen
wiper blades and batteries (3Bs)

In-store Service Income

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

Stores Trading in a
Refreshed Format

The layout and offering within our stores
is important as the 2-formats of choice
(superstore and compact) allow us to
reach both large and small catchment
areas

Underlying 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
Click & Collect and Direct Delivery

% of Web Customers
Visiting Stores

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

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Service Revolution

Store Portfolio

Proposition

Store Portfolio

Proposition

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Digital Future

Proposition

Infrastructure

Digital Future

Proposition

Infrastructure

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 generation.

The Board considers this
measurement of profitability a
viable alternative to underlying
profit and uses this measure to
incentivise management.

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: Click & 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.

Halfords AR2014-Performance.indd 54

12/06/2014 14:22:40

Retail sales performance in FY14 was up 7.6% on a LFL basis and

within our three categories of Auto, Cycling and Leisure, the Cycling

category was the standout performer throughout the year with LFL

growth of 19.4%.

2010

+1.3%

2011

-5.5%

2012

-2.3%

2013

-0.7%

2014

+7.6%

The outstanding performance of the lower average margin Cycling

54.4%

54.5%

53.1%

53.3%

category and improved stock clearance diluted gross margin by

144 basis points.

£443.8m

£420.0m

£399.8m

£397.0m £416.2m

EBITDA was 1.1% down year-on-year. The increase in revenues of

£143.1m

£144.9m

£114.6m

£94.6m

7.7% was offset by a 144 basis point reduction in gross margin and a

5.4% increase in operating costs.

51.8%

£93.6m

4.46m

We have invested in our 3-Gears training programme and in payroll

2.35m

2.54m

2.98m

3.93m

and national marketing to fulfil the demand and make more customers

aware of our unique offer and we increased the number of jobs by

13.5% year-on-year.

We have invested in our 3-Gears training programme and in payroll

£11.7m

£12.4m

£15.2m

£20.7m

£24.4m

and national marketing to fulfil the demand and make more customers

aware of our unique offer, increasing revenues by 17.9% year-on-year.

During the year we have introduced a new format to our stores.

Creating a modern, engaging and friendly store environment that

encourages browsing and interaction with colleagues. We plan to roll

out this new format to other stores in FY15.

The slight reduction of 90 basis points was driven a 5.4% increase

40.0%

38.4%

40.8%

43.4%

42.5%

in operating costs. Costs rose primarily as a result of the increase in

store-colleague investment and incentives.

Online sales grew by 17.7% to c.£90m reflecting a an increase in

6.4%

9.2%

8.9%

10.2%

11.3%

online penetration to 11.3%. This was driven by the new website

design and the enhanced product, service and How To Guides. New

features were also added to complement our Cycling category.

Continued improvements in the range of products offered online,

77%

85%

86%

88%

91%

delivery times and improved availability has led to 91% of online orders

now being collected in-store, providing more opportunities for store

colleagues to engage with online customers.

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014KPI

Definition

Strategy

Execution

Commitment

Annual Performance

Like-for-like sales

Like-for-like-sales represent revenues

Service Revolution

We are committed to

from stores trading for greater than 365

days and include revenues denominated

in foreign currencies translated at

constant rates of exchange

Retail sales performance in FY14 was up 7.6% on a LFL basis and
within our three categories of Auto, Cycling and Leisure, the Cycling
category was the standout performer throughout the year with LFL
growth of 19.4%.

2010

+1.3%

2011

-5.5%

2012

-2.3%

2013

-0.7%

2014

+7.6%

Gross Profit Percentage

Gross Profit expressed as a percentage

Service Revolution

of Sales

Gross Profit

Gross Profit expressed as actual GBPs

Underlying EBITDA

Earnings before Interest, Tax,

Depreciation and Amortisation

In-store Services

The stores offer a fitting/repair service

Service Revolution

Expert knowledge, advice and

The outstanding performance of the lower average margin Cycling
category and improved stock clearance diluted gross margin by
144 basis points.

54.4%

54.5%

53.1%

53.3%

51.8%

£443.8m

£420.0m

£399.8m

£397.0m £416.2m

EBITDA was 1.1% down year-on-year. The increase in revenues of
7.7% was offset by a 144 basis point reduction in gross margin and a
5.4% increase in operating costs.

£143.1m

£144.9m

£114.6m

£94.6m

£93.6m

We have invested in our 3-Gears training programme and in payroll
and national marketing to fulfil the demand and make more customers
aware of our unique offer and we increased the number of jobs by
13.5% year-on-year.

2.35m

2.54m

2.98m

3.93m

4.46m

In-store Service Income

The sales revenue generated from all our

Service Revolution

Expert knowledge, advice and

We have invested in our 3-Gears training programme and in payroll
and national marketing to fulfil the demand and make more customers
aware of our unique offer, increasing revenues by 17.9% year-on-year.

£11.7m

£12.4m

£15.2m

£20.7m

£24.4m

when customers purchase replacement

products such as car bulbs, windscreen

wiper blades and batteries (3Bs)

fitting and repair services, including the

sale of Bike Care Plans

Stores Trading in a

The layout and offering within our stores

Refreshed Format

is important as the 2-formats of choice

Store Portfolio

Proposition

(superstore and compact) allow us to

reach both large and small catchment

areas

During the year we have introduced a new format to our stores.
Creating a modern, engaging and friendly store environment that
encourages browsing and interaction with colleagues. We plan to roll
out this new format to other stores in FY15.

Underlying Costs (as a

Operating expenses from the Retail

% of sales)

business activities expressed as a

percentage of sales

Service Revolution

We are committed to an

The slight reduction of 90 basis points was driven a 5.4% increase
in operating costs. Costs rose primarily as a result of the increase in
store-colleague investment and incentives.

40.0%

38.4%

40.8%

43.4%

42.5%

Online Sales (as a % of

Sales enacted via the web, through

Total Revenue)

Click & Collect and Direct Delivery

% of Web Customers

% of online sales using the

Visiting Stores

Click & Collect offer and visiting

stores after researching online

Online sales grew by 17.7% to c.£90m reflecting a an increase in
online penetration to 11.3%. This was driven by the new website
design and the enhanced product, service and How To Guides. New
features were also added to complement our Cycling category.

6.4%

9.2%

8.9%

10.2%

11.3%

Continued improvements in the range of products offered online,
delivery times and improved availability has led to 91% of online orders
now being collected in-store, providing more opportunities for store
colleagues to engage with online customers.

77%

85%

86%

88%

91%

Halfords AR2014-Performance.indd 55

12/06/2014 14:22:40

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Proposition

Store Portfolio

Digital Future

Proposition

Infrastructure

Digital Future

Proposition

Infrastructure

Digital Future

Proposition

Infrastructure

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 generation.

The Board considers this

measurement of profitability a

viable alternative to underlying

profit and uses this measure to

incentivise management.

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.

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.

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: Click & 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.

autocentre kPis

KPI

Definition

Strategy

Execution

Commitment

Annual Performance

Like-for-like sales

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

Gross Profit Percentage

Gross Profit expressed as a percentage
of Sales

Gross Profit

Gross Profit expressed as actual GBPs

EBITDA

Earnings before Interest, Tax, Depreciation
and Amortisation

Number of Centres

The number of Autocentre servicing
centres within the UK

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Service Revolution

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Proposition

Jobs per Productive per
Week (“jpppw”)

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

Service Revolution

Proposition

Online Bookings

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

Digital Future

Proposition

Infrastructure

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

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

The Board considers that this
measurement of profitability is a
viable alternative to underlying
profit and uses this measure to
incentivise managements.

Our research on the geography
and demographics of the £9bn
Car Servicing and repair market
and of our local catchment sizes
shows that there is scope for up
to 600 autocentres.

We aim to increase sales in
existing centres and make
use of spare capacity in our
technicians. We believe that we
can raise jpppw to c.17, without
needing to obtain more fixed
cost labour.

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

Although LFL sales declined by 0.1%, total revenues were up 8.6%.

This performance reflected operational and market challenges faced by

the business.

2010

+3.4%

2011

-0.6%

2012

+6.1%

2013

+7.0%

2014

-0.1%

Gross profit was up on the prior year driven by a reduced reliance on

affiliate-driven tyre sales and stronger core Service, MOT and Repair

margins.

66.0%

65.9%

63.7%

£8.8m

£65.0m

£73.0m

£80.1m

64.4%

£88.0m

represents c.6

weeks of

Halfords

ownership

£0.7m

weeks of

Halfords

ownership

represents c.6

EBITDA was down year-on-year because revenue growth was

outweighed by operating costs and investments made for future

growth.

£8.3m

£9.0m

£8.8m

£7.5m

As we expected we opened 23 new sites opened in the year and

closed three. There is a healthy pipeline for the future and we expect to

open a further 10-15 over the next year.

224

240

260

283

We continue to utilise capacity within our centres with additional

Service/Mechanical/Repair work as well as growing the tyre mix.

13.7

13.8

14.7

16.0

303

17.2

We continue to invest in our online presence with a new site launched

July 2013 with a much improved customer experience and advice

centre.

111,261

138,954

199,524

216,875 248,465

Halfords AR2014-Performance.indd 56

12/06/2014 14:22:41

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014 Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Digital Future

Proposition

Infrastructure

Store Portfolio

Proposition

maximising our like-for-like

sales opportunities in whatever

economic environment we find

ourselves.

Gross Profit is an important

indicator of the Company’s

financial performance. Within

the business we focus on

maximising cash generation.

measurement of profitability is a

viable alternative to underlying

profit and uses this measure to

incentivise managements.

Our research on the geography

and demographics of the £9bn

Car Servicing and repair market

and of our local catchment sizes

shows that there is scope for up

to 600 autocentres.

We aim to increase sales in

existing centres and make

use of spare capacity in our

technicians. We believe that we

can raise jpppw to c.17, without

needing to obtain more fixed

cost labour.

Enhancing our online offer

and further extending our online

presence through both

halfords.com and

halfordsautocentres.com is a

Group investment priority.

KPI

Definition

Strategy

Execution

Commitment

Annual Performance

Like-for-like sales

Like-for-like sales represent revenues from

Service Revolution

We are committed to

centres trading for more than 12 months

Although LFL sales declined by 0.1%, total revenues were up 8.6%.
This performance reflected operational and market challenges faced by
the business.

2010

+3.4%

2011

-0.6%

2012

+6.1%

2013

+7.0%

2014
-0.1%

Gross Profit Percentage

Gross Profit expressed as a percentage

Service Revolution

of Sales

Gross Profit

Gross Profit expressed as actual GBPs

Gross profit was up on the prior year driven by a reduced reliance on
affiliate-driven tyre sales and stronger core Service, MOT and Repair
margins.

EBITDA

Earnings before Interest, Tax, Depreciation

Service Revolution

The Board considers that this

and Amortisation

EBITDA was down year-on-year because revenue growth was
outweighed by operating costs and investments made for future
growth.

66.0%

65.9%

63.7%

£65.0m

£73.0m

£80.1m

64.4%

£88.0m

£8.3m

£9.0m

£8.8m

£7.5m

£8.8m
represents c.6
weeks of
Halfords
ownership

£0.7m
represents c.6
weeks of
Halfords
ownership

Number of Centres

The number of Autocentre servicing

centres within the UK

As we expected we opened 23 new sites opened in the year and
closed three. There is a healthy pipeline for the future and we expect to
open a further 10-15 over the next year.

224

240

260

283

Jobs per Productive per

Total jobs undertaken by the Centres

Week (“jpppw”)

divided by the average number of

productive technicians and apprentices

Service Revolution

Proposition

We continue to utilise capacity within our centres with additional
Service/Mechanical/Repair work as well as growing the tyre mix.

13.7

13.8

14.7

16.0

303

17.2

Online Bookings

The number of service bookings made via

halfordsautocentres.com against those

made direct with the Centres

Digital Future

Proposition

Infrastructure

We continue to invest in our online presence with a new site launched
July 2013 with a much improved customer experience and advice
centre.

111,261

138,954

199,524

216,875 248,465

Halfords AR2014-Performance.indd 57

12/06/2014 14:22:41

chief financial officer’s rePort

Group rEvEnuE in
fY14, at £939.7m,
was up 7.9%.

rePortable segments
Halfords Group operates through two reportable
business segments:

Halfords Retail, operating in both the UK and

Republic of Ireland; and

Halfords Autocentres, operating solely in the UK.

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

financial results

Group Revenue

Group Gross Profit

Group EBIT*

Group EBITDA**

Net Finance Costs

Profit Before Tax and non-recurring items

Profit Before Tax, after non-recurring items

The FY14 accounting period represents trading for
the 52 weeks to 28 March 2014 (“the year”). The
comparative period FY13 represents trading for the
52 weeks to 29 March 2013 (“the prior year”). All
items in this report are shown before non-recurring
items unless otherwise stated.

FY14
£m

939.7

504.2

77.8

101.1

(5.0)

72.8

72.6

FY13
£m

871.3

477.1

78.1

103.4

(6.1)

72.0

71.0

Change

+7.9%

+5.7%

-0.4%

-2.3%

-18.0%

+1.1%

+2.3%

* EBIT denotes earnings before net finance costs, tax and non-recurring items

** EBITDA denotes earnings before net finance costs, tax, depreciation, amortisation and non-recurring items

Halfords AR2014-Performance.indd 58

12/06/2014 14:22:43

23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014www.halfords.annualrePort2014.com
stock code: hfd

halfords grouP Plc
annual rePort and accounts 2014

CYClinG lfl rEvEnuEs
wErE up 19.4%
rEflECtinG improvEd
ExECution and
sustainEd intErEst in
CYClinG as a lEisurE
aCtivitY.

Group revenue in FY14, at £939.7m, was up 7.9%
and comprised Retail revenue of £803.1m and
Autocentres revenue of £136.6m. This compared to
FY13 Group revenue of £871.3m, which comprised
Retail revenue of £745.5m and Autocentres revenue
of £125.8m. Group gross profit at £504.2m (FY13:
£477.1m) represented 53.7% of Group revenue
(FY13: 54.8%), reflecting a decrease in the Retail
gross margin of 144 basis points (“bps”) to 51.8%
and an increase in the Autocentres gross margin of
78 bps to 64.4%.

Total Operating Costs before non-recurring items
increased to £426.4m (FY13: £399.0m) of which
Retail represented £341.0m (FY13: £323.4m),
Autocentres £83.7m (FY13: £73.8m) and unallocated
costs £1.7m (FY13: £1.8m). Unallocated costs
represent amortisation charges in respect of
intangible assets acquired through business
combinations (the acquisition of Nationwide

halfords retail

Autocentres Ltd in February 2010), which arise on
consolidation of the Group.

Group EBITDA fell 2.3% to £101.1m (FY13:
£103.4m), whilst net finance costs were £5.0m
(FY13: £6.1m).

Group Profit Before Tax and non-recurring items for
the year was up 1.1% at £72.8m (FY13: £72.0m).

Net non-recurring expenses of £0.2m (2013: £1.0m)
during the year represented asset impairment costs
of £0.4m to support the Stores Fit To Shop initiative
and non-recurring income of £0.2m from the partial
release of the Focus lease guarantee provision,
recognised as a non-recurring cost in FY11, resulting
from better than anticipated settlements.

Group Profit Before Tax in the year after non-
recurring items was £72.6m (FY13: £71.0m).

Revenue

Gross Profit

Gross Margin

Operating Costs

EBIT before non-recurring items

Non-recurring expense

EBIT after non-recurring items

EBITDA before non-recurring items

FY14
£m

803.1

416.2

51.8%

(341.0)

75.2

(0.2)

75.0

93.6

FY13
£m

745.5

397.0

53.3%

(323.4)

73.6

(1.0)

72.6

94.6

Change

+7.7%

+4.8%

-144bps

-5.4%

+2.2%

-80.0%

+3.3%

-1.1%

Revenue for the Retail business of £803.1m
reflected, on a constant-currency basis, a like-for-
like (“LFL”) sales increase of 7.6%. Non-LFL stores
contributed £3.5m revenue in the year, with total
revenue increasing 7.7%.

(”3Bs”). Mild-winter weather conditions impacted
demand for winter maintenance products and 3Bs,
although the number of 3B fits was up 11.5% in the
year with 3B-fitting revenues making up 49.6% of
total in-store service income.

Cycling LFL revenues were up 19.4% reflecting
improved execution, sustained interest in Cycling as
a leisure activity, a successful Christmas for children’s
bikes, cycle-range refreshes and the benefit of
focused marketing, driving strong premium-bike
and accessory sales; Cycle Repair LFL revenues
increased by 28.6%. The category also benefitted
from favourable weather conditions compared to the
prior year.

Car Maintenance LFL revenues sales increased by
4.9% in the year supported by the strong momentum
in the fitting and sale of bulbs, blades and batteries

Car Enhancement LFL revenues were down 0.1%.
Car Cleaning sales were up 13.8% supported by
better merchandising to emphasise the strength of
the Halfords branded offer. Audio continued to grow,
this time by 1.1%. Although the Sat Nav category
remained challenged, with sales down 8.1%,
Halfords’ value share in the 12 months to March was
maintained.

Travel Solutions LFL revenues increased by 2.1%,
with enhanced-clearance activity and more-
compelling offers driving improved sales of camping
and travel equipment.

Revenues for the Retail business are split by category below.

Cycling

Car Maintenance

Car Enhancement

Travel Solutions

Total

Halfords AR2014-Performance.indd 59

FY14
(%)

32.8

31.8

23.1

12.3

100.0

FY13
(%)

29.6

32.6

24.9

12.9

100.0

12/06/2014 14:22:43

chief financial officer’s rePort continued

Gross profit for thE
rEtail businEss at
£416.2m (fY13: £397.0m).

Gross profit for the Retail business at £416.2m
(FY13: £397.0m) represented 51.8% of sales, 144
bps down on the prior year (FY13: 53.3%), in line
with guidance. Higher sales volumes in lower-
margin premium bikes, the launch of third-party
branded Cycling parts, accessories and clothing
(“PACs”), along with the impact of a mild winter on
the higher-margin Car Maintenance category drove
the reduction in margin, as did a more aggressive
clearance and promotional approach across the
categories.

Management anticipates a 25-75 bps decrease in
Retail gross margin in FY15, primarily reflecting the
mix effect emanating from the disproportionate

strength of the lower-margin Cycling category.
The decline is also a result of a switch of various
cycle supplies to Halfords from duty-free Cambodia
to Vietnam. This move has been designed to
assure supply, given ongoing and increasing levels
of significant industrial action in Cambodia. The
demand for cash-accretive, margin-dilutive products
such as PACs and flat wiper blades will continue
whilst management will focus on the pricing of the
Halfords wiper-blade offer as well as dozens of key-
value-indicator products.

Operating Costs before non-recurring items were
£341.0m (FY13: £323.4m), up 5.4% on the prior
year and in line with guidance. The breakdown is set
out below:

Store Staffing

Store Occupancy

Warehouse & Distribution

Support Costs

Total Operating Costs before non-recurring
items

Strong trading volumes led to incremental investment
in store hours and increased incentive payments.
These, plus the uplift in national minimum wages
contributed to the increase in Store Staffing costs by
8.6%. The impact of the 3-Gears training programme
on Store Staffing costs this year was immaterial. With
an increase in minimum weekly-contracted hours,
the number of Retail colleagues fell by around 1,000
during the year to around 9,000, although there
was a material increase in the number of full-time
equivalent colleagues.

Store Occupancy costs decreased by 0.3% year on
year. Inflationary increases in utilities and investment
in store repairs were offset by continued savings
from rent negotiations and surrender payments, plus
depreciation, given the profile of the store portfolio.

Warehouse & Distribution costs increased by 18.2%
driven by the surge in store and, in particular, online
volumes, as well as increases in transport and utility
costs. A number of service-focused trials were
executed during the year, including out-of-hours
deliveries and more-frequent store deliveries. The
cut-off time in relation to the online Click & Collect
proposition recently moved from 3pm the day before
to 6pm.

halfords autocentres

Revenue

Gross Profit

Gross Margin

Operating Costs

EBIT

EBITDA

FY14
£m

92.4

139.7

33.7

75.2

341.0

FY13
£m

85.1

140.1

28.5

69.7

Change

+8.6%

-0.3%

+18.2%

+7.9%

323.4

+5.4%

Support Costs rose by 7.9%. This reflected
increased activity associated with the change
programmes Click with the Digital Future and 21st
Century Infrastructure as well as the launch of both
the extended PACs range and the enhanced Retail
website. The increase also reflected the up-weighted
marketing investment to support higher sales
volumes. Increases in payroll costs, reflecting the
annualisation of headcount increases in FY13 and
the strengthening of the senior management team
were offset by savings in recruitment costs following
the move to bring recruitment of store colleagues in-
house. Given the performance of the business over
the period, incremental colleague incentive payments
were accrued for payment.

Management anticipates a 4-5% increase in Retail
operating costs in FY15. A significant proportion of
this increase is dependent on volumes/performance.
Major investments will include Store Labour costs
associated with potential increased volumes as
well the pay award as part of the 3-Gears training
programme. Increased volumes have the potential
to inflate Warehouse & Distribution costs and
depreciation is set to increase, given the material
uplift in capital expenditure versus prior periods.
One-off operating cost investments in c.50 refreshed
stores in FY15 will also be notable.

FY14
£m

136.6

88.0

64.4%

(83.7)

4.3

7.5

FY13
£m

125.8

80.1

63.7%

(73.8)

6.3

8.8

Change

+8.6%

+9.7%

+78 bps

+13.4%

-31.7%

-14.8%

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014www.halfords.annualrePort2014.com
stock code: hfd

halfords grouP Plc
annual rePort and accounts 2014

image

Engaging and fun

place to shop in

refreshed stores.

thE Group portfolio
at thE End of thE YEar
ComprisEd 465 storEs
and 303 autoCEntrEs

There were no non-recurring items related to the
Autocentres business in either year presented.

Autocentres generated total revenues of £136.6m
(FY13: £125.8m), an increase of 8.6% on the prior
year with a LFL revenue decline of 0.1%. This
performance reflected the operational and market
challenges faced by the business. LFL tyre revenues
increased by 4.7% and represented 16.0% of total
LFL revenues. Online-booking revenues in the year
grew 43.7% versus the prior period.

Gross profit at £88.0m (FY13: £80.1m) represented
a gross margin of 64.4% against a prior-year margin
of 63.7% driven by reduced reliance on affiliate-
driven tyre sales and stronger core Service, MOT
and Repair margins, underpinned by consistent
improvements in parts buying.

by operating costs and the investments made
for future growth. Operating costs increased due
to the centre-opening programme together with
the ongoing expansion of the support structure.
Halfords is committed to the continued investment
in the Autocentres business to secure medium-term
growth, though the business plans to slow down
the centre-opening programme from the prevailing
20–30 new centres per year to 10–15 in the medium
term by opening fewer, larger centres.

On the basis of an anticipated material uplift in LFL
sales, management anticipates Autocentres’ EBITDA
to increase in FY15.

Portfolio management
The Retail store portfolio at the end of the year
comprised 465 stores (end of FY13: 466).

Autocentres’ EBIT was down 31.7% at £4.3m (FY13
£6.3m) as a result of revenue growth outweighed

The following table outlines the changes in the Retail
store portfolio over the year:

Relocated

Re-gears

Downsizes

Openings

Closed

Number

Stores

Newport , Weston-Super-Mare

South Shields, Telford, Wakefield, Trowbridge, Dewsbury,
Doncaster, Oldham, Edinburgh (Leith),
Waterlooville, Stoke (Fenton), Grantham, Torquay, Bangor

Cardiff (Newport Road), Cannock, Chadwell Heath,
Eastbourne

Sky headquarters (Osterley)

Felixstowe, Glasgow Shettlestone

A number of further rightsizes and relocations will be completed in due course, including Altrincham, Bedford, Perth, Workington

and Thanet (Margate).

23 new Autocentres were opened and three (Croydon, Preston and Ilford) were closed in the year, taking the
total number of Autocentre locations to 303 as at 28 March 2014.

With the exception of nine long leasehold and two freehold properties within Autocentres, the Group’s
operating sites are occupied under operating leases, the majority of which are on standard lease terms,
typically with a 5 to 15-year term at inception and with an average lease length of c.8 years.

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chief financial officer’s rePort continued

Capital invEstmEnt
in thE YEar totallEd
£30.4m (fY13: £18.8m).

net non-recurring exPenses
The following table outlines the components of the
non-recurring expenses incurred in the year:

Onerous lease charges

Asset impairment
charges

Release of Focus
lease-guarantee
provision

Net non-recurring
expenses

FY14
£m

—

FY13
£m

(1.2)

(0.4)

(0.8)

0.2

1.0

(0.2)

(1.0)

£0.4m of assets from certain stores were impaired in
the year as a result of the investment in the Stores Fit
To Shop initiative (FY13: £0.8m).

In 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 28
March 2014 the provision was £0.2m, reflecting the
settlement of a number of leases and utilisation for
on-going rent, insurance and service charges. Whilst
there were on-going associated rental costs, there
was a release of £0.2m of the provision in the year.
£0.2m of this provision remained as at 28 March
2014 and is anticipated to be utilised in FY15.

finance exPense
The net finance expense for the year was £5.0m
(FY13: £6.1m). The expense includes £0.2m of
accelerated amortisation of issue costs in the
current year following completion of debt facility
refinancing in September 2013. The new, reduced
revolving credit facility expires in November 2017.
An element of the net finance expense also relates
to the crystallisation of a number of prior-year tax
computations in the year.

Management anticipates a decline in the FY15
finance expense versus FY14.

taxation
The taxation charge on profit for the financial year was
£17.1m (FY13: £18.3m), including a £0.1m charge
(FY13: £0.1m) in respect of tax on non-recurring
items. The full-year effective tax rate of 23.5% (FY13:
25.7%) was higher than the UK corporation tax rate
(23.0%) principally due to the non-deductibility of
depreciation charged on capital expenditure and other
permanent differences arising in the year.

A number of prior-year outstanding tax computations
were settled during the year and accounted for a
£21.0m cash outflow (being tax plus interest). The
outstanding tax positions had been provided for in
prior periods with the provisions being utilised against
the tax payments.

Management anticipates an effective tax rate of
21–22% in FY15 and no one-off tax payments.

earnings Per share (“ePs”)
Basic EPS before non-recurring items was 28.8
pence (FY13: 27.7 pence), a 4.0% increase on the
comparable year. Basic EPS after non-recurring
items was 28.6 pence (FY13: 27.2 pence). Basic
weighted-average shares in issue during the year
were 194.0m (FY13: 194.3m).

dividend
The Board has recommended a final dividend of
9.1 pence per share (FY13: 9.1 pence), taking
the full-year dividend to 14.3 pence per share. If
approved, the final dividend will be paid on 1 August
2014 to shareholders on the register at the close of
business on 4 July 2014. In the light of the guidance
given twelve months ago, the Board will now look
to maintain a c.2x dividend cover over the medium
term, growing full-year dividends broadly in line with
earnings per share. Given the operating cash flow
profile of the business the Board also anticipates the
ratio of future interim and final dividend payments to
move toward 30:70.

caPital exPenditure
Capital investment in the year totalled £30.4m
(FY13: £18.8m) comprising £24.4m in Retail
and £6.0m in Autocentres. Consistent with prior
years, management adopted a prudent approach
with regard to capital investment and focused on
investments generating material returns in line with
the Getting Into Gear strategy.

Within Retail, £13.9m (FY13: £5.8m) was invested in
stores, including 23 store refreshes. The investment
also reflected refresh-based relocations and right-
size activity as well as general capital spend relating
to store roofing, flooring and security. By the end of
FY14, 27 stores were trading in the refreshed format
in line with the Stores Fit To Shop initiative. Additional
investments in Retail infrastructure included a £9.7m
investment in IT systems, such as development of
the online Retail proposition and an upgrade of the
core SAP operating system. The Support Centre also
attracted a small element of refresh investment.

Within Autocentres a further £6.0m (FY13: £5.6m)
was invested to drive the centre roll-out plan and
upgrade centre equipment, especially in relation
to the delivery of the tyre–fitting proposition.
Expenditure was directed to improve other
infrastructure elements, from a refreshed website to
more-efficient IT processing systems, enabling more
effective customer-focused centre management.

Management continues to anticipate an investment
of around £100m in Retail capital expenditure in
the three-year period to the end of FY16. Timing of
investments such as the SAP upgrade reflected the
shortfall in the FY14 expenditure versus guidance.
FY15 Retail capital expenditure is anticipated to
amount to c.£35m. Autocentres’ capital expenditure
in FY15 is anticipated to be c.£8m, the increase
reflecting incremental investment in property and
equipment, diagnostics and IT systems.

inventories
Group inventory held at the year end was £150.2m
(FY13: £133.2m), in line with guidance; the increase
was primarily Cycling-related. Stock continued to be
managed tightly and the planned levels of additional
Retail stock increased on-shelf availability to 98.3%.
Autocentres inventory was £1.4m (FY13: £1.3m).
The Autocentres business model is such that only
modest levels of inventory are held within the centres,
with most parts being acquired on an as-needed
basis.

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 20142

images

Improving clothing

offer.

2 Strong brands add
credibility to cycling

proposition.

Improved Retail

presentation.

cashflow and borrowings
The Group continued its track record of robust
cash generation. Cash generated from operating
activities in the year was £67.5m (FY13: £93.5m).
After taxation, capital expenditure and net finance
costs, free cashflow of £39.5m (FY13: £71.8m)
was generated. The reduced cashflow performance
reflected the upweighted levels of capital and
inventory investment in the year and also included
the settlement of £21.0m of prior-year outstanding
tax computations.

Group net debt of £99.6m (FY13 £110.6m)
represented a decline of 9.9% with a non-lease-
adjusted 12-month net debt: EBITDA ratio of 1.0:1
versus 1.1:1 in the prior year. A new £200m revolving
credit facility was secured in the year, expiring in
November 2017.

PrinciPal risks and uncertainties
The Board considers risk assessment, identification
of mitigating actions and internal control to be
fundamental to achieving Halfords’ strategic corporate
objectives. In the Annual Report & Accounts the
Board sets out what it considers to be the principal
commercial and financial risks to achieving the
Group’s objectives. The main areas of potential

risk and uncertainty in the balance of the financial
year are described in note 19 to the Annual Report
and Accounts. Other risks that might impact the
achievement of Halfords strategic corporate objectives
are detailed on pages 64 to 67 and include:

Economic risks

Business strategy risks

Competitive risks

Compliance

Changing customer preferences

Reliance on foreign manufacturers

Product and service quality

Information technology systems and infrastructure

Dependence on key management personnel

Specific risks associated with performance include
Christmas trading as well as weather-sensitive sales,
particularly within the Car Maintenance and Cycling
categories in the Retail business.

andrew findlay
Chief Financial Officer
21 May 2014

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12/06/2014 14:22:47

risks and uncertainties

Mindful of corporate strategy, executive management
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 Group’s appetite
for risk is not exceeded. The Board recognises that
each of its strategic pillars (i.e. Supporting Drivers
of Every Car, Inspiring Cyclists of Every Age, and
Equipping Families for their Leisure Time) could be
compromised by any of the risks set out below.
Individual Getting into Gear initiatives are reliant
on some of the mitigations identified. For example
Service Revolution delivery is reliant on full utilisation
of our 3-Gears online training system and on our
ability to attract and retain good colleagues. Stores
Fit to Shop is reliant on our continuing investment in
modernisation of our stores.

Specific financial risks are detailed in note 19 to the
Annual Report and Accounts on pages 141 to 144.

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. The Board recognises that the nature and
scope of these risks can change and so regularly
reviews them as well as the systems and processes
to mitigate them.

The Corporate Governance report on pages 76 to 89
describes the systems and internal control processes
through which the directors identify, assess, manage
and mitigate risks.

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.
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.

Identify

Evaluate

our risk
management
process

Mitigate

Analyse

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014Key Risks and Uncertainties

Economic, Environmental and Political

Mitigation

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. Cycle to Work, DAB switchover) may also affect our consumers’ ability to
benefit from our products and services.

The Group mitigates these risks by maintaining a focus on the “defensive”
characteristics of its “needs driven” product groups. A firm focus is maintained
on cost control. Targeted promotions and excellent service are designed to
attract and retain customers. It ensures that marketing and merchandising can
be revised quickly to react to weather conditions.

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, communicated, or executed then the business will
suffer.

The Group has its established ‘three pillars’ strategy. Following a thorough
review, a retail three-year plan (Getting into Gear) was announced during the
year. Strategic issues, including the three-year plan, are regularly reviewed at
Board meetings. Regular assessment is made to ensure that strategy remains
appropriate, and that the business is making progress in meeting its strategic
objectives. KPIs relating to strategy have been communicated clearly both within
the business and to the market. These KPIs are regularly discussed by the
Board. Our budget process recognises the importance of strategic initiatives.

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
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.

The Board is aware of the risks faced from UK retailers, both in-store and online,
and from the national car-servicing networks and smaller independents.

We announced a significant investment programme at the start of the year to
support Getting into Gear. The investment programme is allowing us to improve
the service we provide to customers by improving the quality of our stores, IT
infrastructure, training and website (including optimisation for mobile and tablet
devices). Excellent service is fundamental to differentiating ourselves from our
competitors.

The national geographical coverage of our stores underpins our Click & Collect
offering. Our wefit service is a key differentiator. Our cycle repair and extended
parts, accessories and clothing range offer confirm our credibility within the
cycling market.

The Group seeks to continually strengthen its “own-brand” and “sub-brand” retail
offer and develop opportunities to differentiate the Halfords brand including TV,
radio, press and social media advertising.

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23157.04 Proof 6 10-06-2014halfords.annualreport2014.comstock code: hfdhalfords Group plcannual report and accounts 2014Strategic reportStrategyStrategic reportoverviewStrategic reportperformanceStrategic reportriSkgovernancefinancialSShareholderinformationstrategic rePort > risk

risks and uncertainties continued

Key Risks and Uncertainties

Compliance

Mitigation

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, bribery act 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.

Regulatory requirements are closely monitored by our Company Secretarial
team. The Group has Quality Assurance and Compliance teams working in
both the Retail and Autocentres businesses. Specialist Health and Safety teams
ensure that the Group has adequate policies and risk assessments.

Colleagues and management are trained to identify and handle regulatory issues
using the 3-Gears training modules on our online Learning Management System.
We have a whistleblowing hotline that allows colleagues to raise concerns in
confidence.

We operate a Code of Conduct that clearly sets out our expectations of
suppliers. We have a corporate delegated authorities framework (‘How We
Do Business’) setting out key authorisation levels. Anti-Bribery and Corruption
training has been delivered through face-to-face and online training sessions.

Halfords has recruited experienced, knowledgeable trading 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.

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.

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.

We work with suppliers in a number of territories to reduce the risks of disruption.

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23157.04 Proof 7 10-06-2014GettinG into GearinteGrated annual report for the Year ended 28 March 2014Key Risks and Uncertainties

Mitigation

Product and Service Quality and Brand Reputation

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 and our reputation. 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. 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 distribution centre).

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 (including those caused by cyber-attack), could potentially compromise
our operational capability for a period of time impacting on stores, centres or
warehouse, multi-channel and distribution systems. With ambitious growth plans
for our multi-channel offer, our trading capacity could be affected by internal and
external systems’ resilience and interdependencies.

Dependence on Key Management Personnel

The success of the Group’s business depends upon its Senior Management
closely supervising all aspects of its business, in particular, the operation of the
stores and autocentres, including the appropriate training of in-store and centre
colleagues, and the design, procurement and allocation of merchandise.

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 ‘Gears’ training programme uses online modules to ensure that colleagues
are consistently knowledgeable about our products and able to deliver quality
services to customers. We have also implemented measures to ensure that
we attract and retain the best colleagues: Engagement Surveys aim to identify
opportunities to reduce colleague turnover; we have recently been recognised as
one of the Sunday Times 25 Best Big Companies to Work For; our recruitment
processes are now centralised to improve efficiency and consistency.

Our products are thoroughly tested for safety and quality. Complaints received in
stores are closely monitored. Management in both retail stores and Autocentres
are incentivised on quality of service targets. Our product recall procedures have
been comprehensively reviewed and revised during the year. We clearly set out
our expectations for retail disciplines in-store to ensure on-shelf availability.

Our Autocentres business continually seeks to provide innovative solutions
for their customers, such as brakes4life. In our centres, the training of our
technicians to provide high quality motor vehicle repairs is enhanced through an
apprenticeship programme. The majority 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.

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. IT recovery processes are tested regularly. We have successfully
completed an upgrade of our core SAP system.

We have thoroughly reviewed our IT security processes this year and recruited
a number of specialists to the IT team, including dedicated IT security and
continuity experts.

Our Remuneration Policy outlined on pages 92 to 101 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 and centre colleague training and development.

Halfords AR2014-Performance.indd 67

12/06/2014 14:22:47

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014Governance

Governance

Board of Directors

Directors’ Report

Corporate Governance Report

Audit Committee Report

Remuneration Committee Report

Director’s Responsibilities

111

warmth and personality of
refreshed stores brings
the offer to life.

ONL NE

Read more
halfords.annualreport2014.com

board of directors

dennis Millard
chairMan

n r
current role i Chairman since 28 May 2009.

additional roles held i Chairman of Connect Group plc (formerly Smiths News plc), Non-Executive
Deputy Chairman of Pets at Home Group Plc and Non-Executive Director and Senior Independent Director
of both Debenhams plc and Premier Farnell plc.

past roles i His former appointments include Chief Financial Officer 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 i 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.
Dennis is a keen cyclist and rides on-road a Boardman Road Team Carbon and off-road either a Boardman
Team Comp or a Carrera Crossfire. He is also an avid surfer and golfer.

Matt davies
Group chief executive

n
current role i Group Chief Executive since 4 October 2012.

additional roles held i Matt is a Non-Executive Director at the Dunelm Group plc.

past roles i Matt was Chief Executive of Pets At Home for eight years having originally joined as Finance
Director in 2001.

brinGs to the board i 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.
Matt rides a Boardman Air Pro and a Boardman Mountain Bike Pro Hardtail 29er. He can often be found on
a weekend cycling the lanes of the Lake District with his family and friends. His three dogs Archie, Bear and
new addition Chester, a golden retriever puppy, form a big part of his life!

andrew findlay
chief financial officer

current role i Chief Financial Officer since 1 February 2011, with responsibility for IT.

past roles i 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 i A track record in retail and other competitive, consumer and business facing
industries. Andrew has experience of: operational management, strategy development, commercial finance,
refinancing and pension scheme funding; bid defence; procurement; shared services; financial accounting,
investor relations, 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 ronald
independent non-executive director

a n r
current role i Non-Executive Director since 17 May 2004. Senior Independent Director to 28 February 2014.

additional roles held i 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 i 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 i 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.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014david adaMs
senior independent director

a n r
current role i Non-Executive Director since 1 March 2011. Senior Independent Director since 1 March
2014.

additional role held i David is currently Chairman of Conviviality Retail plc, Musto Ltd, Park Cameras
Ltd, and Walk the Walk (a breast cancer charity), and is a Non-Executive Director and Chair of the Audit
Committee at Hornby plc.

past roles i David was Finance Director and Deputy Chief Executive of House of Fraser plc until its sale
in 2006, then Executive Chairman of Jessops plc in 2007, becoming Non-Executive Chairman after it was
taken private, leaving in 2012. in addition he has been Chairman at Moss Bros plc and Alexon plc , and has
held several Executive and Non-Executive roles in over 25 years in retailing.

brinGs to the board i He brings extensive and relevant experience in financial and general
management roles, including 10 years as plc Finance Director, and has held 4 other plc Audit Chair roles
over the last 5 years.

David is a keen tennis player, golfer, and skier and enjoys getting out on his Boardman bike when the sun
comes out.

claudia arney
independent non-executive director

a n r
current role i Non-Executive Director since 25 January 2011. Remuneration Committee chairman
since 1 March 2014.
additional roles held i 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 i 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 i 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.

keith harris
independent non-executive director

a n r
current role i Non-Executive Director since 17 May 2004.

additional roles held i Keith is currently on the Boards of Cooper Gay (Holdings) Limited and Sellar
Investments Limited.

past roles i More recently Keith was on the Board of Sellar Investments Limited, the company which
built the Shard of Glass. 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 i Keith brings extensive experience of public company governance, particularly in
the field of executive remuneration.

helen Jones
independent non-executive director

a n r
current role i Non-Executive Director since 1 March 2014.

additional roles held i Helen is currently a senior executive at Caffé Nero.

past roles i Helen was CEO of the Zizzi Restaurants group and was also responsible for successfully
launching the Ben & Jerry’s brand in the UK and Europe.

brinGs to the board i Helen brings valuable and relevant marketing and branding experience in
consumer focused businesses.

Helen rides a Specialized Ariel but has yet to muster the courage to move to road bikes, preferring the
relative comfort of the hybrid version. She promises to buy a Halfords’ brand next time! She is married with
three adult sons.

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 28 march 2014.

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

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:

The financial position of the Group, its cash flows, liquidity position and borrowing facilities within the Chief Financial Officer’s Report.

58 to 63

at page:

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 Sustainability Report.

The Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements.

Board of Directors

Directors including interests and indemnities

Auditors

Going Concern

Political Donations

Share Capital, Major Shareholders and Authority to Purchase Shares

AGM

Leadership
Role of the Board
Board Composition and Meeting Attendance

Effectiveness
Composition of the Board
Skills and Experience
Independence
Diversity
Appointments to the Board
Induction and Development
Evaluation
Re-election
Directors and their Other Interests
Board Committees
Nomination Committee

Accountability
Audit Committee
Internal Control and Risk Management

Remuneration

Relations with Shareholders

Audit Committee Report

Remuneration Committee Report

141

76 to 85

44 to 49

111

73 to 74

74 to 75

77 to 79

79 to 83

83 to 84

84 to 85

86 to 89

90 to 110

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014iMaGe

Engaging customers by

allowing interaction with

technology products.

profits and dividends
The Group’s results for the year are set out in the Consolidated Income Statement on page 117. The profit
before tax on ordinary activities was £72.6m (2013: £71.0m) and the profit after tax amounted to £55.5m
(2013: £52.7m). The Board proposes that a final dividend of 9.1 pence per ordinary share be paid on 1 August
2014 to shareholders whose names are on the register of members at the close of business on 4 July 2014.
This payment, together with the interim dividend of 5.2 pence per ordinary share paid on 21 January 2014,
makes a total for the year of 14.3 pence per ordinary share. The total final dividend payable to shareholders
for the year is estimated to be £18.1m. 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 42 to 43
and pages 52 to 57 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 28 March 2014 and unless
otherwise stated at the date of this Annual Report:

Dennis Millard
Matt Davies
Andrew Findlay
David Adams
Claudia Arney
Helen Jones (appointed 1 March 2014)
Keith Harris (will retire on 31 May 2014)
Bill Ronald (will retire on 31 May 2014)

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 28 March 2014 will offer themselves for
re-election at the AGM on 29 July 2014, except for Keith Harris and Bill Ronald who will retire on 31 May 2014.
Helen Jones, who was appointed on 1 March 2014, will stand for election at the AGM.

directors’ interests
The Directors’ interests in shares and options over shares in the Company are shown in the Directors’
Remuneration Report on pages 90 to 110. 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’ report continued

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.

auditors
At the 2013 AGM, KPMG LLP was appointed as the Company’s Auditors. A resolution proposing the
reappointment of KPMG LLP 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 auditors
So far as the Directors are aware, there is no relevant audit information of which the auditors are unaware
and the Directors have taken all reasonable steps to ascertain any relevant audit information and ensure
the auditors are 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.

GoinG concern
With effect from 11 September 2013 the Group secured a four-year £200m revolving credit facility (extendable
by a further year) and at 28 March 2014 the Group had undrawn borrowing facilities of £114m (29 March
2013: £197m). 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 28 and 30, 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.

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.

political donations
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
2013 Annual General Meeting (“AGM”) that provided for limited authority for such expenditure, such authority
remaining valid until the earlier of 30 September 2014 or the conclusion of the AGM to be held in 2014, and
as such the Company will be asking for this limited authority to be renewed at the AGM to be held on 29 July
2014. The Group did not make any political donations throughout the period (FY13: nil).

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 144. 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,

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014iMaGe

Gears 2 training provides

specialist skills.

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 12 May 2014, the Company’s register of substantial shareholdings showed the following interests of 3% or
more of the Company’s issued ordinary shares:

Holder

Artemis Investment Management LLP on behalf of discretionary
funds under management

Schroders plc

Invesco Limited

Legal & General Group Plc

Number of
shares

% of issued
shares

22,809,710

11,949,139

9,036,967

7,929,685

11.46%

6.00%

4.53%

3.98%

authority to purchase shares
At the 2013 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 12 June
2013, such authority expiring at the conclusion of the AGM to be held in 2014.

annual General MeetinG
The AGM will be held at the Hilton Garden Inn, 1 Brunswick Square, Brindley Place, Birmingham B1 2HW on
Tuesday 29 July 2014. 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
Group Company Secretary
21 May 2014

corporate Governance report

chairMan’s introduction
The effectiveness of the Board is underpinned by clear corporate governance arrangements for the Group.
The Board is collectively responsible for upholding high standards of corporate governance. This period, this
has been reflected in the implementation of an updated delegated authorities framework as described in this
report. This framework seeks to embed procedures and processes throughout the Group for the approval of
financial commitments, contracts and other day-to-day and non-business-as-usual activities of the business.
Additionally, the “tone from the top” has been set with regard, for example, anti-bribery and corruption and
whistleblowing arrangements.

The Board works with the Executive Directors to provide advice and independent challenge to develop and
deliver the long-term strategy of the Group.

Each year the Board is evaluated to uncover any issues, and confirm that the Board maintains the right
composition to undertake its duties. More information on this period’s internal evaluation exercise can be found
on page 81. It concluded amongst other things that our Board continues to maintain the right balance of skills,
experience and knowledge to be able to serve the Company and its shareholders effectively.

Dennis Millard
Chairman
21 May 2014

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014stateMent of coMpliance with uk corporate Governance code
The UK Corporate Governance Code published by the Financial Reporting Council in September 2012 (the
“Code”) applies to the Company and is available on the FRC website at www.frc.org.uk. The Listing Rules
have yet to be updated by the Financial Conduct Authority and continue to require that certain compliance
statements are made in relation to the predecessor edition of the Code, issued in June 2010. The Board
confirms that for the period ended 28 March 2014 it complied fully with the requirements of both editions of
the UK Corporate Governance Code, where relevant, except in relation to the ongoing service until 31 May
2014 of Keith Harris and Bill Ronald as explained on page 80.

This report outlines how we have complied with the five Main Principles of both editions of the Code,
where relevant.

leadership
Details of the Group’s business model and strategy can be found on pages 6 to 7 and pages 16 to 49.

leadership: role of the board

The Board is collectively responsible for ensuring that the business acts in the best interests of the Company
to generate sustainable value for shareholders, whilst preserving the interests of its customers, employees and
other stakeholders. The main facets of this responsibility comprise: consideration of the long-term direction
and strategy of the Company; the values and standards within the business; management performance;
resources; and controls. To effectively discharge these responsibilities, the Board has implemented the system
of delegated authorities set out below, which enables the day-to-day operation of the business, and ensures
that significant matters are brought to the attention of management and the Board as appropriate.

D
e
l
e
g
a
t
e
d
A
u
t
h
o
r
i
t
i
e
s

Board

Matters Reserved for the Board include: Strategy and Management;
Structure and Capital; Investor Relations; Audit, Financial Reporting
and Controls; Nominations to the Board; Executive Remuneration
and Significant Contracts.

Available at: www.halfordscompany.com/i/g/mrftb

Board Committees

Committee Terms of Reference set out the remit of each of the
Audit, Nomination and Remuneration Committees as described
further at pages 82 to 85.

Available at: www.halfordscompany.com/i/g/oc

Executive Directors
and Senior Management

The Business

How We Do Business is the internal name of the formal delegated

authorities document approved by the Board. It describes how

day-to-day decisions are delegated to the Executive Directors, the

Senior Management Team and others within the business. Each

potential activity is set out by reference from whom approval must

be sought and what paperwork is required as confirmation of

that approval. Where an activity is not expressly described within

How We Do Business, approval must be sought from the Senior

Management Team who will apply the principles of How We Do

Business to the decision. Training sessions were held for all relevant

Support Centre colleagues on How We Do Business after it was

launched with refresher courses planned yearly. The implementation

of the document is constantly monitored, with an updated

document to be circulated on a yearly basis.

It is through the above system of delegated authorities, that the Board is able to provide oversight and direction to the Executive Directors, Senior Management Team
and the wider business.

read more about:
diversity

page 46 and 82

1. Bill Ronald and Keith Harris will retire on 31 May 2014.

2. Helen Jones was appointed on 1 March 2014.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014
appointMents to the board

Helen Jones joined the Company as Non-Executive Director on 1 March 2014. Egon Zehnder International
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 after considering the existing balance of skills, knowledge and experience on the Board, the merit and
capabilities of the candidates and the time they were able to devote to the role in order to promote the success
of the Company, recommended the appointment of Helen Jones to the Board.

induction and developMent

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. Helen Jones is currently undertaking a full induction programme as
prepared by the Chairman, with the assistance of the Company Secretary. She was provided with background
materials covering the operational and organisational structure of the business, as well as the strategic aims
and key initiatives of the Company when she joined. Over the next few months, she will undertake extensive
store, autocentres and distribution centre visits and on-site discussions with store, autocentre and distribution
centre colleagues as well as one-to-one meetings with the Senior Management Team. All current Directors
have various opportunities for ongoing development and support via:

a programme of head office, distribution centre and store/autocentre visits;

reviews with the Chairman to identify any training and development needs;

advice on governance, relevant legislative changes affecting the business or their duties as directors from

the Company Secretary;

membership of the Deloitte Academy, a training and guidance resource for boards and directors; and

access to independent professional advice at the Company’s expense1.

1. No such advice has been sought throughout the period as far as the Company Secretary is aware.

knowledGe of the coMpany

0-3 years
2

6-9 years
0

3-6 years
4

9+ years
2

2. Keith Harris and Bill Ronald will retire on 31 May 2014.

evaluation

Last year an external board evaluation exercise took place involving face-to-face interviews which was
conducted using an external facilitator Egon Zehnder, who had previously worked with the Company on an
executive recruitment project.

This year, an internal survey was used where questions were devised by the Company Secretary and agreed
with the Chairman. A web-based solution was used to deliver the survey to all Board members. The survey
considered topics under the headings:

Leading the Business — Strategy, Performance, and Talent;

Board Dynamics & Behaviour;

Board Composition; and

Board Process.

Following this review, a summary of the results of the evaluation was prepared and shared with all members of
the Board. The main outcomes of the evaluation this period were to acknowledge the Board’s understanding
of the Group’s Getting into Gear strategy and any key business and strategy risks, and their management and
mitigation. The survey also acknowledged that that that there is an appropriate balance of skills, experience,
independence, diversity (including gender) and knowledge of the Company to enable the Directors to
discharge their respective duties and responsibilities effectively.

There has been a focus during the period on the ensuring the quality of information being sent and presented
to the Board so as to optimise its time and effectiveness. In the coming period, technological improvements
are being considered to optimise the interface between the Board and management and further improve the
efficiency of the Board’s operation.

re-election

In compliance with the Code and the Company’s Articles of Association, all Directors on the Board as at
28 March 2014, except for Keith Harris and Bill Ronald, will seek re-election at the Company’s AGM. Keith
Harris and Bill Ronald will retire on 31 May 2014. Helen Jones who was appointed to the Board on 1 March
2014 will offer herself for election at the AGM.

corporate Governance report continued

directors and their other interests

Each Director has notified the Company of any situation in which he or she has, or can have, a direct or
indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict).
The Board considered and approved these interests 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 90 to 110.

board coMMittees

Some of the Board’s responsibilities are discharged via Nomination, Audit and Remuneration Committees.
The activities of these Committees are described on pages 82 to 84. 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.

A Disclosure Committee, made up of a minimum of two Directors, approves the final wording of market
announcements prior to release.

The day-to-day treasury needs of the Group are managed by the Treasury Committee chaired by the Finance
Director and whose other members are senior members of the Finance and Treasury teams.

The Board may establish other ad hoc committes of the Board to consider specific issues.

noMination coMMittee
noMination coMMittee chairMan’s letter

The Group’s overall approach to diversity is that we aim to reflect the communities that we serve. In FY15,
the Company has committed to put in place plans for improving gender diversity as an important step in
achieveing this goal. The Company does not currently publish specific diversity targets, but is aiming to create
a more balanced workforce over the next three years, in particular on a gender basis. In achieving this goal,
the focus is on improving our ability to attract a more balanced candidate pool, ensuring our recruitment
processes are also appropriate and building more confidence, capability and gender diversity awareness
through our development and career programmes. The Nomination Committee and the Board will continue to
review progress against this area on a regular basis.

David Adams
Nomination Committee Chairman
21 May 2014

Chair: Dennis Millard
Members:
Matt Davies
1
Keith Harris
2
Bill Ronald
Claudia Arney
David Adams
Helen Jones
3

1. Keith Harris will retire on 31 May 2014.

2. Bill Ronald will retire on 31 May 2014.

3. On joining the Board on 1 March 2014, Helen Jones also became a member of the Nomination Committee.

Except for Matt Davies, all members of the Nomination Committee are considered independent. The test of
independence is not appropriate for Dennis Millard as the Chairman of the Group following his appointment to
the Board as stated in the Code. The Board feels it is appropriate that Dennis Millard chairs the Committee as
all Non-Executive Directors sit on the Committee. Senior members of management and advisors are invited to
attend meetings as appropriate.

principal activities

The responsibilites of the Nomination Committee are set out in its Terms of Reference4 and in summary are
making appropriate recommendations to maintain the appropriate balance of skills and experience on the
Board by considering:

the size, structure and composition of the Board; and

senior management succesions plans, retirements and appointments of additional and replacement Directors.

More information on the Group’s diversity policy can be found on pages 46 and 80.

4. Available at: www.halfordscompany.com/investors/governance/our-committees/nomination-committee.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014Standing Items

November 2013

NED Succession

CEO Management Team

March 2014

Re-election of Directors

Board Committees’ Memberships

AGM Attendance

One-Off Considerations

Ratification of Non-Executive Director Appointment

Ratification of Senior Independent Director
Appointment

accountability
It is the role of the Audit Committee to ensure full stakeholder confidence in the financial matters of the
business.

audit coMMittee
audit coMMittee chairMan’s letter

Please see the Introduction to the Audit Committee report on page 86.

Chair: David Adams
Members:
1
Keith Harris
2
Bill Ronald
Claudia Arney
Helen Jones
3

1. Keith Harris will retire on 31 May 2014.

2. Bill Ronald will retire on 31 May 2014.

3. On joining the Board on 1 March 2014, Helen Jones also became a member of the Audit Committee.

principal activities

Please see the Principal Activities section in the Audit Committee report on page 87.

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 risk management and
internal control systems in accordance with the Code for the period ended 28 March 2014, and up to the date
of approving the Annual Report and Financial Statements. The risk management and internal control 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 assessment and control of risk are considered by the Board to be fundamental to achieving corporate
objectives. An ongoing process for identifying, evaluating and managing the significant risks faced by the
Group and assessing the effectiveness of related controls has been established by the Board to ensure
an acceptable risk/reward profile across the Group. The process has been in place throughout the period
ended 28 March 2014, and up to the date of approving the Annual Report and Financial Statements. The key
elements of this process which cover both the Retail and Autocentres 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 (e.g. ‘cyber threat’ which was the subject of an Audit Committee presentation
by KPMG in January 2014, with a subsequent follow-up report by internal audit) and of management’s
controls and plans to mitigate these risks;

regular meetings to identify and discuss key risks and mitigations with a broad sample of the Senior

Management Team and the Executive Directors;

review of the corporate risk register in terms of completeness and accuracy with the Senior Management

Team and the Executive Directors; and

Audit Committee discussion of the corporate risk register and the risk management system with

subsequent reports to the Board.

corporate Governance report continued

Our process for identifying, evaluating and managing the significant risks faced by the Group and assessing
the effectiveness of related controls routinely identifies areas for improvement, but the Board has neither
identified nor been advised of any failings or weaknesses which it has determined to be material or significant.

We are pleased to report that following a rigorous review process by HMRC, we have been categorised as a
low risk tax business.

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 64
to 67.

reMuneration
reMuneration coMMittee chairMan’s letter

Please see the Remuneration Committee Chairman’s Letter on pages 90 to 91.

Chair: Claudia Arney
Members:
Keith Harris
David Adams
3
Bill Ronald
Dennis Millard
4
Helen Jones

1. Claudia Arney was appointed Chair of the Remuneration Committee on 1 March 2014, when Keith Harris stood down from

the role.

2. Keith Harris stood down from the role of Chair of the Remuneration Committee on 1 March 2014 and will retire from the

Board on 31 May 2014.

3. Bill Ronald will retire from the Board on 31 May 2014.

4. On joining the Board on 1 March 2014, Helen Jones also became a member of the Remuneration Committee.

principal activities

Please see the Committee Activity section of the Annual Remuneration Report on page 102.

relations with shareholders
During the period and until 1 March 2014 Bill Ronald served as Senior Independent Director when he stood
down and David Adams was appointed Senior Independent Director. The Senior Independent Director
relationship with shareholders is described on page 79.

During the period under review the Chief Executive, Chief Financial Officer 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. The Investor Relations officer also conducted a number
of market meetings during the year, in and outside of the UK. A separate site visit in the year was well attended
by analysts and shareholders. Each of the other Non-Executive Directors was 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. Feedback from these meetings and events 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.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014The 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 web
as a means of communicating widely, quickly and cost-effectively and an Investor Relations website
www.halfordscompany.com/investors facilitates communication with shareholders. Information available online
includes copies of the full and half-year financial statements, market announcements, 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 157.

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, 29 July
2014 at the Hilton Garden Inn, 1 Brunswick Squre, Brindley Place, Birmingham B1 2HW. The Chairs 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
Group Company Secretary
21 May 2014

audit coMMittee report

chairMan’s introduction
This year has seen the Audit Committee continue its work of reviewing the effectiveness of Halfords’ corporate
governance framework with particular emphasis on the quality of financial reporting, internal control, and risk
management systems.

I reported last year that we had appointed an in-house Head of Internal Audit and I am pleased to report that
this year’s internal audit plan has been delivered by a well-resourced, experienced and independent in-house
team, assisted by external specialists where necessary. As we report below, the internal audit function has
strong and direct links into the Audit Committee.

This report explains how the Audit Committee has discharged its responsibilities, and takes into account the
three specific areas highlighted in the revised Corporate Governance Code:

Significant issues considered in relation to the financial statements

External Audit effectiveness and appointment

External Audit objectivity and independence and the impact of non-audit work

David Adams
Chairman of the Audit Committee
21 May 2014

MeMbership and reMit of the audit coMMittee
MeMbership

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. Dennis Millard, the Chairman, senior members of management and advisors
are invited to attend meetings as appropriate. The Audit Committee meets according to the requirements of
the Company’s financial calendar. The meetings of the Audit Committee also provide the opportunity for the
independent Non-Executive Directors to meet without the Executive Directors present and to raise any issues
of concern with the auditors. There have been three such meetings in the period ended 28 March 2014 and
nothing of note was reported.

reMit

The Audit Committee’s responsibilities include:

making recommendations to the Board on the appointment of the External Auditors, including on

effectiveness, independence, non-audit work undertaken (against a formal policy) and remuneration;

reviewing the accounting principles, policies and practices adopted throughout the period;

reviewing and approving external financial reporting for adoption by the Board;

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;

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014 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.

The Audit Committee’s full Terms of Reference are available on the Company’s website or on request from the
Company Secretary.

principal activities durinG the year
General

The Audit Committee met three times during the year with the following timetable:

May 2013

Review of Year End Finance Director’s Report

Recommend the Preliminary Statement to the Board for Approval

Recommend to the Board the approval of the Annual Report

Review of External Auditors’ Report

Review Statement of External Auditors’ Independence

Review of Internal Audit Full-Year Report

Approval of the External Auditors’ Non-Audit Fee Policy

Review of Group Whistleblowing Policy

Review of Group Register of Risks and Controls

noveMber 2013

Review of Half-Year Finance Director’s Report

Recommend the Interim Statement to the Board for Approval

Review of External Auditors’ Half-Year Report

Review of Internal Audit Progress Report

Approval of External Auditors’ Non-Audit Fee Policy

Review of Committee Terms of Reference

January 2014

Consideration of Cyber Security

Review of External Auditors’ Annual Strategy and Fees

Review of Internal Audit Progress Report and Annual Strategy

Review of Group Whistleblowing Policy

siGnificant issues in relation to the financial stateMents
In order to discharge its responsibility to consider accounting integrity, the Committee carefully considers key
judgments applied in the preparation of the consolidated financial statements which are set out on pages 117
to 122. The Committee’s review included consideration of the following key accounting judgements:

iMpairMent of Goodwill and intanGibles (autocentres)

Following the acquisition of Nationwide in 2010, the Group holds significant goodwill in the Halfords
Autocentres business. With pressure on its like-for-like revenues (-0.1% for the year ending 28 March 2014)
combined with a subdued aftercare market where customers are still looking to defer vehicle maintenance,
there is a risk that the business may not meet either the growth projections expected by the business or those
necessary to support the carrying value of the intangible asset (see note 10 of the financial statements).

The Audit Committee has received detailed reports from Halfords’ finance team and External Auditors
addressing this issue. Consideration has been given to ensuring that cash flow models, discount rates,
customer retention rates, sensitivity models and centre profitability are all reasonable. The Committee
concluded that it is satisfied with the accounting treatment of impairment of goodwill and intangibles.

valuation of inventory

With the continuing pressure to provide up-to-date products to customers and with the change in ranges
observed at the end of FY13 and through FY14, there is a risk that inventory provisions made will be
inappropriate or incomplete (see note 12 to the financial statements). Management have recently implemented
a revised methodology for assessing inventory provision. Range reviews are regularly undertaken to ensure that
all discontinued inventory is identified.

The Audit Committee has received detailed reports from Halfords’ finance team and External Auditors
addressing this issue. After consideration of the accuracy of the new provisioning model, the completeness
and accuracy of range reviews, and the reflection of these reviews within the provision, the Committee
concluded that it is satisfied with the accounting treatment of the valuation of inventory.

audit coMMittee report continued

external auditors
effectiveness of external audit

The effectiveness of the external audit is considered throughout the year through, amongst other factors,
assessment of the degree of the audit firm’s challenge of key estimates and judgements made by the business,
feedback from any external or internal quality reviews on the audit and the wider quality of communication with
the Committee.

In addition at its meeting in January 2014, the Committee performed a specific evaluation of the performance
of the external auditor considering the areas set out above and feedback from management. Following this,
the Committee concluded that:

The overall audit approach, materiality, threshold, and areas of audit focus were appropriate to the business;

and

The audit team possessed the necessary quality, expertise and experience to provide an independent and

objective audit.

approach to appointMent or reappointMent

KPMG LLP were appointed as External Auditors to the Group in 2009 following a formal tender process. Since
that time, KPMG LLP have complied with the partner rotation requirement set out in Ethical Standards for
Auditors. A partner rotation is now due and KPMG’s Peter Meehan is expected to take up the responsibilities
of Senior Statutory Auditor in the new financial year. Peter has been attending Audit Committee meetings
throughout the year as part of his induction process and the Committee believe him to be a suitable
appointment.

The Audit Committee has considered the new UK Corporate Governance Code guidance in relation to auditor
rotation including the proposed transition rules which will be considered when recommending the appointment
of the External Auditors in future years.

The Audit Committee considers that the relationship with the External Auditors is working well and is satisfied
with their independence, objectivity and effectiveness and has not considered it necessary to require KPMG
LLP to re-tender for external audit work. The Audit Committee has recommended to the Board, for approval by
shareholders at the AGM on 29 July 2014, the reappointment of KPMG LLP as External Auditors.

approach to safeGuardinG obJectivity and independence if non-audit services are
provided

The Audit Committee has established a policy to ensure that any non-audit services delivered by the External
Auditors will not jeopardise objectivity and independence. The policy is consistent with Ethical Standards for
Auditors.

The policy specifies:

‘The external auditors can be used to provide non-audit services subject to any non-audit engagement
proposal provided by the External Auditors is formally approved by the Audit Committee before contractual
arrangements are entered into, except for

ii. Half year review; and

iii. Internal support services supplied by the External Auditors in order to execute management’s Internal Audit

plan.

Other than for the above, for each separate service proposed to be provided by the External Auditors the
Chief Financial Officer will prepare a note either to be tabled and minuted at an Audit Committee meeting or
to be circulated via email to the Audit Committee members and the CEO giving a description of the work to
be undertaken, the reasons why the External Auditors are involved in the proposal and how objectivity and
independence has, and is seen to be, safeguarded.

Consent is required from the Audit Committee Chair on behalf of the Audit Committee before the External
Auditors can be engaged for non-audit services.’

In addition, the External Auditors follows their own ethical guidelines and continually reviews its audit team to
ensure that its independence is not compromised.

An analysis of the fees earned by the External Auditors is disclosed in note 3 to the financial statements.

role and effectiveness of internal audit
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 year and revises it from time to time
according to changing business circumstances and requirements. The Audit Committee also confirms that
internal audit has appropriate resources available to it. The annual audit programme is derived from an audit
universe including financial and commercial processes, governance issues, and key corporate risks.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014Ut deCore labitUr
invenire vim, labitUr
sententiae arGu
MentuM deCore
labitUr invenire pro.

iMaGe

Broader ranges help us

to equip families for their

leisure time.

Our internal audit function has undergone significant change the last two years. During the period ended
29 March 2013, the Company engaged KPMG to support the internal audit process in a non-managerial
capacity. An experienced in-house Head of Internal Audit and Risk was appointed in October 2012 and
following further recruitment, the internal audit programme for the year ended 28 March 2014 was planned and
delivered by a well-resourced, experienced and independent in-house team, assisted by external specialists
where necessary. We intend to continue with this resource model to deliver assurance.

Internal Audit reports on a day-to-day basis to Andrew Findlay, the Chief Financial Officer, but is independent
in action and reporting of issues, 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.

whistleblowinG
A Whistleblowing policy and procedure enables colleagues to report concerns on matters affecting the Group
or their employment, without fear of recrimination. Posters publicising whistleblowing channels are distributed
to all stores, autocentres, distribution centres and support centres.

Whistleblowing policy and procedure was reviewed and approved by the Audit Committee and was subject to
an internal audit review during the year. The Company Secretary provides the Audit Committee with a regular
summary of whistleblowing contacts and resolutions.

anti-bribery and corruption policy
The Group’s anti-bribery and corruption policy statement reinforces that the Halfords Board is committed to
conducting its business affairs so as to ensure that it does not engage in or facilitate any form of corruption.
It is Halfords’ policy to prohibit all forms of corruption amongst our employees, suppliers and any associated
parties acting on our behalf. The Group has a detailed Anti-Bribery and Corruption Policy and maintains Gifts
and Hospitality Registers. Anti-bribery expectations are set out in standard purchasing terms and conditions.
Face-to-face and online training has been provided to colleagues to raise the awareness of anti-bribery and
corruption legislation.

The Audit Committee has requested that Anti-Bribery and Corruption safeguards are periodically reviewed by
internal audit.

internal control and risk ManaGeMent
Details of the Group’s internal control and risk management framework are set out on pages 83 to 84.

reMuneration coMMittee report

dear shareholder,
FY14 has been an encouraging year for Halfords. Matt Davies, our CEO appointed in 2012, announced the
details of Group’s strategy to deliver on our vision to Help and Inspire our Customers with their Life on the
Move in May 2013. The strategy is described elsewhere in this document but the key aim is to deliver a strong
and sustainable business. For the Remuneration Committee this has therefore been a year of ensuring that we
have the right talent, processes, structure and incentives in place to ensure we deliver the new strategy.

perforMance Measures
As indicated in our last report, in the summer of 2013 the Committee undertook a review of performance
measures for the Performance Share Plan (“PSP”) to ensure that they aligned Executive Directors’ interests with
the delivery of our strategy. As the strategic focus of the business is to put in place the foundations necessary to
deliver a strong and sustainable business, the Committee determined that Total Shareholder Return and Earnings
Per Share were no longer the most suitable measures.

Following consultation with shareholders in the first half of the year, the Committee determined that PSP
awards granted from 2013 onwards would be based on growth in the Group’s revenue (25%) and growth in
the Group’s EBITDA (75%). The vesting of awards will also be subject to meeting a net debt underpin to ensure
that debt remains at appropriate levels.

For 2013/14, the annual bonus was based 75% on PBT, and 25% on the delivery of key strategic objectives
which the Committee believed were crucial to the delivery of our strategy, and which it believes will lead to the
creation of shareholder value. For 2014/15, the Committee determined that the strategic objectives should
remain linked to the delivery of the Company’s vision but that the balance between financial and strategic
targets should be amended as the strategy increasingly focuses on profitability. Consequently the Committee
approved a FY15 bonus based 80% on PBT and 20% on strategic goals.

reMuneration policy
Our focus on the appropriate remuneration policies for Halfords has also had to take account of the wide
ranging market discussions over the last few years around Executive Director remuneration arrangements,
and the new remuneration disclosure requirements which have been introduced from 1 October 2013. The
legislation has introduced the concept of a binding vote for the Remuneration Policy Report and an advisory
vote for the Annual Remuneration Report.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 20141

iMaGes

1 A more spacious and
engaging shopping

experience.

We have considered all the regulations carefully, and focused on our duty as a Committee to ensure that
our remuneration policy for Executive Directors supports the strategic aims of the business, without taking
unnecessary risks, and enables us to recruit, motivate and retain executives of a high calibre, whist at the
same time being consistent with the remuneration policies for our c.12,000 colleagues. Our Remuneration
Policy Report on pages 92 to 101 is broadly in line with previously reported policies.

The Annual Remuneration Report reports on how our policy has been applied during the financial year to 28
March 2014 and also to the date of this report.

new coMpany’s share option scheMe (“csos”) and save as you earn
scheMe (“saye”)
The Committee considers that encouraging colleagues to own shares in our business helps to motivate
and retain colleagues, and encourages them to think like an owner in their dealings with customers and
colleagues alike. Colleague share ownership is an important part of making Halfords a great place to work and
creating stores that are a great place to shop. The current CSOS and SAYE expire in 2014, and therefore the
Committee has considered and approved new rules for these schemes which will be placed before members
for their approval at the Company’s Annual General Meeting on 29 July 2014. Executive Directors will not be
invited to participate in the CSOS.

reMuneration received in respect of 2013/14
The Remuneration Committee approved an average 1.5% salary increase in October 2013 for all colleagues
and Executive Directors. Executive Directors earned bonuses of 97.5% of their maximum opportunity.
The Committee determined that this level of bonus was appropriate, reflecting the strong PBT result and
compelling performance against key strategic objectives during the year, see page 104 for more details. PSP
awards granted in 2011 will lapse in 2014 as the EPS and TSR targets were not met.

priorities for 2014/15
The priorities for the Committee in the forthcoming year remain to ensure that the Company’s Remuneration
Policy supports the delivery and ongoing development of the strategy, and the focus on the long-term 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 and shareholder consultations and is committed to ensuring that
the Company’s remuneration arrangements are designed to drive sustained shareholder value, and that proper
levels of transparency are maintained.

Yours faithfully,

Claudia Arney
Chairman of the Remuneration Committee
21 May 2014

reMuneration policy report

executive reMuneration policy
The policy report set out on pages 92 to 101 sets out the remuneration policy (the “Policy”) that the Company
intends to apply, subject to shareholder approval, with effect from 29 July 2014 (the date of the AGM). It is
intended that this Policy will apply until the 2017 AGM, unless the Company seeks shareholder approval for a
revised policy which comes into force before this date.

The Committee seeks to support the delivery of the Group’s strategy through establishing appropriate
remuneration arrangements. Our goal is to build a strong long-term sustainable 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 and Autocentre 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 a high calibre with the

necessary retail, customer service, financial, digital and service-industry skills and credentials required to
deliver a sustainable business model and drive shareholder returns. Remuneration arrangements are set at
levels appropriate to achieving this goal without paying more than is considered necessary. Benchmarking
exercises are undertaken at appropriate intervals to inform the positioning of executives’ pay relative to
the market and, without seeking to “match the median”, to identify and mitigate the risk of losing strong
performers.

Link variable pay to performance and the delivery of the agreed strategy — Provide management with the
opportunity to earn competitive remuneration through annual and long-term variable 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 term
and are designed to ensure that a substantial proportion of the executives’ remuneration is variable and
performance-related.

Align executives as shareholders — Ensure management’s interests are aligned 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.

Drive sustainable performance — Remuneration arrangements are designed to support the sustainable

delivery of performance and to prevent excessive risk taking.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014key eleMents of executive reMuneration policy

Base Salary

Purpose and link to strategy
Base salary, which is payable in cash, is set at an appropriate level to attract and retain management of a high calibre with the necessary retail, customer service,
financial, digital and service-industry skills and credentials required to deliver a sustainable business model and drive shareholder returns.

Operation

Maximum Opportunity

Generally salaries are reviewed annually with increases effective from 1 October
but may be reviewed at other times if the Committee considers this appropriate.

While there is no maximum salary level, salary increases will generally be in line with
increases awarded to other employees in the Group.

In determining base salary levels consideration is given to the individual’s
experience and the performance of the Group and the individual. Without seeking
to “match the median” consideration is also given:

However, larger increases may be made at the discretion of the Committee to take
into account circumstances such as:

Changes in an individual’s role or responsibility;

To salary levels at other companies of a similar size and complexity;

To reflect an individual’s progression and increase in experience in the role;

To salary levels at other UK listed retailers; and

To pay increases for other employees in the Group.

Where a salary is significantly behind market practice.

Performance Measures

The payment of salary is not subject to performance conditions. However, when
determining salary levels the performance of Executive Directors is taken into
account, in advance of any increases being awarded.

Benefits

Purpose and link to strategy
To provide Executive Directors with market competitive benefits consistent with the role.

Operation

Maximum Opportunity

The Committee’s policy is to set benefits at an appropriate level taking into
account the individual’s circumstances and market practice.

The overall level of benefits will depend on the cost of providing individual items
and the individual’s circumstances and therefore there is no maximum level of
benefit.

Currently, base salary for Executive Directors is supplemented with a car plus
fuel or a cash allowance, private health insurance and life assurance as standard
benefits.

Performance Measures

None

However, the Committee may determine that additional benefits may be provided
based on individual circumstances, such as the use of a chaffeur when it is
considered appropriate.

In the event that an executive is required to re-locate to perform their role then
additional benefits may be provided such as relocation expenses, a housing
allowance and school fees.

Executives are also eligible to participate in any all-employee share plans operated
by the Company on the same basis as other employees.

Pensions

Purpose and link to strategy
To enable the Company to offer market competitive remuneration through the provision of additional retirement benefits.

Operation

Maximum Opportunity

Defined employer contribution funding to the Halfords Pension Plan or payments
into a personal fund up to the earnings cap as set by HMRC. Pension provisions
above this level are made in the form of a cash allowance.

The annual contribution for each individual will not exceed 20% of base salary.
Currently the CEO receives 20% of base salary, whilst the Chief Financial Officer
(“CFO”) receives 15% of base salary.

The Committee may determine that alternative arrangements should apply
(including for new hires). When determining such arrangements the Committee
will consider cost and market practice (subject to the overall limit set out in the
maximum column).

Performance Measures

None

reMuneration policy report continued

Annual Bonus

Purpose and link to strategy
To incentivise executives to achieve annual financial targets and performance against key strategic objectives. The Committee may determine that an Executive Director
may be required to defer some or all of their annual bonus into shares under the Company’s Deferred Bonus Plan to further incentivise them to manage risk and align
their long-term interests with those of shareholders.

Operation

Maximum Opportunity

The annual bonus is normally based on performance over a financial year.

The maximum annual bonus opportunity is 150% of base salary.

The Committee determines after the year end the extent to which targets have
been met. In certain circumstances the Committee may review the annual bonus
payout in the context of the performance of the business during the year and the
delivery against strategy and may amend the level of bonus payout (upwards or
downwards) to reflect overall business and individual performance.

The current individual limits are outlined below:

CEO: Maximum annual award 150% of base salary.

CFO: Maximum annual award 100% of base salary.

Performance Measures

The annual bonus targets are based on a mix of financial and strategic measures.
Measures are selected each year by the Committee to ensure continued focus
on the Company’s strategy. At least 50% of the bonus will be based on financial
measures.

Performance measures are set annually to ensure they are appropriately
stretching for the delivery of threshold, target and maximum performance.

For 2014/15, the bonus will be based on performance against PBT and strategic
objectives consistent with the Getting into Gear strategy.

Further details are provided on page 109 of the Annual Remuneration Report.

No bonus will be paid for below threshold performance and 100% of bonus will
be paid for achieving a stretching performance target set by the Remuneration
Committee with reference to prior year performance and the Group’s business
plan.

Generally the annual bonus is paid in cash, but in certain circumstances the
bonus may be paid in shares or in a mixture of cash and shares as determined by
the Committee.

Currently the CEO must defer 1/3 of any bonus earned into an award over shares
under the Deferred Bonus Plan. However, the Committee may determine that a
different portion of the bonus will be paid in shares or that the bonus may be paid
in cash.

Deferred bonus awards are normally made in the form of nil cost options (but may
be in other forms such as a conditional award). Deferred awards normally vest
three years from award (or such other period as the Committee determines) and
have no additional performance conditions.

Executives may, at the Committee’s discretion, receive an amount (in cash
or shares) representing the dividends paid between the date of grant and the
exercise of the award in respect of the number of deferred shares vesting. The
Committee shall have the discretion to determine how the value of this dividend
award shall be calculated, which may include the deemed reinvestment of
dividends in shares on a cumulative basis.

Deferred awards vest three years after the date of the award. The Executive
will also recieve an amount in cash or in shares representing the dividends paid
between the date of the grant and the exercise of the award in respect of the
number of shares vesting. This will include the deemed reinvestment of dividends
in shares on a cumulative basis.

For deferred shares granted from 2014 onwards the Committee may determine
that the number of deferred bonus shares can be scaled back before exercise
in the event of a material misstatement of the Company’s results, or where the
Company has suffered serious loss or reputational damage in respect of the
period for which the Executive had responsibilities for the running of the business.

Bonuses are non-pensionable.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014
Performance Share Plan

Purpose and link to strategy
To attract and retain Executive Directors of a high calibre. To align Executive Directors’ interests with those of our shareholders by incentivising them to deliver the
Company strategy and to create a sustainable business and maximise returns to shareholders.

Operation

Maximum Opportunity

Annual awards of shares with vesting based on performance over a three-year
period (or such other period as the Committee shall determine). The awards are
normally made in the form of a nil-cost option award (but may be made in other
forms such as conditional shares awards or jointly owned equity) and the vesting
of awards to Executive Directors is subject to the satisfaction of performance
conditions.

To the extent that awards granted from 2013 onwards vest in line with the
Performance Multiplier (as defined in the next column) these share awards will
normally only become exercisable following a retention period of two years (unless
the Committee determines otherwise) from the point at which the Committee
determined that the performance conditions have been met.

Executives may, at the Committee’s discretion, receive an amount (in cash
or shares) representing the dividends paid between the date of grant and the
exercise of the award in respect of the number of shares which have vested. The
Committee shall have the discretion to determine how the value of this dividend
award shall be calculated, which may include the deemed reinvestment of
dividends in shares on a cumulative basis.

The Committee may reduce, or impose further conditions on, an award which is
subject to a holding period in circumstances where the Committee considers it
appropriate such as the material misstatement of the Company’s results, serious
reputational damage to the Company or where the company suffers serious
losses.

Maximum core award 150% of base salary.
Participants have the opportunity to earn up to 1.5 × core award for exceptional
performance (the “Performance Multiplier”).
The maximum annual face value of awards is therefore 225% of base salary.

Performance Measures

For 2014 awards will vest subject to the achievement of stretching Revenue and
EBITDA targets.

The vesting of 25% of the awards will be determined by the growth in the Group’s
revenue and the vesting of 75% of the award will be determined by the growth in
the Group’s EBITDA over a three-year performance period.

In addition to achieving these targets, the vesting of awards will be subject to
meeting a net debt underpin to ensure that debt remains at appropriate levels and
that management are not incentivised to deliver revenue growth at the expense of
profitability.

The portion of the award that can be earned in relation to the revenue portion will
be limited by the extent to which EBITDA targets are met.

30% of the award vests for entry level performance.

For details of performance conditions for awards granted in 2011, 2012 and 2013
see notes to the table.

For future awards the Committee may determine that different financial,
operational or share price related performance measures may apply to awards or
that a different weighting between performance measures may apply to ensure
continued alignment with our evolving strategy. The majority of the award will be
subject to meeting a financial performance target.

CEO Co-Investment Award

Purpose and link to strategy
The award was implemented in October 2012 as a one-off incentive to recruit and retain a high-calibre CEO, to align his interests with those of our shareholders, and to
reward growth in share price. No further awards will be made under this plan.

Operation

Maximum Opportunity

A one-off award made on the appointment of the CEO. The CEO was required to
invest £500,000 in Halfords shares (“investment shares”) to receive a matching
share award.

The maximum number of matching shares which may be acquired under the
award (excluding dividend equivalents) is 3.5 times the number of investment
shares acquired. The CEO acquired 164,056 at a price of 302.22p.

If the CEO disposes of these investment shares during the matching share
performance period, then the matching shares shall lapse to the extent the
investment shares have been disposed.

The CEO was granted an award of matching shares in the form of a nil cost
option that may vest in tranches following the Committee’s assessment of
performance (see performance measures column).

Prior to vesting the Committee will satisfy themselves that the achievement of the
share price targets is a genuine reflection of the Company’s underlying financial
performance and may adjust the level of vesting accordingly.

The Committee may determine that the number of matching shares can be
scaled back before exercise in circumstances that the Committee determines are
appropriate such as a material misstatement of the Company’s results, serious
reputational damage to the Company, or where the Company suffers serious
losses.

The CEO may, at the Committee’s discretion, receive an amount (in cash or
shares) representing the dividends paid between the date of grant and the
exercise of the award in respect of the number of shares which vest. The value
of this dividend award shall be calculated based on the deemed reinvestment of
dividends in shares on a cumulative basis.

Performance Measures

Share price performance targets for November 2015, November 2016 and
November 2017.

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.

30% of the award vests for achieving threshold performance.

For further details of the operation and targets please see page 106 of the Annual
Remuneration Report.

reMuneration policy report continued

other inforMation
2011 and 2012 psp awards perforMance condition

Awards made under the PSP in 2011 and 2012 vest subject to the achievement of stretching TSR and EPS
targets. The vesting of 50% of the awards will be determined by the Group’s relative Total Shareholder Return
(“TSR”) performance when measured against a general retailers’ comparator group chosen from the FTSE
350. The vesting of the other 50% will be determined by the Group’s absolute Earnings per Share (“EPS”)
growth performance compared against RPI over the performance period.

shareholdinG Guidelines

The Committee believes that it is important that Executive Directors’ interests are aligned with those of our
shareholders to incentivise them to deliver the corporate strategy, thus creating value for all shareholders.
Executive Directors are encouraged 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.
However, the Committee retains its discretion to extend this period in instances it considers such extension
appropriate. Current Executive Director shareholdings are disclosed on page 107.

leGacy awards

The Committee reserves the right to make any remuneration payments and payments for loss of office
(including the exercise of any discretions available to it in connection with such payments) notwithstanding
that they are not in line with the Policy set out above where the terms of the payment were agreed (i) before
the Policy came into effect or (ii) at a time when the relevant individual was not a director of the Company
and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a
director of the Company. For these purposes “payments” includes the Committee satisfying awards of variable
remuneration and an award over shares is “agreed” at the time the award is granted.

Minor aMendMents

The Committee may however make minor amendments to the policy set out above (for regulatory, exchange
control, tax or administrative purposes or to take account of a change in legislation) without obtaining
shareholder approval for that amendment.

plan rules

Awards under the Deferred Bonus Plan, Performance Share Plan and Co-Investment Award will be operated
in accordance with the rules of the plans. In the event of a variation of the Company’s share capital or a
demerger, delisting, special dividend, rights issue or other event, which may, in the Committee’s opinion,
impact the value of awards, the terms of awards may be adjusted. In addition, the Committee may amend an
award’s performance conditions where an event occurs which causes the Committee to reasonably consider
that an amended performance condition would be, in the case of the PSP, a fairer measure of performance
and a more effective incentive and, in the case of the Co-Investment Award, more appropriate and not be
materially less difficult to satisfy. The rules may be amended in accordance with their terms.

cash

Awards may be settled in cash at the discretion of the Committee.

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 Committee 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:

Fixed Pay

Fixed pay (base salary, benefits and pension) only

Expected

Fixed pay

On target annual bonus opportunity

50% of core PSP award (75% of salary)

Maximum

Fixed pay

100% of maximum annual bonus opportunity

1.5× the core PSP award (225% of salary)

The one-off CEO Co-Investment award has not been included in the scenario chart as there is no intention to
grant further awards.

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014
3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

£0.64m

100%

CEO

£0.39m

100%

CFO

£1.26m

30%

19%

51%

CEO

£0.83m

29%
24%

47%

CFO

£2.54m

45%

£1.45m

30%

51%

25%

CEO

22%

27%

CFO

■ Performance Share Plans

■ Bonus

■ Salary, Beneﬁts & Pension

Fixed

Expected

Maximum

Base Salary with
effect from
1 October 2013

Benefits Single
Figure Value for
2013/14

Pension Based
on Salary with
effect from
1 October 2013

£507,500

£325,000

£31,212

£17,050

£101,500

£48,750

Total Fixed
Remuneration

£640,212

£390,800

Executive Director

Matt Davies (CEO)

Andrew Findlay (CFO)

The above scenarios do not take into account share price growth and any additional dividends that may be
earned are not taken into account.

perforMance conditions
Annual bonus: The bonus is subject to a mix of financial and strategic measures. These measures are selected
to provide an appropriate balance between profitability and strategic objectives and to incentivise individual
directors to meet corporate targets and drive individual performance. Targets are set on an annual basis taking
into account internal and external expectations of performance.

Performance Share Plan: The performance measures for 2014 awards are Group Revenue and EBITDA
growth. Revenue growth is a clear reaction to the Getting Into Gear 2016 programme and is easily identified by
both management and shareholders. However, in order to add value for shareholders, revenue improvements
need to lead through to improved profitability. The majority of the PSP award is therefore subject to improved
profit performance. Growth in EBITDA is a measure of operational profit performance and operational cash
management, with a clear line of sight for management. Given the evolution in strategy and the consequent
focus on investment for long term shareholder value, EBITDA is a more appropriate measure of the effective
delivery of the strategy. At the same time, to ensure a continued focus on cash management a target/underpin
of net debt/EBITDA has been introduced. Targets are set taking into account internal and external expectations
of performance.

The Committee may determine that different performance measures will apply to future PSP awards.

recruitMent reMuneration policy
When hiring a new Executive Director, it would be expected that the structure and quantum of the variable pay
elements would reflect those set out in the policy table above. However, at recruitment, the Committee would
retain the discretion to flex the balance between annual and long-term incentives and the measures used to
assess performance for these elements, with the intention that a significant proportion would be delivered in
shares subject and that variable pay would be subject to performance conditions. In all cases the value of any
variable pay that will be granted in respect of an executive’s recruitment (excluding any buyout compensation
for the ‘loss’ of existing variable remuneration benefits) will be a maximum of 375% of annual salary.

The Committee may also make arrangements to compensate the new executive for ‘loss’ of existing
remuneration when leaving a previous employer. In doing so the Committee may take account of the form in
which they were granted; any relevant performance conditions; the length of time that any relevant performance
periods have to run; and the organisation which previously employed the Executive. The Committee will seek to
deliver buy-out arrangements on a broadly like for like basis to those forfeited.

When determining salary levels for a new Executive Director, the Committee may set the initial salary level
towards the lower end of market practice and may award higher salary increases in the first few years as the
individual gains in experience to move them towards a more market normal level.

To facilitate buy-out awards outlined above, in the event of recruitment, the Committee may grant awards to
a new Executive Director under the Listing Rule 9.4.2 which allows for the granting of awards to facilitate, in
unusual circumstances, the recruitment of an Executive Director without seeking prior shareholder approval or
under other relevant Company incentive plans.

In the event that an internal candidate was promoted to the Board legacy terms and conditions would normally
be honoured, including pension entitlements and any outstanding incentive awards.

reMuneration policy report continued

reMuneration arranGeMents elsewhere in the Group
Whilst our remuneration policy follows the same principles across the Group, remuneration packages for
colleagues reflect their different roles and experiences, and market practice for similar roles.

The remuneration policy for senior executives 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 on a regular basis. Bonuses can be earned on the same basis as the Executive Directors. Senior
Executives immediately below Board level 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 increases are generally in line with all colleagues.

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 2013/14 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. During the year the Company has met its obligations under the
pensions auto enrolment legislation, auto enrolling all other colleagues as appropriate.

executive directors’ service aGreeMents
terM and notice periods
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 any loss he suffers should be recognised. The Committee periodically
reviews the Group’s policy on the duration of Executive 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 CEO it was agreed
that a notice period of six months was appropriate. The notice periods of the other Executive Directors remains
limited to 12 months. The Committee policy is that notice period for new Executive Directors will be no more
than 12 months. The Committee will continue to review this policy, to ensure that it remains in line with the
Company’s overall remuneration policy

Matthew Davies

Andrew Findlay1

Paul McClenaghan2

Date of Service
Agreement

Notice
Period

4 October 2012

6 months

16 November
2010

9 May 2005

12 months

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

2. Paul McClenaghan resigned on 12 April 2013.

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 termination by the Company (other than as set out below). The Company may terminate
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
Executive Director’s then salary, benefits and pension contributions, which he would have received during the
contractual notice period (12 months for the CFO and six months for the CEO), the sum of which shall normally
be payable in monthly instalments.

Executive Directors who are considered to be good leavers may, if the Committee determines, receive a bonus
for the financial year in which they leave employment. Such bonus will normally be calculated on a pro rata
basis by reference to their period of service in the financial period in which their employment is terminated and
performance against targets.

MitiGation on terMination
Where a contract has been terminated early 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 Executive 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 may 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 would normally be less than he would receive if he were to be paid his annual salary
and benefits over 12 months (six months for the CEO).

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014
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.

The Executive Directors’ services contracts are available for inspection by shareholders at the Company’s registered office.

share plans – leaver treatMent
The treatment of outstanding share awards in the event that an Executive Director ceases to hold office or employment with the Group of the Company’s associated
companies is governed by the relevant share plan rules. The following table summarises leaver provisions under the executive share plans.

‘Good leavers’ as determined
by the Committee

Leavers in other circumstances
(other than gross misconduct)

Halfords Performance Share Plan

Under the PSP “Good Leavers” include: Death, injury,
ill-health disability, redundancy, retirement, sale of the
individual’s employing business or company out of
the Group or to a company which is not associated
with the Company or in any other circumstances the
Committee determines.

CEO Co-Investment Award

Under the Co-Investment Plan “Good Leavers”
include: Death, ill-health, disability or in any other
circumstances the Committee determines.

Awards may vest at the end of the performance
period or if a retention period applies at the end of
the retention period. The Committee will determine
the level of vesting having due regarding to the extent
to which the performance conditions have been met
and unless the Committee determines otherwise
the proportion of the performance period that had
elapsed at leaving.

Alternatively the Committee may determine that
awards should vest at the time of leaving on the basis
set out above.

The Executive has 12 months from vesting (or if later,
his date or leaving or the end of the relevant retention
period) to exercise options if awards are structured as
nil-cost options.

The Committee may determine the extent to which
matching shares vest either at the normal vesting
date or at the time of leaving taking into account the
extent to which the performance condition has been
met and unless the Committee determines otherwise
the period of time between award and the participant
leaving.

The Executive has 12 months from vesting (or the
date of leaving if later) to exercise matching shares.

Unvested awards normally lapse on leaving.

Awards for which the performance condition has been
met at the time of leaving but which were subject to a
retention period will continue to vest at the end of the
retention period.

The Executive has 12 months from leaving, or if later,
the end of the retention period to exercise vested
but unexercised options (if applicable) unless the
Committee determines otherwise.

Unvested Matching Shares normally lapse on leaving.

The Executive has 12 months to exercise any
Matching Shares that have vested at cessation of
their employment.

Deferred Bonus Plan (“DBP”)

Under the Deferred Bonus Plan “Good Leavers”
include: Death, injury, ill-health disability, redundancy,
retirement, sale of the individual’s employing business
or company out of the Group or to a company which
is not associated with the Company or in any other
circumstances the Committee determines.

Outstanding awards vest on leaving.

The Executive has 6 months from leaving to exercise
options (12 months in the case of death).

Awards will normally lapse unless the Committee
determines that awards may be exercised. The
Committee has discretion to determine the proportion
of the award that shall vest and the period of time
during which it may be exercised.

The leavers’ treatment under the Halfords Sharesave Scheme is determined in accordance with HMRC provisions.

In the event of an individual’s misconduct all outstanding share awards would generally be forfeited.

chanGe of control
In the event of a change of control of the Company, PSP awards may vest (pro-rated for time elapsed in the performance period unless the Committee determines
otherwise) to the extent that the Committee determines the performance condition should be deemed satisfied having regarding to the Company’s progress towards
that condition. The Committee may allow awards to vest on the same basis in the event of a voluntary winding up or reconstruction of the company or a demerger
except that in the event of a demerger [or reconstruction] the Committee may determine the extent to which awards shall be time pro-rated.

In the event of a change of control, the co-investment award may vest to the extent the Committee determines, taking into account the extent to which the performance
conditions have been met and, unless the Committee determines otherwise, the period of time between grant and the relevant event and such other relevant factors
(such as the performance of the Company) as the Committee considers appropriate. The Committee may determine that awards should vest on the same basis in the
event of a winding-up of the Company or if the Company is affected by a demerger, de-listing, special dividend or other event which may in the Committee’s opinion
affect the value of awards.

DBP awards may vest on a change of control, winding up or demerger of the Company.

Alternatively awards may be rolled over into equivalent awards in a different company.

reMuneration policy report continued

key eleMents of non-executive reMuneration policy

Chairman and Non-
Executive Directors

Purpose and link
to strategy

To attract and
retain high-calibre
individuals to serve
as Non-Executive
Directors.

Performance
Measures

None

Maximum
Opportunity

Overall fees paid
to Directors will
remain within the
limit stated in the
Company’s Articles
of Association,
currently £600,000.

Non-Executive
Directors and the
Chairman are not
entitled to participate
in any cash or share
incentive schemes.

Operation

Fee levels are set to reflect the time, commitment and experience of the
Chairman and the Non-Executive Directors and taking into account fee
levels at other companies of a similar size and complexity and to other
UK listed retailers.

The fees of Non-Executive Directors shall normally be reviewed every
two years to ensure that they are in line with market conditions and
any changes to said fees will be approved by the Board as a whole
following a recommendation from the Chief Executive.

Fees for the Company Chairman shall normally be reviewed every two
years to ensure that they are in line with market conditions and any
changes to said fees will be approved by the Board as a whole.

The fees are normally paid in cash quarterly but may be paid in shares
if this is considered appropriate.

The Chairman is paid a single fee which includes his chairmanship of
the Nomination Committee.

The Non-Executive Directors are paid a base fee plus additional fees
for their chairmanship of a Board Committee and for the role of the
Senior Independent Director.

Further additional fees may be paid to reflect additional time,
committee or board responsibilities if this is considered appropriate.

The Company reimburses reasonable travel and subsistence costs.

The Chairman and Non-Executive directors do not currently receive
other benefits but reasonable benefits may be provided in the future if
appropriate.

appointMent
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 remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the policy table for Non-Executive
Directors above.

The appointment period for each Non-Executive Director is set out below:

Director

Date of Appointment

Dennis Millard

Bill Ronald

David Adams

28 May 2009

17 May 2004

1 March 2011

Date of Current
Appointment

29 May 2012

27 July 2013

1 March 2014

Claudia Arney

25 January 2011

25 January 2014

Keith Harris

Helen Jones

17 May 2004

1 March 2014

27 July 2013

1 March 2014

Date of resignation

Expiry Date

Unexpired term at the
date of this Report

—

29 May 2015

26 July 2016

28 February 2017

24 January 2017

26 July 2016

28 February 2017

12 months

26 months

32 months

31 months

26 months

32 months

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 by the Chairman. The Chairman is evaluated by the Senior Independent Director.

The Non-Executive Directors’ letters of appointment are available for inspection by shareholders at the Company’s registered offices.

100

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014
2

iMaGes

1 Space to assess and
consider premium

cycles.

2 Enhanced displays
and, in selected

stores, the ability to

try pressure washers.

3 Bright and engaging
product brands.

terMination of non-executive directors’ letters of appointMent
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.

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.

In 2013 the Committee consulted with shareholders regarding changing the performance measures for
the PSP from TSR and EPS to Revenue and EBITDA with a net debt underpin. The Committee found the
consultation constructive and the feedback from shareholders resulted in a change in the ratio of Revenue and
EBITDA and the introduction of a retention period of two years for shares that vest by virtue of employing the
performance multiplier.

dialoGue with eMployees
The Committee generally considers pay and employment conditions elsewhere in the Group when considering
pay for Executive Directors and senior management. When considering base salary increases, the Committee
reviews overall levels of base pay increases offered to other employees in the Group.

The Committee does not consult directly with employees regarding Executive Directors’ remuneration.
However, at regular intervals the Company conducts a survey of the views of employees in respect of their
experience of working at Halfords including their own reward.

101

annual reMuneration report

coMMittee activity
the coMMittee

During the year and the period to the date of this report the Remuneration Committee (the “Committee”)
consisted of Keith Harris; Dennis Millard; Bill Ronald; David Adams; and Claudia Arney. Claudia Arney took
over the Chairmanship of the Committee from Keith Harris on 1 March 2014. In this time the Committee has:

Discussed and approved both financial and strategic annual bonus metrics and targets;

Reviewed and set the salaries of the CEO and FD with effect from 1 October 2013;

Reviewed and commented on the salaries and incentive arrangements for the executive management;

Reviewed and approved the salaries and incentives arrangements for the recruitment of senior executives;

Held discussions with shareholders and approved changes to the performance conditions for awards made

under the Performance Share Plan from 2013 onwards;

Measured the performance conditions of the Company Share Option Scheme (which operates for Senior
Executives below Board level) and the Performance Share Plan awards granted in 2010, confirming that
neither of the Schemes’ performance condition targets had been met;

Approved grants under the Performance Share Plan, Company Share Option Scheme (to Senior Executives

below Board level) and Sharesave Scheme;

Approved amendments to the rules of the Company Share Option Scheme and the Sharesave Scheme in

respect of Finance Act 2013 changes;

Approved new rules for the Company Share Option Scheme and the Sharesave Scheme to be put before
shareholders at the 2014 Company’s Annual General Meeting (the old plans having expired this year);

Reviewed and approved the Company’s Remuneration Policy and Annual Remuneration Report for placing

before shareholders at the Company’s Annual General Meeting on 29 July 2014;

Undertaken a review of Committee effectiveness and agreed steps to enhance effectiveness; and

Considered and approved the Committee’s terms of reference.

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 has advised on performance measures for the PSP, remuneration
reporting and other remuneration matters. Fees paid to Deloitte for this advice were £5,900. Deloitte have also
provided advice to management as part of their support to the Committee, primarily in relation to remuneration
reporting. A separate team within Deloitte has also provided debt advisory advice.

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. The Committee is also satisfied that the Deloitte LLP engagement partner
and team, which provided remuneration advice to the Committee, do not have connections with Halfords that
might impair their independence. The Committee reviewed the potential for conflicts of interest and judged that
there were appropriate safeguards against such conflicts.

Towers Watson also provided the Committee with executive salary benchmark data. Towers Watson are also
signatories of the Remuneration Consultants Code of Conduct. Fees paid to Towers Watson for this advice
were £3,500.

Fees for both Deloitte and Towers Watson were charged on a time and materials basis.

shareholder dialoGue

The Committee is 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, determine appropriate
actions and would detail any such actions in response to it in the Directors’ Remuneration Report.

102

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014The following table sets out actual voting in respect of our last report in 2013:

% of votes

For 2012/13 Directors’ Remuneration Report (2013 AGM)

For

88.8%

Against

11.2%

6,247,647 votes were withheld in relation to this resolution (c.4% of shareholders).

how was the reMuneration policy iMpleMented in 2013/14 —
executive directors
sinGle reMuneration fiGure for 2013/14 (audited)

Bonus
(due in
respect of
2013/14)1

736,734

295,181

Base
Salary

503,750

302,750

Matt Davies

Andrew Findlay

Totals

806,500

1,031,915

Benefits

Pension

31,212

17,050

48,262

100,375

45,000

142,250

PSP
(due in
respect
of perform-
ance
period
ended
2013/14)2

Total
‘Single
Figure’
2014

n/a

1,372,071

—

660,011

2,028,957

The calculation of the bonus payable in respect of the period ended 28 March 2014 is given on page 104.

2. Shares were awarded in August 2011 under the Performance Share Plan based on performance in the period April 2011 to

March 2014. In May 2014 the performance conditions for these shares were measured and the Committee determined that

awards would not vest. Further detail is given on page 104. Matt Davies did not receive a PSP award in 2011 as this was

prior to him joining the Company.

sinGle reMuneration fiGure for 2012/13 (audited)

Bonus
(due in
respect of
2012/13)

187,500

56,100

243,600

Base
Salary

246,795

280,500

527,295

Benefits

Pension

14,318

16,335

30,653

50,000

41,250

91,250

Matt Davies3

Andrew Findlay

Totals

3. Matt Davies was appointed to the Board on 4 October 2012.

salary

PSP
(due in
respect
of perform-
ance
period
ended
2012/13)

n/a

—

Total
‘Single
Figure’
2013

498,613

394,185

892,798

In keeping with its usual cycle of reviewing Company-wide salaries in September/October the Committee
considered an executive pay report compiled for them by Towers Watson. The Committee concluded that
the salary for the CEO was competitive and decided to increase his salary by 1.5% to £507,500 in line with
the average increase awarded to colleagues across the business. In reviewing the Executive Directors’
responsibilities the Committee determined that the Group’s CFO, Andrew Findlay, had assumed Board
responsibility for a number of additional 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 programme.

The Committee considered that Andrew Findlay’s salary did not appropriately reflect the scope and
responsibilities of his increased role and as such the Committee considered it appropriate that he receive an
increased salary from 1 October 2013 of £325,000 (16% increase).

2013/14 annual bonus

Annual Bonuses for 2013/14 for Executive Directors were based 75% on Group PBT and 25% on the delivery
of key strategic initiatives crucial to the delivery of the Company’s strategy. These initiatives included improving
the retention rate of colleagues who had been with the business for three months; increasing the ‘value-
added’ service sales; increasing the range of parts, accessories and clothing on offer in the Company’s Cycling
category; improving both colleague and customer engagement with the Halfords brand; and the development
of new 50:39 store formats.

103

annual reMuneration report continued

Annual Bonuses reported in the above table and payable in May 2014 for the financial period ended 28 March 2014 were calculated as follows.

Performance

Bonus
Opportunity
(% of total
award)

Threshold

Target

Stretch

75%

92% of budget

100% of budget

106% of budget

Measure

PBT

Bonus
awarded
(% of total
award)

75.0%

Performance
delivered

Underlying PBT for year as
£72.8m was in excess of 106%
of target and therefore this
proportion of the annual bonus
is payable in full.

The Remuneration Committee has discretion to determine the extent to which these initiatives have been achieved. In determining the outcome in relation to each
initiative the Committee considered the following achievements:

— Retention of Store
Colleagues;

— Value Added Sales;

Reducing the number of colleagues who leave the business, as a
percentage, within three months of their start date.

Increasing the total incremental sales in the financial year of 3Bs fitting, other
auto fitting, cycle repair, Sat Nav attachment and cycle accessories.

— Net Promoter Score
Formats;

As measured by the Empathica mechanism in stores – increasing the
average score over the final three months of the year.

— Engagement Index;

Increasing the year on year engagement index based on the annual survey.

— 50:39 Store Delivery.

15 stores refurbished and a blueprint established for roll out.

Achieved

The initiatives included in this
project led to sales increasing
in a range in the lower half
of the target.

Achieved

Total Bonus

2.5%

97.5%

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.

Bonus targets are considered by the Board to be commercially sensitive as they could reveal information about Halfords’ business plan and budgeting process to
competitors which could be damaging to Halfords’ business interests and therefore to shareholders. The Committee will look to disclose targets when they are
considered to no longer be commercially sensitive.

2011 perforMance share plan award

Awards granted in 2011 under the PSP were subject to the following performance conditions:

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

Core Award
(150% of salary)

1.5 x initial award vesting

Upper Decile performance

16% growth p.a. above RPI

TSR Performance Element
(50% of award)

EPS Performance Element
(50% of award)

Straight-line vesting

100% Vesting

Straight-line vesting

30% Vesting

0% Vesting

Between Upper Quartile and
Upper Decile performance

Between 11% growth p.a. and
16% growth p.a. above RPI

Upper Quartile performance

11% growth p.a. above RPI

Between Median and
Upper Quartile performance

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

Median performance

4% growth p.a. above RPI

Below Median performance

Below 4% growth p.a. above RPI

TSR and EPS performance are assessed on an independent basis. However, to ensure that the PSP continues 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 are based on the FTSE 350 general retail and food retail companies on the date of grant. For awards granted in
2011 these are as follows:

Brown Group; Carpetright; Debenhams; Dignity; Dixons Retail plc (formerly DSG International); Dunelm Group; 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 2 April 2011 and 28 March 2014, Halfords’ TSR was just below median against the comparator group and therefore 0% of the
portion of the TSR element of the award will vest. EPS growth between FY11 and FY14 was below RPI and therefore 0% of the EPS element of the award will vest.

104

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014tsr performance Graph

The following graph shows the TSR performance of the Company since April 2009, 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.

FTSE 350 General Retailers
Halfords Group

Source: Thompson Datastream

300

250

200

150

100

The following table shows the history of PSP award vesting over the last 5 five years.

2009

2010

2011

2012

2013

2014

PSP vestings (% of maximum)

standard benefits

FY10

100%

FY11

99%

FY12

FY13

FY14

Standard benefits include payments made in relation to life assurance, private health insurance and the provision of a company car or equivalent cash allowance and
the use of a chauffuer when appropriate.

pension

Pension payments represent contributions made either to defined contribution pension schemes or as a cash allowance. The CEO received a contribution of 20% of
base salary and the CFO received contribution of 15% of base salary.

share awards Granted durinG the year (audited)
perforMance share plan

During the year the Committee approved awards to the Executive Directors under the Performance Share Plan as follows;

Date of award

Type of award

Number of shares

Maximum
face value of award
(1.5x the number of
awards granted)**

Threshold vesting
(% of target award)

Performance
period

Matt Davies

Andrew Findlay

7 August 2013

Nil cost option (0p
exercise price)

200,588*

112,530*

£1,124,998

£631,125

30%

30 March 2013 to
25 March 2016

* These awards were based on 150% of salary.

** Based on the mid-market price on the date of the awards of £3.739.

performance conditions

Awards granted in 2013 are subject to the following performance conditions:

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

Core Award
(150% of salary)

1.5 x initial award vesting

8.00%

6.50%

Group Revenue Growth — CAGR (25%
of the award)

Group EBTIDA Growth - CAGR
(75% of the award)

Straight-line vesting

100% Vesting

Straight-line vesting

30% Vesting

0% Vesting

Between 4.75% and 8.00%

Between 3.25% and 6.50%

4.75%

3.25%

Between 4.00% and 4.75%

Between 2.50% and 3.25%

4.00%

Below 4.00%

2.50%

Below 2.50%

In addition to achieving these targets, the vesting of awards will be subject to meeting an underpin of net debt to EBITDA ratio no greater than 1.5x throughout the
three-year performance period. This will ensure that net debt remains at appropriate levels and management is not incentivised to invest in new activities that are not
profitable thereby increasing net debt levels to meet targets; the focus is to maximise the return on cash investments. The Core Award shares that vest will become
exercisable in August 2016. To the extent that awards vest in line with the performance multiplier outlined above, these shares will only become exercisable in August
2018, following a retention period of two years.

105

annual reMuneration report continued

deferred bonus plan

Matt Davies received a bonus of £187,500 in respect of 2012/13, of which one-third (£62,500) was deferred into 18,997 shares under the Deferred Bonus Plan on
31 May 2013 at a price of £3.29 per share. These shares vest, subject to the clawback provisions referred to on page 94, on 31 May 2016.

outstandinG share awards (audited)

performance share plan

The following summarises outstanding awards under the PSP:

Mid-
market
price on
date of
awards

3.74

3.17

2.20

3.74

Awards
held
29 March
2013

Awarded
during the
period

—

200,588

230,692

195,866

—

112,530

Dividend
Reinvestment1

Forfeited
during the
period

Lapsed
during the
period

Exercised
during
the year

Awards
held
28 March
2014

Performance
period 3 years
to

2,220

8,275

7,026

1,246

—

202,808

1 April 2016

238,967

28 March 2014

202,892

113,776

3 April 2015

1 April 2016

Award Date

Matt Davies

7 August 2013

Andrew Findlay 8 August 20112

3 August 2012

7 August 2013

Interim and final dividends have been reinvested in shares at prices between £3.7100 and £4.6974.

The Remuneration Committee has reviewed the performance conditions attached to 2011 Performance Share Plan award and determined that the performance conditions have not been met.

The award will therefore lapse on 8 August 2014.

The performance conditions for awards are summarised above. The performance conditions for 2012 awards are the same as for 2011 awards.

co-investment plan

Awards held
30 March
2012

Awarded
during the
period

Dividend
Reinvestment

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

—

574,1961

20,4702

—

594,666

November 2015
- November
2017

This award represents 3.5 times Matt Davies’ initial investment of 164,056 shares purchased at a price of £3.02 on 4 October 2012.

Interim and final dividends have been reinvested in shares at prices between £3.7100 and £4.6974.

On appointment, the Company made the CEO a one-off Co-Investment Award. This Award was designed to allow the Company to recruit and retain an executive of the
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. It is not anticipated that any further awards will be made under
this Plan to either the Group’s CEO or other executives.

perforMance conditions

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 3.5x 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 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 CEO 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 accrue
additional shares related to dividends.

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.

106

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014halfords Group plc deferred bonus plan

Matt Davies

Award Date

31 May 2013

Awards held
29 March
2013

Awarded
during the
period

Dividend
Reinvestment

Lapsed
during the
period

Exercised
during
the year

Awards held
28 March
2014

—

18,9971

681

—

19,678

1. Matt Davies received a bonus of £187,500 of which one-third was deferred into shares under the Halfords Deferred Bonus Plan at a price of £3.29 per share.

ceo pay coMpared to perforMance

The following tables compares the Company’s TSR performance with the CEO remuneration for the past 5 years and outlines the proportion of annual bonus paid as a
percentage of the maximum opportunity and the proportion of PSP awards vesting as a percentage of the maximum opportunity. The annual bonus is shown based on
the year to which performance related and the PSP is shown for the last year of the performance period.

FTSE 350 General Retailers
Halfords Group

Source: Thompson Datastream

300

250

200

150

100

2009

2010

2011

2012

2013

2014

CEO salary, benefits
and pensions

Annual bonus
(% of maximum)

PSP vesting
(% of maximum)

Matt Davies1

David Wild2

Matt Davies

David Wild

Matt Davies

David Wild

1. Matt Davies was appointed on 4 October 2012.

2. David Wild stepped down as CEO on 19 July 2012.

2009/10

2010/11

2011/12

2012/13

2013/14

n/a

605

n/a

100%

n/a

n/a3

n/a

606

n/a

99%

n/a

617

n/a

311

198

50%

n/a

n/a4

n/a5

635

—

97.5%

n/a

n/a6

—

3. David Wild did not receive a PSP award in 2007 as this was before he was appointed. The 2007 PSP awards vested in full.

4. Matt Davies did not receive a PSP award in 2010 as this was before he was appointed. The 2010 PSP awards lapsed in full.

5. David Wild’s 2010 PSP award lapsed on leaving.

6. Matt Davies did not receive a PSP award in 2011 as this was before he was appointed.

executive director shareholdinG (audited)

Shareholding Requirement

Current Shareholding

Current Value (based on share price on 28 March 2014)

Current % of Salary

Date by which guideline should be met

Matt Davies

Andrew Findlay

100%

174,056

£802,572

158%

100%

19,108

£88,107

27%

4 October 2017

1 February 2016

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 these beneficial interests between 28 March 2014 and 22 May 2014.

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. During the year Matt Davies received fees of £41,250 as a Non-
Executive Director of Dunelm Group plc.

107

annual reMuneration report continued

loss of office payMents (audited)

Paul McClenaghan left the business on 12 April 2013. The Committee determined that it was appropriate to treat him as a Good Leaver and therefore allowed him to
retain his PSP awards granted in 2011 and 2012 which will vest on a pro-rata basis in relation to the elapsed time of the performance period at his leaving date and
subject to performance at the normal testing date. Paul McClenaghan was also paid a lump sum of £218,025, being equivalent to nine months’ salary, in full and final
settlement of any contractual obligations. This sum was less than the amount he was due under the termination provisions of his service agreement.

payMents to forMer directors (audited)

There were no payments to former directors during the year.

how was the reMuneration policy iMpleMented in 2013/2014 — non-executive directors

non-executive director single figure comparison (audited)

Director

Dennis Millard

Bill Ronald

David Adams

Claudia Arney

Keith Harris

TOTALS

Role

Chairman

Senior Independent Director

Audit Committee Chairman

NED

Remuneration Committee Chairman

Senior
Independent
Director1

Committee
Chairman
Fees2

Total
‘Single Figure’
2014

Total
‘Single Figure’
2013

Board Fees3

165,916

45,250

346,000

—

13,750

1,250

—

15,000

—

5,000

417

4,583

165,916

215,000

59,000

51,500

45,667

49,833

60,000

50,000

45,000

50,000

10,000

371,000

420,000

1. On 1 March 2014 David Adams took over from Bill Ronald as Senior Independent Director.

2. On 1 March 2014 Claudia Arney took over from Keith Harris as Chairman of the Remuneration Committee.

3. On 1 March 2014 the fees for Non-Executive Directors were increased from £45,000 to £48,000, and the Chairman’s fees were increased from £165,000 to £176,000 see page 110.

non-executive director shareholding

Director

Dennis Millard

Bill Ronald

David Adams

Claudia Arney

Keith Harris

Helen Jones

2014

50,000

11,538

6,000

21,052

3,386

—

2013

40,000

11,538

6,000

21,052

3,386

n/a

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 28 March 2014 and 22 May 2014.

Non-Executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.

how reMuneration policy will be iMpleMented for 2014/15 – executive directors

salary

Base salaries were last reviewed with effect from 1 October 2013 and increases were made as per the details on page 103. Current salaries for the Executive Directors
are as follows:

CEO

CFO

Salaries will next be reviewed with effect from 1 October 2014.

annual bonus

The annual bonus opportunity for 2014/15 will remain unchanged as follows:

CEO

CFO

£507,500

£325,000

Maximum opportunity of 150% of base salary

2/3rd paid in cash

1/3rd paid in Halfords shares deferred for three years

Maximum opportunity of 100% of base salary

Paid in cash

The annual bonus for 2014/15 will be based 80% on Profit Before Tax (‘PBT’) performance and 20% based on performance against strategic objectives. PBT targets
are calibrated with reference to prior year performance and the Group’s business plan and zero payment will be made for threshold performance with maximum
payment being made for a stretch target and intermediate payments being made on a straight-line basis.

108

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014The Committee reviews the goals included in the strategic objectives portion of the bonus to ensure that they remain appropriate. For 2014/15 the Committee
determined that the strategic objectives would be linked to the delivery of the Company’s goal of delivering growth in top line revenues. The Remuneration Committee
have identified measures that it considers will measure the successful delivery of each objective and these also represent the non-financial strategic measures that will
form part of the Executive Director’s 2014/15 annual bonus plan.

These are detailed below:

Measure

Definition

Net Promoter Score (“NPS”)

Improved NPS as measured by the Empathica mechanism in store. Average score over the final 3 months of the year.

Engagement Scores

Value Added Sales

Improved colleague engagement scores as measured by the index achieved in the survey planned to take place in 2015.

Increasing the total incremental sales in the financial year of 3Bs fitting, other auto fitting, cycle repair, Sat Nav attachment
and cycle accessories.

Delivering an effective economic model
for retail stores through the 50:39 project

If the increase in the incremental sales for at least 50% of the refreshed stores collectively is in excess of 1.5% the threshold
has been met, whilst ensuring that the balance of the portfolio also maintains postitive growth in sales. If the incremental
sales for at least 50% of the refreshed stores collectively is in excess of 3% the maximum has been met.

Colleague Retention

Reducing the number of colleagues who leave the business as a percentage within 3 months of their start date.

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.

The details of bonus targets is considered by the Board to be commercially sensitive as they could reveal information about Halfords’ business plan and budgeting
process to competitors which could be damaging to Halfords’ business interests and therefore to shareholders.

share plans

The Company has adopted four share plans: The Halfords Sharesave Scheme; the Halfords Company Share Option Scheme (“CSOS”), a market value share option
plan; the Halfords Performance Share Plan (“PSP”); and the Halfords Co-Investment Plan (it is intended that no further awards will be made under this plan). Executive
Directors do not particiapte in the CSOS.

For the Executive Directors’ the Committee intends to continue granting awards under the Performance share plan of 150% of base salary. If exceptional performance
is achieved up to 1.5x the core award can be earned (‘performance multiplier’). The vesting of awards will be subject to meeting the following performance conditions:

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

Core Award
(150% of salary)

1.5 x initial award vesting

7.5%

9.0%

Group Revenue Growth —
CAGR (25% of the award)

Group EBTIDA Growth
(75% of the award)

Straight-line vesting

100% Vesting

Straight-line vesting

30% Vesting

0% Vesting

Between 6.5% and 7.5%

Between 7.5% and 9.0%

6.5%

7.5%

Between 5.0% and 6.5%

Between 5.0% and 7.5%

5.0%

Below 5.0%

5.0%%

Below 5.0%

In addition to achieving these targets, the vesting of awards will be subject to meeting an underpin of net debt to EBITDA ratio no greater than 1.5x throughout the
three-year performance period. This will ensure that net debt remains at appropriate levels and management is not incentivised to increase net debt levels to meet
targets; the focus is to maximise the return on cash investments. The Core Award shares that vest will become exercisable in August 2017. To the extent that awards
vest in line with the performance multiplier outlined above, these shares will only become exercisable in August 2019, following a retention period of two years.

While committed to the use of equity-based performance-related remuneration as a means of aligning Executive 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.

benefits

The Company will continue to provide a car plus fuel or cash allowance, private health insurance and life assurance as standard benefits.

pensions

The Company will continue to makes contributions to the Halfords Pension Plan 2009 or make payments into a personal fund, the purpose of which is to provide
additional benefits. Contribution rates will remain at 20% for the CFO and 15% for the Finance Director.

109

annual reMuneration report continued

how reMuneration policy will be iMpleMented for 2013/14 – non-executive directors
fees

The fees of Non-Executive Directors shall normally 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 highest calibre and any changes to said fees will be approved by the Board as a whole following a recommendation from the Chief Executive.
The base fee for Non-Executive Directors was increased by 6.6% as from 1 March 2014. At the same time following a recommendation by the CEO, the Remuneration
Committee approved an increase of 6.6% in the Chairman’s fees. This was the first increase in these fees since April 2009. Current fees for Non-Executive Directors are
as follows:

Chairman

Base fee

Additional fees

Senior Independent Director

Committee Chairman (Audit and Remuneration)

spend on pay

2014

£176,000

£48,000

—

£15,000

£5,000

2013

£165,000

£45,000

—

£15,000

£5,000

The Committee is aware of the importance of pay across the Group in delivering the Group’s strategy and of shareholders’ views on executive remuneration.

change in remuneration of chief executive compared to Group employees

The table below sets out the increase in total remuneration of the Chief Executive and that of all colleagues:

Chief Executive

All Colleagues

1.50

1.94

196.5%

270.2%

No Change

% change in base salary
FY13 to FY14

% change in bonus earned
FY13 to FY141

% change in benefits FY13 to FY14

In FY13 the bonuses earned were based on the achievement of personal objectives and/or sales incentives. In FY14 the bonuses earned were based on the achievement of personal

objectives and/or sales incentives and the achievement of the Group’s underlying EBITDA target.

relative importance of pay

The Committee is also aware of shareholders’ views on remuneration and its relationship 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)

Returned to Shareholders:

Dividend

Share Buyback

Payments to Employees:

Wages & Salaries

Including Directors1

1. Based on the single figure calculation, not all of which is included within wages and salary costs.

2014

£101.1m

£72.8m

£27.7m

£173.0m

£2.0m

2013

£103.4m

£72.0m

£42.7m

£0.9m

£153.5m

£1.51m

110

23157.04 Proof 7 10-06-2014getting into gearintegrated annual report for the year ended 28 march 2014Governance > directors’ responsibilities

directors’ responsibilities

stateMent of directors’ responsibilities in respect of the annual report and the financial stateMents
The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and
regulations.

Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the
group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in
accordance with UK Accounting Standards.

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 Strategic Report, Directors’ Report, Directors’ Remuneration Report and
Corporate Governance Statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position

and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the

Company’s performance, business model and strategy; and

the Annual Report and Accounts includes a fair review of the development and performance of the business and the Group taken as a whole, together with a

description of the principal risks and uncertainties that they face.

Approved by order of the Board.

Dennis Millard
Chairman
21 May 2014

111

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials and
shareholder
inFormation

Financials

Auditors Report
Index to Financials

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 inFormation

Five Year Record

Key Performance Indicators

Read more
halfords.annualreport2014.com

113

accelerating our
wefit services.

23157.04 Proof 6 21-05-2014halfords.annualreport2014.comstock code: hfdhalfords Group plcannual report and accounts 2014Strategic reportStrategyStrategic reportoverviewStrategic reportperformanceStrategic reportriSkgovernancefinancialSShareholderinformation

Financials > auditors’ report

auditors’ report

independent auditors’ report
to the members oF halFords Group plc only

opinions and conclusions arisinG From our audit
1. our opinion on the Financial statements is unmodiFied
We have audited the financial statements of Halfords Group plc (“the
Group”) for the year ended 28 March 2014 set out on pages 117 to
155. 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 28 March 2014
and of the Group’s profit for the year then ended;

the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU);

the Parent Company financial statements have been properly
prepared in accordance with UK Accounting standards; 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.

2. our assessment oF risks oF material misstatement
In arriving at our audit opinion above on the financial statements the
risks of material misstatement that had the greatest effect on our audit
were as follows.

Valuation of inventory within the retail division (£150.2m)
Refer to pages 86 to 89 (Audit Committee Report), page 126 to 127
(accounting policy) and page 138 (financial disclosures).

the risk – The Group holds a significant amount of inventory across
a broad and diverse product range. Changes in consumer tastes
and demands may mean that they cannot be sold or sales prices
are discounted to less than the current carrying value. Estimating
the future demand for, and hence the recoverable amount of, these
products is inherently subjective.

our response – Our audit procedures in this area included, amongst

others, testing the design and effectiveness of controls over
identifying slow moving or discontinued products and obtaining an
understanding of the Group’s process for measuring the amount of
provision required. These controls are designed to identify product
lines where current sales prices do not exceed cost. The Group
also makes provision for product lines where future sales prices
are expected to be below current carrying value due to changes in
customer tastes and demand. We critically assessed the Group’s
provision for those product lines identified as slow moving, or
potentially slow moving, by obtaining an understanding of the
Group’s sales and purchasing plans for 2014/5 and the new product
launches therein as well as the level of expected discounting. This
included considering the historical accuracy of these plans and
the level of discounting activity in previous years compared to the
current inventory levels and committed purchases. We compared
post year-end sales data to items within the Group’s provision and
to information provided by Category Managers responsible for each
product category.

We also considered the adequacy of the Group’s disclosures (see page
127 and Note 12) about the degree of estimation involved in arriving at
the provision.

Valuation of Goodwill associated with the nationwide autocentres
acquisition (£69.7 m)
Refer to pages 86 to 89 (Audit Committee Report), page 127 to 128
(accounting policy) and page 136 (financial disclosures).

the risk – Following the acquisition of Nationwide Autocentres

in 2010, the Group has held significant goodwill in the business.
The business operates in a competitive market and difficulties
commercially; such as loss of a significant customer, may lead
to a risk that the business does not meet the growth projections
necessary to support the carrying value of the intangible asset.
Due to the inherent uncertainty involved in forecasting these
cashflows, this is one of the key judgemental areas that our audit is
concentrated on.

our response – Our audit procedures included, amongst others,
critically assessing the assumptions used around prospective
trading levels through discussion with the Group, in light of market
information around the size and age of the UK car market and
comparison of the historical forecasting accuracy for newly opened
Autocentres, given the proportion which have recently been opened.
We also assessed the Group’s performance against budget in
the current and prior periods to evaluate the historical accuracy
of forecasts. We used break even analysis to determine the key
sensitivities within the budgeting model, which we considered to
be the discount rate and the growth rate. Our internal valuation
specialists assessed the discount rate, which included an adjustment
for forecasting risk, by benchmarking the rate against external
market data and the Group’s financial position. We have assessed
the continuing improvement in customer retention, a key factor in the
growth rate, through the externally generated Net Promoter Score
(NPS) and the operational focus on customer service within the
business.

We considered the adequacy of the Group’s disclosures (see Note 10)
about the sensitivity of the outcome of the impairment assessment to
changes in key assumptions.

3. our application oF materiality and an oVerView oF the scope oF
our audit
The materiality for the Group financial statements as a whole was set
at £5.0m. This has been determined with reference to a benchmark
of Group profit before taxation (of which it represents 6.9%) which we
consider to be one of the principal considerations for members of the
Company in assessing the financial performance of the Group.

We agreed with the Audit Committee to report to it all corrected and
uncorrected misstatements we identified through our audit with a value
in excess of £0.3m in addition to other audit misstatements below that
threshold that we believe warranted reporting on qualitative grounds.

The Group audit team performed the audit of the Group as if it was a
single aggregated set of financial information. The audit was performed
using the materiality levels set out above and covered 100% of total
Group revenue, Group profit before taxation, and total Group assets.

114

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014scope oF report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set
out on page 111, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and
fair view. 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. This report is made solely to the Company’s
members as a body and is subject to important explanations and
disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated
into this report as if set out in full and should be read to provide
an understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.

Greg watts (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
21 May 2014

4. our opinion on other matters prescribed by the companies act
2006 is unmodiFied
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 Strategic Report and the Directors’

Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.

5. we haVe nothinG to report in respect oF the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements, a
material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

we have identified material inconsistencies between the knowledge

we acquired during our audit and the directors’ statement that
they consider that the annual report and financial statements taken
as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
performance, business model and strategy; or

the Audit Committee report, as set out on pages 86 to 89 does not

appropriately address matters communicated by us to the Audit and
Risk Committee.

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 74, in relation to going

concern;

the part of the Corporate Governance Statement on pages 76 to 85
relating to the Company’s compliance with the ten provisions of the
UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

115

index to Financials

Financial statements

Financial liabilities and equity

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

General inFormation

statement oF compliance

basis oF preparation

basis oF consolidation

subsidiary undertakinGs

business combinations

reVenue recoGnition

retail

car serVicinG

promotions and returns

Financial income

non-recurrinG items

earninGs per share

ForeiGn currency translation

Functional and presentation
currency

transactions and balances

employee beneFits

pensions

share based payment transactions

taxation

diVidends

intanGible assets

Goodwill

computer soFtware

acquired intanGible assets

property, plant and equipment

impairment oF assets

leases

Financial leases

operatinG leases

landlord surrender payments

sublease income

inVentories

proVisions

Financial instruments

Financial assets

trade receivables

cash and cash equivalents

117

118

119

bank borrowings

trade payables

equity instruments

derivative financials instruments and
hedge accounting

120

estimates and JudGements

121

122

123

124

125

126

impairment oF assets

allowances aGainst the carryinG
Value oF inVentories

intanGible asset Valuations

adoption oF new and reVised
standards

new standards and interpretations
not yet adopted

notes to the Financial statements

operatinG seGments

operatinG expenses

operatinG proFit

staFF costs

non- recurrinG items

Financial income and costs

taxation

diVidends

earninGs per share

intanGible assets

property, plant and equipment

inVentories

trade and other receiVables

cash and cash equiValents

borrowinGs

trade and other payables

proVisions

deFerred tax

Financial instruments and related
disclosures

treasury policy

market risk

interest rate risk

capital risk manaGement

Fair Value disclosures

Fair Value hierarchy

credit risk

ForeiGn currency risk

pension liability risk

liquidity risk

capital and reserVes

share based payments

halFords company share option
scheme

halFords sharesaVe scheme

perFormance share plan

co-inVestment share plan

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

commitments

pensions

continGent liabilities

related party transactions

subsidiary undertakinGs

transactions with key manaGement
personnel

oFF balance sheet arranGements

company balance sheet

reconciliation oF moVements in total
shareholders’ Funds

reconciliation oF moVements in
total shareholders' Funds

accountinG policies

basis oF preparation

share- based payments

inVestments

diVidends

notes to the Financial statements

proFit and loss account

Fees payable to the auditors

staFF costs

inVestments

principal subsidiary undertakinGs

debtors

creditors

borrowinGs

equity share capital

potential issue oF ordinary shares

interest in own shares

reserVes

related party disclosures

continGent liabilities

oFF balance sheet arranGements

post balance sheet eVents

FiVe year record

key perFormance indicators

147

148

149

150

151

152

153

154

155

156

116

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014

Financials > consolidated income statement

consolidated income statement

52 weeks to 28 March 2014

52 weeks to 29 March 2013

For the period

Revenue

Cost of sales

Gross profit

Operating expenses

Results from operating activities

Finance costs

Finance income

Net finance expense

Profit before income tax

Income tax expense

Profit for the financial period
attributable to equity shareholders

Earnings per share

Basic

Diluted

Before
Non-
recurring
Items
£m

Non-
recurring
items
(note 5)
£m

Notes

—

(0.2)

—

(0.2)

(0.1)

(0.3)

939.7

(435.5)

504.2

(426.4)

77.8

(5.2)

0.2

(5.0)

72.8

(17.0)

55.8

28.8p

28.4p

Before
Non-recurring
items
£m

Non-recurring
items
(note 5)
£m

871.3

(394.2)

477.1

(399.0)

78.1

(6.3)

0.2

(6.1)

72.0

(18.2)

53.8

—

(1.0)

—

(1.0)

(0.1)

(1.1)

Total
£m

939.7

(435.5)

504.2

(426.6)

77.6

(5.2)

0.2

(5.0)

72.6

(17.1)

55.5

28.6p

28.2p

27.7p

27.5p

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

All results relate to continuing operations of the Group.

The notes on pages 129 to 155 are an integral part of these consolidated financial statements.

117

consolidated statement oF comprehensiVe income

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

55.5

52.7

Notes

(3.0)

1.1

(0.1)

0.8

(1.2)

54.3

2.8

(0.7)

(0.1)

(0.7)

1.3

54.0

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

Other comprehensive income for the period, net of income tax

Total comprehensive income for the period attributable to equity shareholders

All items within the consolidated statement of comprehensive income are classified as items that are or may be recycled to the income statement.

The notes on pages 129 to 155 are an integral part of these consolidated financial statements.

118

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > consolidated statement oF Financial position

consolidated statement oF Financial position

Assets

Non-current assets

Intangible assets

Property, plant and equipment

Deferred tax asset

Total non-current assets

Current assets

Inventories

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Total current assets

Total assets

Liabilities

Current liabilities

Borrowings

Derivative financial instruments

Trade and other payables

Current tax liabilities

Provisions

Total current liabilities

Net current assets

Non-current liabilities

Borrowings

Accruals and deferred income — lease incentives

Provisions

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 129 to 155 are an integral part of these consolidated financial statements.

28 March
2014
£m

29 March
2013
£m

Notes

342.2

95.2

4.4

441.8

150.2

52.8

—

5.3

208.3

650.1

(10.3)

(2.1)

(159.5)

(10.4)

(9.0)

(191.3)

17.0

(94.6)

(28.8)

(9.3)

(132.7)

(324.0)

326.1

2.0

151.0

(14.3)

(0.3)

187.7

326.1

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

The financial statements on pages 117 to 122 were approved by the Board of Directors on 21 May 2014 and were signed on its behalf by:

matt davies
Chief Executive

andrew Findlay
Chief Financial
Officer

Company Number: 04457314

119

consolidated statement oF chanGes
in shareholders’ equity

Attributable to the equity holders of the Company

Other reserves

Share
capital
£m

Share
premium
account
£m

Investment
in own
shares
£m

Capital
redemption
reserve
£m

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

2.0

—

151.0

(14.0)

—

0.8

—

0.8

Balance at 29 March 2013

2.0

151.0

(13.2)

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 28 March 2014

2.0

151.0

—

2.1

—

(3.2)

—

(1.1)

(14.3)

120

The notes on pages 129 to 155 are an integral part of these consolidated financial statements.

0.3

—

0.3

—-

—

Hedging
reserve
£m

Retained
earnings
£m

(0.7)

148.5

Total
equity
£m

287.1

—

52.7

2.8

(0.7)

(0.1)

(0.7)

1.3

—

0.6

—

52.7

—

0.1

(0.9)

0.3

(42.7)

(43.2)

158.0

2.8

(0.7)

(0.1)

(0.7)

1.3

54.0

0.8

0.1

(0.9)

0.3

(42.7)

(42.4)

298.7

—

55.5

(3.0)

1.1

(0.1)

0.8

(1.2)

—

(3.0)

1.1

(0.1)

0.8

(1.2)

55.5

54.3

—

1.0

—

0.9

(27.7)

(25.8)

187.7

2.1

1.0

(3.2)

0.9

(27.7)

(26.9)

326.1

0.3

(0.6)

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > consolidated statement oF cash Flows

consolidated statement oF cash Flows

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£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

Net finance costs

Loss on disposal of property, plant and equipment

Equity-settled share based payment transactions

Fair value loss/(gain) on derivative financial instruments

Income tax expense

(Increase)/decrease in inventories

Decrease/(increase) in trade and other receivables

Increase in trade and other payables

Increase in provisions

Finance income received

Finance costs paid

Income tax paid

Net cash from operating activities

Cash flows from investing activities

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 in cash and bank overdrafts

Cash and cash equivalents at the beginning of the period

Cash and cash equivalents at the end of the period

The notes on pages 129 to 155 are an integral part of these consolidated financial statements.

55.8

(0.3)

55.5

18.0

0.4

5.3

5.0

2.1

1.0

1.4

17.1

(17.0)

1.0

10.7

6.7

0.2

(4.6)

(35.3)

67.5

(5.3)

(21.4)

(26.7)

2.1

(3.2)

305.7

(326.0)

(0.3)

(27.7)

(49.4)

(8.6)

3.9

(4.7)

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

(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

121

notes to consolidated statement oF cash Flows

i. analysis oF moVements in the Group’s net debt in the period

Cash and cash equivalents at bank and in hand

Debt due after one year

Total net debt excluding finance leases

Finance leases due within one year

Finance lease due after one year

Total finance leases

Total net debt

At 29 March
2013
£m

Cash flow
£m

Other non-
cash changes
£m

At 28 March
2014
£m

3.9

(103.3)

(99.4)

(0.3)

(10.9)

(11.2)

(110.6)

(8.6)

20.3

11.7

0.3

—

0.3

12.0

—

(1.0)

(0.3)

0.3

—

(1.0)

(4.7)

(84.0)

(88.7)

(0.3)

(10.6)

(10.9)

(99.6)

Non-cash changes comprise finance costs in relation to the amortisation of capitalised debt issue costs of £1.0m (2013: £1.7m) and changes in
classification between amounts due within and after one year.

Cash and cash equivalents at the period end consist of £5.3m (2013: £7.9m) of liquid assets and £10.0m (2013: £4.0m) of bank overdrafts.

122

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > accountinG policies

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 28 March 2014 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 74, 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 28 March 2014, whilst the comparative period covered the 52 weeks to 29 March 2013.

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.

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 28 March 2014 are detailed in note 4 to the Company balance sheet on page 153.

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.

Finance income
Finance income comprises interest income on funds invested. Income is recognised, as it accrues in profit or loss, using the effective interest rate
method.

non-recurrinG items
Non-recurring items are those items that are unusual because of their size, nature or incidence. The Group’s management consider that these
items should be separately identified within their relevant income statement category to enable a full understanding of the Group’s results.

123

accountinG policies continued

earninGs per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted
for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share
options granted to employees.

The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-recurring items. A reconciliation of
this alternative measure to the statutory measure required by IFRS is given in note 9.

ForeiGn currency translation
Functional and presentation currency
The consolidated financial statements are presented in pounds sterling, which is the Group’s presentation currency, and are rounded to the nearest
hundred thousand, except where it is deemed relevant to disclose the amounts to the nearest pound. Items included in the financial statements of
the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

transactions and balances
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date,
monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date.
Translation differences on monetary items are taken to the income statement with the exception of differences on transactions that are subject to
effective cash flow hedges, which are recognised in other comprehensive income.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated at the exchange rate at the
date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences
arising on qualifying cash flow hedges, which are recognised in other comprehensive income.

The assets and liabilities of foreign operations are translated to sterling at the exchange rate at the reporting date. The income and expenses of
foreign operations are translated to sterling at an average exchange rate. Foreign currency differences are recognised in other comprehensive
income and a separate component of equity. When a foreign operation is disposed of, the relevant amount in equity is transferred to profit or loss.

employee beneFits
i) pensions
The Halfords Pension Plan is a contract based plan, where each member has their own individual pension policy, which they monitor
independently. The Group pays fixed contributions and has no legal or constructive obligation to pay further amounts. The costs of contributions to
the scheme are charged to the income statement in the period that they arise.

ii) share based payment transactions
The Group operates a number of equity-settled share based compensation plans.

The fair value of the employee services received under such schemes is recognised as an expense in the income statement. Fair values are
determined by use of an appropriate pricing model and incorporate an assessment of relevant market performance conditions.

The amount to be expensed over the vesting period is adjusted to reflect the number of awards for which the related service and non-market
vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet
the related service and non-market performance conditions at the vesting date.

At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the revision
of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity.

taxation
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it
relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted,
at the reporting date, and any adjustment to tax payable in respect of previous years.

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.

124

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014diVidends
Final dividends are recognised in the Group’s financial statements in the period in which the dividends are approved by shareholders. Interim equity
dividends are recognised in the period they are paid.

intanGible assets
i) Goodwill
Goodwill is initially recognised as an asset at cost and is reviewed for impairment at least annually. Goodwill is subsequently measured at cost less
any accumulated impairment losses. An impairment charge is recognised in profit or loss for any amount by which the carrying value of goodwill
exceeds its recoverable amount.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies
of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there
is an indication that the unit may be impaired.

For acquisitions prior to 3 April 2010 costs directly attributable to business combinations formed part of the consideration payable when calculating
goodwill. Adjustments to contingent consideration, and therefore the consideration payable and goodwill, are made at each reporting date until the
consideration is finally determined.

Acquisitions after this date fall under the provisions of ‘Revised IFRS 3 Business Combinations (2009)’. For these acquisitions transaction costs,
other than share and debt issue costs, will be expensed as incurred and subsequent adjustments to the fair value of consideration payable will be
recognised in profit or loss.

ii) computer soFtware
Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will generate economic benefits
beyond one year are recognised as intangible assets. These intangible assets are stated at cost less accumulated amortisation and impairment
losses. Software is amortised over three to five years depending on the estimated useful economic life.

iii) acquired intanGible assets
Intangible assets that are acquired as a result of a business combination are recorded at fair value at the acquisition date, provided they are
identifiable and capable of reliable measurement.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the
date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied
in the asset. The estimated useful lives for the current and comparative periods are as follows:

Brand names and trademarks 2 years;

Customer relationships 5 to 15 years; and

Favourable leases over the term of the lease.

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

property, plant and equipment
Property, plant and equipment is held at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation of property, plant and equipment is provided to write off the cost, less residual value, on a straight-line basis over their useful
economic lives as follows:

Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period of the lease;

Leasehold improvements are depreciated over the period of the lease to a maximum of 25 years;

Motor vehicles are depreciated over 3 years;

Fixtures, fittings and equipment are depreciated over 4 to 10 years according to the estimated life of the asset;

Computer equipment is depreciated over 3 years; and

Land is not depreciated.

Depreciation is expensed to the income statement within operating expenses.

Residual values, remaining useful economic lives and depreciation periods and methods are reviewed annually and adjusted if appropriate.

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.

125

accountinG policies continued

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.

A provision for vacant properties is recognised when the expected benefits to be derived by the Group from a contract are lower than the
unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost
of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any
impairment loss on the assets associated with that contract. The main uncertainty is the timing of the amounts payable, and the time value of
money has been incorporated in to the provision amount to take account of this sensitivity.

Provision is also made for loss-making stores and autocentres which management does not expect to become profitable.

A rent review provision is recognised when there is expected to be additional obligations as a result of the rent review, which forms part of the
Group’s unavoidable cost of meeting its obligations under the lease contracts. The provision is based on managements’ best estimate of the rent
payable after the review. Key uncertainties are the estimate of the rent payable after the review has occurred.

A dilapidations provision is recognised when there is future obligation relating to the maintenance of leasehold properties. The provision is based
on managements’ best estimate of the obligation which forms part of the Group’s unavoidable cost of meeting its obligations under the lease
contracts. Key uncertainties are the estimates of amounts due.

Financial instruments
Financial assets
The Group’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Group
becomes party to the contractual provisions of the instrument.

i) trade receivables
Trade receivables are recognised and carried at original invoice amount less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of receivables. The amount of the provision is determined as the difference between the asset’s carrying
amount and the present value of estimated future cash flows, and is recognised in the income statement in operating expenses.

ii) cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, 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.

126

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financial 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 judgement and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are
detailed below:

impairment oF assets
Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their
recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows, which
includes management assumptions and estimates of future performance. Details of the assumptions used in the impairment review of goodwill and
other assets are explained in note 10.

allowances aGainst the carryinG Value oF inVentories
The Group reviews the market value of and demand for its inventories on a periodic basis to ensure that recorded inventory is stated at the lower
of cost and net realisable value. In assessing the ultimate realisation of inventories, the Group is required to make judgements as to future demand
requirements and to compare these with the current or committed inventory levels. Assumptions have been made relating to the timing and
success of product ranges, which would impact estimated demand and selling prices.

Sensitivities to the assumptions for specific product lines are not expected by management to result in a material change in the overall allowances.

127

accountinG policies continued

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 129 to 155.

adoption oF new and reVised standards
The following standards and interpretations are applicable to the Group and have been adopted in the current period as they are mandatory for the
year ended 28 March 2014 but either have no material impact on the result or net assets of the Group or are not applicable.

IFRS 13 ‘Fair Value Measurement’ — provides a precise definition of fair value and a single source of fair value measurement and disclosure

requirements for use across IFRSs.

IAS 1 ‘Presentation of Financial Statements’ (Amendment) — the amendments introduce a grouping of items presented in other comprehensive
income. Items that could be reclassified (or recycled) to profit or loss at a future point in time now have to be presented separately from items
that will never be reclassified.

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.

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 obligation 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.

IAS 32 ‘Financial instruments – presentation’ (Amendment) — the amendment clarifies the offsetting criteria, specifically: when an entity currently

has a legal right of set-off; and when gross settlement is equivalent to net settlement.

IAS 34 ‘Interim Financial Reporting’ (Amendment) — the amendment clarifies the requirements of IAS 34 relating to segment information for total

assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 ‘Operating Segments’.

IAS 36 ‘Impairment of assets’ (Amendment) — the amendments reverse the unintended requirement in IFRS 13 to disclose the recoverable

amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the
amendments, recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.

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.

128

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > notes to the Financial statements

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 expenses1

Operating profit

Net financing expense

Profit before tax

Taxation

Profit for the year

Income statement

Revenue

Segment result before non-recurring items

Non-recurring items

Segment result

Unallocated expenses1

Operating profit

Net financing expense

Profit before tax

Taxation

Profit for the year

Retail
£m

Car Servicing
£m

52 weeks
to 28 March
2014
Total
£m

803.1

75.2

(0.2)

75.0

136.6

939.7

4.3

—

4.3

79.5

(0.2)

79.3

(1.7)

77.6

(5.0)

72.6

(17.1)

55.5

Retail
£m

Car Servicing
£m

52 weeks
to 29 March
2013
Total
£m

745.5

73.6

(1.0)

72.6

125.8

871.3

6.3

—

6.3

79.9

(1.0)

78.9

(1.8)

77.1

(6.1)

71.0

(18.3)

52.7

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 £1.7m in respect of assets acquired through business combinations (2013: £1.8m).

129

notes to the Financial statements continued

1. operatinG seGments continued

Other segment items:

Capital expenditure

Depreciation expense

Impairment charge (non-recurring)

Amortisation expense

Other segment items:

Capital expenditure

Depreciation expense

Impairment charge (non-recurring)

Amortisation expense

Retail
£m

Car Servicing
£m

24.4

14.8

0.4

3.6

6.0

3.2

—

Retail
£m

Car Servicing
£m

13.2

17.4

0.8

3.6

5.6

2.5

—

52 weeks
to 28 March
2014
Total
£m

30.4

18.0

0.4

3.6

52 weeks
to 29 March
2013
Total
£m

18.8

19.9

0.8

3.6

There have been no significant transactions between segments in the 52 weeks ended 28 March 2014 (2013: £nil).

2. operatinG expenses

For the period

Selling and distribution costs

Administrative expenses, before non-recurring items

Non-recurring administrative expenses

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

359.1

67.3

0.2

67.5

426.6

336.1

62.9

1.0

63.9

400.0

130

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 20143. 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
28 March
2014
£m

52 weeks to
29 March
2013
£m

1.8

90.0

(5.0)

(3.4)

2.1

5.3

17.5

0.5

0.4

0.3

189.2

422.2

1.7

91.0

(5.5)

(0.9)

1.7

5.4

19.4

0.5

0.8

0.2

166.8

384.1

The total fees payable by the Group to KPMG LLP and their associates during the period was £0.2m (2013: £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 LLP and their associates for other services:

The audit of the Company’s subsidiary undertakings, pursuant to legislation

Other services supplied pursuant to such legislation

Internal audit services

52 weeks to
28 March
2014
£’000

52 weeks to
29 March
2013
£’000

144

—

189

205

271

Included within “fees payable to the Company’s Auditors for the audit of the Company’s subsidiary undertakings in the prior year, pursuant to
legislation” are amounts payable to KPMG LLP 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 payable in the current
year is nil (2013: £0.1m).

131

FINANCIALS > NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

4. STAFF COSTS

For the period

The aggregated remuneration of all employees including Directors comprised:

Wages and salaries

Social security costs

Equity-settled share based payment transactions (note 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
28 March
2014
£m

52 weeks to
29 March
2013
£m

173.0

11.6

1.0

3.6

189.2

153.5

10.2

0.1

3.0

166.8

Number

10,697

11,535

313

684

211

651

11,694

12,397

Full details of Directors’ remuneration and interests are set out in the Remuneration Committee Report on pages 90 to 110 which form 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
28 March
2014
£m

52 weeks to
29 March
2013
£m

2.5

0.2

0.6

0.3

0.5

4.1

2.1

0.8

0.4

0.3

0.1

3.7

Key management compensation includes the emoluments of the Board of Directors and the emoluments of the Halfords Limited and Halfords
Autocentres management boards.

There were no outstanding balances at the year-end (2013: £0.9m).

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
28 March
2014
£m

52 weeks to
29 March
2013
£m

(0.2)

—

0.4

0.2

0.1

0.3

(1.0)

1.2

0.8

1.0

0.1

1.1

(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 £0.2m (2013: £1.0m) of the original amounts provided.

132

Halfords AR2014-Financials.indd 132

23157.04 Proof 6 21-05-2014

16/06/2014 16:29:24

5. non-recurrinG items continued

(b) A charge incurred in the prior 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 23% 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 24% on all current year non-recurring items adjusted for the non-deductibility of the asset impairment charge and settlements
to release Halfords from its guarantor obligations under the leases.

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

Finance income

Net finance costs

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 temporary differences

Adjustment in respect of prior periods

Total tax charge for the period

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

(1.3)

(1.0)

(1.1)

(0.3)

(0.7)

(0.8)

(5.2)

0.2

(5.0)

(2.1)

(1.7)

(1.2)

(0.1)

(0.7)

(0.5)

(6.3)

0.2

(6.1)

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

20.1

(0.7)

19.4

(1.8)

(0.5)

(2.3)

17.1

21.5

(1.8)

19.7

(1.8)

0.4

(1.4)

18.3

133

notes to the Financial statements continued

7. taxation continued

The tax charge is reconciled with the standard rate of UK corporation tax as follows:

For the period

Profit before tax

UK corporation tax at standard rate of 23% (2013: 24%)

Factors affecting the charge for the period:

Depreciation on expenditure not eligible for tax relief

Employee share options

Other disallowable expenses

Adjustment in respect of prior periods

Impact of overseas tax rates

Impact of change in tax rate on deferred tax balance

Total tax charge for the period

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

72.6

16.7

1.5

(0.5)

0.4

(1.2)

(0.5)

0.7

17.1

71.0

17.1

1.2

(0.2)

1.9

(1.4)

(0.4)

0.1

18.3

Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively
enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from
1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Company’s future current tax charge accordingly. The deferred
tax asset at 28 March 2014 has been calculated based on the rates of 20% and 21% substantively enacted at the balance sheet date.

In this financial period, the UK corporation tax standard rate was 23% (2013: 24%).

The effective tax rate of 23.5% (2013: 25.7%) is higher than 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 £17.1m (2013: £18.3m) includes a charge of £0.1m (2013: £0.1m charge) in respect of tax on non-recurring items, as
detailed in note 5.

An Income tax credit of £0.8m (2013: £0.7m charge) on other comprehensive income relates to the movement in 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 it trades and sources products, and
is considered low risk by HM Revenue & Customs (“HMRC”). The Group is fully committed to complying with all of its tax payment reporting
obligations thoughout the business.

In FY14 the contribution to the UK Exchequer from both taxes paid and collected exceeded £157.9m with the main taxes including
corporation tax £35.3m, net VAT £49.8m, PAYE £17.1m, Employees National Insurance Contributions £8.8m, Employers National Insurance
Contributions £11.2m and Business Rates £35.6m.

8. diVidends

For the period

Equity — ordinary shares

Final for the 52 weeks to 29 March 2013 — paid 9.10p per share (2013: 14.00p)

Interim for the 52 weeks to 28 March 2014 — paid 5.20p per share (2013: 8.00p)

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

17.6

10.1

27.7

27.2

15.5

42.7

In addition, the Directors are proposing a final dividend in respect of the financial period ended 28 March 2014 of 9.1p per share (2013: 9.10p
per share), which will absorb an estimated £18.1m (2013: £17.6m) of shareholders’ funds. It will be paid on 1 August 2014 to shareholders
who are on the register of members on 4 July 2014.

134

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 20149. 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 28 March 2014.

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
28 March
2014
Number of
shares
m

52 weeks to
29 March
2013
Number of
shares
m

199.1

(5.1)

194.0

2.9

196.9

199.1

(4.8)

194.3

1.5

195.8

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

55.5

0.2

0.1

55.8

52.7

1.0

0.1

53.8

52 weeks to
28 March
2014

52 weeks to
29 March
2013

28.6p

28.2p

28.8p

28.4p

27.2p

26.9p

27.7p

27.5p

135

notes to the Financial statements continued

10. intanGible assets

Cost

At 30 March 2012

Additions

Disposals

At 29 March 2013

Additions

Disposals

At 28 March 2014

Amortisation

At 30 March 2012

Charge for the period

Disposals

At 29 March 2013

Charge for the period

Disposals

At 28 March 2014

Net book value at 28 March 2014

Net book value at 29 March 2013

Brand
names and
trademarks
£m

Customer
relationships
£m

Favourable
leases
£m

Computer
software
£m

Goodwill
£m

1.1

—

1.1

—

1.1

—

1.1

—

1.1

—

14.9

—

14.9

—

14.9

3.6

1.7

—

5.3

1.6

—

6.9

8.0

9.6

2.3

—

2.3

—

2.3

0.1

—

0.2

0.1

—

0.3

2.0

2.1

24.4

3.7

(12.6)

15.5

5.3

(1.9)

18.9

16.8

3.6

(12.6)

7.8

3.6

(1.9)

9.5

9.4

7.7

344.5

—

344.5

—

344.5

21.7

—

21.7

—

21.7

322.8

Total
£m

387.2

3.7

(12.6)

378.3

5.3

(1.9)

381.7

43.3

5.4

(12.6)

36.1

5.3

(1.9)

39.5

342.2

No intangible assets are held as security for external borrowings.

Included in computer software are internally generated assets of £0.3m (2013: £0.3m). Product rights of £0.2m, which are fully amortised,
have been included within Brand names and trademarks.

Goodwill of £253.1m (2013: £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 28 March 2014 and 29 March 2013 are as follows:

Discount rate

Growth rate

Notes:

Retail

Car Servicing

Note

2014

7.9%

0.0%

2013

8.1%

0.0%

2014

10.3%

1.0%

2013

9.0%

1.0%

Pre-tax discount rate applied to the cash flow projections.

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.

136

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014
11. property, plant and equipment

Cost

At 30 March 2012

Additions

Disposals

Reclassifications

At 29 March 2013

Additions

Disposals

Reclassifications

At 28 March 2014

Depreciation

At 30 March 2012

Depreciation for the period

Impairment charge

Disposals

At 29 March 2013

Depreciation for the period

Impairment charge

Disposals

At 28 March 2014

Net book value at 28 March 2014

Net book value at 29 March 2013

No fixed assets are held as security for external borrowings.

Included in the above are assets held under finance leases as follows:

As at 28 March 2014

Cost

Accumulated depreciation

Net book value

As at 29 March 2013

Cost

Accumulated depreciation

Net book value

1. Relates to the Halfords head office 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

60.2

4.2

(5.2)

—

59.2

4.5

(0.7)

—

63.0

28.9

3.8

—

(4.7)

28.0

4.2

—

(0.5)

31.7

31.3

31.2

320.7

9.9

(84.5)

—

246.1

19.4

(100.3)

0.7

165.9

254.1

16.1

0.8

(83.3)

187.7

13.8

0.4

(98.4)

103.5

62.4

58.4

—

1.0

—

1.0

1.2

—

(0.7)

1.5

—

1.5

1.0

Fixtures,
fittings
and
equipment
£m

Land and
buildings1
£m

12.7

(5.1)

7.6

12.7

(4.6)

8.1

0.8

(0.8)

—

0.8

(0.8)

—

Total
£m

380.9

15.1

(89.7)

—

306.3

25.1

(101.0)

—

230.4

283.0

19.9

0.8

(88.0)

215.7

18.0

0.4

(98.9)

135.2

95.2

90.6

Total
£m

13.5

(5.9)

7.6

13.5

(5.4)

8.1

137

notes to the Financial statements continued

11. property, plant and equipment continued

Finance lease liabilities are payable as follows:

Less than one year

Between one and five years

More than five years

12. inVentories

Finished goods for resale

Minimum
lease
payments
2014
£m

1.1

4.5

11.3

16.9

Interest
2014
£m

Principal
2014
£m

0.8

2.4

2.8

6.0

0.3

2.1

8.5

10.9

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

2014
£m

150.2

0.3

1.9

9.0

11.2

2013
£m

133.2

Finished goods inventories include £19.6m (2013: £16.7m) of provisions to carry inventories at fair value less costs to sell where such value is
lower than cost. The Group did not reverse any unutilised provisions during the period.

During the period £11.2m was recognised as an expense in respect of the write-down of inventories (2013: £15.0m) 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

2014
£m

16.5

(0.2)

16.3

5.6

30.9

52.8

2013
£m

16.6

(0.5)

16.1

7.7

30.0

53.8

During the period the Group charged the provision with £0.3m (2013: £0.2m) for the impairment of trade receivables and utilised £0.6m
(2013: £nil).

The following table shows the age of financial assets that are past due and for which no provision for bad or doubtful debts has been raised:

Neither past due nor impaired

Past due by 1–30 days

Past due by 31–90 days

Past due by 91–180 days

Past due by more than180 days

2014
£m

16.7

1.5

0.8

1.4

0.2

20.6

2013
£m

18.3

1.5

1.8

0.6

0.1

22.3

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 £4.3m (2013: £6.2m) of other receivables.

138

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201414. cash and cash equiValents

Cash at bank and in hand

2014
£m

5.3

2013
£m

7.9

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 borrowings1

Finance lease liabilities

2014
£m

10.0

0.3

10.3

84.0

10.6

94.6

2013
£m

4.0

0.3

4.3

103.3

10.9

114.2

1. The above borrowings are stated net of unamortised issue costs of £2.0m (2013: £0.7m).

The Group’s current debt facility came into effect from 11 September 2013 and is a four-year £200m 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 on gearing
measures as set out in the facility covenant certificate and which is currently 150 basis points. Both utilisation and non-utilisation fees are also
applicable being charged when utilisation of the facility rises above a set percentage with non-utilisation based on a set percentage of the
applicable margin. These charges are based on market rates as are the commitment fees as mentioned below.

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

2014
£m

1.0

—

114.0

115.0

2013
£m

1.0

196.0

—

197.0

The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £114.0m
(2013: £196.0m) 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

2014
£m

79.4

13.4

15.0

3.7

48.0

159.5

2013
£m

84.9

10.6

6.1

3.5

39.8

144.9

28.8

29.7

139

notes to the Financial statements continued

17. proVisions

At 29 March 2013

Charged during the period

Transferred during the period

Utilised during the period

Released during the period

At 28 March 2014

Analysed as:

Current liabilities

Non-current liabilities

Property
related
£m

Other
trading
£m

9.6

2.6

—

(2.1)

(0.4)

9.7

6.2

3.5

2.0

1.0

6.6

(1.0)

—

8.6

2.8

5.8

Total
£m

11.6

3.6

6.6

(3.1)

(0.4)

18.3

9.0

9.3

Property related provisions consist of costs associated with vacant property, rent reviews and dilapidations. Also included are prior period
non-recurring costs (note 5) relating to liabilities in respect of previous assignments of leases where the lessee has entered into administration
subsequent to the period end. In the current year a change in approach to settling the Group’s guarantor obligations has resulted in a release
of £0.2m (2013: £1.0m) of the original amounts provided.

Other trading provisions comprise a sales returns provision, a provision for the costs associated with the cessation of the stand-alone cycle
concept, including closure of stores where necessary, an employer/product liability provision and provision for unused gift vouchers.

Provisions have been transferred out of accruals in the year where the nature of the liability has changed due to less certainty over the timing
and amount likely to be settled.

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 30 March 2012

Credit/(charge) to the income statement

Charge to other comprehensive income

Credit to equity

At 29 March 2013

Credit to the income statement

Credit to other comprehensive income

Credit to equity

At 28 March 2014

Property
related items
£m

Short-term
timing
differences
£m

Share based
payments
£m

Intangible
assets
£m

(2.5)

1.5

—

(1.0)

0.9

—

(0.1)

4.9

(0.6)

(0.7)

—

3.6

0.3

0.8

—

4.7

0.2

0.1

—

0.3

0.6

0.5

—

0.9

2.0

(3.3)

0.4

—

(2.9)

0.7

—

(2.2)

Total
£m

(0.7)

1.4

(0.7)

0.3

2.4

0.8

0.9

4.4

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:

28 March
2014
£m

29 March
2013
£m

6.7

(2.3)

4.4

4.2

(3.9)

0.3

Deferred tax assets

Deferred tax liabilities

140

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201419. 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 Chief Financial Officer (“FD”). The FD controls policy and performance through the line
management structure to the Group Treasurer and by reference to the Treasury Committee. The Treasury Committee meets regularly to
monitor the performance of the Treasury function.

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.

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 £0.6m (2013: £1.0m).

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.

The Group manages capital by operating within debt ratios. These ratios are net debt to Earnings Before Interest, Tax, Depreciation and
Amortisation (“EBITDA”) and fixed charge cover. Fixed charge cover is calculated as being EBITDA plus operating lease charges as a multiple
of interest and operating lease charges. The Group also uses a ratio of lease adjusted net debt to EBITDA; this is calculated as being net debt
and leases capitalised at eight times, as a multiple of EBITDA plus 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

Forward currency contracts

The fair value approximates to the carrying amount because of the short maturity of these
instruments, using an interest rate of 7.1% for long-term finance lease obligations.

The fair value of bank loans and other loans approximates to the carrying value reported in
the balance sheet as the majority are floating rate where payments are reset to market rates
at intervals of less than one year.

The fair value is determined using the market forward rates at the reporting date and the
outright contract rate.

141

notes to the Financial statements continued

19. Financial instruments and related disclosures continued

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

Forward exchange contracts used for hedging (liabilities)

Total financial liabilities

2014
£m

5.3

20.6

—

25.9

(135.7)

(86.0)

(10.9)

(2.1)

(234.7)

2013
£m

7.9

22.3

1.9

32.1

(121.6)

(104.0)

(11.2)

(0.2)

(237.0)

Trade and other payables within the scope of IAS 39 include all trade payables, all other payables and £41.3m (2013: £30.6m) of accruals and
deferred income.

credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date
was £25.9m (2013: £32.1m) 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 28 March 2014, 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

28 March 2014

29 March 2013

USD
£m

0.3

(19.3)

(19.0)

Other
£m

0.5

—

0.5

USD
£m

—

(15.9)

Other
£m

0.4

(0.5)

(0.1)

142

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201419. Financial instruments and related disclosures continued

The table below shows the Group’s sensitivity to foreign exchange rates on its US dollar financial instruments, the major currency in which the
Group’s derivatives are denominated.

10% appreciation of the US dollar

10% depreciation of the US dollar

2014
Increase/
(decrease) in
equity
£m

2013
Increase/
(decrease) in
equity
£m

9.2

(7.6)

4.1

(3.3)

A strengthening/weakening of sterling, as indicated, against the USD at 28 March 2014 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.

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 £170m of the £200m 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
(September 2013). Ancillary business is currently being tendered with the five banks within the new club banking group. Following the
completion of the refinancing, at the year-end the banks within this new 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

28 March
2014
Bank
borrowings
£m

29 March
2013
Bank
borrowings
£m

2.4

2.2

89.6

—

94.2

84.0

3.6

106.3

—

109.9

103.3

143

notes to the Financial statements continued

19. Financial instruments and related disclosures continued

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 28 March 2014 (29 March 2013).

Due less than one year

Due between 1 and 2 years

Contractual cash flows

Fair value

2014

2013

Receivables
£m

Payables
£m

Receivables
£m

Payables
£m

83.2

—

83.2

—

(85.3)

—

(85.3)

(2.1)

36.7

—

36.7

1.9

(34.9)

—

(34.9)

(0.2)

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

20. capital and reserVes

Ordinary shares of 1p each:

Allotted, called up and fully paid

2014
Number of
shares

2014
£000

2013
Number of
shares

199,063,222

1,991

199,063,222

2013
£000

1,991

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 there has been no movement in the Company’s share capital (2013: decreased by 320,000 shares). Share premium
has remained at £151.0m (2013: £151.0m) as a result of there being no transactions.

In total the Company received proceeds of £2.1m (2013: £0.8m) from the exercise of share options.

inVestment in own shares
At 28 March 2014 the Company held in Trust 5,017,202 (2013: 4,651,810) of its own shares with a nominal value of £50,172 (2013:
£46,518). 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 28 March 2014 was £23.1m (2013: £15.0m). In the current period 1,014,456 (2013: nil shares) were
repurchased and transferred into the Trust, with 649,064 (2013: 280,199) reissued on exercise of share options.

other reserVes

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.

144

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201421. 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.

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, 2011 and 2012 under the Performance Share Plan earned final
dividends of 9.1p per share and were reinvested in shares at a cost of £3.71 per share. Shares awarded in 2011, 2012 and 2013 under the
PSP earned interim dividends of 5.2p per share and were reinvested in shares at a cost of £4.70 per share.

Changes to the performance criteria of the PSP in relation to the awards granted during the 28 March 2014 year have been made by the
Remuneration Committee. These changes have been made in order to create better alignment with the Company’s three-year strategic
priorities following the Getting Into Gear programme. The awards are weighted 25% towards Group revenue growth targets and 75% towards
Group EBITDA growth targets. The core award remains at 150% of base salary with a multiplier being introduced of 1.5x the core award if
exceptional levels of performance are achieved. The shares vesting as part of this multiplier calculation will attract a retention period of two
years. In order to focus management the awards will be underpinned by a minimum Group EBITDA, and a net debt to EBITDA ratio no greater
than 1.5x throughout the three-year performance period.

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

145

notes to the Financial statements continued

21. share based payments continued

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 may 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 at the
time of grant was estimated to be £1.35 per share.

The Group Income Statement charge recognised in respect of share-based payments for the current period is £1.0m (2013: £0.1m).

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.

For the period ended 28 march 2014

CSOS

SAYE

PSP

Number
(’000)

WAEP (£)

Outstanding at start of year

Granted

Shares representing dividends reinvested

Forfeited

Exercised

Lapsed

Outstanding at end of year

Exercisable at end of year

5,191

1,780

—

(614)

(1,592)

4,765

485

3.10

3.71

—

3.22

4.35

2.96

3.25

Number
(’000)

2,351

543

—

(65)

(35)

(315)

2,479

1.76

2.54

—

2.27

2.37

1.90

1.88

4.15

1,216

748

(144)

—

1,878

—

WAEP (£)

Number
(’000)

WAEP (£)

Exercise price range (£)

2.20 to 5.03

1.56 to 4.15

Weighted average remaining contractual
life (years)

For the period ended 29 march 2013

8.0

1.4

CSOS

SAYE

PSP

Number
(’000)

WAEP (£)

Outstanding at start of year

Granted

Shares representing dividends reinvested

Forfeited

Exercised

Lapsed

Outstanding at end of year

Exercisable at end of year

3,858

2,176

—

(209)

(634)

5,191

1,127

3.68

2.20

—

3.07

3.42

3.10

3.25

Number
(’000)

908

2,166

—

(69)

(73)

(581)

2,351

WAEP (£)

3.05

1.56

—

2.27

2.60

2.83

1.76

2.60

Number
(’000)

1,615

631

133

—

(1,163)

1,216

—

Exercise price range (£)

2.20 to 5.03

1.56 to 4.15

Weighted average remaining contractual
life (years)

7.8

2.1

146

0.00

1.5

WAEP (£)

0.00

1.8

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201421. share based payments continued

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

52 weeks to 28 March 2014

52 weeks to 29 March 2013

CSOS

SAYE

3.66

3.71

36%

4.85

1.34%

4.67%

33%

3.70

2.54

35%

3.5

0.81%

4.63%

44%

PSP

3.66

0.00

36%

—

30%

CSOS

£2.25

£2.20

35%

4.85

0.66%

9.80%

33%

SAYE

£2.20

£1.56

31%

3.5

0.31%

9.88%

44%

PSP

£2.25

£0.00

31%

—

9.80%

30%

Weighted average fair value of options
granted

£0.72

£1.11

£3.66

£0.24

£0.36

£1.64

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.

22. commitments

Capital expenditure: Contracted but not provided

2014
£m

0.4

2013
£m

1.3

At 28 March 2014, 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
2014
£m

81.2

271.6

266.1

618.9

Other
assets
2014
£m

2.1

3.7

—

5.8

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

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 £5.0m (2013: £5.5m).

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 £3.6m (2013: £3.0m).

In accordance with Government initiatives Halfords has implemented an automatic enrolment process with regards to its pension
arrangements. Employees who are aged between 22 and state pension age, earn more than £10,000 a year, and work in the UK will be
automatically enrolled into the Group pension arrangement. Employees retain the right to withdraw from this pension arrangement; however,
election of this choice must be made.

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 28 March 2014 amounted to £5.3m (2013: £4.1m).

The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.

147

notes to the Financial statements continued

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 149 to 155.

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 92 to 110. Key management compensation is disclosed in
note 4.

Directors of the Company control 0.14% 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.

148

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > company balance sheet

company balance sheet

Fixed assets

Investments

Current assets

Debtors falling due within one year

Debtors falling due after one year

Cash and cash equivalents

Creditors: amounts falling due within one year

Net current assets

Creditors: amounts falling due after more than one year

Net assets

Capital and reserves

Called up share capital

Share premium account

Investment in own shares

Capital redemption reserve

Profit and loss account

Total shareholders’ funds

28 March
2014
£m

29 March
2013
£m

Notes

295.4

573.0

78.3

278.6

1.8

358.7

(0.2)

358.5

(326.4)

327.5

2.0

151.0

(14.3)

0.3

188.5

327.5

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

The notes on pages 129 to 155 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 151.

The financial statements on pages 117 to 122 were approved by the Board of Directors on 21 May 2014 and were signed on its behalf by:

matt davies
Chief Executive

andrew Findlay
Chief Financial
Officer

Company number: 04457314

149

Financials > reconciliation oF moVements in total shareholder Funds

reconciliation oF moVements in total
shareholders’ Funds

For the period

Profit for the period

Share options exercised

Purchase of own shares

Employee share options

Dividends

Net decrease in total shareholders’ funds

Opening total shareholders’ funds

Closing total shareholders’ funds

52 weeks to
28 March
2014
£m

52 weeks to
29 March
2013
£m

21.2

2.1

(3.2)

1.0

(27.7)

(6.6)

334.1

327.5

9.3

0.8

(0.9)

0.1

(42.7)

(33.4)

367.5

334.1

150

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > accountinG policies

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 28 March 2014, whilst the comparative period covered the 52 weeks to 29 March 2013. 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. The principal
variation to the historical cost convention relates to share based payments

A consolidated cash flow statement has been included in the Halfords Group plc consolidated accounts. The Company has therefore taken
advantage of the exemption under FRS 1 (revised 1996) “Cash flow statements” not to produce a cash flow statement.

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.

151

notes to the Financial statements

1. proFit and loss account

The Company made a profit before dividends paid for the financial period of £21.2m (52 week period to 29 March 2013: £9.3m). The Directors
have taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a profit and loss account
for the Company alone.

2. Fees payable to the auditors

Fees payable by the Group to KPMG LLP and their associates during the period are detailed in note 3 to the Group financial statements. In
the 52 weeks to 28 March 2014 the Company expensed £nil (2013: £nil) 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, including those details
required by Schedule 5, are set out in the Remuneration Report on pages 92 to 110 which forms part of the audited information.

inVestments

Shares in Group undertaking

Cost

As at 29 March 2013

Additions — share based payments

Impairment in Jersey companies (a)

At 28 March 2014

£m

573.0

1.0

(278.6)

295.4

(a) The impairment in Jersey companies has occurred as a result of Group restructuring as explained below. This impairment relates to the
distribution in specie of loans that had previously been issued by Halfords Finco (Jersey) Limited to Halfords Group plc. Halfords Group
plc therefore now records the £278.6m as an intercompany receivable as shown in note 5.

During the year the Group began an exercise in order to restructure the underlying companies of the Group. This exercise led to a delisting of
the Eurobonds issued by Halfords Finco (Jersey) Limited to Halfords Holdings (2006) Limited and Halfords Finance Limited and a distribution
in specie of these loans up to Halfords Group plc, as well as the winding up of Halfords Finance UK LLP. Subsequent to the year end the
intention of the Group is to wind up the two Ireco companies as well as the Jersey companies.

The investments represent shares in the following subsidiary undertakings as at 28 March 2014 and the fair value of share based
compensation plans that are awarded to employees of the Company’s subsidiary undertakings. The Company has taken advantage of
Section 410(2) of the Companies Act 2006 to list only its principal subsidiary and associated undertakings at 28 March 2014. All of these
are wholly owned by the Company or its subsidiary undertakings, registered in England and Wales, and operate predominanlty in the United
Kingdom unless otherwise stated.

Subsidiary undertaking

Halfords Holdings (2006) Limited

Halfords Holdings (Jersey) 1 Limited

Halfords Holdings (Jersey) 2 Limited

Halfords Ireco 1 Limited

* Registered in England and Wales.

Incorporated
in

Great Britain*

Jersey

Gibraltar

Ordinary
shares
percentage
owned %

Principal
Activities

100

Intermediate holding company

In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.

152

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 20144.

inVestments (continued)
principal subsidiary undertakinGs
The principal subsidiary undertakings of the Company at 28 March 2014 are as follows:

Subsidiary undertaking

Principal activity

Halfords Holdings (2006) Limited

Halfords Holdings Limited*

Halfords Finance Limited*

Halfords Limited*

Intermediate holding company

Retailing of auto parts, accessories, cycles and cycle accessories

Halfords Investments (2010) LP†

Intermediate holding partnership

Halfords Autocentres Holdings Limited*

Intermediate holding company

Halfords Autocentres Limited*

Car servicing

Halfords Holdings (Jersey) 1 Limited

Intermediate holding company

Halfords Holdings (Jersey) 2 Limited

Intermediate holding company

Halfords Ireco 1 Limited*

Halfords Ireco 2 Limited*

Intermediate holding company

* Shares held indirectly through subsidiary undertakings.

† Wholly owned indirectly through subsidiary undertakings.

% Ownership
of ordinary
equity shares

100

—

100

Halfords Holdings (Jersey) 1 Limited and Halfords Holdings (Jersey) 2 Limited are incorporated and registered in Jersey. Halfords Ireco 1
Limited and Halfords Ireco 2 Limited are incorporated and registered in Gibraltar. All other subsidiary undertakings are incorporated in Great
Britain and registered in England and Wales. The only subsidiaries to trade during the year were Halfords Limited and Halfords Autocentres
Limited.

5. debtors

Falling due within one year:

Amounts owed by Group undertakings

Falling due after more than one year:

Amounts owed by Group undertakings

2014
£m

78.3

278.6

2013
£m

51.6

—

Amounts owed by Group undertakings are subject to interest. At 28 March 2014 the amounts bear interest at a rate of 4.83% (2013: 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:

2014
£m

0.2

84.0

242.4

326.4

2013
£m

0.3

103.3

189.8

293.1

153

notes to the Financial statements continued

7. borrowinGs

Maturity of debt — bank loans

Expiring between one and two years

Expiring between two and five years

2014
£m

—

84.0

The above borrowings are stated net of unamortised issue costs of £2.0m (2013: £0.7m).

Details of the Company’s borrowing facilities are in note 15 of the Group’s financial statements.

8. equity share capital

Ordinary shares of 1p each:

Allotted, called up and fully paid

2014
Number of
shares

2014
£000

2013
Number of
shares

199,063,222

1,991

199,063,222

2013
£m

103.3

—

103.3

2013
£000

1,991

In total the Company received proceeds of £2.1m (2013: £0.8m) from the exercise of share options.

potential issue oF ordinary shares
The Company has three employee share option schemes, which were set up following the Company’s flotation. Further information regarding
these schemes can be found in note 21 of the Group’s financial statements.

interest in own shares
At 28 March 2014 the Company held in Trust 5,017,202 (2013: 4,651,810) of its own shares with a nominal value of £50,172 (2013:
£46,518). The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The
value of these shares at 28 March 2014 was £23.1m (2013: £15.0m).

9. reserVes

At 29 March 2013

Profit for the financial period

Share options exercised

Share based payment transactions

Purchase of own shares

Dividends

At 28 March 2014

Share
premium
account
£m

Investment
in own
shares
£m

Capital
redemption
reserve
£m

Profit and
loss account
£m

151.0

(13.2)

—

2.1

—

(3.2)

—

151.0

(14.3)

0.3

—

0.3

194.0

21.2

—

1.0

—

(27.7)

188.5

Total
£m

332.1

21.2

2.1

1.0

(3.2)

(27.7)

325.5

The Company settled dividends of £27.7m (2013: £42.7m) 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 (2013: £118m).

154

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 201410. related party disclosures

Under FRS 8 “Related party disclosures” the Company is exempt from disclosing related party transactions with entities which it wholly owns.

11. continGent liabilities

The Company’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of
other Group companies.

12. oFF balance sheet arranGements

The Company has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

13. post balance sheet eVents

During the year the structure of the Group companies has been assessed and a restructuring exercise undertaken. This exercise continues to
be addressed post year end and has led to the winding up of the following companies:

Halfords Finco (Jersey) Limited

Halfords Holdings (Jersey) 1 Limited

Halfords Holdings (Jersey) 2 Limited

Halfords Holdings (Jersey) 3 Limited

Halfords Ireco 1 Limited

Halfords Ireco 2 Limited

155

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

Profit before tax

Taxation

Taxation on non-recurring items

Profit attributable to equity shareholders

Basic earnings per share

Basic earnings per share before non-recurring items

52 weeks
to
2 April 2010
£m

52 weeks
to
1 April
2011
£m

831.6

(378.9)

452.7

(340.4)

119.7

(7.4)

112.3

(2.6)

117.1

(7.4)

109.7

(34.1)

1.4

77.0

36.8p

39.7p

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

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)

52 weeks
to
28 March
2014
£m

939.7

(435.5)

504.2

(426.4)

97.2

1.9

99.1

(5.0)

92.2

1.9

94.1

(24.8)

(0.9)

68.4

34.2p

33.7p

78.1

(1.0)

77.1

(6.1)

72.0

(1.0)

71.0

(18.2)

(0.1)

52.7

27.2p

27.7p

77.8

(0.2)

77.6

(5.0)

72.8

(0.2)

72.6

(17.0)

(0.1)

(55.5)

28.6p

28.8p

Weighted average number of shares

209.1m

210.4m

199.9m

194.3m

194.0m

Financials > key perFormance indicators

key perFormance indicators

Revenue growth

Gross margin

Operating margin

Underlying Group EBITDA

Net debt

52 weeks
to
2 April
2010

52 weeks
to
1 April
2011

52 weeks
to
30 March
2012

52 weeks
to
29 March
2013

52 weeks
to
28 March
2014

+2.7%

54.4%

13.5%

+4.6%

55.8%

13.9%

-0.8%

54.8%

11.5%

+1.0%

54.8%

8.8%

£143.8m

£153.2m

£123.6m

£103.4m

(£155.5m)

(£103.2m)

(139.2m)

(£110.6m)

+7.9%

53.7%

8.3%

£101.1m

(£99.6m)

156

23157.04 Proof 6 21-05-2014getting into gearintegrated annual report for the year ended 28 march 2014Financials > company inFormation