Committed to journeys bettermaking customers’ sluglineHalfords Group plc Annual Report and Accounts for the year ended 31 March 2017www.halfordscompany.comHalfords Group plc Annual Report and Accounts for the year ended 31 March 2017Stock Code: HFDHalfords Annual Report 2017.indd 307/06/2017 16:35:59 sluglineThis icon signposts the reader to other sections in this report This icon signposts the reader to more information that can be found onlineThis icon accompanies ‘fast facts’ with figures that relate to 2 April 2016 – 31 March 2017A little direction for your journey through our reportOur VisionOur vision is clear:• To be first choice for customers’ life on the move• We will achieve this by being Committed to Making Customers’ Journeys BetterHalfords is divided into two business segments: Retail and AutocentresCategory split of Halfords Group revenue (between Retail and Autocentres)86%RetailAutocentres14%Online Annual ReportRead our Annual Report online, including a link to the full Remuneration Policyhalfords.annualreport2017.comCorporate WebsiteCatch up with our latest news and learn more about Halfords on our corporate websitewww.halfordscompany.comCategory split of Halfords Group revenue (between Motoring and Cycling)67%MotoringCycling33%479Retail stores in the UK and ROI313Autocentres across the UK15Cycle Republic stores£1.1bnGroup Revenuewww.halfordscompany.comHalfords is the UK’s leading retailer of motoring, cycling and leisure products and through Halfords Autocentres, is also one of the UK’s leading independent operators in vehicle servicing, maintenance and repairs.Introduction to HalfordsFor 125 years Halfords has been synonymous with travel.Halfords Annual Report 2017.indd 407/06/2017 16:36:02 STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Our Integrated Report
This is our fourth integrated report and is designed to provide a concise overview of how
we generate value for all stakeholders. By following an integrated reporting model, we aim
to show how our competitive advantage is sustainable in the short, medium, and long term.
While this report focuses on value generation for our shareholders, it also demonstrates
how we interact with all of our stakeholders.
Contents
Overview
Group Highlights
Chairman’s Statement
Chief Executive’s Statement
In producing this report we have: built upon the key changes introduced previously; and
developed it in line with the evolving practices in integrated reporting. Our future reports
will seek to keep up with these new developments and achieve our aim of continually
improving our stakeholder communications.
The steps we have taken in this report:
• Our business model continues to evolve to provide greater clarity on how we create
value in the short, medium and long term. We have provided more detail on the outputs
of our business model.
• We have increased the signposting and consistency between sections to show how
they connect and interact.
• We have included more metrics in the Corporate Social Responsibility section.
• We have ensured that we discussed material matters both positive and negative in a
fair, balanced and understandable way.
Stakeholder
Engagement
Corporate Social
Responsibility
Read more about Stakeholder
Engagement on pages 14 and 15
Read more about Corporate Social
Responsibility on pages 30 to 35
Our Strategy
The Group Strategy is described using these five pillars:
Putting Customers
in the Driving Seat
Service in
Our DNA
Building on Our
Uniqueness
Better Shopping
Experience
Fit for Future
Infrastructure
Read more on Strategy
on pages 16 to 17
Business Model
The outputs of our business model – Financial Resources, Colleagues, Community, Brand,
Physical and IT Infrastructure and Environment – are detailed throughout the report.
This icon is used to indicate content on the outputs of the Business Model.
Read more on Our Business Model on
pages 12 and 13
Strategic Report
Our Marketplace
Our Business Model
Stakeholder Engagement
Our Strategy
Our Key Performance Indicators
Business Review
Corporate Social Responsibility
Chief Financial Officer’s Review
Our Principal Risks and Uncertainties
Our Governance
Board of Directors
Directors’ Report
Corporate Governance Report
Nomination Committee Report
Corporate Social Responsibility
Committee Report
Audit Committee Report
Remuneration Committee Report
– Remuneration Policy Report
– Annual Remuneration Report
Directors’ Responsibilities
Financial Statements
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
Statement of Changes in
Shareholders’ Equity
Accounting Policies
Notes to the Financial Statements
Shareholder Information
Five Year Record
Key Performance Indicators
Company Information
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03
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12
14
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18
20
30
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42
50
52
58
70
72
74
78
80
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Group Highlights
This is an exciting time to be
part of Halfords. We have a
clear strategic plan aimed at
driving sustainable long-term
growth, delivered by engaged
and talented colleagues.
We have made great progress
against our ‘Moving Up A Gear’
strategy, with increased customer
insight driving sustained growth
in service-related sales.
Revenue
£m
+7.2%
2017
2016
2015
2014
2013
Underlying profit before tax*
£m
-7.5%
Profit before tax, after
non-recurring items
£m
-10.5%
£1,095.0m
£1,021.5m
£1,004.9m
£939.7m
£871.3m
2017
2016
2015
2014
2013
£75.4m
£81.5m
£81.1m
£72.8m
£72.0m
2017
2016
2015
2014
2013
£71.4m
£79.8m
£80.8m
£72.6m
£71.0m
Dividend per ordinary share
pence
+3.0%
Underlying basic earnings
per share*
pence
-8.7%
Earnings per share, after
non-recurring items
pence
-11.7%
2017
2016
2015
2014
2013
17.5p
17.0p
16.5p
17.1p
14.3p
2017
2016
2015
2014
2013
30.3p
33.2p
32.7p
28.8p
27.7p
2017
2016
2015
2014
2013
28.7p
32.5p
32.5p
28.6p
27.2p
46%
Proportion of Retail sales matched
to customers
11.1%
Service-related sales growth
Market share gains in the year in
both Motoring and Cycling
30.5%
Total Group online sales growth**
0.8x
Net Debt to Underlying EBITDA ratio
Complementary M&A and
investments across both of
our key markets
* Alternative Performance Measures (“APMs”): Measures with this symbol are defined in the Key Performance Indicators table on page 18.
** Including the impact of the acquired Tredz & Wheelies. Excluding the acquired businesses, LFL Group online sales grew 11.5%.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Chairman’s Statement
Overview
Since setting out our Moving Up A Gear strategy 18
months ago, excellent progress has been made across
each of the five key pillars that underpin the strategy.
This has been reflected in robust sales growth, an
expanded knowledge of our customer preferences,
further improvements in service levels, many new and
unique product introductions, progress in building a
fit for purpose infrastructure and strong growth in our
value-added service offerings. To this end, and on behalf
of the Board, I would like to thank our Management team
and our 10,000 plus colleagues for their hard work and
commitment in driving the business forward and for their
passion to help our customers on their journeys.
Performance
We achieved solid sales growth from our Motoring
activities, in both Retail and Autocentres, and strong
growth in Cycling where we continued to register
market share gains and can uniquely offer customers
the full range: from children’s balance bikes to high
end performance road bikes. Whilst the depreciation
in Sterling following the EU referendum and other cost
headwinds, such as the introduction of the National Living
Wage, clearly impacted earnings, the underlying business
performance was positive and cash flow was robust.
We applied our capital allocation policy consistently:
firstly, by further investment in our colleagues and our
infrastructure; secondly, with an increased ordinary
dividend; thirdly, with two complementary acquisitions –
100% of Tredz and Wheelies in May 2016 and a minority
stake in TyresOnTheDrive.com in January 2017; and,
thereafter, by paying a special dividend of 10 pence per
share in February 2017. Progress was thus made towards
our debt target of 1 times EBITDA. In line with our policy
of paying an increasing ordinary dividend, the Board has
recommended a final dividend of 11.68 pence per share,
payable in August 2017 which would result in a total full-year
ordinary dividend of 17.51 pence per share, up 3.0% over
the previous year.
Investment in our colleagues continues to reap benefits
and I am pleased that Halfords was, for the 4th year in a
row, awarded an improved place in the list of Top 30 Best
Big Companies To Work For. This was also confirmed by
an increased internally measured engagement score,
improved customer ratings and lower colleague turnover.
We are also proud of the recognition we have achieved,
and the awards won, for our community partnerships,
including many individual local projects, and for our work
in prisons to help provide employment to prisoners on
release. Our colleagues in Retail have progressed strongly
through the “Gears” training programme, gaining increased
pay awards and career development opportunities in
return. We also continued to invest in our leadership
development programmes and apprenticeship schemes.
Dennis Millard
Chairman
We believe that excellent progress
has been made across each of the
five key pillars that underpin the
strategy.
Outlook
The year ahead brings challenges in the form of further
cost headwinds, particularly from a full year’s impact
in the fall in Sterling, and uncertainty around consumer
spending, but we approach these from a position of
strength. We hold leading positions in fragmented
markets, have detailed plans and initiatives to mitigate
cost headwinds and our growing service and services
propositions set us apart as a specialist retailer.
It was disappointing that, earlier this month, our CEO Jill
McDonald tendered her resignation to take up a senior
role at M&S at the end of October. We are grateful for the
positive contribution she has made across the business
and she will leave Halfords with a clear direction to
drive future growth. The Moving Up A Gear strategy is
well underway and is delivering significant momentum
across the organisation. Crucially, we have a talented
group of engaged colleagues who remain focused on
implementing our strategy and providing customers with
the very best customer service; in doing so we will drive
sustainable long-term growth.
Dennis Millard
Chairman
24 May 2017
Read more about Our Strategy on
pages 16 and 17
Read more about Corporate Social
Responsibility on pages 30 to 35
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Chief Executive’s Statement
We are pleased with the sales
performance this year, with
growth across all areas of our
business and market share
gains in both Motoring and
Cycling.
It is now 18 months since we launched the Moving Up A
Gear strategy, aimed at modernising the business and
consolidating our position as a specialist, service-led
retailer in order to drive sustainable long-term growth.
In this report we set out the strong progress in the year,
alongside good sales performance and continued market
share gains.
Strategic Progress
Our goal is to be customers’ first choice for their life on
the move and we will achieve this by being committed to
Making Customers’ Journeys Better. Our Group strategy
has five key pillars:
Putting Customers in the Driving Seat
— investing in customer data and insight
capabilities to maximise the lifetime customer
value
Service in Our DNA
— embedding the focus on customer service
Building on Our Uniqueness
— exclusive products, relevant innovation and
unique partnerships
Better Shopping Experience
— a seamless customer experience, online as
well as in store
Fit for the Future Infrastructure
— moving from fixing the basics to improving
efficiency and fulfilment
On pages 16 and 17 we have set out a more detailed
explanation of the Group strategy, our progress on each
of these pillars during FY17 and the key areas of focus
for FY18.
Market Update
A full review and update of the markets in which we
operate is set out on pages 10 and 11.
Alternative Performance Measures
In the reporting of financial information, the Directors
have adopted various Alternative Performance Measures
(APMs).
* These APMs are defined within the Key Performance Indicators
table on page 18.
** Free Cash Flow is defined on page 40.
Jill McDonald
Chief Executive
The underlying business
performance is strong and we
remain confident in the long-term
prospects for the Group.
Summary of Group Results
Revenue of £1,095.0m was up 7.2%, with like-for-like
(“LFL”)* growth of 2.7%. Gross margin of 51.0% was 220
basis points lower than the prior year, predominantly
due to the impact of the movement in foreign currency
exchange rates. Total operating costs before non-
recurring items rose by 5.0% reflecting planned
investments for the Moving Up A Gear strategy and
the first-time inclusion of the operating expenditure in
respect of the acquired Tredz and Wheelies businesses.
The increase in cost of goods associated with the
depreciation in Sterling had an adverse impact of circa
£14m (pre-mitigation) which more than accounted for
the decline in profit for the year. Underlying EBITDA* was
down 5.1% to £108.7m. Underlying EBIT* was £77.1m,
which compares with £84.5m in the prior year. Underlying
Profit Before Tax* was £75.4m and Underlying Basic
Earnings Per Share* was 30.3p, down 7.5% and 8.7%
respectively. Profit after tax for the year was £56.4m
(FY16: £63.5m).
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Cash generation remained strong, with Free Cash Flow**
of £37.7m. Net Debt* at the end of the year was up
£38.0m at £85.9m, with a Net Debt to Underlying EBITDA
ratio* of 0.8:1 versus 0.4:1 in the prior year. The increase
is consistent with our previously stated intention to move
towards a debt target of 1.0x and reflects our acquisition
of Tredz and Wheelies in May 2016 for an initial cash
consideration of £18.0m, the £4.1m investment made in
Tyres on the Drive Limited (“TOTD”) in January 2017 (with
a further circa £4m to follow in FY18) and the circa £20m
special dividend paid in February 2017.
The Board has recommended a final ordinary dividend
of 11.68 pence per share (FY16: 11.34 pence) which, if
approved, would take the full-year ordinary dividend to
17.51 pence per share, an increase of 3.0% on the prior
year. Including the special dividend of 10 pence per
share paid in February 2017, the full-year dividend per
share was 27.51 pence, an increase of 61.8% on the
prior year. If approved, the final dividend will be paid on
25 August 2017 to shareholders on the register at the
close of business on 4 August 2017.
Retail Operational Review
Halfords Retail achieved a strong year of sales
performance, with revenue up 8.0% to £938.4m. LFL
growth of 3.1% reflected Motoring LFL of 2.0% and
Cycling LFL of 5.1%. Our service-related sales grew by
11.1% as we continued to consolidate our specialist,
service-led retail proposition. The LFL sales growth
is principally attributable to our growing service and
services proposition, new products and ranges, better
trained and engaged colleagues and investments made
to modernise the business as part of the Moving Up A
Gear strategy.
Within Motoring, Car Maintenance revenues increased
by 3.1% on a LFL basis, driven by good growth in sales
of car parts and the fitting and sale of bulbs, blades
and batteries (“3Bs”). Metal storage and hand tools
performed very strongly, particularly the increasingly
popular Halfords Advanced range to which we added new
products in the year. We were disappointed with the 2.8%
decline in Car Enhancement LFL revenue, which was
driven by the continued decline in the sat nav market.
Partially offsetting this was strong growth in dash cams,
in-car connectivity equipment and car cleaning products.
Excluding sat navs, Car Enhancement LFL was up 3.7%
and sat navs now represent only 3% of Group sales.
Travel Solutions LFL revenues increased 7.9%, driven by
robust growth in roof bars and boxes, cycle carriers and
child seats; all of which benefit from our market-leading
positions and friendly, highly-trained fitters.
Cycling sales improved by 5.1% on a LFL basis and
18.2% on a total sales basis. We took a significant step
forward in consolidating the Group’s market-leading
position, growing market share on a like for like basis
as well as continuing to grow the Cycle Republic chain,
which grew over 20% like-for-like in the year. Tredz
and Wheelies also performed strongly in the year, with
revenue growing over 20%.
The like-for-like growth in Retail was driven by strong
performances across each of the sub-categories of
bikes, Parts, Accessories and Clothing (“PACs”) and
repair. PACs sales returned to growth for the first time
in two years due to stronger attachment sales, new
products and a more disciplined approach to ranging,
using our improving customer insight to introduce a
“good, better, best” hierarchy. Bike sales were supported
by the relaunch of our mainstream, award winning
ranges (Carrera and Apollo) as well as the launch of the
new, exclusive Wiggins range, and growing demand
for electric bikes. Our credentials in kids’ bikes were
validated by the public accreditation from Netmums
during the year, and Boardman won a host of industry
awards including the prestigious “BikeBiz” bike brand of
the year.
Tredz/Wheelies performed strongly since acquisition
and we were also very pleased with the Cycle Republic
performance, now trading from 15 shops and online. We
now have a unique balance in our offering, able to serve
the lifestyle consumers through our Halfords stores
and website, the growing commuter population through
Cycle Republic and the enthusiast and elite segments
through both Tredz and Boardman Elite.
Service-related sales increased by 11.1%, driven in
particular by cycle repair and elements of motoring
fitting, such as 3B’s and roof boxes. Although currently a
small part of the mix, our new “2Bs” (bulbs and batteries)
fitting for motorbikes and windscreen chip repair for
cars were contributors to growth. Our service capability
continues to be a key focus for us, with the Gears training
programme providing depth and breadth of experience
for colleagues, supporting our ability to establish
Halfords as a differentiated, service-led specialist retailer.
Online Retail revenue grew by 30.5% in total and 6.3%
LFL. The importance of our store network and service
overlay continued to be highlighted by the strength
of Click & Collect, with around 85% of Halfords Retail
online orders picked up in store. This high proportion of
click and collect continues to differentiate us from other
retailers, as our online business, instead of cannibalising
our bricks and mortar operation, drives footfall into our
stores, with over 80% of customers wanting advice or
fitting service with their purchase.
We enter the new financial year with good momentum.
We have published trading performance for the 15
weeks to the end of April 2017, which includes the 11
weeks to the end of the financial year and the first 4
weeks of the new year. We consider this period to be
more representative of performance because it includes
Easter in both the current year and the comparatives.
Revenue for this 15-week period was up 3.9% on a LFL
basis, comprising Motoring +0.9% and Cycling +11.1%.
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Chief Executive’s Statement
In January 2017 we entered into an operating agreement,
accompanied by the acquisition of a minority stake, with
TyresOnTheDrive.com (“TOTD”), a UK mobile tyre fitting
business, to develop opportunities to leverage each
other’s capability and expertise. We see a number of
sales and cost synergies as well as the opportunity for
Halfords to trial an innovative mobile delivery proposition
for motoring services, which fits squarely with our focus
on improving our service and convenience credentials.
We continue to investigate similar opportunities to
expand our capabilities and strengthen our positions in
our core markets.
Financial Targets and
Capital Allocation Priorities
We continue to apply our four key financial targets:
• Grow sales faster than the markets in which we
operate;
• Hold group EBITDA margin broadly flat over the next
few years (excluding the impact of FX);
• Grow the ordinary dividend every year with a dividend
coverage of 2 times on average over time (excluding
the impact of FX); and
• Net debt target of 1x Underlying EBITDA with a range
of up to 1.5x.
In the Chief Financial Officer’s review we explain these
targets in more detail and appraise our performance
against them.
During the year we made progress towards our debt
target, moving from 0.4x to 0.8x through consistent
application of our clear capital allocation priorities.
Central to our capital allocation policy is to maintain a
strong and prudent balance sheet, and we will use our
debt target as a guide for that. Our priorities for use of
cash will continue to be: firstly, capital investment to grow
the business in line with previous guidance; secondly, to
pay and grow the ordinary dividend every year; thirdly,
for any appropriate M&A opportunities which may arise;
and thereafter, any excess cash would be available for
additional distribution to shareholders.
Autocentres
Autocentres revenues were up 2.4% and, on a LFL basis,
up 0.6%. Online sales were strong, with web booking
revenues up 29.1%. Consistent with our strategic
priorities of ‘Service in Our DNA’ and ‘putting customers
in the driving seat’, it has been a year of long-term
investment in colleagues and creating an improved offer
to customers.
To benefit colleagues, we have introduced a new
technician pay grading system this year, to reward both
teamwork and training. We also continued to invest in
training and development, with 86 apprentices taken on
in the year demonstrating our commitment to developing
young talent and helping our colleagues learn long-
lasting skills. We now have 4 training centres open to
develop our MOT and hybrid testers. During the year our
colleague turnover reached the lowest that it has been
for almost 3 years, reflecting these investments as well
as the operational changes we introduced.
To benefit customers, we have introduced Sunday and
Bank Holiday opening and are also committed to training
one technician in every centre in electric and hybrid car
maintenance by April next year. We are well underway
on this journey. In addition, 16 centres were refreshed
during the year and these refreshes included customer
service pods, TV screens, Wi-Fi, coffee and large viewing
windows. They resonated well with customers, enhancing
the shopping experience.
These operational changes were made for long-term
benefit, but have been disruptive in the short-term
and despite many positive developments we were
dissatisfied with the financial results for the year.
Accordingly, we are taking a number of actions including
a review of the operating model. We see a presence in
the car servicing and repair market as important for the
Group in order to have a comprehensive suite of services
for the “second life of the car”. We also see a good
growth opportunity; we currently only have around a
1.5% share of a highly fragmented circa £9bn market. We
will report our conclusions in due course.
M&A Activity
During the year we expanded the Group’s capabilities
in motoring and cycling with two modest, highly
complementary investments.
In May 2016 we acquired Tredz and Wheelies for an initial
£18.0m, with a further circa £5m to be paid in the first
half of FY18. Tredz is a UK-wide online retailer of premium
bikes and PACs and Wheelies is the UK’s largest provider
of bicycle replacement for insurance companies. This
acquisition extends our presence in the online market
for premium bikes, parts, accessories and clothing, and
together with our rollout of Cycle Republic means we
now address all major segments of the cycling market.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Summary and Outlook
We are pleased with the sales performance in the
last financial year, with growth across all areas of our
business and market share gains in both Motoring and
Cycling. Our focus on, and investment in, services was
reflected in the significant growth of service-related
sales. We are also pleased with the momentum building
as we implement our Moving Up A Gear strategy. There
is demonstrable progress across each of the five pillars
of the plan and plenty more to come. Whilst the currency
movements have impacted on reported earnings, the
underlying business performance was strong.
Our priorities for the financial year we are now in will
include further improving and utilising our customer
data, consolidating our service and services credentials,
continuing to invest in our colleagues, further investment
in our online platforms and rolling out our successful new
store refresh concept.
We enter a challenging period from a macroeconomic
perspective, with uncertainty over consumer spending
and Sterling depreciation bringing input cost headwinds.
However, we approach this on the front foot and from
a position of strength as we have leading positions
in fragmented markets and offer a customer driven,
service-led proposition that differentiates us from
competitors, both physical and online.
Our FX headwind mitigation plans are well developed
and gaining traction. We are seeing the benefits of good
strategic progress on performance and have not so far
observed any noticeable adverse impact of a change in
consumer sentiment on our trading. Taking these factors
into account we anticipate FY18 profit to be in line with
current market expectations.
I would like to thank all colleagues for their fantastic
contribution, support and commitment to Halfords. Our
customer-centric, service-led strategy has real traction
and I have every confidence in the team to drive the
Moving Up A Gear strategy to the next level so that we
continue to deliver further progress across the Group.
Jill McDonald
Chief Executive
24 May 2017
Read more on Our Strategy on
pages 16 and 17
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sluglineHalfords Annual Report 2017.indd 807/06/2017 16:36:15 Our Strategic ReportOur Marketplace10Our Business Model12Stakeholder Engagement14Our Strategy16Our Key Performance Indicators18Business Review20Corporate Social Responsibility30Chief Financial Officer’s Review36Our Principal Risks and Uncertainties42sluglineSTRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATIONHalfords Annual Report 2017.indd 907/06/2017 16:36:17 Our Marketplace
Competitive landscape
Halfords principally operates in two broad markets:
Motoring and Cycling. Around 70% of Group sales
are generated from products and services that are
principally Motoring related with the remaining
30% coming from Cycling.
At a profit level, the contribution of Motoring is even greater.
These markets continue to display generally favourable
trends and we are particularly well placed to capitalise on
them, given our strong service and services proposition,
technical expertise and geographic footprint.
Service and services are key differentiators for us, providing
us with a unique advantage over much of the competition
that are either generalist or fragmented independents. This
is reflected in two key statistics: 80% of our customers want
some form of advice or service with their purchase and
around 85% of online sales on Halfords.com are collected in
store.
Our Moving Up A Gear strategy is aimed at strengthening our
position as a customer centric, service-led specialist retailer.
This, combined with our leading positions in fragmented
markets, gives us clear competitive advantages and a solid
platform from which to drive sustainable long-term growth.
Motoring Market
Market share and competitive landscape
Within Motoring, the Halfords Group operates in two segments:
• Car parts, accessories, consumables and technology, with a
total market worth up to an estimated £7bn. This element of the
Motoring market has grown by around 3% per annum in the last
few years. Halfords Retail competes in a portion of this market,
holding around a 15% market share.
• Car servicing and aftercare, with a total market worth around £9bn.
This element of the market has grown by around 2% per annum
in the last few years and is where Autocentres competes, holding
around 1.5% share of a highly fragmented market.
There is no single equivalent competitor of Halfords in the UK and these
motoring markets are highly fragmented. There are over 30,000 garages in
the UK of which two-thirds are estimated to be independents.
Market trends
New car registrations have grown consistently year on year between
2012 and 2016. After a record year for new car registrations in
2016, the Society of Motor Manufacturers and Traders (“SMMT”)
has forecast a decline in new car registrations of 2.6% in 2017. A
reduction in new car registrations typically results in used cars being
held onto for a longer time period. Combined with a strong pipeline of
cars feeding into the used car category, this means that we anticipate
the used car parc to grow in the years ahead. This will be a positive
trend for Halfords given that we predominantly support cars that are
over three years old, what we call the “second life of the car”.
Cars are also becoming more complex and customers increasingly need
support for small as well as large maintenance jobs. We are seeing an on
going trend from ‘do it yourself’ to ‘do it for me’, which plays strongly to
our service and services proposition. Our own market research indicates
that 80% of Halfords customers want advice or service with their
purchase. We also identified that 75% of UK consumers have medium to
low expertise in DIY and are therefore more inclined to pay for someone
else to “do it for them”. We continue to invest in training and equipment
to ensure that we remain at the forefront of technological changes,
such as having the ability to replace stop-start batteries on-demand
and being able to service electric and hybrid vehicles. We estimate that
over 50% of the market for car servicing and aftercare is represented
by independents, who are finding it increasingly challenging to meet the
increasing complexities of cars and their parts.
Halfords Share of the Motoring market
1.5%
15%
Car parts, accessories,
technology, and consumables
Car servicing and aftercare
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
We continue to see good growth in segments of our in-car technology
offering. We are a market leading retailer of in-car cameras (“dash
cams”) which continued to grow fast in FY17. We are also uniquely
placed to offer a fitting service for these products; with around 40%
of dash cam sales fitted into the car. Multimedia, connectivity and
streaming technology continue to grow as customers look for ways to
bring their in-car environment more technologically up-to-date.
loved by our customers and key to our further market share gains in
these areas.
The services that we offer alongside our products continue to evolve
and we now offer a suite of over 30 in-store services for motoring
and cycling, complimenting the continued success of our “3Bs”
(bulbs, blades, batteries) fitting and cycle repair services.
The sat nav market continues to decline, but this is becoming an
increasingly smaller part of our business, now representing only 3%
of Group sales. Across our stores we have an increasing number of
accredited child car seat fitters and thousands of colleagues able to
fit and provide detailed advice on roof bars and boxes, cycle carriers
and number plates. The expert, friendly advice they provide is unique,
Cycling Market
Market share and competitive landscape
In Cycling, Halfords has strong market shares of around 26% for bikes,
16% for PACs and 10% for cycle repair. We estimate these markets to be
worth annual sales of around £800m, £750m and £100m respectively.
The majority of our offer is aimed at mainstream, leisure and family
cyclists. However, the recent acquisition of Tredz and Wheelies alongside
the development of Cycle Republic means we can now meet the needs
of all key customer segments. Over 80% of the bikes sold by the Group
are own brands including Apollo, the biggest bike brand in the UK by
volume, Carrera, the biggest bike brand in the UK by value and Boardman,
the fastest growing premium bike brand in recent years and voted Bike
Brand of the year 2017 by BikeBiz. We have added to our own brands this
year with the launch of the Wiggins range in July 2016, further enhancing
our portfolio of exclusive collaborations with Team GB Olympians. Our
own brands are supported by selected third party brands, which include
Specialized, Giant, Cannondale, Cube and VooDoo.
The cycling market is highly fragmented. There are an estimated
2,500 bike shops in the UK. Other than Halfords and a small number
of chain retailers, the majority of the market is represented by
independents. As market leader we conduct extensive research
into customer behaviour and trends, as well as the competitive
landscape. Over the past year we have identified that the number of
independent bike shops in the UK has declined by around 10%.
Market trends
After a difficult year for the cycling market in 2015 due to a
combination of high stock levels and poor weather, 2016 was better.
The first part of the year saw a continuation of the conditions observed
in 2015 compounded by relatively high stock levels in the market and
poor weather, which prompted heavier and earlier discounting by
competitors than in previous years. However, the peak summer period
benefited from warmer weather and the success of Team GB at the Rio
Olympics, as well as discounting across the market, which helped to
clear much of the stock that had been building up in the market.
Going forward we anticipate the Motoring market in which we operate
to continue to grow at an average rate of 2-3% per annum over the
medium-term and we continue to aim to better those growth rates
through our growing service and services proposition.
Looking ahead we see good growth prospects for the cycling market
for several reasons:
• participation levels in the UK remain much lower than in many
other European countries. Despite the increase in popularity of
the sport in recent years, the number of bikes sold in the UK has
remained broadly flat at an average 3.3m bikes per year;
•
the level of female participation also remains very low. Recent
data suggests that, in the UK, women make up to 27% of cycle
journeys compared to 55% in Denmark and the Netherlands;
•
the health and wellbeing benefits associated with cycling;
• government infrastructure investment in London and other UK
cities;
•
the rapidly growing e-bike segment, which makes cycling more
accessible to both commuters and older generations; and
• we are seeing existing participants in the cycling market spending
more as they increase the amount they use their bikes.
As evidenced by the differing performance in the early and late summer
periods this financial year, the weather will continue to have an impact
on the timing of customer purchase, but the overall trends are positive.
We expect the cycling market to grow on average at 3-5% per annum
and we continue to aim to beat that market growth rate, through growing
our service and services proposition.
Halfords Share of the Cycling Market
26%
16%
10%
Bikes
PACs
Repair
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Effective utilisation of our resources and relationships are an integral part of our plan to drive long-term sustainable growth. Our resources and relationships form the inputs to our business model, which are utilised and transformed in the process of value creation. The outputs of our business model are detailed on the opposite page and throughout the report.Through our portfolio of convenient stores and Autocentres, efficient distribution network and user-friendly websites . . .We want to create a compelling shopping experience that excites customers, improves their knowledge of our products and services, and engages them emotionally with our brand. Our ambition is to create a service-led, fully integrated digital proposition which will maintain our ongoing relevance. . . . to delight our customers every timeWe aim to grow our business by attracting more customers, encouraging them to buy more products and services, and persuading them to visit our stores and Autocentres more often. To do this we make four promises:Range you can rely onService that wowsPrices you can trustQuality you can trustThrough the expertise of our partners and well-trained colleagues . . .Training and accreditation, such as our 3-Gears training programme, ensures that consistent product knowledge and service reaches our customers across all locations.We are able to leverage the Halfords brand . . .Halfords is the nations go-to-retailer for motorists and cyclists. We have a range of exclusive and highly-regarded brands including Boardman, Apollo and Carrera in cycling, as well as our Halfords Advanced ranges in motoring.sluglineOur Business Model12Halfords Group plc Integrated Annual Report for the period ended 31 March 2017Halfords Annual Report 2017.indd 1207/06/2017 16:36:21 Our model is underpinned by our financial discipline, astute purchasing and strategic reinvestments.We are a cash generative business and have generated £37.7m of Free Cash Flow in the year. We are well supported by our banking syndicate, having amended the debt facility in 2014, extending it to November 2019.sluglineachieved by Halfords Retail in the Sunday Times “Best Big Companies to Work For” listFast Fact*13th place in-store services carried out at each of our 460 Retail stores during the year Fast Fact*Around 10,000Our integrated approach to sustainability keeps economic, social and environmental considerations in mind, as well as the material issues of our stakeholder groups to inform our model and operations.This icon is used to indicate content on the outputs of the business model. Building relationships with suppliers, customers and the communities around us.Read more in the Corporate Social Responsibility on pages 30 to 35CommunityGenerating returns to our shareholders through effective management of our financial resourcesRead more the Chief Financial Officer’s Review on pages 36 to 41Developing our brand through innovation and expertise.Read our case study on Exclusive Ranges on page 25Financial ResourcesBrandMaintaining and developing our infrastructure and sales channels to strengthen competitive advantages.Read our case study about Developments in our Store Portfolio on page 27Developing, rewarding and retaining our circa 10,000 colleagues so that they are engaged and driving our long-term sustainable growth ambitions.Read more about “Service in Our DNA” on pages 22 and 23Physical and IT InfrastructureColleaguesEnvironmentOutputsRead more in the Corporate Social Responsibility on pages 30 to 35The environmental resources that Halfords utilises in its operations.STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION13STOCK CODE: HFD halfords.annualreport2017.comHalfords Annual Report 2017.indd 1307/06/2017 16:36:21 Stakeholder Engagement
Stakeholder
Why it is important to engage
Ways we engage
Stakeholders’ key interests
Customers
Colleagues
Suppliers
Investors
Understanding our customers’
needs and behaviours allows us
to deliver relevant products and
services, retain customers and also
attract new ones. It also identifies
opportunities for growth.
Interactions with our colleagues
are the main ways that customers
experience the brand of the
Company. Our colleagues are
fundamental to the achievement of
our customer experience ambitions
and are the cornerstone of our
service and services proposition.
Engaging with our supply chain
means that we can ensure security
of supply and speed to market. 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 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.
Communities
Media
Ensures continued viability of the
business into the long-term. We
aim to contribute positively to the
communities and environment in
which we operate.
Ensures transparency of
information on the business.
As a business-to-consumer
company, we need strong
omnichannel exposure to connect
with customers and our wider
stakeholder audience.
Government
Policies and regulatory changes
may provide opportunities and
pose risk to our operations.
Working closely with the
Government ensures that our
products and services evolve.
• Satisfaction surveys
• Value for money
• Rewards
• Customer service
• Commercial website
• Convenience
• Social media engagement
• Range
•
‘3-Gears’ training programme
• Career opportunities
• Listening: surveys and colleague
• Pay and conditions
groups
•
‘Accelerate’ management
development courses
• Recognition and reward
• Apprenticeship programme
• Training and development
•
Innovation
• Colleague engagement
• Far East trading office
• Quality management
developing mutually beneficial
relationships
• Logistics efficiencies and
environmental management
• Supplier conferences
•
Infrastructure
• Cost efficiency
• Ethical Trading policy
• Annual reports
• Future-oriented information
• RNS
• Risk information
• Annual General Meetings
• Operating and financial
•
Investor presentations
• Corporate website
• One-on-one meetings
performance
• Dividend
• Access to Management
• Community investment
initiatives
•
Impact of Group activities on the
wider community
• Media channels
• Product videos and peer reviews
• Reliable range, product and
pricing information
• Transparency of reliable and
timely Group information
• TV and radio advertising
campaign
• Email and PR customer
engagement
•
Improving Twitter, Facebook and
Youtube content
• Cycle to Work policy
• Transport policies and schemes
• CO2 reduction strategies
campaigning
• DAB Radio working groups
• Driver training and vehicle safety
enhancements
• Engaging with VOSA, DVLA, TSI,
ASA and HSE
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Fast Fact*
Nearly 50%
of Retail store management
vacancies filled internally
Fast Fact*
CSR
Achievements
we won Retail Week’s “CSR
Initiative of the Year” for our
work at Onley prison
Read more on Corporate Social
Responsibility on pages 30 to 35
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Our Strategy
In November 2015 we launched the Moving Up a Gear strategy
This strategy is an evolution from the previous Getting Into Gear strategy
and comprises five pillars.
Putting Customers in
the Driving Seat
Service in Our
DNA
Building on Our
Uniqueness
Description
Description
Description
Investing in customer data and insight
capabilities to maximise the lifetime
customer value
Halfords has been through a service
revolution and now we need to embed
it in how we do business. Our ability
to offer great service is one of our key
differentiators
Exclusive products, relevant innovation,
unique partnerships and collaborations
Description
well as in store
Description
efficiency and fulfilment
A seamless customer experience, online as
Moving from fixing the basics to improving
Objectives
Objectives
Objectives
Objectives
Objectives
•
Improve understanding of our
customers
• Combine our pools of customer data
into a single view
• Leverage customer data to gain insights
and tailor offers
• Refresh brand positioning to create a
more emotional connection
• Address areas where we may be
underperforming
• Maintain 3-Gears training programme
and increase emphasis on service and
selling skills
• Develop talent throughout the Group,
including through our Aspire and
Apprenticeship programmes
• Reward skills through enhanced pay
• Grow service-related sales
• Maintain and develop a pipeline of
relevant innovation
• Nurture and complement our
partnerships and collaborations
• Exclusive product ranges
• Update stores using our evolved store
• Maintain short-term stability of our supply
refresh concept
chain operations through peak periods
• Continual improvement of our online
• Review and identify the long-term
and fulfilment propositions
requirements for our supply chain
• Launch a transactional website for
• Turn our IT investment focus to developing
Cycle Republic
value-adding colleague and customer-facing
• Continue to target growth in areas where
IT applications
we have relatively low market share
• Continue our strategy of right-sizing,
relocating and renegotiating leases
upon expiry
Progress to date
Progress to date
Progress to date
Progress to date
Progress to date
• % of sales matched to customers in
Retail improved from 3% to 46%
• More personalised email marketing,
including product recommendations
• Utilising data for customer insight
• Single view of customer phase 1 is
complete, linking up 15 databases
• 5.3m Retail customers added to our
database since launch of the strategy
• New brand positioning, For Life’s
Journeys, launched in June 2016
• Nearly 70% of colleagues qualified for
• Wiggins range launched in store in July
• New store refresh concept progressed
• Current 3-day-a-week delivery to stores
Gear 2 and circa 10% for Gear 3
2016
and launched in November 2016 with
model is embedded and stable
• Continued improvement in key customer
• Orla Kiely range of leisure products now
5 stores refreshed by year end
• 29 lease renegotiations, 7 relocations and
service metrics
available in stores
• Significant reduction in colleague
turnover, now circa 33% in Retail
• Received 13th place in the Sunday
Times’ Best Big Companies category (up
from 18th last year)
• Exclusive in-car technology in stores,
such as Nextbase dash-cams
• Apollo and Carrera adult bike ranges
re-launched in summer 2016
• Agile web development approach
2 right-size of Halfords stores in FY17
implemented
• Good progress on our two major IT
• Cycle Republic transactional website
programmes, with launch of Dayforce in
launched in August 2016
March 2017 and iServe in pilot stage
• Sunday and Bank Holiday opening
• Successful transition to new warehouse
launched in Autocentres
in Daventry, consolidating numerous
external storage locations
Focus for FY18
Focus for FY18
Focus for FY18
Focus for FY18
Focus for FY18
• Single view of customer phase 2, which
will involve linking another 15 databases
• Further improvements in the percentage
of sales matched to customers and in
utilising this data to drive incremental
sales
• Further development of our Tradecard
• Development of the Boardman
• Digital enhancements to improve the
•
Investment in our supply chain
service
Performance Centre
online customer journey including a new
processes to make our store deliveries
• Training of colleagues to support our
• Delivery of the operating agreement
intelligent search tool and ability to pay
easier and quicker to process
new range of e-bikes
with Tyres on the Drive, and opportunity
to trial a broader mobile delivery
proposition
online for collection in store
•
Introducing a number of new, internal
• Acceleration of the store refresh
“We Operate For Less” initiatives, in
programme plus the trial of a “light” version
order to drive cost efficiencies and
deliver additional value for customers
and colleagues across the group
Read more about Putting Customers
in the Driving Seat on page 20
Read more about Service in Our
DNA on pages 22 and 23
Read more about Building on Our
Uniqueness on pages 24 and 25
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Description
Description
Description
Description
Description
Investing in customer data and insight
Halfords has been through a service
Exclusive products, relevant innovation,
capabilities to maximise the lifetime
revolution and now we need to embed
unique partnerships and collaborations
A seamless customer experience, online as
well as in store
Moving from fixing the basics to improving
efficiency and fulfilment
Better Shopping
Experience
Fit for Future
Infrastructure
customer value
Objectives
customers
it in how we do business. Our ability
to offer great service is one of our key
differentiators
Objectives
and tailor offers
Apprenticeship programmes
• Refresh brand positioning to create a
• Reward skills through enhanced pay
more emotional connection
• Grow service-related sales
• Address areas where we may be
underperforming
•
Improve understanding of our
• Maintain 3-Gears training programme
• Maintain and develop a pipeline of
• Update stores using our evolved store
and increase emphasis on service and
relevant innovation
refresh concept
• Maintain short-term stability of our supply
chain operations through peak periods
• Combine our pools of customer data
selling skills
• Nurture and complement our
into a single view
• Develop talent throughout the Group,
partnerships and collaborations
• Continual improvement of our online
and fulfilment propositions
• Review and identify the long-term
requirements for our supply chain
• Leverage customer data to gain insights
including through our Aspire and
• Exclusive product ranges
• Launch a transactional website for
• Turn our IT investment focus to developing
Objectives
Objectives
Objectives
Cycle Republic
• Continue to target growth in areas where
we have relatively low market share
value-adding colleague and customer-facing
IT applications
• Continue our strategy of right-sizing,
relocating and renegotiating leases
upon expiry
Progress to date
Progress to date
Progress to date
Progress to date
Progress to date
• % of sales matched to customers in
• Nearly 70% of colleagues qualified for
• Wiggins range launched in store in July
Retail improved from 3% to 46%
Gear 2 and circa 10% for Gear 3
2016
• More personalised email marketing,
• Continued improvement in key customer
• Orla Kiely range of leisure products now
including product recommendations
service metrics
available in stores
• New store refresh concept progressed
and launched in November 2016 with
5 stores refreshed by year end
• Agile web development approach
• Utilising data for customer insight
• Significant reduction in colleague
• Exclusive in-car technology in stores,
implemented
• Single view of customer phase 1 is
turnover, now circa 33% in Retail
such as Nextbase dash-cams
complete, linking up 15 databases
• Received 13th place in the Sunday
• Apollo and Carrera adult bike ranges
• 5.3m Retail customers added to our
Times’ Best Big Companies category (up
re-launched in summer 2016
database since launch of the strategy
from 18th last year)
• New brand positioning, For Life’s
Journeys, launched in June 2016
• Cycle Republic transactional website
launched in August 2016
• Sunday and Bank Holiday opening
launched in Autocentres
• Current 3-day-a-week delivery to stores
model is embedded and stable
• 29 lease renegotiations, 7 relocations and
2 right-size of Halfords stores in FY17
• Good progress on our two major IT
programmes, with launch of Dayforce in
March 2017 and iServe in pilot stage
• Successful transition to new warehouse
in Daventry, consolidating numerous
external storage locations
Focus for FY18
Focus for FY18
Focus for FY18
Focus for FY18
Focus for FY18
Fast Fact*
Almost
50%
increase in email traffic
through targeted and
personalised email
campaigns
Fast Fact*
33%
colleague turnover in
Retail – a record low
• Single view of customer phase 2, which
• Further development of our Tradecard
• Development of the Boardman
will involve linking another 15 databases
service
Performance Centre
• Further improvements in the percentage
• Training of colleagues to support our
• Delivery of the operating agreement
of sales matched to customers and in
new range of e-bikes
utilising this data to drive incremental
sales
with Tyres on the Drive, and opportunity
to trial a broader mobile delivery
proposition
• Digital enhancements to improve the
online customer journey including a new
intelligent search tool and ability to pay
online for collection in store
• Acceleration of the store refresh
programme plus the trial of a “light” version
•
•
Investment in our supply chain
processes to make our store deliveries
easier and quicker to process
Introducing a number of new, internal
“We Operate For Less” initiatives, in
order to drive cost efficiencies and
deliver additional value for customers
and colleagues across the group
Read more about Better Shopping
Experience on pages 26 and 27
Read more about Fit for Future
Infrastructure on page 28
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Our Key Performance Indicators
Shareholder KPIs
KPI
Definition
Commitment
Performance
Historic Performance
Underlying
profit
before tax
Profit before income tax
and non-recurring items
as shown in the Group
Income Statement.
The Board considers that this
measurement of profitability
provides stakeholders with
information on trends and
performance, before the
effect of non-recurring items.
Underlying
earnings
per share
Profit after income tax
and before non-recurring
items as shown in the
Group Income Statement,
divided by the number of
shares in issue.
EPS is a measure of our
investment thesis and as
such we aim to manage
revenues, margins and invest
in long term growth.
Underlying EBIT is results
from operating activities
before non-recurring
items. Underlying
EBITDA further removes
Depreciation and
Amortisation.
The Board considers that
these measurements of
profitability are a viable
alternative to underlying
profit and uses these
measures to incentivise
Management.
Cash returned to
shareholders as a return
on their investment in the
Company.
To grow the dividend every
year with cover of around
2x underlying earnings on
average over time.
Underlying
EBIT &
Underlying
EBITDA
Dividend
per
Ordinary
Share
Net Debt
Current and non-current
borrowings less cash
and cash equivalents
both in-hand and at
bank as shown in the
Consolidated Statement
of Financial Position.
Net Debt to
Underlying
EBITDA
ratio
Represented by the ratio
of Net Debt to Underlying
EBITDA, both of which are
defined above.
Like for like
sales
Revenues from stores,
Autocentres and websites
that have been trading
for at least a year (but
excluding prior year sales
of stores and Autocentres
closed during the year)
at constant foreign
exchange rates.
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. This
measure helps to understand
the financing structure of the
Group.
We target a ratio of 1x, with
a range of up to 1.5x to allow
for appropriate M&A. We
will arrive at the debt target
over time. This ratio helps to
compare the financial result
for the year to debt levels.
Like for like sales is a widely
used indicator of a retailer’s
trading performance, and
is a comparable measure
of our year-on-year sales
performance.
Underlying profit
before tax declined
by 7.5% year-on-
year, primarily due to
the depreciation of
Sterling against the
US dollar.
Underlying earnings
per share declined
by 8.7% year-on-
year, primarily due to
the depreciation of
Sterling against the
US dollar and small
increase in tax rate.
Underlying EBITDA
declined by 5.1% year-
on-year, primarily due
to the depreciation of
Sterling against the
US dollar.
The Board has
recommended a final
ordinary dividend of
11.68 pence per share
(FY16: 11.34 pence)
which takes the full-
year ordinary dividend
to 17.51 pence per
share, an increase of
3.0% on the prior year.
Net Debt has
increased by £38.0m
to £85.9m, reflecting
the acquisition of
Tredz & Wheelies,
investment in
Tyresonthedrive.com
and special dividend
paid in February 2017.
The Group had a Net
debt to underlying
EBITDA ratio of 0.8x
at the end of FY17, up
from 0.4x at the end of
FY16, for the reasons
explained in “Net
Debt”.
A balanced result
across both Retail
and Autocentres. The
negative like for like in
the Car Enhancement
category was
attributable to
declining sat nav sales
(which equate to 3%
of Group sales).
2017
2016
2015
2017
2016
2015
2017
2016
2015
£75.4m
£81.5m
£81.1m
30.3p
33.2p
32.7p
£108.7m
£114.6m
£109.9m
The above numbers represent
Underlying EBITDA
2017
2016
2015
17.5p
17.0p
16.5p
2017
2016
2015
£85.9m
£47.9m
£61.8m
2017
2016
2015
0.8x
0.4x
0.6x
FY17 LFL
revenue movement
Halfords Group
Retail
Motoring
Car Maintenance
Car Enhancement
Travel Solutions
Cycling
Autocentres
+2.7%
+3.1%
+2.0%
+3.1%
-2.8%
+7.9%
+5.1%
+0.6%
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Operational KPIs
KPI
Definition
Commitment
Performance
Historic Performance
Proportion
of trained
Retail
colleagues
Measures the
progress of our
colleagues through
the 3-Gears training
programme.
We aim to have the majority
of our colleagues trained
to Gear 2 plus around two
colleagues per store trained
to the Gear 3 “guru” level.
By the end of the
year nearly 70% of
our eligible Retail
store colleagues were
qualified at Gear 2
level. We also have a
further circa 10% of
colleagues at Gear 3
level (equivalent to 1.2
per store).
Service-related sales
grew by 11.1% in
the year, with growth
across the suite of
our fitting and repair
services.
2017
2016
2015
67%
72%
46%
The above numbers represent the
proportion of colleagues qualified at Gear
2 level
2017
2016
2015
11.1%
8.5%
8.1%
To grow service-related sales
faster than total Retail sales
growth.
Service-related sales
is the income derived
from the fitting or
repair services
themselves along
with the associated
product sold within
the same transaction.
The proportion of
sales in Halfords Retail
that can be matched
to a specific customer
in our database.
Service-
related
Retail sales
growth
Proportion
of Retail
sales
matched to
a customer
Cycle
Republic
stores
(cumulative)
To increase our understanding
of who our customers are.
We will do this by adding to
our customer databases and
combing them to create a
single customer view.
We can match 46%
of Retail sales to
customers, up from
15% this time last
year.
2017
2016
2015
3%
15%
46%
The number of Cycle
Republic stores that
are trading.
We do not have a fixed store
rollout target. However we
have guided to open around
5 in FY18.
2017
2016
2015
4
15
10
We opened 5 stores
in FY17, in Purley,
Birmingham, Leeds,
Southampton and
Edinburgh, taking the
total to 15 at the end
of the year.
Store and
Autocentre
refreshes
The number of
Retail stores and
Autocentres refreshed
in the year.
We are committed to
refreshing the design of
our stores and Autocentres
in order to improve the
customer experience.
During the year
we refreshed 17
Retail stores and 16
Autocentres.
2017
2016
2015
17
25
45
The above numbers represent the
number of Retail stores refreshed
Online
sales as a
proportion
of total
Retail sales
Online sales as a
proportion of total
Retail sales.
We are committed to
improving our online
shopping experience for
customers.
2017
2016
2015
Our online sales
represented 14.8%
of total Retail sales.
This proportion was
slightly higher in the
year and reflects the
addition of Tredz and
Wheelies.
14.8%
12.1%
12.1%
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As a result of these initiatives, we have seen email traffic in FY17 up
49% against the prior year, with an incremental 1.2m visits to the
website. Overall, sales attributed to email campaigns were up 19%,
and open rates were up from 15% to 21%, on average.
We launched our new brand positioning in June 2016, under the
strapline of Halfords - For Life’s Journeys. The new campaign is
helping to drive a clearer understanding of Halfords’ offer, particularly
amongst younger customers. We have improved the richness of
online content, with more videos and “how to” guides, reinforcing our
service credentials online as well as in shops.
Looking ahead to FY18, we will focus on enhancing some key
initiatives, such as smarter search and guided selling functions,
to continually improve our personalisation, relevance and to drive
greater incremental sales.
Business Review
Putting Customers in
the Driving Seat
Over the course of the financial year
we have been rapidly improving
our customer data knowledge and
capability.
We continue to collect customer email
addresses across our Retail stores.
We have gathered around 5.3m email
addresses within our Retail stores over
the last 18 months. The majority of
these customers are new contacts to
our database.
We can now match 46% of Retail sales to customers, up from 3%
as of November 2015. We completed the first phase of our ‘single
customer view’ project, joining up 15 different databases. Across the
Group we can now match 59% of sales to customers. Investment in
customer data has allowed us to move from generic email marketing
to a more personalised approach, which in turn is driving incremental
revenue and awareness of our services. A few examples include:
• We have added detailed individualised data into our group single
customer view, which has informed the timing, content, frequency
and channel of all communications to customers, based on the
preferences we infer from their behaviour (for example, a family
cyclist will see different communications to a camping enthusiast);
• Over winter we targeted customers on their mobiles with bulbs,
blades and batteries messages based on the age of their car
obtained from the DVLA, their proximity to store through their
mobile phone data and the local weather from the Met Office; and
• We sent geo-targeted messages to customers who live, work or
shop in the location of our new store in Sutton Coldfield to share
with them a virtual tour of the revamped store, emailing customers
who used to shop in the old store to let them know the new one
was opening. This will be replicated for upcoming store refreshes
across the estate.
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We remain committed to the 3-Gears training programme; nearly
100% of eligible colleagues are at Gear 1, around 70% of colleagues
had qualified for Gear 2 by the end of FY17 and we also now have
circa 10% of colleagues trained to Gear 3 “guru” level, which is in line
with our target proportions. Going forward we will continually refresh
existing colleagues’ training and also develop new colleagues.
Our Retail apprenticeship scheme remains popular and we have now
placed over 40 trainees into permanent roles across our stores. We
continued to build our pipeline of Assistant Store Managers and Store
Managers through our Aspire programme; in FY17 we filled 48% of
store management vacancies internally.
Retail colleague turnover has further improved during the year to
record lows and is now circa 33% which will deliver long term benefits
for the business. We were also pleased to once again be included
within the Sunday Times Best Big Companies to Work For list, moving
up to 13th place from 18th place last year.
As of April 2016 we introduced the National Living Wage for our
colleagues aged 25 and over, and at the same time introduced our
20p supplement for all colleagues upon qualifying for Gear 1. This,
combined with other changes to our pay structures, lifted the pay of
all colleagues of the Halfords Group to above the minimum wage.
Business Review
Service in
Our DNA
We have a menu of over 30
in-store services across Motoring
and Cycling, which are key to
our uniqueness as a service-led,
specialist retailer, driving our distinct
competitive advantage.
We introduced two new motoring
services in the year: windscreen chip
repair and motorcycle bulb and battery
fitting which are both growing strongly.
We also introduced new services in cycling, such as bike sizing using
‘Smartfit’ technology in our recently refreshed concept stores, as well
as slime puncture proofing. We will be launching many more in-store
services across both Motoring and Cycling in the months ahead.
We remain focused on growing the important metric of service-
related sales, which we aim to grow faster than overall sales; in
FY17 we achieved LFL growth of 11.1%. We completed nearly 5
million fitting services during the year, which equates to over 10,000
services per Retail store. There remains an opportunity to grow our
service-related sales through increasing customer awareness of our
services, as well as harnessing the trend away from ‘do it yourself’ to
‘do it for me’.
We have updated our net promoter score methodology with a
new programme of customer experience measurements in shops,
weighted according to what matters most to customers. We have
opened up more channels for customers to give us their feedback,
including exit interviews as customers leave the store, carried out by
an external third party and direct links to e-receipts.
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Case Study: 3-Gears training
In 2013 we launched ‘3-Gears’, a qualification programme that trains and
rewards colleagues for gaining expertise.
The programme is now well embedded and is absolutely core to our
customer-centric, service-led proposition. 80% of our customers
want some form of assistance with their purchases and so it is
imperative that we have a team of engaged, friendly experts.
The three Gears represent the different stages of qualification:
• GEAR 1 – Gear 1 applies to all colleagues and is completed over
their first three-month period with Halfords. We use structured
e-learning modules that cover health & safety, processes &
policies, retail skills and customer service. The outcome is that all
store colleagues will be qualified to serve customers confidently
and receive a pay award.
• GEAR 2 – Gear 2 involves a nine-month training programme which
leads to an expert level of product knowledge, with a specialism in
either motoring or cycling. Learning is through e-learning, in-store
practical and face-to-face training programmes. There are regular
refresher courses for Gear 2 colleagues and a pay award for those
who attain this level.
• GEAR 3 – Gear 3 colleagues are our Technicians. They are product
experts who are qualified to perform more advanced services.
They keep their skills and knowledge current and market leading
- through workshops, attending product and trade shows and by
linking with and visiting suppliers. Our Technicians also receive
industry recognised qualifications, continuous professional
development and a pay award.
At the end of FY17 around 70% of our colleagues had qualified for
Gear 2 and we had over 500 Gear 3 level colleagues.
There are many benefits of this investment in training. We have
more multi-skilled colleagues, which means that rather than having
one fitter per store, we have many colleagues capable of replacing
bulbs, wiper blades or batteries, or child car seats, enabling us to
meet demand. Customer satisfaction measures have also improved
significantly, reflecting the focus on providing great service as well as
enhanced technical and product knowledge. Colleague engagement
has increased, evidenced by Halfords’ listing in the Sunday Times
Best Big Companies To Work For (13th place in 2017) and record low
Retail colleague turnover of 33% at the end of FY17. Finally, we are
also seeing the benefits in financial outputs. Service-related sales
have grown strongly and in FY17 we undertook nearly 5 million in-
store services, which equates to over 10,000 per store. We fitted five
times as many dash cams in FY17 as we did the year before and we
also achieved a sales growth in child car seats that was double the
market growth rate.
We have made great progress
in our ability to match sales to
customers during the year and also
in understanding their behaviours
better.
Going forward, this will support us
to raise awareness of our services,
in-turn becoming more relevant
to our customers and driving
incremental sales.
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Business Review
Building on Our
Uniqueness
Exclusive products, relevant
innovation and unique partnerships
all strengthen our clear
differentiation as a retailer.
During the year we introduced the
following new initiatives and products:
Tradecard sales grew 14.6% in the year, supported by an enhanced
central support team and from the enabling of cards to be used online
for the first time.
Looking ahead to FY18 we have recently enhanced our range of
e-bikes, a fast-growing segment of the cycling market, with an
increased range of new own-brand e-bikes which have been rolled-
out to almost all retail stores from around 120, since the start of April
2017. We will also be building our Boardman Performance Centre,
due to open in 2018. This will be a revolutionary cycling research and
development centre, including a wind tunnel and physiological testing
and also provide access to the growing ranks of enthusiasts to test
their capability alongside experts.
From a services perspective, in Motoring we will be launching
an ad-blue top-up service and car key fob repair, which will both
complement and enhance our existing offering.
• Launched a new range of mainstream adult Carrera and Apollo
bikes, alongside a new and exclusive Wiggins range;
Fast Fact*
• Developed our capability of being a market-leading fitter of dash
cams, differentiating us from online or generalist retailers;
• Launched our “safer seat” campaign helping customers to fit their
child car seats with greater peace of mind;
• Enhanced our range of PACs for the Boardman brand, which won
Best Bike brand in the prestigious BikeBiz 2017 awards, together
with a host of other coveted industry awards;
1/4 million
kids unwrapped bikes
from Halfords on
Christmas Day
• Launched an exclusive range of Orla Kiely camping and travel
accessories; and
• Expanded our range of motorcycling parts and accessories.
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Case Study: Exclusive Ranges
Halfords occupies a unique position in the markets in which we operate and
building upon this further strengthens our clear differentiation. Exclusive
Ranges are a key part of this.
We have many exclusive ranges within Halfords, ranging from the
Halfords Advanced own brand tool ranges, the Halfords own brand
batteries and bulbs, to our bike brands such as Apollo and Carrera.
In fact, around 80% of the bikes that we sell across the Group are
exclusive to Halfords.
During the year we have continued to enhance our product ranges,
including:
• New modular tool sets under our Halfords Advanced brand. These
come with a lifetime guarantee and are becoming increasingly
popular among professional and amateur mechanics alike.
• A partnership with Olympian and Tour de France champion, Sir
Bradley Wiggins comprising an exclusive range of 10 high quality
children’s bikes ranging from a balance bike for toddlers to a
junior road bike. The Wiggins collection of kids’ bikes is Halfords’
third venture with an Olympic champion. Halfords also owns the
Boardman Bike brand launched by Chris Boardman MBE, and also
launched the exclusive Pendleton range of women’s bikes with
double Olympic medallist, Victoria Pendleton.
• A partnership with fashion designer Orla Kiely to bring a new
and exclusive Olive and Orange range to Halfords. The collection
includes printed hybrid bikes, cycle accessories, as well as
camping essentials for festival season.
In addition to product range enhancements we also continued to add
to our range of services. We have over 30 in-store services across
motoring and cycling. In FY17 we introduced two new motoring
services: windscreen chip repair and motorcycle bulb and battery
fitting. We also introduced new services in cycling, such as bike sizing
using ‘Smartfit’ technology in our recently refreshed concept stores,
as well as slime puncture proofing. We will be launching more in-store
services across both motoring and cycling in the months ahead.
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During the year we also implemented a more agile approach to web
development, whereby we complemented the core digital team at our
Support Centre in Redditch with a separate web development team in
central London.
This enabled us to accelerate the improvement of our websites
during the year through the following means:
• Deploying code changes five times more frequently than in the
prior year;
•
Introducing a guided selling tool, helping customers reach a
purchase decision through various questions;
• Redeveloping our mobile check-out process to provide a more
seamless customer journey; and
• Making a series of incremental changes to drive conversion rates
across our sites.
These changes, along with completing a number of site performance
enhancements, supported the development of richer online content
and enabled us to maintain our group website performance through
peak periods.
By the year-end, Cycle Republic reached 15 stores and represented
circa 1% of Group revenue. We opened 5 new stores during the
year in Purley, Birmingham, Leeds, Southampton and Edinburgh.
We are encouraged by the progress, with strong double-digit LFL
sales growth and a successful launch of the transactional website
in August 2016. Building on this success we will continue to roll out
more stores and further develop the online presence. We anticipate
opening around 5 stores in FY18.
We are very pleased with the performance of Tredz during the year, as
sales have grown 22.0% year-on-year in the period since acquisition.
Business Review
Better Shopping
Experience
During the year we evolved our Retail
store refresh concept, opening the
first of these in Derby in November
2016 and subsequently opening four
more by the end of the financial year.
The previous store programme had
been successful, delivering good sales
uplifts, and therefore did not require
fundamental changes.
However, we have updated the concept to reflect the Moving Up A
Gear strategy and to incorporate advances in our customer insight
and technological capabilities. The differences to the previous store
refresh format include:
• Enhancements to reflect our growing service proposition,
including customer waiting areas with coffee machines and more
prominence placed on in-store services to raise awareness;
• Technological enhancements, including digital imaging bike fitting,
dedicated hubs for service, technology, click & collect;
• Colleague headsets to enable better communication between
colleagues supporting better customer service;
• A shop-in-shop feel with clear differences between the Motoring
and Cycling sections; and
• New brand positioning internally and externally.
Early signs are very encouraging, both in terms of customer response
and sales uplifts; the latter running at higher levels than achieved in
the early days of the previous store refresh iteration. The priority for
our first store in Derby was to establish a basic blueprint from which
to roll out at an accelerated rate in FY18. We will continually evolve
the concept, learning as we go and adding new features. We will also
launch a “light” version, designed to bring some of the principles to
stores that do not financially justify a full refresh. In total we anticipate
refreshing around 30 stores in FY18.
During the year we successfully rolled-out the use of Apple Pay and
contactless card payments across the Retail estate, thereby improving
the in-store shopping experience for our customers. As at March 2017,
around 50% of in-store transactions were completed using one of these
new methods. We are also making great progress in mobile, with traffic up
31% in the year and one in three online orders made using a mobile device
this year, compared to one in four last year.
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Case Study: Updated store refresh concept
Physical and IT
infrastructure
The key features of the refresh concept are:
• Greater focus on services, including in-store service menu and
clearer signage;
•
‘Park up and relax’ lounge, where customers can sit and have a hot
drink whilst waiting for services on their car or bike;
• Dedicated, covered fitting bays in the car park for on-the-spot
bulb, blade and battery fittings and other services, such as
windscreen chip repair;
Halfords is a service-led specialist retailer. This is
reflected in some important statistics:
• Electric car charging points, in support of the growing number of
electric cars on the road;
• 80% of our customers want some form of assistance with their
• Dedicated hubs within the store for service, parts, technology and
purchases.
‘click & collect’;
• Around 85% of customers shopping on Halfords.com collect their
purchases in store.
• Updated design principles, to reflect the “Halfords – For Life’s
Journeys” brand positioning that was launched in June 2016;
This means our stores are absolutely central to our proposition and
we need to continue to invest in them. In 2013 we embarked upon a
store refresh programme and around 100 stores were refreshed in the
subsequent three years. This programme was a success with positive
customer feedback and sales uplifts that justified the capital investment.
Following the launch of our Moving Up A Gear strategy in November
2015 we decided to take another look at our refresh programme;
evolving it to reflect improvements in customer data, branding and
technological capability, and to showcase our key differentiators:
service and services. In November 2016 we opened the first of these
new refresh concepts in Derby. We have since refreshed a further
four stores before the year end.
• An exciting new ‘Smart Fit’ centre that enables customers aged
8 and over to have their measurements taken virtually to find the
perfect bike for them;
• Headsets to enable colleagues to communicate instantly
regardless of whether they are inside or outside the shop; and
• Two distinct ‘shops within a shop’. The cycling area has a softer
feel, whilst the motoring area is more functional.
We are learning as we go and we’ll be continually testing new
concepts along the way. However we are encouraged by the initial
response, both in terms of customer feedback and sales uplifts. We
plan to refresh around 30 stores in FY18.
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Business Review
Fit for Future
Infrastructure
After a number of changes in the
previous two years in our supply
chain infrastructure, this year has
been much more stable.
The delivery-to-store model is fully-
embedded and working well, with
resilient performance through the peak
Black Friday and Christmas periods.
Leveraging these firm foundations we took the opportunity to review
our warehousing arrangements resulting in the consolidation of a
number of external storage units into a third distribution centre in
Daventry, adding to our existing centres in Coventry and Redditch.
This arrangement is broadly cost neutral but is more flexible and
enables swifter replenishment of stores.
During the year we also joined up our stock systems, giving us a
single view of stock for the first time. This enables better fulfilment of
online purchases and improved availability in stores.
After a successful pilot we implemented Dayforce (our colleague
resource planning system) in February and March 2017, removing
eleven systems and replacing them with one tool that we now use
across the Group. Colleagues and line managers can log into the
system to view and change shifts, and the system enables us to
better optimise scheduling of resource.
We continue to develop the i-Serve project to replace our till
hardware and software. This is a major piece of IT change spanning
stores and Autocentres. We are in pilot stage, including testing the
mobile tablets and we anticipate rolling out to stores and Autocentres
towards the end of FY18.
We remain focused on our successful We Operate For Less
programme, delivering efficiency improvements. Examples of
initiatives completed during the year include:
• A new stock put-away process, saving around 3 hours per store
per week;
•
•
Installing a Click & Collect cabinet at the front of shops, saving
time for customers and colleagues;
“Jade”, a secure tool box positioned in the car park, saving around
2.5 hours per week for colleagues; and
• Rolling-out colleague headsets, enabling colleagues to share
knowledge, free-up time and improve customer service.
Fast Fact*
Almost
5 million
fitting services completed
during the year in our 460
Retail stores
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Corporate Social Responsibility
Our Corporate Social Responsibility (“CSR”) strategy centres on four key areas:
Colleagues: finding, supporting and developing great people throughout their Halfords journey
Community: helping to keep families safer on their journeys and encouraging an active lifestyle
Environmental Management: managing our impact on the environment in a responsible and ethical manner
Responsible Trading: building and maintaining the highest standards amongst our suppliers
The CSR Policy is available at www.halfordscompany.com/investors/governance
Colleagues
Developing, rewarding and retaining
our colleagues, ensuring they are
fully engaged to drive our long term
sustainable growth ambitions
Number of colleagues
c.10,000
80%
Employee Engagement Score
33%
Retail Colleague turnover
Awards:
Colleagues:
Finding, supporting and developing
great people throughout their
Halfords journey
We aim to be an inclusive employer of choice, giving colleagues equal
opportunities to prosper within rewarding and inspiring teams. We
strive to ensure all colleagues enjoy their work and have opportunities
to consistently amaze our customers through their friendly expertise.
In support, we continue to invest in our ‘3-Gears’, apprenticeship and
leadership development programmes and actively look for ways in
which we can promote and increase the diversity of our workforce.
A great place to work
For the fourth year running, Halfords Retail has featured in the
‘Sunday Times 30 Best Big Companies’ To Work For list, this year
moving up five places to take 13th place and scoring in the upper
quartile for questions relating to ‘Recognition for my Contribution’,
‘Wellbeing’, ‘My Team’ and ‘My Manager’.
Friendly expertise
As a business, one of our central strategies is to offer great products
that are delivered with great service. This is one of the five key
strategic pillars of our business. We refer to it as ‘Service in Our
DNA’. To achieve the highest possible levels of service we invest
heavily in training our colleagues. As part of this investment we have
developed a qualification programme called ‘3-Gears’. This plays a
key role in enabling retail colleagues to achieve industry recognised
qualifications. They are rewarded as they progress ‘through the gears’
by gaining experience and qualifications.
All colleagues complete Gear 1 within three months of starting.
Gear 2 involves a nine-month programme leading to an expert level
of knowledge with a specialism in either Auto & Leisure or Cycling.
By the end of FY17 we had nearly 70% of the eligible headcount trained
to Gear 2 level. Colleagues can also complete Gear 3 if nominated
which gives them ‘technician’ status in either Auto or Cycling and
enables them to complete complex fits and repairs. So far, we have
around 10% of eligible colleagues trained to Gear 3 level.
We continually enhance and update our training programmes. This
year we delivered additional training following new car seat legislation
and our colleagues who work in our in-store ‘Bikehuts’ benefited from
specialist training on electric bikes (e-bikes).
In accordance with our aim to lead the way in the repair of electric and
hybrid cars, we also began a programme to have a trained mechanic
at each of our Autocentres in 2018. We were one of the first to deliver
a new Institute of Motor Industry (“IMI”) Level 2 award and our aim is to
train more than 300 colleagues to become MOT testers every year.
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Case Study: Scoring a try
with Dallaglio RugbyWorks
The scheme opened my eyes to a
possible career path. I’ve got it all
mapped out and found the direction
I really needed. I found out about the
scheme through school. I’ve always
wanted to do something practical and
have had an interest in cars so this
seems ideal. Mason Kerry, Dartford
Halfords Autocentres began operating an
apprenticeship scheme over 22 years ago and now
runs one of the largest motor schemes in the UK,
with 213 of the current cohort at differing stages
of their three-year programme.
The true value of apprenticeships lies in how they provide people
with the opportunity to develop skills that they might not have
been able to achieve through education alone.
In 2016 the Autocentres team started working with Dallaglio
RugbyWorks to take on young people who have participated in
its social inclusion programme. The charity’s coaches work with
young people across the UK, between the ages of 14 and 17,
who are outside of mainstream education.
We have a policy of continuous improvement to support ongoing
development. We use a blended learning approach which encourages
colleagues to attain more skills and progress their career throughout
their Halfords journey. In 2017, thousands of colleagues took
advantage of our ongoing development programmes. We operate a
programme named ‘Aspire’, which is a guided learning suite that offers
individuals the opportunity to take their careers further and become
leaders. Since it began, 420 colleagues have benefited from the
Aspire programme to graduate to new roles as an Assistant Manager
or a Store Manager. One of the additional benefits of Aspire is that
over 80% of store manager vacancies are filled internally.
Right job, right person, right time
We recognise the value that diversity brings and we continue on our
journey to address the balance in some inherently male-dominated
areas. We understand that this will take time but in recent years we
have made great progress on our gender strategy. Women now
represent 50% of our Board, 40% of our senior management team
and 23% of our total population of employees (which is an increase
from 22% in 2016). We have also introduced development resources
aimed specifically at supporting women.
In our retail business, we continue to invest in our apprenticeship
programme and will be launching the new apprenticeship standards
this academic year. In addition, our traineeship programme for NEETS
(not in education, employment or training) has resulted in the placing
of 159 trainees to date.
Our work at Onley Prison where we train inmates to build and repair
bikes, with a view to offering future employment for those who
successfully pass our qualifying criteria, has been a great success.
We are very proud that this programme won Retail Week’s ‘CSR
Initiative of the Year’. We have built on this success and during the
year opened a second Cycle Academy at Drake Hall Women’s Prison.
Upon release, one of the graduates of our Cycle Academy started
as a bike technician at one of our stores and is now training to be an
assistant manager.
Diversity
Total Women
Women on the Board
22%
50%
23%
50%
2017
2016
2017
2016
Women in Senior
Management Team
31%
40%
2017
2016
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sluglineCorporate Social Responsibilityover30,000People benefited from free workshopsCommunity:Helping to keep families safer on their journeys and encouraging an active lifestyleWe know that parents recognise the great benefits that are derived from cycling, but we are also aware that they can be concerned about it because they want to ensure it is as safe as possible and that both they, and their children, are able to fix things should any problems occur. To improve their confidence in these areas we have organised workshops where our colleagues can share their knowledge and expertise and so give customers the confidence to get out on their bikes. The majority of workshops focus on primary school children, an age when they are often starting to cycle without adults and are also doing the ‘Bikeability’ programme.Kids bike workshops In FY17, over 18,500 children and their parents attended free in-store bike workshops. These workshops significantly help to improve their skills in basic bike maintenance and cycling safely, giving parents and children greater confidence to go out cycling more. School bike workshopsOur colleagues also went out to primary schools to teach bike maintenance and safety to pupils in their final year. Complementing the Government scheme known as ‘Bikeability’, which teaches children how to ride a bike safely, our ‘Gear-Up’ workshops teach basic bike maintenance and so help children to cycle more safely by recognising, and so being able to avoid, safety hazards. These are important skills for pupils who are preparing to make the transition to secondary school. Over 5,100 pupils benefited from the programme in FY17.Using our knowledge and expertise to benefit the communities around usCommunityHAL345/8233For successfully completing your ‘Gear-Up’ workshop with Halfords.Store Manager DateCongratulations to...Gear up!getting your bike ready for the roadHAL345~8233_HLF1598_A4.indd 118/05/2016 12:0832Halfords Group plc Integrated Annual Report for the period ended 31 March 2017Halfords Annual Report 2017.indd 3207/06/2017 16:37:13 STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Partnering with organisations
British Cycling’s Breeze
We understand the fear many adults have of getting back on a bike
after years out of the saddle so, to help, we partnered with British
Cycling’s Breeze network. In addition to promoting the women’s
network to customers on our website and through emails, in FY17
we ran bike maintenance workshops in partnership with Breeze, with
over 1,600 women attending. The partnership has also provided the
opportunity for colleagues to become Breeze champions.
Cub bike workshops
Through our partnership with the Scouts Association, in FY17 we
helped over 3,300 Cubs achieve their Cyclist Activity Badge. In
addition to running an in-store workshop, a resource pack also
supports Cub Leaders, guiding them through requirements for Cubs
to achieve their cycle badge.
Case Study: School kids
‘wheeling for joy’ with free
bikes from Halfords
For some families, buying a bike can be too
much of a stretch when they’ve got other, more
immediate household bills to pay. To help address
this, schools across the country are benefiting from
a scheme to help encourage more children, who
may not necessarily have access to bikes, to cycle.
In a virtuous cycle the bikes are donated by members of
the public, they are then re-conditioned at one of our cycle
workshops in Onley and Drake Hall prisons, which train prisoners
to be professional cycle mechanics, before being donated along
with new helmets to disadvantaged schools.
So far, over 400 bikes have been donated.
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07/06/2017 16:37:15
Corporate Social Responsibility
Environment
The environmental resources
Halfords uses in its operations.
Retail waste diverted from landfill
Autocentres waste diverted from landfill
94%
91%
274,000
30,000
Batteries recycled by Retail and Autocentres
Bikes recycled to date
Fast Fact*
An additional 5
new Cycle Republic shops were
opened in the year
Environmental Management:
Managing our impact on the
environment in a responsible and
ethical manner
We know that our work has an impact on the environment and that we
have a duty to manage that impact in a responsible and ethical manner.
We do this through identifying all significant environmental impacts
and putting processes into place to prevent, reduce and mitigate them.
To meet our commitment of protecting the environment, we aim to:
• comply with all relevant environmental legislation;
• operate our business in a way that protects the environment;
• promote environmental awareness to colleagues and enlist their
support in improving the Company’s performance with training
and instruction;
• minimise waste by making sure processes are as efficient as
possible;
•
look to reduce energy and water usage;
• promote recycling internally and with our suppliers and customers;
• minimise the environmental impact of our logistics activities; and
• continually develop our environmental management system.
Global Greenhouse Gas Emissions
Global Greenhouse Gas Emissions1
Retail Combustion of Gas
Autocentres Combustion
of Gas
Cars on Company Business2
Retail Directly Purchased Electricity
Autocentres Directly
Purchased Electricity
TOTAL
Company’s Chosen Intensity Measurement:
tCO2E per £1m Group Revenue
2016
tCO2E
6,488.28
2017
tCO2E
7,035.65
3,329.25
889.22
3,339.91
911.45
28,507.45 18,448.01
4,648.26
3,379.41
43,862.46 33,114.43
42.90
30.24
1. Carbon Trust Conversion Factors Energy and Carbon Conversions 2016
update
2. An estimate based on previous usage, taking as a basis the Average Petrol
Car and Diesel Car Carbon Trust Conversion Factors Energy and Carbon
Conversions 2013 update
34
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Case Study: Testing
environmental enhancements
Case Study:
Smart Solutions
The opening of our new Derby store, to
begin testing different concepts, provided an
opportunity to introduce new environmental
features, including:
• LED lights throughout on motion and daylight sensors;
• back of house lights on motion sensors, warehouse
lights also include auto dimming to help reduce energy
consumption levels; and
• air movement fans – low energy/high performance air
movement fans installed, reducing running costs and moving
air more efficiently.
In 2013, we introduced national trade-in events.
These are run in addition to our ongoing bike
donations at over 75 shops.
We invite customers to donate their unwanted bikes to charity and
so support a sustainable and life changing cause. Our core charity
partner is Re~Cycle, who divert unwanted bikes from landfill/disuse
and donate them to people and communities both in the UK and
in Africa. This programme really does transform the lives of those
who benefit from it.
In February 2017, a team of colleagues from Halfords, who had won
our ‘Journey of a Lifetime’ competition, went to see for themselves
the benefit that the donated bikes have provided. Fundraising,
collecting bikes, loading a container and following it over to Gambia,
they met with partners there on the ground, as well as delivering
bike workshops to local children. Commenting on the adventure, the
team’s leader Stephen Roche, said: “It was a fantastic experience
and great to see the real difference every single bike makes. We
loved the trip from start to finish!” Our partnership with Re~Cycle has
raised nearly £400,000 and has changed the lives of over 180,000
people in Africa from the 30,000 bikes donated, diverting over 450
tonnes from potential landfill waste.
Responsible
Management
Building and maintaining the highest
standards amongst our suppliers
Responsible Trading:
Building and maintaining the highest
standards amongst our suppliers
We are committed to maintaining the highest standards amongst our
suppliers. We are strongly opposed to the exploitation of workers and
we will not tolerate forced labour, or labour which involves physical,
verbal or psychological harassment, or intimidation of any kind.
We will not accept human trafficking or the exploitation of children
and young people in our business and undertake all possible steps to
ensure that these high standards are maintained. We regularly review
related policies to ensure that they remain up-to-date and fit-for-
purpose.
Read more online at www.halfordscompany.com/investors/
governance
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07/06/2017 16:37:16
Chief Financial Officer’s Review
Financial
Resources
Generating returns for our
stakeholders through effective
management of our financial
resources.
Group revenue
£1,095.0m
£75.4m
30.3p
Underlying Group profit before tax*
Underlying Basic earnings per share*
Fast Fact*
130%
Increase in electric
bike sales during
the year
Fast Fact*
46%
Increase in dash
cam sales during
the year
Jonny Mason
Chief Financial
Officer
Group revenue in FY17 at
£1,095.0m, was up 7.2% and
comprised Retail revenue of
£938.4m and Autocentres revenue
of £156.6m.
Reportable Segments
Halfords Group operates through two reportable business segments:
• Retail, operating in both the UK and Republic of Ireland; and
• Autocentres, operating solely in the UK.
All references to Retail represent the consolidation of the Halfords
(“Halfords Retail”) and Cycle Republic businesses, Boardman Bikes
Limited and Boardman International Limited (together, “Boardman
Bikes”), Tredz Limited and Wheelies Direct Limited (together, “Tredz
and Wheelies”) trading entities. All references to Group represent the
consolidation of the Retail and Autocentres segments.
The FY17 accounting period represents trading for the 52 weeks to
31 March 2017 (“the financial year”). The comparative period FY16
represents trading for the 52 weeks to 1 April 2016 (“the prior year”).
Alternative Performance Measures
In the reporting of financial information, the Directors have adopted
various Alternative Performance Measures (APMs).
* These APMs are defined within the Key Performance Indicators table on
page 18.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Group Financial Results
Revenue
Gross Profit
Underlying EBIT*
Underlying EBITDA*
Net Finance Costs, before non-recurring items
Underlying Profit Before Tax*
Profit Before Tax, after non-recurring items
Basic Underlying Earnings per Share*
* Definitions to these Alternative Performance Measures are shown on page 18
Group revenue in FY17, at £1,095.0m, was up 7.2% and comprised
Retail revenue of £938.4m and Autocentres revenue of £156.6m. This
compared to FY16 Group revenue of £1,021.5m, which comprised
Retail revenue of £868.5m and Autocentres revenue of £153.0m.
Group gross profit at £558.6m (FY16: £543.1m) represented 51.0%
of Group revenue (FY16: 53.2%), reflecting a decrease in the Retail
gross margin of 260 basis points (“bps”) to 48.6% partially offset by
an increase in the Autocentres gross margin of 80 bps to 65.1%.
Total Operating Costs before non-recurring items increased to
£481.5m (FY16: £458.6m) of which Retail represented £379.8m
(FY16: £363.0m), Autocentres £99.8m (FY16: £94.5m) and
unallocated costs £1.9m (FY16: £1.1m). Unallocated costs
represent amortisation charges in respect of intangible assets
acquired through business combinations, namely the acquisition of
Autocentres in February 2010, Boardman Bikes in June 2014 and
Retail
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-recurring items
EBIT after non-recurring items
Underlying EBITDA*
* Definitions to these Alternative Performance Measures are shown on page 18
52 weeks
Ended
31 March
2017
£m
1,095.0
558.6
77.1
108.7
(1.7)
75.4
71.4
30.3p
52 weeks
Ended
1 April 2016
£m
1,021.5
543.1
84.5
114.6
(3.0)
81.5
79.8
33.2p
52 week
change
+7.2%
+2.9%
-8.8%
-5.1%
-7.5%
-10.5%
-8.7%
Tredz and Wheelies in May 2016, which arise on consolidation of the
Group.
Group Underlying EBITDA* decreased 5.1% to £108.7m (FY16:
£114.6m), whilst net finance costs before non-recurring items were
£1.7m (FY16: £3.0m). Group Underlying EBITDA margin, one of our
financial targets, was 9.9% (FY16: 11.2%).
Underlying Profit Before Tax* for the year was down 7.5% at £75.4m
(FY16: £81.5m). Non-recurring items of £4.0m (FY16: £1.7m)
across Retail and Autocentres related primarily to costs associated
with the acquisition of Tredz and Wheelies and investment in
TyresOnTheDrive.com, the settlement of a historic legal case and
organisational restructure costs. After non-recurring items, Profit
Before Tax in the year was £71.4m (FY16: £79.8m).
52 Weeks
Ended
31 March
2017
£m
938.4
456.6
48.6%
(379.8)
76.8
(3.1)
73.7
101.1
52 Weeks
Ended
1 April 2016
£m
868.5
444.8
51.2%
(363.0)
81.8
(1.2)
80.6
106.0
52 week
change
+8.0%
+2.7%
-260bps
+4.6%
-6.1%
-8.6%
-4.6%
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Chief Financial Officer’s Review
Revenue for the Retail business of £938.4m reflected a like-for-like
(“LFL”)* sales increase of 3.1%. Non-LFL sales, including five new
Cycle Republic store openings since the prior year, and the acquired
Tredz and Wheelies businesses contributed £53.3m revenue in the
year.
Motoring sales represented 62.0% of Retail sales and LFL grew by
2.0%. Car Maintenance LFL revenues increased by 3.1%, reflecting
strong growth in the sale and fitting of bulbs, blades and batteries
(“3Bs”) and good growth in workshop products, particularly the
increasingly popular Halfords Advanced range to which we added
new products during the year. Our new motorcycling parts and
accessories ranges also performed well.
Car Enhancement LFL revenues declined by 2.8% reflecting the
continued decline in the market for sat navs. This was partially offset
by excellent growth in dash cams, with our range authority and
increasingly popular fitting service consolidating our market-leading
position in this category. Car cleaning also performed well, supported
by new product ranges such as Christmas gift packs. Travel Solutions
LFL revenues increased 7.9% LFL, driven by strong growth in roof
bars, roof boxes, cycle carriers and child car seats.
Cycling sales grew by 5.1% on a like-for-like basis and 18.2% in
total after including new Cycle Republic stores and the acquisition
of Tredz and Wheelies. The like-for-like growth was driven by strong
performances across each of the sub-categories of bikes, Parts,
Accessories and Clothing (“PACs”) and repair.
Bike sales were supported by the relaunch of our Apollo and Carrera
mainstream cycle ranges and the launch of the exclusive Wiggins
range, as well as the cycling promotion and favourable weather in the
peak summer period. Cycle Republic sales grew by strong double-
digit LFL and we opened 5 new stores.
Revenues for the Retail business (including Boardman Bikes and
Tredz & Wheelies) are split by category below:
52 weeks
Ended
31 March
2017
(%)
38.0
62.0
31.4
19.0
11.6
100.0
52 weeks
Ended
1 April
2016
(%)
34.3
65.7
32.9
21.6
11.2
100.0
FY17
LFL* revenue
movement
+5.1%
+2.0%
+3.1%
-2.8%
+7.9%
+3.1%
Cycling
Motoring
– Car Maintenance
– Car Enhancement
– Travel Solutions
Total
Gross profit for the Retail business at £456.6m (FY16: £444.8m)
represented 48.6% of sales, 260 bps down on the prior year
(FY16: 51.2%). This movement is explained as follows:
• Circa 80 bps decline from the inclusion of Tredz and Wheelies,
which operate in the lower-margin-percentage but higher average
selling price category of premium cycling;
• Circa 150 bps from the gross impact of the depreciation of
Sterling against the US Dollar; and
• Circa 30 bps decline from the adverse mix impact of faster cycling
sales growth and the cycling promotion in the first half, partially
offset by the favourable mix impact from service-related sales and
the FX mitigation measures, which started to take effect towards
the end of the year.
Operating Costs before non-recurring items were £379.8m (FY16:
£363.0m) and, improved as a percentage of Retail sales from 41.8%
in FY16 to 40.5% in FY17. The breakdown of costs is set out below:
Store Staffing
Store Occupancy
Warehouse & Distribution
Support Costs
Total Operating Costs before Tredz and Wheelies and non-recurring items
Tredz & Wheelies Costs
Total Operating Costs before non-recurring items
52 weeks
Ended
31 March
2017
£m
110.2
138.6
45.4
77.4
371.6
8.2
379.8
52 weeks
Ended
1 April 2016
£m
103.0
138.3
45.7
76.0
363.0
—
363.0
Change
+7.0%
+0.2%
-0.7%
+1.8%
+2.4%
—
+4.6%
Store Staffing costs increased by 7.0% and reflected the changes
in pay rates, principally driven by the uplift from the National Living
Wage and Gears pay increments, together with the increase in trading
volumes leading to incremental investment in store hours. The opening
of 5 Cycle Republic stores also contributed to the increase.
Store Occupancy costs increased by 0.2%, reflecting broadly flat rent
and rates costs on the existing estate with incremental costs arising
from new Cycle Republic stores.
Warehouse & Distribution costs decreased by 0.7%, driven by cost
savings in the first half when the more efficient 3-day-a-week delivery-
to-store schedule annualised against the 5-day-a-week model
operating at the start of the previous year.
Support Costs increased by 1.8% due to higher depreciation charges
on non-store-related capital expenditure and a modestly increased
marketing spend. Tredz and Wheelies added £8.2m of operating costs
since acquisition. Going forwards these costs will be allocated to the
cost categories presented in the table above.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Autocentres
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-recurring items
EBIT after non-recurring items
Underlying EBITDA*
52 Weeks
Ended
31 March
2017
£m
156.6
102.0
65.1%
(99.8)
2.2
(0.3)
1.9
7.6
52 Weeks
Ended
1 April 2016
£m
153.0
98.3
64.3%
(94.5)
3.8
(0.5)
3.3
8.6
52 week
change
+2.4%
+3.8%
+80bps
+5.6%
-42.1%
-42.4%
-11.6%
* Definitions to these Alternative Performance Measures are shown on page 18
Autocentres generated total revenues of £156.6m (FY16: £153.0m),
an increase of 2.4% on the prior year with a LFL revenue increase of
0.6%. Online-booking revenues grew 29.1% in the year. Gross profit
at £102.0m (FY16: £98.3m) represented a gross margin of 65.1%;
an increase of 80 bps on the prior year, reflecting improved margins
across Service, MOT, repair and tyres.
Autocentres’ underlying EBITDA* of £7.6m was 11.6% lower
than FY16 (FY16: £8.6m), with the upside in gross profit offset by
continued cost investments as part of the long-term growth plans.
Underlying EBIT* was £2.2m (FY16: £3.8m).
As referred to in the CEO Statement, we are dissatisfied with the
financial results for the year and are taking a number of actions to
improve performance.
As part of pre-existing strategic plans we have taken the decision to
cease participation in a tyre affiliate programme, having determined
that it was generating insufficient net profit for the workload capacity
that it consumed in our centres.
We anticipate the impact of this to result in a decline in LFL sales in
FY18, accompanied with an improvement in gross margin percent,
such that there is a net profit benefit year-on-year from this initiative.
Portfolio Management
The Retail store portfolio at 31 March 2017 comprised 479 stores
(end of FY16: 472).
The following table outlines the changes in the Retail store portfolio
over the year:
Relocations
Number
7
Lease re-gears
29
Rightsizes
Openings
Closures
Acquired (Tredz)
2
6
3
4
Stores
Aylesbury, Warrington, Crewe, Chichester, Hull Clough Road, Derby (Kingsway),
Sutton Coldfield
Brentwood, Newcastle-under-Lyme, Erdington, Merry Hill, Pontefract, Carmarthen, Sunbury,
Burgess Hill, Harrow, North Shields, Yate, Salisbury, Braehead, Sutton, West Wickham, Croydon
(Windmill Rd), Newhaven, Redhill, Newton Abbot, Gosport, Sheldon, Bridgwater, Twickenham,
Bournemouth, Bath, Hounslow, Bridgend, Huntingdon, Bradford
Altrincham, Tonbridge
Purley Way (Cycle Republic,“CR”), Birmingham (CR), Wimbledon Plough Lane, Leeds (CR),
Edinburgh (CR), Southampton (CR)
Mitcham, Wimbledon Broadway, Hastings
Cardiff, Swansea (2), Cross Hands
Of the six openings in the Retail portfolio, five were Cycle Republic.
Management anticipates opening around five Cycle Republic stores
in FY18.
17 Retail stores were refreshed in the year (FY16: 25) and
management anticipates refreshing 30 in FY18.
Five new Autocentres were opened and six were closed during the
year, taking the total number of Autocentre locations to 313 as at
31 March 2017 (end of FY16: 314). 16 Autocentres were refreshed in
the year (FY16: 24).
With the exception of eight 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 less than 7 years.
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Chief Financial Officer’s Review
Net Non-recurring Items
The following table outlines the components of the non-recurring
items recognised in the year:
Organisational restructure costs
Costs in relation to a historic legal case
Acquisition and investment related fees
Operating lease obligation
Net non-recurring operating expenditure
Acquisition related interest charge
Net non-recurring items
FY17
£m
(0.6)
(0.8)
(1.7)
(0.3)
(3.4)
(0.6)
(4.0)
FY16
£m
(1.7)
—
—
—
(1.7)
—
(1.7)
In the current and prior year £0.6m and £1.7m of costs were
respectively incurred in relation to separate and unrelated
organisational restructuring initiatives across Autocentres and Retail.
During the year a court case was settled relating to activities during
FY12, resulting in costs of £0.8m.
Acquisition costs of £1.7m (FY16: £nil) in the period related to the
costs associated with the purchase of the entire share capital of
Tredz and Wheelies, and the minority investment in TyresOnTheDrive.
com. The interest element relates to the unwinding of the discounting
applied to the contingent consideration due on the acquisition of
Tredz, which will be paid in the first half of FY18.
The operating lease obligation of £0.3m in FY17 related to
rectification work unique to one of the Group’s retail stores, which
was required to make good an area of land upon which the store is
located.
Net Finance Costs
The Net Finance Costs excluding acquisition related interest charge
for the year was £1.7m (FY16: £3.0m). The primary driver of the lower
costs was £1.4m income (FY16: £0.1m expense) in relation to points
on foreign exchange forward contracts.
Taxation
The taxation charge on profit for the financial year was £15.0m (FY16:
£16.3m), including a £0.9m credit (FY16: £0.3m credit) in respect
of non-recurring items. The effective tax rate on profit before tax
and non-recurring items of 21.0% (FY16: 20.5%) was higher than
the UK corporation tax rate (20.0%) principally due to the effect of
non-deductible depreciation and amortisation charged on capital
expenditure. For FY18 we anticipate the effective tax rate to be
circa 20%.
Earnings Per Share (“EPS”)
Underlying Basic EPS* was 30.3 pence and after non-recurring items
28.7 pence (FY16: 33.2 pence, 32.5 pence after non-recurring), an
8.7% and 11.7% decrease on the prior year. Basic weighted-average
shares in issue during the year were 196.6m (FY16: 195.2m).
Dividend
The Board has recommended a final dividend of 11.68 pence per
share (“DPS”) (FY16: 11.34 pence), taking the full year ordinary
dividend to 17.51 pence per share, an increase of 3.0%. If approved
the final dividend will be paid on 25 August 2017 to shareholders on
the register at the close of business on 4 August 2017. Including the
10.00 pence special dividend paid in February 2017 the total full year
dividend is 27.51 pence.
We continue to target coverage of around 2 times on average over
time. However, the impact of adverse FX movements will reduce cover
initially until fully mitigated, which will take some time.
Capital Expenditure
Capital investment in the year totalled £36.1m (FY16: £40.3m)
comprising £29.5m in Retail and £6.6m in Autocentres. This total
includes £1.8m of assets capitalised through the acquisition of Tredz
& Wheelies in May 2016.
Within Retail, £11.5m (FY16: £13.4m) was invested in stores,
including 17 store refreshes, 9 of which were also store relocations
or right-sizes, 5 new Cycle Republic stores as well as general capital
spend relating to training rooms, roofing, flooring and heating. By
the end of FY17, 114 (FY16: 87) stores were trading in either the
latest or preceding refresh format. Additional investments in Retail
infrastructure included a £12.5m investment in IT systems, such as
continual development of the online Retail proposition, the ‘Dayforce’
integrated people management solution, development of the ‘iServe’
till hardware and software project, and a Cycle Republic website.
The £6.6m (FY16: £8.2m) investment in Autocentres comprised the
opening of 5 centres in the year (FY16: 11) along with an investment
in refreshing centres and new equipment.
On a cash basis, total capital expenditure in the year was £34.4m
(FY16: £38.5m).
In FY18 we anticipate capital expenditure to be circa £40m, split
broadly half on store refreshes and half on IT investments. We
anticipate the Group depreciation and amortisation charge to be
circa £33m for FY18.
Inventories
Group inventory held as at the year-end was £191.1m (FY16:
£157.9m). Retail inventory increased to £189.8m (FY16: £156.6m)
comprising c. £14m from the impact of foreign exchange, c. £13m
stock build for Easter and new ranges (such as e-bikes, launched
in the final week of the year) and £5.9m Tredz & Wheelies inventory.
Autocentres’ inventory was £1.3m (FY16: £1.4m).
Cash flow and Borrowings
Operating Cash Flow** during the year was £90.0m (FY16: £103.7m).
Free Cash Flow*** of £37.7m (FY16: £45.4m) was generated in the
year. Group Net Debt* was £85.9m (FY16: £47.9m), with the Net Debt to
Underlying EBITDA ratio* at 0.8:1.
* Definitions to these Alternative Performance Measures are shown on page 18
** Operating Cash Flow is defined as Underlying EBITDA plus share based
payment transactions and loss on disposal of property, plant and
equipment, less working capital movements and movements in provisions.
*** Free Cash Flow is defined as Operating Cash Flow (as defined above)
less capital expenditure, net finance costs, taxation and fair value gain on
derivatives.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Financial Targets
We continue to apply four key financial targets, which we reaffirm and appraise ourselves against below:
DESCRIPTION
FY17 PERFORMANCE
1 Grow sales faster than the markets in which we operate. We
continue to anticipate that the motoring market will grow at an
average rate of 2-3% per annum and the cycling market at an
average rate of 3-5% per annum over the medium term. We will
aim to beat whatever those growth rates are.
2 Maintain Group EBITDA % margin roughly flat as we continue
to invest for sustainable growth. The impact of adverse FX
movements will reduce margin initially, until fully mitigated, which
will take some time.
3 Grow the dividend per share every year, with coverage of
around 2 times on average over time. The impact of adverse FX
movements will reduce cover initially, until fully mitigated, which
will take some time.
4 A debt target of 1.0x Underlying EBITDA with a range of up to
1.5x to allow for appropriate M&A. We anticipate moving towards
the debt target over time.
Brexit
The decision of the UK to leave the European Union (“Brexit”)
presents significant uncertainties to the Group as a result of the
impact on the wider UK economy. The main areas in which Brexit is
likely to impact the Group are as follows:
•
Impact on foreign currency exchange rates – the value of Sterling
fell by nearly 20% since FY16. The Group buys a significant
proportion of its goods in US Dollars; between $250m and
$300m a year. At a spot rate of £1:$1.25 the total FX headwind
pre mitigation is nearly £50m of annual cost inflation compared to
the FY16 average rate flowing through cost of sales of $1.60. Our
hedging programme means that this phases into our P&L roughly
as follows: circa £14m in FY17, a further circa £25m in FY18 and
a further circa £10m in FY19. Good progress is being made on FX
mitigation, through supplier negotiations, operational efficiencies
and pricing. We are seeing prices rise in the cycling market, both
from suppliers into retailers and then onto customers. Some of
our prices have also risen, but we continue to look to maintain
good value against the competition. It is early days and we are yet
to see how wider cost inflation impacts on consumer spending
more generally, however we are encouraged by the limited volume
impact observed to date. We continue to anticipate that we will
fully recover the FX impact over time.
• Prolonged uncertainty over exit terms and continued weakness
in Sterling could lead to a slowdown in the UK economy, and
consequent loss of consumer confidence, impacting trading
conditions for the Group. However, Halfords has strong positions
in fragmented Motoring and Cycling markets, and a service-led
offer that differentiates us from our competitors, physical and
online. Much of our sales are in needs-based categories that are
more resilient to macro-economic cycles and our discretionary
categories, such as cycling, camping and travel solutions, could
benefit from an increase in the number of people choosing to stay
at home rather than holidaying abroad; a trend that we observed
in 2009.
In Retail we gained share in both motoring and cycling. In
Autocentres we gained share on a total sales basis, whilst the
operational changes had a short-term impact on like-for-like
performance.
Group EBITDA margin was 9.9% (FY16: 11.2%). Excluding the
impact of adverse foreign exchange movements, EBITDA margin
was broadly flat in FY17 compared to FY16.
The Board has proposed a final dividend of 11.68p, which would
take the full year dividend to 17.51p, an increase of 3.0% on the
previous year.
We have moved from 0.4x to 0.8x net debt to Underlying EBITDA
in FY17 through the consistent application of our capital allocation
priorities which resulted in M&A of circa £22m and a special
dividend of circa £20m.
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 on pages 42 to 47 and note 21 of the Annual Report and
Accounts. These include:
• Economic risks; including market risks
• Business strategy risks
• Competitive risks
• Compliance
• Supply chain disruption
• Product and service quality
•
Information technology systems and infrastructure; and
• 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.
Jonny Mason
Chief Financial Officer
24 May 2017
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Whistleblowing processRegular KPI reportingRegular oversightPerformance monitoringInternal AuditsRisk and internal control analysisRegular management presentations to Board and Audit CommitteeInternal Audits Risk and internal control analysisInternal Audit ReportsCorporate Risk RegistersluglineOur Principal Risks and UncertaintiesLike 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.Our corporate risk register is maintained by the Head of Internal Audit and Risk and is regularly updated following discussions with executives and senior management. It is subject to an annual in-depth review by the Audit Committee. The Audit Committee is also alerted to any material changes to the register at each of its meetings. The Board is regularly updated on Audit Committee proceedings.The Directors have therefore carried out a robust assessment of the principal risks facing the Company, including those that would threaten the business model, future performance, solvency or liquidity. The Corporate Governance Report on pages 58 to 69 further discusses the Board’s responsibilities in relation to risk management and internal control systems.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 objectives. Responsibility for taking the necessary actions to manage risk is delegated to appropriate colleagues in the business, with executive manager sponsor involvement. 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 could be compromised by any of the risks set out below. Individual ‘Moving Up A Gear’ initiatives are reliant on some of the mitigations identified. For example, ‘Service in Our DNA’ delivery is reliant on full utilisation of our online training system and on our ability to attract and retain good colleagues. ‘Better Shopping Experience’ is reliant on our continuing investment in modernisation of our stores.The Group has discussed its risk register with its insurance broker and ensures that it has cover to help to mitigate significant risks where practicable and cost-effective.Specific financial risks (e.g. liquidity, foreign currency) are detailed in note 21 to the Financial Statements on page 133.ProbabilityLowHighImpactHighLow391245678Key Risk and Uncertainty1. Economic, Environmental and Political2. Business Strategy3. Competition4. Compliance5. Supply Chain Disruption6. Product and Service Quality and Brand Reputation7. Information Technology (“IT”) Systems and Infrastructure8. Dependence on Key Management Personnel9. Financial RiskBoard and Audit CommitteeShops, Workshops, DCs and Customer Facing BusinessesInternal AuditCorporate FunctionsOverall oversight of risk management and internal control framework• Full annual review of effectiveness of risk management and internal control systems, corporate risk register, and risk appetite undertaken by Audit Committee with assessment delivered to Board for approval• Update on changes to risk and internal control environment presented by Internal Audit to Audit Committee at each meetingFirst Line of AssuranceOperate within agreed policies and procedures e.g.:• Delegated Authorities (‘How We Do Business’)• Quality Standards• Retail Guidelines (‘Retail Basics’)• Health and Safety Policies• Colleague HandbooksThird Line of Assurance• Independently review quality of key internal controls and mangement assessment of risk• Challenge management to drive up quality• Maintain corporate risk registerSecond Line of Assurance• Identify developments in risk and internal control environment• Develop and implement strategy, policies and procedures to manage riskRisk Management Framework42Halfords Group plc Integrated Annual Report for the period ended 31 March 2017Halfords Annual Report 2017.indd 4207/06/2017 16:37:21 STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Primary Links to
Moving Up A Gear
Strategy Pillar
Risk
Movement
Mitigation
Key Risk and Uncertainty
1. Economic, Environmental and Political
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) may also affect
our customers’ ability to benefit
from our products and services.
Withdrawal from the EU may
have an impact on consumer
spending, please refer to page 41
for further information.
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. Advanced econometric modelling is used to
understand the effect of weather conditions on our business
and we ensure that marketing and merchandising can be
revised quickly.
We also ensure that we have representation with
Governmental decision-makers in the areas supporting our
core categories, both directly and through membership of
trade bodies.
2. 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.
Key investments and acquisitions
could fail to deliver sufficient
returns. The Autocentres and
Cycle Republic businesses, and
our new acquisitions, could fail to
meet growth expectations.
The Group has set out its ‘Moving Up A Gear’ strategy.
Strategic issues 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.
The Group has delegated authorities processes to approve
significant investments, including review by an Investment
Committee and the Board. We have recently created the
post of ‘Business Transformation Director’, an executive level
role with a Group-wide remit to oversee strategic project
management.
Autocentres, Cycle Republic and our new acquisitions have
dedicated, experienced management teams supported by
appropriate infrastructure and allocated resources. The
businesses have their own websites. The performances of
these businesses are closely monitored by the Board.
Key to strategic pillars
Key to risk movement
Putting Customers in the Driving Seat
Service in Our DNA
Risk increasing
No risk movement
Building on Our Uniqueness
Risk decreasing
Better Shopping Experience
Fit for the Future Infrastructure
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Our Principal Risks and Uncertainties
Primary Links to
Moving Up A Gear
Strategy Pillar
Risk
Movement
Key Risk and Uncertainty
3. 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 shops and
online, as well as international
operators. The car servicing
market is a service-based market
with a number of different-sized
providers where trust is extremely
important to customers. Failure
to compete with competitors on
areas including price, product
range, quality, service and
trustworthiness could have an
adverse effect on the Group’s
financial results.
4. Compliance
The Group operates in an
environment governed by
legislation and codes in areas
including, but not limited to,
Listing Rules, trading standards,
advertising, product quality, health
and safety, hazardous substances,
Bribery Act and data protection.
The Group recognises that failure
to comply with ethical standards
could expose the business to
reputational risk and loss of
goodwill.
Mitigation
The Board is aware of the risks faced from UK retailers both in-
shop and online, and from the national car-servicing networks
and smaller independents.
We have a significant investment programme to support
‘Moving up A Gear’. The investment programme is allowing us
to improve the service we provide to customers by improving
the quality of our shops, IT infrastructure, training and website
(including optimisation for mobile and tablet devices). Excellent
service is fundamental to differentiating ourselves from our
competitors. We are increasing the number of sales that we are
able to associate with individual customers.
The national geographical coverage of our shops 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’ retail
offer and develop opportunities to differentiate the Halfords
brand, including TV, radio, press and social media advertising.
We also have high profile partnerships to market brands like
‘Pendleton’, ‘Wiggins’, ‘Boardman’ and ‘Orla Kiely’.
Our Autocentres business continually seeks to provide
innovative solutions for their customers, such as ‘brakes4life’.
Particular attention is given to the changes to our marketplace
that are driven by the ‘connected car’. The retail motoring
team, digital team, and Autocentres management are working
collaboratively to respond to opportunities and threats.
Regulatory requirements are closely monitored by our Company
Secretarial team which includes colleagues with relevant
professional qualifications and experience. 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. Retail margin erosions are minimised by a
dedicated profit protection team.
Colleagues and management are trained to identify and handle
in-shop regulatory issues using 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, and
training on anti-competitive behaviours have been delivered
through face-to-face and online training sessions.
The Group has a dedicated Investor Relations Team which
ensures that there is frequent and appropriate communication
with investors and the wider financial community.
The Group has a dedicated Corporate Social Responsibility
Committee, which calls upon cross-functional support as
required. The Group has a comprehensive record of community
engagement through events such as children’s bike workshops,
and support of the Re~Cycle charity. Our training programme
at HMP Onley was judged ‘CSR Initiative of the Year’ at the 2017
Retail Week awards.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Primary Links to
Moving Up A Gear
Strategy Pillar
Risk
Movement
Mitigation
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 blends
expatriate and local colleagues. It 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, and we monitor sourcing opportunities
nearer to the UK.
We maintain firm security and protection measures at our
distribution centres. We have business continuity plans
to manage any incidents that may occur. Our logistics are
overseen by an experienced, dedicated warehouse and
logistics team who maintain contacts with a range of logistics
businesses who could be utilised if necessary. We are closely
monitoring Brexit developments and preparing contingency
plans for any changes in the nature of the border between the
UK and the Republic of Ireland.
Key Risk and Uncertainty
5. Supply Chain Disruption
Halfords sources a significant
proportion of the merchandise it
sells in its shops 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. UK withdrawal
from the EU is likely to impact
on our supply chain, although
it is currently very difficult to
predict how, pending ongoing
government negotiations.
The Group could also be impacted
in the event of disruption to
domestic logistic arrangements;
for example, unavailability of
distribution centres or road
transport problems.
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Our Principal Risks and Uncertainties
Primary Links to
Moving Up A Gear
Strategy Pillar
Risk
Movement
Mitigation
The Group constantly seeks to enhance its position as the shop
or centre of first choice in each of the markets that it serves.
Key Risk and Uncertainty
6. Product and Service Quality and Brand Reputation
The Board recognises that the
quality and safety of both our
products and services in our
shops and Autocentres are of
critical importance 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 shops and individual
centres.
Our 3-Gears training programme uses online modules to
ensure that colleagues are consistently knowledgeable about
our products and able to deliver quality services to customers.
This online training is reinforced by face-to-face learning and
assessments. Shops use an accreditation matrix to ensure that
all building and fitting is undertaken by competent colleagues.
Product knowledge among colleagues is promoted through
specialist conferences for selected staff (e.g. BikeHut managers).
We have also implemented measures to ensure that we attract
and retain the best colleagues; for example, engagement surveys
aim to identify opportunities to reduce colleague turnover, which
is at its lowest for several years. We have again been recognised
as one of the Sunday Times “30 Best Big Companies to Work
For”. Our recruitment processes are now centralised to improve
efficiency and consistency.
Our products are risk assessed and rigorously tested for quality
and safety by qualified engineers in our dedicated quality team.
We monitor customer comments and complaints and, when
necessary, we have established recall processes. We work
closely with suppliers and frequently visit factories to ensure
manufacturing standards are maintained.
Our Autocentres utilise a comprehensive quality assurance
process with checks by centre managers. Technicians are
regularly checked to ensure quality of workmanship, and the
priority status allocated to individual jobs is reviewed to ensure
safety and prevent overselling. There is a dedicated Operations
Quality team. We utilise mystery shoppers. We have recently
adopted extended opening hours and implemented a new
technician pay grading scheme to drive quality.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Primary Links to
Moving Up A Gear
Strategy Pillar
Risk
Movement
Mitigation
Key Risk and Uncertainty
7. 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 cyberattack) could potentially
compromise our operational
capability for a period of time,
impacting on shops, 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.
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 and patching strategy, and
a hotlink secure data centre hosted in a different location. IT
recovery processes are tested regularly.
We review our IT security processes and risk assessments on
an ongoing basis and our IT team has dedicated IT security and
continuity experts. We utilise appropriate firewalls, and physical
and logical system access controls. We have undertaken
network penetration testing.
The Audit Committee is briefed by the Chief Information Officer
on the business’ IT security framework and continues to closely
monitor this area.
Commercial data could be lost
or stolen through cyberattack,
sabotage, or other security
breaches. Press reports and
professional advisors indicate that
cyberattacks are becoming more
sophisticated and common.
8. 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
shops and Autocentres, including
the appropriate training of in-
shop and centre colleagues, and
the design, procurement and
allocation of merchandise.
Our Remuneration Policy outlined on pages 78 to 88 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. On 3 May
2017 the Chief Executive Officer, Jill McDonald, tendered her
resignation. She will continue to work her 6 month contractual
notice period. The search for her successor is underway.
Crucially, we have a talented group of engaged colleagues
and a strong executive team who remain fully focused on the
implementation of the Group’s strategy. At a junior level, the
Group continues to invest in graduate and apprenticeship
programmes and shop and Autocentre colleague training and
development.
Dennis Millard
Chairman
24 May 2017
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sluglineHalfords Annual Report 2017.indd 4807/06/2017 16:37:31 Our GovernanceBoard of Directors50Directors’ Report52Corporate Governance Report58Nomination Committee Report70Corporate Social Responsibility Committee Report72Audit Committee Report74Remuneration Committee Report78 – Remuneration Policy Report80 – Annual Remuneration Report89Directors’ Responsibilities98sluglineSTRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATIONHalfords Annual Report 2017.indd 4907/06/2017 16:37:33 Board of Directors
Dennis Millard (N R)
Chairman
Dennis has been Chairman of the Group since 28 May 2009. Dennis is also Non-Executive
Deputy Chairman and Senior Independent Director of Pets at Home Group Plc.
His former board appointments include Chairman of Connect Group PLC, Non-Executive
Director and Senior Independent Director of Debenhams plc, Non-Executive Director and
Senior Independent Director of Premier Farnell plc, Chief Financial Officer of Cookson
Group plc, Finance Director of Medeva PLC and a member of the Economics Affairs
Committee CBI.
He has 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.
Jill McDonald (N C)
Group Chief Executive Officer
Jill has been Group Chief Executive Officer since 11 May 2015. Previously, Jill was
CEO, UK & President, North West Division, Europe for McDonald’s Corporation. Her
responsibilities at McDonald’s encompassed around 3,300 owned and franchised
restaurants across seven countries, more than 500 franchisees and over 200,000
colleagues. Jill began her career at Colgate Palmolive and British Airways.
Jill brings outstanding business leadership, particularly with regard to customer service
and colleague engagement in a consumer-facing business. She is a Non-Executive
Director for Intercontinental Hotels Group plc.
Jonny Mason
Chief Financial Officer
Jonny has been Group Chief Financial Officer since 12 October 2015. Previously, Jonny
was CFO of Scandi Standard AB, a Scandinavian company that successfully listed in
Stockholm in June 2014. Prior to this, he was CFO at Odeon and UCI Cinemas and Finance
Director of Sainsbury’s Supermarkets. His early career was at Shell and Hanson PLC.
Jonny brings a broad range of financial experience across consumer-facing and retail
businesses. He is a strong leader with a track record in a range of business contexts.
Jonny is a Director of the charity Dimensions (UK) Limited.
Key to Committee Membership:
N = Nomination Committee
A = Audit Committee
R = Remuneration Committee
C = Corporate Social Responsibility Committee
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
David Adams (A N R)
Senior Independent Director
David has been a Non-Executive Director since 1 March 2011 and Senior Independent
Director since 1 March 2014. David was Finance Director and Deputy Chief Executive of
House of Fraser plc until 2006, then Executive Chairman of Jessops plc, becoming Non-
Executive Chairman in 2009. In addition, he has held several Executive and Non-Executive
roles in 30 years in retailing including ten years as a plc Finance Director.
David’s current roles include Chairman of Conviviality Plc, and Non-Executive Director
roles at Fevertree Drinks Plc, Hornby Plc, Elegant Hotels Plc and Thinksmart Plc. He
Chairs the Audit Committee at Fever-Tree, Hornby and Thinksmart and the Remuneration
Committee at Elegant Hotels. David is additionally a Trustee of Walk the Walk, a breast
cancer charity.
Claudia Arney (A N R)
Independent Non-Executive Director
Claudia joined the Board as a Non-Executive Director on 25 January 2011 and became
Remuneration Committee Chairman in March 2014.
Claudia was previously Chairman of The Public Data Group, Deputy Chairman and Senior
Independent Non-Executive Director of TelecityGroup, and a Board Member of the
Shareholder Executive. In her executive career she was Group Managing Director, Digital
at EMAP, Director of the Enterprise and Growth Unit at HM Treasury and Managing Director
of TheStreet.co.uk. Claudia has also worked at Goldman Sachs, FT.Com and Mckinsey.
Claudia brings extensive experience of building digital businesses, strategy formulation
and business transformation.
Claudia is currently a Non-Executive Director of Aviva plc, Derwent London plc and the
Premier League.
Helen Jones (C A N R)
Independent Non-Executive Director
Helen joined the Board as a Non-Executive Director on 1 March 2014.
Helen is currently a senior executive at Caffé Nero and is a member of Ben and Jerry’s
Independent Board of Directors. Helen was the CEO of the Zizzi Restaurants group and
was also responsible for successfully launching the Ben & Jerry’s brand in the UK and
Europe.
Helen brings valuable and relevant marketing and branding experience in consumer
focused businesses.
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Directors’ Report
The Directors present their report and the audited financial statements of Halfords Group plc (the “Company”) together with its subsidiary
undertakings (the “Group”) for the period ended 31 March 2017.
Halfords Group plc
Registered Number
Registered Office Address
Country of Incorporation
Type
Statutory Information
04457314
Icknield Street Drive, Washford West, Redditch, Worcestershire, B98 0DE
England and Wales
Public Limited Company
The Company has chosen in accordance with the Companies Act 2006 to provide disclosures and information in relation to a number of
matters which are covered elsewhere in this Annual Report. These matters are cross referenced in the following table:
Topic
Anti-Slavery and Human Trafficking Statement
Appointment and Removal of Directors
Articles of Association
Auditor
Audit Committee Report
Authority for the Company to issue or buy back its shares
Board of Directors
Board Effectiveness and Leadership: Role and Composition of the
Board and Committees; Meeting Attendance; Skills and Experience;
Independence; Diversity; Induction and Development; Evaluation;
Directors’ and their Other Interests; and Board Committees
Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Audit Committee Report
Directors’ Report
Directors’ Report
Page
57
54
56
57
74
56
54
Corporate Governance Report
58-69
Branches outside of the UK
Colleagues’ Involvement; Diversity; and Disability
Directors’ Report
Directors’ Report
Community
Compensation for Loss of Office
Directors’ Biographies
Directors’ Indemnities
Directors’ Interests
Strategic Report: Corporate Social Responsibility
Strategic Report: Corporate Social Responsibility
Directors’ Report
Board of Directors
Directors’ Report
Directors’ Report
Directors’ Remuneration Report and Remuneration Policy
Annual Remuneration Report
Directors’ Responsibility Statement
Executive Share Plans
Financial Instruments
Directors’ Report
Annual Remuneration Report
Note 21 to the Group Financial Statements
Future Developments of the Business
Strategic Report: Our Strategy
Financial position of the Group, its cash flows, liquidity position and
borrowing facilities
Strategic Report: Chief Financial Officer’s Review
Greenhouse Gas Emissions
Going Concern
Important Events Since Year End
Independent Auditor
Internal Controls and Risk Management
Strategic Report: Corporate Social Responsibility
Directors’ Report
Directors’ Report
Independent Auditor’s Report
Corporate Governance Report
57
55
30
32
55
50
55
54
78-97
98
89-97
133
16-17
36-41
34
56
57
102
42
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Topic
Report
Nomination Committee Report
Nomination Committee Report
Political Donations
Powers of the Directors
Principal Activities
Re-election of Directors
Restrictions on transfer of securities
Share Capital
Significant related party transactions
Significant Shareholders
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Note 22 to the Group Financial Statements
Directors’ Report
Directors’ Report
Subsidiary and Associated Undertakings
Note 4 to the Group Financial Statements
Statement of Corporate Governance
Corporate Governance Report
Strategic Report
Risk Management
Viability Statement
Voting Rights
Strategic Report
Strategic Report
Directors’ Report
Directors’ Report
Page
70
56
54
54
54
55
55
136
56
56
144
58
10-47
42
56
55
Disclosures required under the 2013 amendment to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 in respect of future developments of the business, charitable donations and greenhouse gas emissions are given in the Strategic Report.
Information on the use of financial instruments is given in note 21 to the Group Financial Statements.
Disclosures required by the Financial Conduct Authority’s (“FCA”) Listing Rule 9.8.4R can be found on the following pages:
• Long-term incentive schemes (Performance Share Plan) – pages 83, 85, 91 and 93; and
• Waiver of dividends – page 54
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Directors’ Report
Principal Activities
The principal activities of the Group are: the retailing of motoring,
cycling and leisure products and services from its Halfords, Cycle
Republic and Tredz and Wheelies branded retail stores, websites
(including the new website for Boardman Bikes); and car servicing
and repair from its Halfords Autocentres outlets. The principal
activity of the Company is that of a holding company. The Company’s
registrar is Capita Asset Services, which is situated at The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU.
Profits and Dividends
The Group’s results for the year are set out in the Consolidated Income
Statement on page 108. The profit before tax on ordinary activities was
£75.4m (2016: £81.5m) and the profit after tax amounted to £59.5m
(2016: £64.9m). The Board proposes that a final dividend of 11.68
pence per ordinary share be paid on 25 August 2017 to shareholders
whose names are on the register of members at the close of business
on 4 August 2017. This payment, together with the interim dividend
of 5.83 pence per ordinary share paid on 20 January 2017 and the
special interim dividend of 10 pence per ordinary share paid on 17
February 2017, makes a total for the year of 27.51 pence per ordinary
share. The total final dividend payable to shareholders for the year is
estimated to be £22.9m. On 19 January 2017, it was announced that,
having expanded the Group’s capabilities in both motoring and cycling,
through the Tredz, Wheelies and TyresOnTheDrive.com investments,
the Board does not expect to undertake further acquisitions in the
near future. Accordingly, the Board approved the special dividend
totalling £20m, as part of our progress towards our previously stated
net debt target of 1 times EBITDA.
Computershare Trustees (Jersey) Limited, trustee of the Halfords
Employees’ 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 periodic review of various aspects of the
Group’s operations. The Group considers that the KPIs listed on
pages 18 to 19 are appropriate measures to assess the delivery of
the strategy of the Group.
Directors
The following were Directors of the Company during the period
ended 31 March 2017 and, at the date of this Annual Report:
Dennis Millard
Jill McDonald
Jonny Mason
David Adams
Claudia Arney
Helen Jones
In accordance with the Company’s Articles of Association and the UK
Corporate Governance Code guidelines, all those persons holding
office as a Director of the Company on 31 March 2017 will retire and
offer themselves for re-election at the 2017 Annual General Meeting.
Appointment and Removal of a Director
A Director may be appointed by an ordinary resolution of shareholders
in a general meeting following recommendation by the Nomination
Committee in accordance with its Terms of Reference as approved
by the Board or by a member (or members) entitled to vote at such a
meeting, or following retirement by rotation if the Director chooses
to seek re-election at a general meeting. In addition, the Directors
may appoint a Director to fill a vacancy or as an additional Director,
provided that the individual retires at the next Annual General Meeting,
if they are to continue they offer themselves for election. A Director
may be removed by the Company in certain circumstances set out in
the Company’s Articles of Association or by a special resolution of the
Company.
Powers of the Directors
Subject to the Articles, the Companies Act and any directions given
by the Company by special resolution and any relevant statutes and
regulations, the business of the Company will be managed by the
Board who may exercise all the powers of the Company. Specific
powers relating to the allotment and issuance of ordinary shares and
the ability of the Company to purchase its own securities are also
included within the Articles and such authorities are submitted for
approval by the shareholders at the Annual General Meeting each
year. The authorities conferred on the Directors at the 2016 Annual
General Meeting, held on 26 July 2016 will expire on the date of the
2017 Annual General Meeting. Since the date of the 2016 Annual
General Meeting, the Directors have not exercised any of their
powers to issue, or purchase, ordinary shares in the share capital of
the Company.
Directors’ Interests
The Directors’ interests in and options over, ordinary shares in the
Company are shown in the Annual Remuneration Report on page 94.
Since the end of the financial year and the date of this report, there
have been no changes to such interests.
In line with the requirements of the Companies Act, Directors have
a statutory duty to avoid situations in which they have, or may have,
interests that conflict with those of the Company unless that conflict
is first authorised by the Board.
The Company has in place procedures for managing conflicts of
interest. The Company’s Articles of Association contain provisions
to allow the Directors to authorise potential conflicts of interest, so
that if approved, a Director will not be in breach of his/her duty under
company law. 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). Directors have a continuing duty to update any
changes to their conflicts of interest.
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The Group has an established framework of colleague
communications, 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 includes a programme of regular conferences to share
progress, strategy and direction, a monthly magazine for all Group
colleagues, team meetings known as ‘huddles’, a weekly blog from
the CEO, as well as channels to share operational information.
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.
Share Capital and Shareholder Voting Rights
Details of the Company’s share capital and details of the rights
attaching to the Company’s ordinary shares are set out in note 22
on page 136. All ordinary shares, including those acquired through
Company share schemes and plans, rank equally with no special rights.
All shareholders are entitled to attend and speak at the general
meetings of the Company, appoint proxies, receive any dividends,
exercise voting rights and transfer shares without restriction. On a
show of hands at a general meeting every member present in person
shall have one vote, and on a poll, every member present in person or
by proxy shall have one vote for every ordinary share held. There are
no known arrangements that may restrict the transfer of shares or
voting rights.
The Company has revolving credit facilities that 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
colleague that would provide compensation for loss of office or
employment resulting from a takeover, except that provisions of the
Company’s share schemes and Deferred Bonus Plan may cause
options and awards granted to Directors and colleagues under such
schemes and plans to vest on a takeover.
Details of employee share schemes are provided in note 23 on
pages 136 to 138.
Directors’ Indemnities
Directors’ and Officers’ insurance cover has been established for
all Directors and Officers to provide cover against their reasonable
actions on behalf of the Company. 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, pursuant to the Company’s Articles of Association.
Colleagues
The Group strives to meet its business objectives by motivating
and encouraging all colleagues to be responsive to the needs of our
customers and continually improve operational performance. This
is delivered through a range of structured training and development
programmes, such as ‘Gears in Retail’, where Retail colleagues
progress through a structured series of e-learning, face-to-face and
shop floor experience modules and are then recognised for their
success through certification, career progression and increased pay
awards. In addition, Cycle Republic also undertakes store supplier
training by brands.
Halfords Autocentres runs, in conjunction with the Institute of
Motor Industry (“IMI”), a number of Technical Training Courses that
are designed to develop colleagues’ skills. Similar to Retail, it has
its own version of the ‘Gears in Retail’ programme which supports
colleagues’ development and rewards via a pay matrix. Autocentres
has become the first organisation in 50 years to be authorised by
the DVSA to train MOT Testers in-house. Autocentres has embarked
on training its technicians in the latest Hybrid technology and has
worked with the IMI to train 150 technicians in the IMI Hybrid Level 2
in Servicing. Our ambition next year is to have at least one technician
per Autocentre to extend our Hybrid servicing offer across the
country.
In addition, we run a Leadership Development programme, called
Aspire, to identify, nurture and develop colleagues across the Group,
with potential to be our leaders of the future. This continues our drive
to develop and therefore, possibly promote from within.
The Group continues to invest in our apprenticeship programme. In our
Retail business, we continue to invest our apprenticeship programme
and will be launching the new apprenticeship standards this academic
year. In addition, our traineeship programme for NEETS (not in education,
employment or training) has resulted in the placing of 159 trainees to
date. At Halfords Autocentres we have one of the largest apprenticeship
schemes in light vehicle maintenance in the UK, with 213 apprentices
currently at differing stages of our three-year programme.
The Group is committed to providing equality of opportunity to
colleagues and potential colleagues. This applies to recruitment,
training, career development and promotion for all colleagues,
regardless of physical ability, gender, sexual orientation, religion, age
or ethnic origin. Full and fair consideration is given to employment
applications by disabled persons wherever suitable opportunities exist,
having regard to their particular aptitudes and abilities. Diversity policies
are in place around the Group and 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, with retraining being provided if necessary.
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Directors’ Report
Significant Shareholders
As at 28 April 2017, this being the latest practicable date, the
Company has been notified pursuant to Disclosure Guidance and
Transparency Rule 5 of the following interests representing 3% or
more of the Company’s issued ordinary share capital.
Holder
Schroders Plc
Jupiter Asset Management Limited
Artemis Fund Managers Limited
Invesco Limited
Rathbones
Norges Bank Investment
Management
BlackRock Inc
Wise Investments Limited
J O Hambro Capital Management
Number
of shares
21,078,957
20,644,998
14,471,432
11,480,989
8,874,535
% of issued
shares
10.59
10.37
7.27
5.77
4.46
6,925,933
6,179,869
6,155,904
6,068,378
3.48
3.10
3.09
3.05
Authority to Purchase Shares
At the 2016 Annual General Meeting, shareholders approved a
special resolution authorising the Company to purchase a maximum
of 19,911,663 shares, representing not greater than 10% of the
Company’s issued share capital at 13 June 2016, such authority
expiring at the conclusion of the Annual General Meeting to be held in
2017 or, if earlier, on 30 September 2017.
Transactions with Related Parties
During the period, the Company did not enter into any material
transactions with any related parties.
Articles of Association
In accordance with the Companies Act 2006, the Articles of
Association may only be amended by a special resolution of the
Company’s shareholders in a general meeting.
Political Donations
The Group made no political donations and incurred no political
expenditure during the year (FY16: nil). It remains the Company’s
policy not to make political donations or to incur political expenditure,
however the application of the relevant provisions of the Companies
Act 2006 is potentially very broad in nature and, as last year, the
Board is seeking shareholder authority to ensure that the Group does
not inadvertently breach these provisions as a result of the breadth
of its business activities, although the Board has no intention of
using this authority.
Going Concern
The Group has a £170m five-year revolving credit facility, ending in
November 2019. At the year end, the Group had undrawn borrowing
facilities of £97m (2016: £143m). The Group’s 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. 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.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance
Code, the Directors have assessed the viability of the Company over a
three-year period to 1 April 2020. The Directors believe this period to
be appropriate as the Company’s strategic planning encompasses this
period, and because it is a reasonable period over which the impact of
key risks can be assessed within a fast-moving retail business.
The Board has a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall due
at least until 1 April 2020. As is customary when dealing with longer
term debt facilities, we would expect these to be renewed well in
advance of their next term.
In making this statement, the Directors have reviewed the overall
resilience of the Group and have specifically considered:
• a robust assessment of the impact, likelihood and management of
principal risks facing the Group, including consideration of those
risks that could threaten its business model, future performance,
solvency or liquidity or sustainability. The assessment of
viability has specifically considered risks that could threaten the
Group’s day-to-day operations and existence. The assessment
considered how risks could affect the business now, and how they
may develop over three years; and
•
financial analysis and forecasts showing current financial position
and performance, cash flow projections, dividend strategy,
funding requirements and funding facilities.
More details of our key risks, mitigations and assessment processes
are set out on pages 42 to 47.
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Disclosure of Information to the Auditor
In accordance with Section 418(2) of the Companies Act 2006,
each Director in office at the date the Directors’ Report is approved
confirms that:
i. so far as the Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
ii. he/she has taken all the steps that he/she ought to have taken as
a Director in order to make himself or herself aware of any relevant
audit information and to establish that the Company’s Auditor is
aware of that information.
Important Events Since Year End
On 3 May 2017, it was announced that Jill McDonald, Chief Executive
Officer, has resigned from the business to take up another role. Jill
will remain as Chief Executive Officer until the expiry of her notice
period in October 2017. The process for the appointment of her
successor is underway.
Annual General Meeting (“AGM”)
The AGM will be held at the Hilton Garden Inn, 1 Brunswick Square,
Brindleyplace, Birmingham B1 2HW on Wednesday 26 July 2017.
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
Tim O’Gorman
Group Company Secretary
24 May 2017
Anti-Slavery and Human Trafficking Statement
Halfords Group plc operates retail stores across the UK and Ireland
and garages throughout the UK. The products Halfords sells are
sourced from a broad range of national and international suppliers.
Many of those international supplier relationships are sourced and
managed by our dedicated team based in Hong Kong and Taiwan.
We have a Code of Conduct on Ethical Trading, which sets out our
policy on legislation, child labour, conditions of employment, wages and
benefits, health and safety and the environment. The Code of Conduct
has recently been updated to include our policy on human trafficking.
We undertake all reasonable and practical steps, including factory,
warehouse and tied accommodation inspections and audits, to
ensure that our standards are being implemented throughout the
businesses of our suppliers and that local legislation and regulations
are complied with. We will assess any instances of non-compliance
on a case-by-case basis and will then tailor remedial action
appropriately. We will only trade with those who fully comply with this
policy or those who are taking verifiable steps towards compliance.
The Halfords Group plc Board of Directors reviewed and approved
this statement on 28 September 2016.
Creditor Payment Policy
The Group does not follow any formal code of practice on payment,
instead it agrees terms and conditions for transactions when orders
for goods or services are placed, and includes relevant terms in
contracts, as appropriate. These arrangements are adhered to when
making payments, subject to the terms and conditions being met
by suppliers. The number of trade creditor days outstanding as
at 31 March 2017 for the Group was 59 days (2016: 63 days). The
Company is a holding company and has no trade creditors.
Branches
The Company and its subsidiaries have established branches in the
different countries in which they operate.
Auditor
The Company’s Auditor is KPMG LLP. A resolution proposing the
reappointment of KPMG LLP is expected to be in the Notice of
the Annual General Meeting and will be put to shareholders at the
meeting.
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Corporate Governance Report
Chairman’s Introduction
As Chairman my role is
to ensure that the Board
contains the right balance of
skills and experience to work
effectively and collaboratively
to create sustainable, long-
term shareholder value and
that we have in place strong
and effective governance
practices.
Good corporate governance is a key element of
our business success. The Board is committed to
ensuring that high standards of governance, values
and behaviours are consistently applied throughout
the Group. These elements are critical to business
integrity and maintaining the trust of all stakeholders
in Halfords.
The following Corporate Governance Report
contains a summary of the Company’s governance
arrangements and the regulatory assurances
required under the UK Corporate Governance Code
2014.
I would encourage you to attend this year’s Annual
General Meeting where you can meet me and my
Board colleagues.
Dennis Millard
Chairman
24 May 2017
Dennis Millard
Chairman
The Board is committed to
ensuring that high standards of
governance, values and behaviours
are consistently applied throughout
the Group.
Statement of Compliance with the 2014 UK
Corporate Governance Code (“Code”)
Responsibility for good governance lies with the
Board. The Board is accountable to shareholders and
is committed to the highest standards of corporate
governance as set out in the Code. The Code can be
found on the Financial Reporting Council’s website at
www.frc.org.uk. The Board considers that throughout the
period ended 31 March 2017, the Company has complied,
without exception, with the provisions of the Code.
This report outlines how the Board has applied the main
principles of good governance set out in the Code during
the period under review.
Board Composition and Succession
As at the date of this report, the Board of Directors was
made up of six members, comprising the Non-Executive
Chairman, three other Non-Executive Directors and two
Executive Directors. The composition of the Board is
as set out on page 54 and the biographies of individual
Directors, including any other business commitments,
are available on pages 50 to 51.
Chairman 1
Executive Directors 2
Non-Executive Directors 3
Read more online at www.halfordscompany.com/investors/
governance/the-board
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
The roles of Chairman and Chief Executive Officer
are separate and clearly defined, with the division of
responsibilities set out in writing and agreed by the
Board.
The Chairman is responsible for the effective leadership,
operation and governance of the Board and its
Committees. He ensures that all Directors contribute
effectively in the development and implementation of
the Company’s strategy whilst ensuring that the nature
and extent of the significant risks the Company is willing
to embrace in the implementation of its strategy are
determined and challenged.
The Chief Executive Officer is responsible for
the management of the Group’s business and for
implementing the Group’s strategy.
Further details and the definitions of the roles
are available at: www.halfordscompany.
com/investors/governance/division-of-
responsibilities-between-the-chairman-and-
chief-executive-officer
The Directors together act in the best interests of the
Company via the Board and its Committees, devoting
sufficient time and consideration as necessary to
fulfil their duties. Each Director brings different skills,
experience and knowledge to the Company, with
the Non-Executive Directors additionally bringing
independent thought and judgement. This combination
seeks to ensure that no individual or group unduly
restricts or controls decision-making.
Each of the Non-Executive Directors (excluding the
Chairman) is considered independent of management
and free of any relationship that could materially interfere
with the exercise of their independent judgement.
The Chairman was considered independent upon his
appointment. The Board considers that each Non-
Executive Director brings their own senior level of
experience, gained within their field.
Director Tenure
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Jill McDonald
Jonny Mason
8yrs
6yrs 2mths
6yrs 4mths
3yrs 2mths
2yrs
1yr 7mths
8
0
0
2
l
i
r
p
A
1
9
0
0
2
l
i
r
p
A
1
0
1
0
2
l
i
r
p
A
1
1
1
0
2
l
i
r
p
A
1
2
1
0
2
l
i
r
p
A
1
3
1
0
2
l
i
r
p
A
1
4
1
0
2
l
i
r
p
A
1
5
1
0
2
l
i
r
p
A
1
6
1
0
2
l
i
r
p
A
1
7
1
0
2
l
i
r
p
A
1
Succession planning for the Board is ongoing and as the
Chairman, Dennis Millard, will have been in office for nine
years in 2018 and so, in accordance with best practice, the
intention is that he will stand down at the Annual General
Meeting in July 2018. To manage this succession, in the
second half of the financial year ahead the Nomination
Committee will begin the process of identifying suitable
candidates and recommending an appointment to the
Board. Succession planning is also viewed at executive
management level on an ongoing basis.
In addition, it was announced on 3 May 2017, that the
Company’s Chief Executive Officer, Jill McDonald, has
resigned from the business to take up another role; she
will remain as Chief Executive Officer until the expiry of her
notice period in October 2017. The process is underway
to find her replacement. As with the succession of the
Chairman, this process will be led by the Nomination
Committee.
Board Responsibilities
The Board is committed to ensuring that it provides
leadership to the business as a whole, having regard to
the interests and views of its shareholders and other
stakeholders. It is also responsible for setting the Group’s
strategy, values and standards. Details of the Group’s
business model and strategy can be found on pages 12
to 17.
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Corporate Governance Report
Shareholders
The Chairman – Key Responsibilities
• Leads the Board including its operation and governance
• Builds an effective and complementary Board
• Sets the agenda, style and tone of Board discussions
• Facilitates and encourages active engagement in meetings, promoting effective relationships and open communication
• Ensures effective communication with shareholders and other stakeholders
• Acts as an adviser to the Chief Executive Officer
• Meets with the Non-Executive Directors without Executive Directors being present
The Halfords Board – Key Responsibilities
The Board is the principal decision-making forum for the Group, setting the strategic direction and ensuring that the Group manages risk
effectively. The Board is accountable to shareholders for financial and operational performance.
See page 62 for examples of Matters Reserved for the Board. A complete list is available on the Company’s website
www.halfordscompany.com/investors/governance/matters-reserved-for-the-board
Chief Executive Officer
Senior Independent Director
Key Responsibilities:
• Develops the Group objectives and strategy for Board approval
Key Responsibilities:
• Supports the Chairman in his role
• Creates and recommends to the Board an annual budget and
• Holds meetings with the other Non-Executive Directors
three-year financial plan
• Delivers the annual budget and plan and other objectives and
without the Chairman at least once a year to appraise the
Chairman’s performance
executes the agreed Group strategy
• Acts as an intermediary for the other Directors or as a
•
Identifies and executes new business opportunities and
potential acquisitions or disposals
• Manages the Group’s risk in line with the Board approved risk
profile
sounding board for the Chairman if required
• Available to other Directors and shareholders with concerns
that cannot be addressed through the normal channels
Non-Executive Directors
Company Secretary
Key Responsibilities:
• Evaluate and appraise the performance of Executive Directors
Key Responsibilities:
• Works closely with the Chairman, Group Chief Executive
and Senior Management against agreed targets
• Participate in the development of the strategy of the Group
• Monitor the financial information, risk management and
controls processes of the Group to make sure that they are
sufficiently robust
• Meet regularly with senior management
• Periodically visit Halfords, Cycle Republic and Tredz and
Wheelies retail stores, Autocentres outlets and distribution
centres. Meet together without the Executive Directors present
• Formulate Executive Director remuneration and succession
Officer and Board Committee Chairmen in setting the rolling
calendar of agenda items for the meetings of the Board and its
Committees
• Ensures accurate, timely and appropriate information flows
within the Board, the Committees and between the Directors
and senior management
• Provides advice on Board matters, legal and regulatory issues,
corporate governance, Listing Rules compliance and best
practice
planning
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Nomination
Committee
Key Objectives:
To ensure that the Board has the skills,
knowledge and experience to be effective
in discharging its responsibilities and to
have oversight of all governance matters.
Main Responsibilities
The Nomination Committee’s
responsibilities include:
• making appropriate recommendations
to maintain the balance of skills and
experience of the Board by:
— considering the size, structure and
composition of the Board;
— considering senior management
succession plans; and
— identifying and making
recommendations to the Board on
potential candidates for the Board.
More information on Diversity in
the Group can be found on page 66
Read more within the Nomination
Committee Report on pages 70
to 71
Audit
Committee
Key Objectives:
To provide effective governance over the
Group’s financial reporting processes.
These include the internal audit function
and external Auditor. The Committee
maintains oversight of the Group’s
systems of internal control and risk
management activities.
Main Responsibilities
The Audit Committee’s responsibilities
include:
• making recommendations to the
Board on the appointment/removal
of the external Auditor, the terms of
engagement and fees;
•
reviewing and monitoring the
integrity of the Company’s financial
statements, including its annual and
interim reports and preliminary results
announcements and any other formal
announcement relating to its financial
performance, and then recommending
the same to the Board;
• assisting the Board in achieving its
obligations under the Code in areas of
risk management and internal control;
and
•
focusing particularly on compliance
with legal requirements, accounting
standards and the Listing Rules.
Read more within the Audit
Committee Report on pages 74
to 77
Remuneration
Committee
Key Objectives:
To ensure that a Board policy exists
for the remuneration of the CEO, the
Chairman, Non-Executive Directors, other
Executive Directors and members of the
executive management.
Main Responsibilities
The Remuneration Committee’s
responsibilities include:
•
•
recommending to the Board the total
individual remuneration package of
Executive Directors and members of
the executive management;
recommending the design of the
Company share incentive plans to
the Board, approving any awards
to Executive Directors and other
executive managers under those
plans and defining any performance
conditions attached to those awards;
• determining the Chairman’s fee,
following a proposal from the CEO; and
• maintaining an active dialogue with
institutional investors and shareholder
representatives.
Read more within the
Remuneration Committee Report
on pages 78 to 97
Chair:
Dennis Millard
Members:
David Adams
Claudia Arney
Helen Jones
Jill McDonald
Chair:
David Adams
Members:
Claudia Arney
Helen Jones
Chair:
Claudia Arney
Members:
David Adams
Dennis Millard
Helen Jones
The Nomination, Audit and Remuneration Committees’ full Terms of Reference are available on the Company’s website
www.halfordscompany.com/investors/governance/our-committees or on request from the Company Secretary.
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Corporate Governance Report
Board Responsibilities
The key responsibilities of Board members are set
out in the chart on page 60.
A formal schedule of matters reserved for the
Board is in place and regularly reviewed.
This is available at www.halfordscompany.
com/investors/governance/ matters-
reserved-for-the-board
To discharge these responsibilities effectively,
the Board has additionally implemented a system
of delegated authorities, which is described on
page 62. This enables the effective day-to-day
operation of the business and ensures that
significant matters are brought to the attention
of management and the Board as appropriate. It
is through this system that the Board is able to
provide oversight and direction to the Executive
Directors, the Senior Management Team and the
wider business.
Matters Reserved for the Board include: Authority;
Strategy and Management; Structure and Capital;
Investor Relations; Audit, Financial Reporting and
Controls; Nominations to the Board; Executive
Remuneration and material contracts.
THE BOARD
Key Matters Reserved
for Board Approval
Group Strategy and Risk
Management
• approval of the Group’s Strategy
and Business Plan;
• approval of changes to capital
structure;
• approval of acquisitions or disposals;
• approval of any decisions to cease to
operate all or any material part of the
Group’s business; and
• approval of extension of activities
into new businesses or geographical
areas.
Financial and Internal Controls
• oversight of risk management and
internal control framework;
• approval of budgets;
• approval of financial statements
and results announcements;
• approval of shareholder
communications, circulars and
Notices of Meetings;
• approval of the Auditor’s
remuneration and terms of
engagement;
•
recommendation and declaration
of dividends;
• approval of major capital expenditure
projects; and
• approval of material contracts.
Board Membership and
Committees
• appointment of Directors;
• approval of the fees of the
Non-Executive Directors; and
• setting of Board Committees’
Terms of Reference.
Corporate Governance
• undertaking formal performance
reviews of the Board, Committees
and individual Directors;
• determining the independence of
Directors; and
•
receiving reports on Group policies,
such as health and safety, risk
management strategy, the CSR
Strategy and charitable and political
donations.
Read more about the remit of each
Committee on page 61
See Committee Terms of Reference
at www.halfordscompany.com/
investors/governance/our-
committees
EXECUTIVE
DIRECTORS
AND SENIOR
MANAGEMENT
THE BUSINESS
S
E
I
T
I
R
O
H
T
U
A
D
E
T
A
G
E
L
E
D
‘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. Briefing sessions were
held for all relevant Support Centre and Operating
colleagues upon launch. Each potential activity is
set out by reference from whom approval must
be sought and the process and documentation
required to evidence 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. The implementation of the document
is constantly monitored, with updates proposed
to the Board to reflect changing practices or
structures. Amendments are made to improve
the efficiency and governance across the
business.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Board Meetings and Attendance
Board Member
Executive Directors
Jill McDonald
Jonny Mason
Non-Executive Directors
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Number of meetings attended by the individual
Number of meetings available to the individual
Board
Meetings
Scheduled: 10
Audit Committee
Meetings
Scheduled: 3
Remuneration
Committee
Meetings
Scheduled: 5
Nomination
Committee
Meetings
Scheduled: 2
10 10
10 10
10 10
10 10
10 10
10 10
n/a
n/a
n/a
3
3
3
3
3
3
n/a
n/a
5
5
5
5
5
5
5
5
2
2
n/a
2
2
2
2
2
2
2
2
The table above shows the attendance of Directors at the meetings
of the Board and of the Audit, Remuneration and Nomination
Committees during the year ended 31 March 2017.
Other members of the Senior Management Team and advisors
attended Board meetings by invitation as appropriate throughout
the year. The Board also held a two-day Strategy meeting during the
period.
At each Board meeting, the Chief Executive Officer delivers a high
level update on the business, the Board considers specific reports,
reviews business and financial performance, key initiatives, risks and
governance. In addition, throughout the year the Senior Management
Team and other colleagues deliver presentations to the Board on
proposed initiatives and progress on projects.
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Corporate Governance Report
KEY BOARD DISCUSSIONS AND ACTIONS DURING THE PERIOD
• Review of trading performance
• Review of FY16 results and key messages
• Review of a potential acquisition opportunity
• Discussion on summer activity plan and new brand
April
2016
Dec
2016
guidelines
• Capital structure update
• Review of Directors’ Appointments and Conflicts of
Interests Register
• Discussion of logistics network infrastructure
• Review and approval of Budget for FY17
• Review of trading performance
• Review of the Group’s annual colleague engagement
May
2016
survey
Jan
2017
• Review of third distribution centre site
• Review of Cycle Republic brand
• Discussion on Store of the Future
• Further discussion on potential acquisition opportunity
• Approval of debt target and capital returns
• Review of the preliminary results announcement
• Final review of the FY16 Annual Report and Financial
Officer Statements
• Approval to recommend the FY16 final dividend
• Review of Board Evaluation results
• Approval of Directors’ Appointment and Conflicts of
Interest Register
• Approval of Risk Register
• Approval of Notice of Meeting for FY16 AGM
July
2016
• Review of trading performance
• Review of Cycle Republic brand
• Review of Store of the Future
• Review of potential corporate activity
• Approval of role of Chairman, role of Chief Executive
Officer and role of Senior Independent Director
• Discussion post Brexit vote
March
2017
• Review of trading performance
• Consideration of potential acquisition opportunity
• Discussion on capital return options
• Review and approval of Document Retention Policy
• Review and approval of Ethical Trading Statement
• Discussion on brand and brand strategy
• Review of trading performance
• Approval of special dividend
• Review of customer strategy
• Update on digital business
• Peak trading review
• Consideration of 5 Year Plan
• Discussion on developments for FY18
• Status of budget for FY18
• Update and approval for software programme
• Review of trading performance
• Update on IT strategy
• Update on Halfords Global Sourcing
• Update on logistics network
• Health and Safety review and update
• Review of FY18 budget
• Update of 5 Year Plan
• Group Treasury review
• Review of bank debt facility
• Review and approval of Diversity Policy
• Review and approval of Environmental Policy
• Review and approval of Matters Reserved for the Board
• Proposal on the re-election of Directors at the FY17
AGM
• Review of draft reports for inclusion in the FY17 Annual
Report and Financial Statements
• Review of trading performance
• Review of Investor Survey
• Approval of Group’s Delegated Authorities
• Review and approval of Halfords’ Anti-Slavery and
Sept
2016
Human Trafficking Statement
• Review and approval of Sanctions Policy
• Review of trading performance
• Discussion on forecast for FY17 Quarter 2
• First look at FY18 and 5 Year Plan
• Review of draft interim results announcement and
Nov
2016
proposed messaging
• Approval of interim dividend and dividend policy
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sluglineBoard Committees The Board’s principal Committees are the Audit Committee, the Nomination Committee and the Remuneration Committee, as detailed in the chart on page 61. In December 2015, the Board established a Corporate Social Responsibility (“CSR”) Committee, comprising Directors and senior management and chaired by a Non-Executive Director. Each Committee has its Terms of Reference approved and regularly reviewed by the Board. The Terms of Reference for the Committees are available on www.halfordscompany.com/investors/governance. On the following pages each Committee Chairman reports how the Committee he/she chairs discharged its responsibilities in FY17 and the material matters that were considered. Following each meeting of a Committee, the Committee Chairman reports to the Board. Whilst not entitled to attend, other Directors, professional advisors and members of senior management attend when invited to do so. The Auditor attends Audit Committee meetings by invitation. No person is present at Nomination Committee or Remuneration Committee during discussions pertinent to them. The Company Secretary acts as the secretary to each Committee.A Disclosure Committee, made up of a minimum of two Directors, approves the final wording of market announcements prior to release. There were six Disclosure Committee meetings during the period.The day-to-day investment decisions of the Group are approved by an Investment Committee, chaired by the Chief Financial Officer. Similarly, the treasury needs of the Group are managed by the Treasury Committee, chaired by the Chief Financial Officer; the other members are senior members of the Finance and Treasury teams.The Board may establish other ad hoc committees of the Board to consider specific issues from time to time. No such committees were formed during the year. ConcernsThe Chairman seeks to resolve any concerns raised by the Board, whether raised in a Board meeting or in another forum. Where raised and unresolved in a Board meeting, the unresolved business can be recorded on behalf of a Director in the minutes of the relevant meeting. A resigning Non-Executive Director would also be able to raise any concerns in a written letter to the Chairman, who would bring such concerns to the attention of the Board. No such concerns have been raised throughout the period.Independence and EffectivenessFollowing a rigorous review, the Board considers David Adams, Claudia Arney and Helen Jones to be independent in character and judgement in accordance with the requirements of the Code. The Chairman, Dennis Millard, was considered independent on his appointment. In compliance with the requirements of the Code, at least half of the Board, excluding the Chairman, are deemed to be independent. During the period, of the five Directors other than the Chairman, three (i.e. 60% of the Board) were independent.The independent Non-Executive Directors bring a wide range of experience and expertise to the Group’s affairs and carry significant weight in the Board’s decisions. The independent Non-Executive Directors are encouraged to challenge management and help develop proposals on strategy.Leadership6Corporate5Marketing5Retail6Digital4Customer service6Brand building6Brand development6Strategy6Governance6Banking4Finance4Cross-functional4Supply Chain4M & A5Skills and Experience of the BoardDelivering the journeyThe below graphic illustrates the number of Directors on the Board who have the relevant skills and experience.Individual Directors may fall into one or more categories. Represents the Board at the close of the period.65STOCK CODE: HFD halfords.annualreport2017.comSTRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATIONHalfords Annual Report 2017.indd 6507/06/2017 16:38:01 Corporate Governance Report
Diversity
During the year, the Board renewed the Group’s Diversity Policy (the
“Policy”) which sets out our commitment to eliminating unlawful
discrimination and promoting equality of opportunity. The Policy is
applied to the Board and it is considered that the background and
experience brought to the Board by each individual demonstrates the
Board’s diversity and commitment to its Diversity Policy. The principle
that candidates are considered “on merit and against objective
criteria, and with due regard for the benefits of diversity on the Board,
including gender” is established in the Terms of Reference of the
Nomination Committee.
No fixed quota is applied to decisions regarding recruitment, rather
the Nomination Committee considers capability and capacity to
commit the necessary time to the role in its recommendations to
the Board. The intention is to ensure the appointment of the most
suitably qualified candidate to complement and balance the current
skills, knowledge and experience on the Board. Those appointed
are deemed to be the best able to help lead the Company in its
long-term strategy. At Halfords half of the Board is female. The chart
below demonstrates the gender split at Board level, within senior
management and across the workforce as a whole.
Board Level
50%
Female
Male
50%
Senior Management Level
60%
Female
Male
40%
All Colleagues
77%
Female
Male
23%
The Board is well placed by the mixture of skills, experience and
knowledge of its Directors to act in the best interests of the Company
and its shareholders.
Appointments to the Board
There were no appointments to the Board during the year.
Directors’ Induction
When new Directors are appointed they receive a personalised
induction programme, tailored to their individual requirements,
to include briefings on the activities of the Group and visits to
operational sites. They also meet all of the Company’s other
Directors and senior executives. This facilitates their understanding
of the Group and the key drivers of the business’ performance.
Training and Development
All current Directors have various opportunities for ongoing
development and support via:
• a programme of Support Centre, distribution centre, Halfords,
Cycle Republic and Tredz and Wheelies retail stores and
Autocentres outlet 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;
• access to independent professional advice at the Company’s
expense; and
• membership of the Deloitte Academy, a training and guidance
resource for boards and directors.
Evaluation
The Code recommends that an evaluation of the effectiveness of
the Board and its Committees is conducted annually and that this
process is facilitated externally at least every third year. This year the
evaluation process was carried out internally for the second year.
The last external review was undertaken by Linstock in 2015.
The evaluation was internally facilitated by the Company Secretary
where each Director was required to respond to a questionnaire
devised by the Company Secretary and agreed with the Chairman.
The evaluation was based on a number of key areas:
• Board composition, role, skills, diversity, balance, experience and
effectiveness;
• Board leadership and culture;
• developing the Company’s strategy and its implementation;
• Board and Committee agendas, papers and resource;
• monitoring of Company performance;
•
risk management;
• governance, regulatory compliance and support;
• committee performance;
•
individual Director effectiveness; and
• succession planning and training issues.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
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 Board’s policy
on internal control is implemented by management through a clearly
defined operating structure with lines of responsibility and delegated
authority.
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 Group’s
corporate risk register is maintained by the Head of Internal Audit and
Risk. It records key risks, with impact and likelihood assessments,
mitigations and ongoing developments. It is updated regularly,
following structured interviews with managers and executives across
the Group. The accuracy of the register is validated through a rolling
programme of independent internal audits. The register is scrutinised
in detail annually by the Audit Committee. Any material change in the
register is flagged to the Audit Committee by the Head of Internal
Audit and Risk within his regular internal audit progress report.
The process has been in place throughout the period ended
31 March 2017, and up to the date of approving the Annual Report
and Financial Statements.
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 that
it has determined to be material or significant.
The Board considered its appetite in relation to the Group’s top risks,
determining that the risks and mitigating actions were appropriate to
the level of risk that was both acceptable to, and incumbent within,
a listed business. More information on the Company’s key risks and
uncertainties, and its risk assessment methodology, is shown on
pages 42 to 47.
The Directors’ individual responses were collated and evaluated.
The Chairman considered the results of the performance evaluation
report which were discussed with the Board.
Overall, the Board is considered strong, bringing a good balance
and mix of experience and diversity. Board Committees were
all considered to work well and to be effective in meeting the
requirements of the Terms of Reference.
Following the review, the most significant actions to be taken as a
result of the assessment are set out below:
•
improved succession planning;
• more corporate governance updates;
•
improved focus on Board Strategy Day; and
• ensuring continuation of the NED programme.
It is expected that the Board evaluation for FY18 will be facilitated
externally.
Re-election
In compliance with the Code and the Company’s Articles of
Association, all Directors on the Board as at 24 May 2017, will seek
re-election at the Company’s Annual General Meeting.
Directors and their Other Interests
Each Director is required to notify 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). None was notified during the period.
All Directors are aware of the need to consult with the Company
Secretary should any possible situational conflict 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 89 to 97.
Internal Control and Risk Management
Overall responsibility for the system of internal control and reviewing
its effectiveness rests with the Board. This involves 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.
The Board has conducted an annual review of the effectiveness of
the systems of internal control during the year, under the auspices
of the Audit Committee. The Audit Committee provides the Board
with an independent assessment of the Group’s financial position,
accounting affairs and control systems. In addition, the Board
receives regular reports on how specific risks that are assessed as
material to the Group are being managed. For further information on
the Company’s compliance with the Code provisions relating to the
Audit Committee and Auditor please refer to pages 74 to 77.
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Corporate Governance Report
Shareholder Engagement
The Board is committed to effective communications with its
shareholders and, accordingly, has a strong Investor Relations (“IR”)
programme that seeks to actively engage with shareholders.
This programme includes formal presentations of full year and
interim results. These presentations, along with the Annual Report
and Accounts, are the primary means of communication during the
year with all of the Company’s shareholders. Additionally, the Chief
Executive Officer, Chief Financial Officer and IR Director have met
with analysts and institutional shareholders during the period to
keep them informed of significant developments and help maintain a
balanced understanding of their issues and concerns. The IR Director
and Company Secretary bring to the attention of the Board any
material matters of concern raised by the Company’s shareholders,
including private investors.
KEY THEMES DISCUSSED WITH SHAREHOLDERS IN FY17
IR PROGRAMME
• Progress in the execution of the Moving Up A Gear strategy;
• The dynamics of the Motoring and Cycling markets, including
the growth prospects, competitive environment and future
trends;
• The impact of foreign exchange volatility following the EU
referendum;
• Gross and operating margin performance;
• Discussion and formulation of the new Directors’
Remuneration Policy; and
• Capital allocation priorities. In particular, the trends and
preferences surrounding internal investment, M&A and returns
to shareholders.
The Chairman is responsible for ensuring that appropriate
channels of communication are established between Directors
and shareholders and that all Directors are aware of any issues or
concerns that major shareholders may have. Regular engagement
provides investors with an opportunity to discuss any areas of
interest and raise concerns. The Group is eager to make sure that
it understands shareholders’ views and that it is able to effectively
communicate its strategy. The Group engages effectively through
its regular communications, the Annual General Meeting and
other IR activity. In addition, the Board commissions independent
investor perception studies from time to time. The last such
survey was undertaken in June and July 2016, with the results fed
back to the Board in September 2016.
The Group has a comprehensive IR programme through which
the Chief Executive Officer, Chief Financial Officer and IR Director
regularly engage with the Company’s largest shareholders
on a one-to-one basis, to discuss strategic issues and give
presentations on the Group’s results. Further communication is
achieved through the Annual Report and Accounts, corporate
website and investor days.
• Annual Report and Accounts – this is the most significant
communication tool, ensuring that investors are kept fully
informed regarding Group developments. Management
continually strives to produce a clear and transparent Annual
Report and Accounts, which provides a complete picture;
• The corporate website – provides investors with timely
information on the Group’s performance as well as details of
corporate social responsibility activities;
• Management roadshow – allows key investors to access
management, usually attended by the Chief Executive Officer,
Chief Financial Officer and IR Director;
• Attending broker conferences – Management regularly attend
and present at various conferences hosted by a variety of
brokers to ensure a wide variety of shareholders, including
those from different geographies, also have access to
management; and
• Responding promptly – the Group is committed to responding
to any investor-related queries within a short time frame.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
IR calendar for FY18
May
2017
June
2017
July
2017
FY17 Preliminary
results
UK management
roadshow
AGM
Sept
2017
Nov
2017
Jan
2018
FY18 20 week
trading update
FY18 Interim
results, UK
management
roadshow
FY18 Q3 trading
statement
The primary method of communication with shareholders
is by electronic means, helping to make the Company more
environmentally friendly. Information available on the Company’s
website includes current and historic copies of the Annual Report
and Accounts, 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 Annual General Meeting gives all shareholders the opportunity
to communicate directly with the Board and their participation
is welcomed. The Chairmen of the Remuneration, Nomination,
Audit and CSR 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 Annual General Meeting.
The Chairman will advise shareholders on the proxy voting details at
the meeting.
By order of the Board
Tim O’Gorman
Company Secretary
24 May 2017
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Nomination Committee Report
Chairman’s Letter
The Committee’s role is to:
•
review the size, structure and composition of
the Board;
• consider succession planning; and
•
identify and make recommendations to the
Board on potential candidates for the Board.
Its key objective is to ensure that the Board
comprises individuals with the necessary skill,
knowledge, experience and diversity to ensure
that the Board is effective in discharging its
responsibilities. The Committee is also tasked with
ensuring that succession plans are in place for the
Senior Management Team.
Dennis Millard
Chairman of the Nomination
Committee
The Company . . . has created a
more balanced and diverse Board
and Senior Management Team
and continues to work to ensure
this is replicated across the entire
business . . .
Committee Composition
During the year, the Committee comprised:
Dennis Millard (Chairman)
David Adams
Claudia Arney
Helen Jones
Jill McDonald
There were two Committee meetings held during the
year, attended by all members and after each Committee
meeting I reported to the Board on the key issues that
we had discussed. A number of informal discussions
were also held between Committee members and me
throughout the year as the need arose.
Activities During the Year
During the year, the Committee:
•
reviewed the composition of the Board and its
succession plan;
• carried out an annual review of the Committee’s Terms
of Reference;
•
•
recommended re-election of the Board at the
forthcoming Annual General Meeting; and
reviewed the results of the Board performance
evaluation process.
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Diversity
During the year, the Board also renewed the Group’s Diversity Policy
(“Diversity Policy”) which sets out our commitment to eliminating
unlawful discrimination and promoting equality of opportunity. This
applies to all our activities, including our role as an employer and as a
provider of services, ensuring that no colleague, potential colleague,
customer, visitor or contractor will receive less favourable treatment
on the grounds of: age; disability; gender reassignment; race; religion
or belief; gender; sexual orientation; marital or civil partnership
status; pregnancy or maternity; or disability.
The Company does not currently publish specific diversity targets
but in practice, it has created a more balanced and diverse Board
and Senior Management Team. We continue to work to ensure this
is replicated across the entire business, in particular in relation to
gender diversity.
Further information regarding Board diversity can be found on page
66 and gender diversity in the Group as a whole on page 31.
Looking Ahead
In the year ahead, as I intend to step down from the Board at the
Annual General Meeting in July 2018, having by then served nine
years as Chairman, the Committee will begin the process in the
second half of the financial year ahead to identify suitable candidates
and recommend an appointment to the Board. On 3 May 2017, it
was announced that the Company’s Chief Executive Officer, Jill
McDonald, has resigned from the business to take up another role.
Jill will remain as Chief Executive Officer until the expiry of her notice
period in October 2017. The process is underway by the Committee
to find her replacement.
The Committee will also continue to assess the Board and Senior
Management Team composition and how they both may be
enhanced.
The Committee’s Terms of Reference are available on the
Company’s corporate website www.halfordscompany.com/
investors/governance/our-committees
Dennis Millard
Chairman of the Nomination Committee
24 May 2017
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Corporate Social Responsibility Committee Report
Chairman’s Letter
This is my second letter as Chair of
the Corporate Social Responsibility
(“CSR”) Committee and since
last year we have continued to
make great progress on our CSR
initiatives.
In seeking to ensure that CSR initiatives are
increasingly integrated into our business we have
developed the programme significantly from when
I gave my first report last year. We have added
a greater focus on Environmental Management
to the Committee’s remit and we are constantly
seeking to ensure that our Corporate Social
Responsibility Strategy remains fit for purpose.
During the year, the Committee ensured that:
• short and long term objectives for the
Company’s CSR activities are in place;
• key metrics are reported on; and
• all related policies are regularly reviewed and
updated.
Fast Fact*
3
Committee
meetings held
Helen Jones
CSR Committee
Chairman
We are constantly seeking to
ensure that our Corporate Social
Responsibility Strategy remains fit
for purpose.
Committee Composition and Meetings
The Committee consisted of:
Helen Jones (Chairman)
Jill McDonald
Jonathan Crookall
Emma Fox (resigned 20 January 2017)
Richard Street (appointed 27 March 2017)
Andy Randall (appointed 27 March 2017)
There were three Committee meetings held during the
year and after each one, I reported to the Board on the
key issues that we had discussed. Informal discussions
were also held between Committee members, business
leaders and me throughout the year as the need arose.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Looking Ahead
We have prioritised our work on Environmental Management as a
key area of focus in the year ahead. Having allocated resource to
support this, we will concentrate on agreeing detailed benchmarks
for measuring our performance and the development of our strategy.
The Committee’s Terms of Reference are available on the
Company’s corporate website www.halfordscompany.com/
investors/governance/our-committees
Helen Jones
Chairman of the CSR Committee
24 May 2017
Activities undertaken
During the year the Committee:
• agreed internal priorities and metrics to track and deliver CSR
progress;
•
reviewed and agreed the Company’s approach to charitable
support;
• approved an additional charity partner, voted for by colleagues;
• approved internal and external policies on Environment;
• carried out an annual review of the CSR Policy;
• carried out an annual review of the Committee’s Terms of
Reference; and
•
reviewed proposed changes in forthcoming CSR related
regulations and governance.
Further information on corporate social responsibility in the Group,
including environmental details on emissions, can be found on pages
30 to 35 of the Strategic Report.
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Audit Committee Report
Chairman’s Introduction
I am pleased to present the report of
the Audit Committee for the financial
year ended 31 March 2017.
Throughout the year, the Audit Committee has
continued 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. The Committee monitors risk and internal
control through engagement with external auditors,
internal auditors and executive management
who regularly present management briefings to
the Committee, explaining in detail how selected
key areas of business risk are managed. During
the year, the Committee reviewed presentations
on Supplier Rebates and Contributions, Cyber
Security and Global Sourcing issues.
This report explains in detail how the Committee
undertook its duties.
David Adams
Chairman of the Audit Committee
24 May 2017
Fast Fact*
3
Committee
meetings held
David Adams
Chairman of the
Audit Committee
The Audit Committee has
continued 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.
Membership and Remit of the
Audit Committee
a. Membership
All the members of the Audit Committee are
independent Non-Executive Directors. Having been
the Deputy Chief Executive and Finance Director of
House of Fraser Plc, and currently chairing three other
listed companies’ Audit Committees, David Adams is
considered by the Board to have recent and relevant
financial experience and so the requisite experience
to chair the Committee. Each of the other independent
Non-Executive Directors has, through their other
business activities, significant experience in financial
matters. The Audit Committee as a whole is considered
to have competence relevant to the sector in which
the Company operates. The effectiveness of the
Audit Committee is reviewed at least annually through
discussions at the Board and Audit Committee.
The Chairman of the Company’s Board, Executive
Directors, senior managers and key advisors are invited
to attend meetings as appropriate in order to ensure
that the Committee maintains a current and well-
informed view of events within the business, and to
reinforce a strong risk management culture. The Audit
Committee meets according to the requirements of
the Company’s financial calendar. The meetings of the
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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 Auditor. There
have been three such meetings in the period ended 31 March 2017
and nothing of note was reported.
b. Remit
The Audit Committee’s responsibilities include:
May
2016
• making recommendations to the Board on the appointment
of the external Auditor, 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 UK
Corporate Governance Code in areas of risk management and
internal control, focusing particularly on compliance with legal
requirements, accounting standards and the Listing Rules;
Nov
2016
•
review of corporate risk register and regular Internal Audit
reports on developments in the internal control framework to
ensure that an effective system of internal financial and non-
financial controls is maintained on an ongoing basis;
• 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;
• approving the Company’s systems and controls for the
prevention of bribery and corruption, including the receipt of
any reports on non-compliance; and
March
2017
• approving the Group’s Treasury Policy, including foreign
currency and interest rate exposure.
The Audit Committee has reviewed its Terms of Reference and its
composition during the year and believes that both are appropriate.
Copies of full Terms of Reference are available on the Company’s
website or on request from the Company Secretary.
Read more online at www.halfordscompany.com/investors/
governance/our-committees/audit-committee
Principal Activities During the Year
The Audit Committee met three times during the year with the
following timetable:
• Review of Year End Chief Financial Officer’s Report
• Management presentation on accounting treatment of
supplier rebates and contributions
• Review of External Auditor’s Report
• Review of Statement of External Auditor’s Independence
• Review of Internal Audit Full-Year Report, including
update on the Company’s risk management and
internal control systems
• Approval of Internal Audit Charter
• Review of Half-Year Chief Financial Officer’s Report
• Recommend the Interim Statement to the Board for
Approval
• Review of External Auditor’s Half-Year Report
• Review of Internal Audit Progress Report including
update on the Company’s risk management and
internal control systems
• Review of External Auditor Non-Audit Fee Policy
• Review of anti-bribery and corruption risk assessment
and approval of Anti-Bribery and Corruption Policy
• Management presentation on cyber security
• Review of Committee’s Terms of Reference
• Review of External Auditor’s annual strategy and fees
• Review of Internal Audit Progress Report and Annual
Strategy including update on the Company’s internal
control systems
• Consideration of management presentation on
global sourcing initiatives and related risks which, for
administrative reasons, was delivered to the Board
• Review of Group Register of Risks and Controls
• Review of Group Whistleblowing Policy
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Audit Committee Report
Significant Issues in Relation to the Financial
Statements
In order to discharge its responsibility to consider accounting
integrity, the Committee carefully considers key judgements applied
in the preparation of the consolidated financial statements which
are set out on pages 108 to 113. The Committee’s review included
consideration of the following key accounting judgements:
•
Impairment of Goodwill associated with Autocentres;
— Following the acquisition of Nationwide in 2010, the Group
holds significant goodwill in the Halfords Autocentres business.
There are a number of factors that could impact on the future
profitability of the business (e.g. loss of key customers, change in
market behaviour) and there is therefore a risk that the business
may not meet the growth projections necessary to support the
carrying value of the intangible asset (see note 11 on page 128 of
the Financial Statements); and
— The Audit Committee has received detailed reports from
Halfords’ Finance team and External Auditor addressing this
issue. The Finance team has undertaken detailed work to
consider the impairment of goodwill associated with Autocentres.
Consideration has been given to ensuring that cash flow models,
discount rates, sensitivity analysis and centre profitability are all
reasonable. The Committee concluded that it is satisfied with the
accounting treatment of impairment of goodwill.
• Valuation of inventory within the retail division;
— With the business holding a wide range of stock, it is likely that
changing consumer demands will mean that some lines cannot be
sold, or will be sold at below the carrying value. Provisions are made
to reflect this. Given the difficulties in forecasting market trends,
there is a risk that inventory provisions made will be inappropriate or
incomplete (see note 14 on page 130 of the Financial Statements).
Management has an established methodology for assessing
inventory provisions. Range reviews are regularly undertaken to
ensure that all discontinued inventory is identified; and
— The Audit Committee has received detailed reports from Halfords’
Finance team and External Auditor addressing this issue. The
Finance team has undertaken detailed work around the valuation
of inventory within the Retail division. After consideration of
the accuracy of the provisioning model, the completeness and
accuracy of range reviews, and the reflection of these reviews
within the provisions, the Committee concluded that it is satisfied
with the accounting treatment of the valuation of inventory.
External Auditor
a. 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 March 2017, 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.
b Approach to appointment or reappointment
KPMG LLP (formerly KPMG Audit plc) was appointed as External
Auditor to the Group in 2009 following a formal tender process.
Since that time, KPMG LLP has complied with the partner rotation
requirement set out in Ethical Standards for Auditors, with the
most recent rotation taking place in 2014. This rotation saw Peter
Meehan becoming our audit partner.
The Audit Committee considers that the relationship with the
Auditor is working well and is satisfied with its independence,
objectivity and effectiveness and has not considered it
necessary to require KPMG LLP to re-tender for external audit
work this year. The Audit Committee has recommended to
the Board, for approval by shareholders at the Annual General
Meeting on 26 July 2017, the reappointment of KPMG LLP as
External Auditor. The Audit Committee monitors, and will continue
to comply with best practice and external guidance in respect of
the frequency of audit tenders.
c 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 Auditor will not
jeopardise objectivity and independence. The policy is consistent
with Ethical Standards for Auditors.
The policy specifies:
‘The External Auditor can be used to provide non-audit services
subject to any non-audit engagement proposal provided by the
External Auditor being formally approved by the Audit Committee
before contractual arrangements are entered into, except for
activities set out in the list of prohibited activities included in the
Regulation as follows:
• Tax services relating to:
— Preparation of tax forms;
— Payroll tax;
— Customers duties;
— Identification of public subsidies and tax incentives unless
support from the audit firm in respect of such services is
required by law;
— Support regarding tax inspection by tax authorities unless
support from the audit firm in respect of such inspections is
required by law;
— Calculation of direct and indirect tax and deferred tax; and
— Provision of tax advice;
• Services that involve paying any part in the management or
decision-making of the audited entity;
• Bookkeeping and preparing accounting records and financial
statements;
• Payroll services;
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• Designing and implementing internal control or risk management
procedures related to the preparation and/or control of financial
information or designing and implementing financial information
technology systems;
• Valuation services, including valuations performed in connection
with actuarial services or litigation support services;
• Legal services, with respect to:
— The provision of general counsel;
— Negotiating on behalf of the audited entity; and
— Acting in an advocacy role in the resolution of litigation;
• Services related to the audit entity’s internal audit function;
• Services linked to the financing, capital structure and
allocation, and investment strategy of the audited entity,
except providing assurance services in relation to the
financial statements, such as the issuing of comfort letters in
connection with prospectuses issued by the audited entity;
• Promoting, dealing in, or underwriting shares in the audited
entity; and
• Human resources services, with respect to:
— Management in a position to exert significant influence
over the preparation of the accounting records or financial
statement which are the subject of the statutory audit, where
such services involve:
– searching for or seeking out candidates for such position; or
– undertaking reference checks of candidates for such
positions;
— structuring the organisation design; and
— cost control.
Other than for the above, for each separate service proposed to
be provided by the Auditor, the Group 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 Auditor is involved in the proposal
and how objectivity and independence has, and is seen to be,
safeguarded.
In addition, the fees for any proposal for non-audit services will not
exceed 70% of the three year average statutory audit fees when
taken into consideration with total fees for non-audit services already
committed in the financial year.
Consent is required from the Audit Committee Chair on behalf of the
Audit Committee before the Auditor can be engaged for non-audit
services.’
In addition, the External Auditor follows its 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 Auditor is disclosed in
note 2 on page 143 to the Financial Statements.
Role and Effectiveness of Internal Audit
The Company has a dedicated in-house Internal Audit team, which is
able to obtain advice from external specialists if necessary. The team
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 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.
Our Internal Audit plan for the forthcoming year features 30 reviews
covering financial and commercial processes, governance issues
and key risk safeguards. The executive summaries of all Internal Audit
reports are circulated to Audit Committee members and discussed at
meetings where appropriate.
The Audit Committee is satisfied that the Internal Audit team has the
quality, experience and expertise appropriate for the business.
Internal Audit reports on a day-to-day basis to the Group’s 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 the Support Centre.
The 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 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 42 to 47.
‘The external Auditor can be used to provide non-audit services
subject to any non-audit engagement proposal provided by the
external Auditor being formally approved by the Audit Committee
before contractual arrangements are entered into, except for
activities set out in the list of prohibited activities included in the
Regulation as follows:
• Tax services relating to:
— Preparation of tax forms;
— Payroll tax;
— Customers duties;
— Identification of public subsidies and tax incentives unless
support from the audit firm in respect of such services is required
— Support regarding ta inspection by tax authorities unless support
from the audit firm in respect of such inspections is required by
by law;
law;
— Calculation of direct and indirect tax and deferred tax;
— Provision of tax advice;
• Services that involve paying any part in the management or
decision-making of the audited entity;
• Bookkeeping and preparing accounting records and financial
statements;
• Payroll services;
• Designing and implementing internal control or risk management
procedures related to the preparation and/or control of financial
information or designing and implementing financial information
technology systems;
• Valuation services, including valuations performed in connection
with actuarial services or litigation support services;
• Legal services, with respect to:
— The provision of general counsel;
— Negotiating on behalf of the audited entity; and
— Acting in an advocacy role in the resolution of litigation;
• Services related to the audit entity’s internal audit function;
• Services linked to the financing, capital structure and allocation,
and investment strategy of the audited entity, except providing
assurance services in relation to the financial statements, such
as the issuing of comfort letters in connection with prospectuses
issued by the audited entity;
• Promoting, dealing in, or underwriting shares in the audited entity;
• Human resources services, with respect to:
— Management in a position to exert significant influence over the
preparation of the accounting records or financial statement
which are the subject of the statutory audit, where such services
involve:
position; or
positions;
— searching for or seeking out candidates for such
— undertaking reference checks of candidates for such
— structuring the organisation design; and
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Remuneration Committee Report
Dear Shareholder
On behalf of the Remuneration
Committee, I am pleased to present
the Remuneration Report for the
financial period ended 31 March
2017.
The Report consists of three sections:
•
this Annual Statement;
• our Remuneration Policy Report, which sets
out a summary of the Directors’ Remuneration
Policy for all Directors of Halfords; and
• our Annual Directors’ Remuneration Report,
which sets out the details of how the
Company’s Directors were paid during FY17
and how our policy will be implemented in FY18.
The Directors’ Remuneration Policy is subject to
a binding shareholder vote at the 2017 Annual
General Meeting and the Directors’ Remuneration
Report is subject to an advisory shareholder vote.
Claudia Arney
Chairman of the
Remuneration Committee
Our remuneration philosophy
is aimed at providing Executive
Directors with incentive
opportunities strongly aligned
to growth, profitability and
shareholder returns.
Remuneration Policy
The Committee undertook a review of the Remuneration Policy (the “Policy”)
in consultation with shareholders and shareholder advisory bodies. In general,
shareholders were supportive of the changes proposed and we adapted the
proposals in certain areas to reflect the feedback received. The key changes to
the Policy are as follows:
• simplification of the long term incentive (PSP) and a reduction in the overall
maximum opportunity from 225% to 200%;
• extension of the retention period for the PSP to enhance long-term alignment
with shareholders (the whole award is transitioning to a two-year holding
period);
•
reduction in the PSP ‘start to earn’ quantum from 30% to 25%;
• changes to PSP metrics to ensure alignment with the strategy (EPS has
replaced EBITDA);
•
increase in shareholding guidelines to 200%, with 75% of any vesting under
PSP or the Deferred Bonus Plan being retained until guidelines are met; and
•
reduction in the pension salary cap from 20% to 15%.
Overall, the Committee is confident that the proposed approach will support the
Company’s strategy over the next three years, and that it is fair and balanced. A
copy of the revised Policy is available at www.halfordscompany.com/investors.
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Policy Implementation
The implementation of Remuneration Policy in FY17 is summarised
as follows:
Performance Share Plan
To ensure the interests of the Executive Directors continue to align
with the delivery of the strategy, the Committee again determined
that the performance measures for the FY17 PSP would be based on
75% Group EBITDA growth and 25% Group Revenue growth.
Annual Bonus
Profit before tax (“PBT”) was £75.4m in 2016/17 and therefore 20.4%
of this element of the bonus was achieved (80% of the total bonus
being based on PBT). There has been strong progress against our
strategic priorities during the year, particularly in relation to matching
sales to specific customers, Cycle Republic like-for-like growth,
service related sales growth and colleague engagement. Therefore,
12.7% of this element should be paid. This resulted in an overall
bonus of 33.1% of maximum.
Restricted Share Plan (“RSP”)
The Committee has introduced a new share plan to promote further
the alignment of more colleagues’ interests with shareholders and
to support engagement and commitment. Executive Directors are
excluded from the RSP. The scheme will facilitate the granting of
shares to colleagues (as opposed to share options) based on them
staying with the Company for a period of three years. This new plan
builds on the existing Save As You Earn Scheme (“SAYE”) which
continues to be open to all colleagues.
Remuneration Review
The Committee approved a salary increase for the Executive
Directors of 2% in October 2016 which mirrored the award for
Support Centre colleagues and was below the average for all
colleagues.
Jill McDonald resigned on 3 May 2017 from her role as Chief
Executive Officer and will continue to work her six-month contractual
notice period. Jill will not receive a bonus in respect of 2016/17.
All of Jill’s unvested share awards under the Deferred Bonus Plan
and the PSP will lapse in full when she leaves the Company. On her
appointment it was agreed that Jill would be made Halfords share
awards with a total value of £529,819 to replace awards made by her
previous employer that lapsed on resignation. These awards were to
be delivered in four annual tranches from 2016 to 2019. Two tranches
have already been delivered. Jill will forfeit the outstanding two
tranches which were intended to be delivered in 2018 and 2019.
Concluding Remarks
I hope that you find the Report clear, transparent and informative.
The Committee has sought to promote a remuneration environment
that strongly aligns the commercial direction of the Group with
the interests of shareholders, whilst reflecting best practice
developments and market trends. I look forward to your support at
the Company’s Annual General Meeting.
Yours faithfully
Claudia Arney
Chairman of the Remuneration Committee
24 May 2017
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Remuneration Policy Report
Key changes under the updated Policy
To ensure that the Remuneration Policy continues to support the
Company’s strategy for the next three-year cycle and reflects market
best practice, the following key changes have been made:
• Simplify the long-term incentive (PSP) and reduce overall
maximum opportunity – Under the Policy approved in 2014,
the PSP was structured so that a ‘core’ award is granted and
participants have the opportunity to earn above this level (the
‘multiplier’) for exceptional performance. The overall maximum
award under the PSP is 225% of salary. The operation of the
PSP under the new Policy has been simplified by removing the
multiplier and the overall maximum limit has been reduced to
200% of salary.
• Extension of the retention period for the PSP – Under the 2014
Policy, the two-year retention period only applied to any portion of
the award earned above the core award i.e. that part related to the
multiplier. To reflect the simplified PSP structure and to make our
approach more consistent with market practice going forward, a
two-year retention period will apply to all amounts earned under
the PSP. Transitional arrangements are in place to move to this
position from FY19.
• Reduce the cap on pension contributions – Under the new Policy
the pension cap of 20% of salary has been reduced to 15% of
salary to reflect current operating levels.
•
Increase shareholding guidelines – The shareholding guideline
under the 2014 Policy for the Executive Directors was 100% of
base salary. To further align executives’ interests with those of
shareholders, the shareholding guideline has been increased to
200% of salary. Executives will be required to retain 75% of any
post-tax shares that vest under share incentive plans until this
shareholding is reached. The requirement to meet the guideline
over a period of time has been removed.
In addition to the above, other minor changes have been made,
intended to align the new Policy to evolving market and best practice
and to simplify its operation.
Executive Remuneration Policy
The Policy report set out on pages 80 to 88 sets out the
Remuneration Policy (the “Policy”) that the Company intends to apply,
subject to shareholder approval, with effect from 26 July 2017 (the
date of the Annual General Meeting (“AGM”)). This Policy will replace in
full the Directors’ Remuneration Policy set out in the 2013/14 Annual
Report, which was approved by shareholders at the AGM on 29 July
2014. It is intended that this Policy will apply until the 2020 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. The Committee considers market data at
appropriate intervals to inform the positioning of executives’ pay
relative to the companies of a similar size and in similar sectors,
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 with 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.
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Key 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;
• salary levels at other companies of a similar size and
complexity and at other UK listed retailers (without seeking to
‘match the median’); and
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 reflect an individual’s progression and increase in experience in
the role; and
• where a salary is significantly behind market practice.
•
the pay increases for other employees in the Group.
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.
Executive Directors currently receive a car plus fuel or a cash
allowance, private health insurance and life assurance as standard
benefits.
The maximum participation levels for all employee share plans is
the same as any maximum applicable to other employees (and
consistent with any relevant HMRC limits).
However, the Committee may determine that additional benefits
may be provided based on individual circumstances (e.g. the use
of a chauffeur) when it is considered appropriate.
Performance Measures
None
In the event that an executive is required to relocate to perform
their role then additional one-off or ongoing benefits may be
provided such as relocation expenses, a housing allowance and
school fees.
The Company reimburses reasonable business expenses and may
pay any tax incurred in relation to these.
Executives are also eligible to participate in any all-employee
share plans operated by the Company on the same basis as other
employees.
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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
Executives are eligible for a defined employer contribution funding
to the Halfords Pension Plan, payments into a personal fund and/or
a cash allowance in lieu of pension. 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).
The aggregate value of any annual pension contributions and cash
allowance for each individual will not exceed 15% of base salary.
Performance Measures
None
Annual Bonus
Purpose and link to strategy
To incentivise executives to achieve annual financial targets and performance against key strategic objectives. Deferral of bonus under
the Deferred Bonus Plan (“DBP”) further incentivises Executive Directors 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.
After the year-end the Committee determines 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.
Normally up to two-thirds of the total bonus is paid in cash. The
remaining one-third of the bonus is deferred as shares for three
years. 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 awards normally vest three years from award (or after
such other period as the Committee determines) and have no
additional performance conditions.
Malus and clawback provisions apply to the cash bonus payments
and deferred share awards for a period of three years from award.
During this period, the Committee may determine that payments
may be scaled back 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.
The maximum annual bonus opportunity is 150% of base salary.
Performance Measures
The annual bonus measures 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 2017/18, the bonus will be based on performance against PBT
and strategic objectives consistent with the Moving Up A Gear
strategy.
Further details are provided on page 96 of the Annual Remuneration
Report.
No bonus will be paid for below threshold performance, typically
around 50% of the bonus will be paid for achieving ‘target’ levels
of performance and 100% of bonus will be paid for achieving a
stretching performance target. Performance targets are set by the
Remuneration Committee with reference to prior year performance
and the Group’s business plan.
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Performance Share Plan (“PSP”)
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 vesting of awards to Executive Directors is subject
to the satisfaction of performance conditions.
A post-vesting retention period will apply to awards granted
under the PSP. Shares that vest will not normally be released
to executives (and nil-cost options will not normally become
exercisable) for a further two-year period (unless the Committee
determines otherwise) from the point at which the Committee
determined that the performance conditions have been met. In
FY18, transitional arrangements are in place, see page 96.
The Committee can apply malus provisions to an unvested award if
there has been a material misstatement of the Company’s results
or misconduct by the Executive, or if the Committee considers
there are other similar circumstances which mean that the malus
provisions should apply.
The Committee can also apply clawback provisions to an award
for a period of two years following its vesting if there has been
a material misstatement of the Company’s results, a calculation
error in respect of the number of shares over which the award
was granted or vested, or misconduct, actions or omissions
by the Executive which have caused or contributed to serious
reputational damage to the Company.
Other information
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 200% of their annual base salary.
Executives are expected to retain 75% of any post-tax shares
that vest under any share incentive plans until this shareholding is
reached. Current Executive Director shareholdings are disclosed on
page 94.
Legacy awards
The Committee reserves the right to make any remuneration
payments and/or payments for loss of office (including exercising
any discretions available to it in connection with such payments)
Maximum award under the PSP is 200% of base salary.
Performance Measures
For 2017 awards will vest subject to the achievement of stretching
Revenue and EPS growth 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 underlying EPS over a
three-year performance period.
25% of the award vests for entry level performance.
Any vesting of the PSP will be subject to an underpin whereby the net
debt to EBITDA ratio remains below 1.5 times on average for the 3
years of the plan.
For future awards the Committee may determine that different
financial, operational / strategic 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.
notwithstanding that they are not in line with the policy set out above
where the terms of the payment were agreed (i) before 29 July 2014
(the date the Company’s first shareholder-approved Directors’
Remuneration Policy came into effect); (ii) before the policy set out in
this 2016/17 Annual Report came into effect, provided that the terms
of the payment were consistent with the shareholder-approved
Directors’ Remuneration Policy in force at the time they were agreed;
or (iii) 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, in relation to an
award over shares, the terms of the payment are ‘agreed’ at the time
the award is granted.
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Plan rules
Awards under any of the Company’s DBP and PSP may:
a. be granted as conditional share awards or nil-cost options or in such other form that the Committee determines has the same
economic effect;
b. have any performance conditions applicable to them amended by the Committee if an event occurs which causes the Committee to
consider that the existing performance condition should be amended to ensure that the objective criteria against which performance
will be measured will be a fairer measure of such performance and that the amended performance condition will afford a more effective
incentive to the Executive;
c. when assessing the level of vesting under the PSP, the Committee will consider the underlying financial performance of the Company
and the value generated for shareholders and may adjust the level of vesting if it considers that the outcome based on the assessment of
performance against targets does not reflect this;
d. incorporate the right to receive an amount (in cash or additional shares) equal to the value of dividends which would have been paid on the
shares under an award that vests up to the time such shares are delivered). This amount may be calculated assuming that the dividends
have been reinvested in the Company’s shares on a cumulative basis;
e. in respect of the PSP, be settled in cash or with the grant of a vested option at the Committee’s discretion; and
f. be adjusted in the event of any alteration of the Company’s share capital by way of capitalisation or rights issue, sub-division, consolidation
or reduction, the payment of a special dividend, a demerger or any other variation of the share capital of the Company.
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
Expected
• Fixed pay (base salary, benefits and pension) only
• Fixed pay
• On target PSP award
• 50% of PSP award
Maximum
• Fixed pay
• 100% of maximum annual bonus opportunity
• 100% of maximum PSP award
Executive Director
Jill McDonald (CEO)
Jonny Mason (CFO)
Base Salary with
effect from
1 October 2016
£520,200
£357,000
Benefits Single
Figure Value
for 2016/17
£10,262
£17,699
Pension Based
on Salary with
effect from
1 October 2016
£76,500
£52,500
Total Fixed
Remuneration
£606,962
£427,199
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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 (“PSP”): The performance measures for
2017 awards are Group Revenue and underlying EPS growth.
Revenue growth is strongly aligned with our Moving Up A Gear
strategy 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
bottom line profit performance measuring the overall success of the
implementation of our strategy. 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 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 350%
of annual salary.
The Committee may also make arrangements to compensate the
new Executive Director 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 Director. 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.
For the appointment of a new Chairman or Non-Executive Director,
the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time.
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 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 circa 10,000 colleagues are eligible to join the
Halfords Sharesave Plan (“SAYE”) after they have served one
complete month’s service. Where appropriate, some groups of
colleagues are eligible for a 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 or the Restricted Share
Plan.
In 2016/17 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 1%
and the Company also contributes a minimum of 1%, 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 Director’s duty to mitigate any loss he or
she suffers should be recognised. The notice period for the current
Executive Directors is six months on either side. 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.
For external and internal appointments, the Committee may
agree that the Company will meet certain relocation expenses as
appropriate. In addition, the Committee may agree to provide tax
equalisation for any new appointment.
Jill McDonald
Jonny Mason
Date of Service
Agreement
11 May 2015
12 October 2015
Notice
Period
6 months
6 months
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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 termination for any
reason (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 or she would have received
during the contractual notice period (six months), 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.
The Committee reserves the right to make any other payments in
connection with a Director’s cessation of office or employment
where the payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such an
obligation) or by way of settlement of any claim arising in connection
with the cessation of a Director’s office or employment. In addition,
the Committee reserves the right, acting in good faith, to pay fees
for outplacement assistance and/or the Director’s legal and/or
professional advice fees in connection with his or her cessation of
office or employment.
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 or
she 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 or she would receive if he or she were
to be paid his or her annual salary and benefits over six months.
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.
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.
‘Good leavers’ as determined
by the Committee
Leavers in other circumstances
(other than gross misconduct)
Unvested awards 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 be released
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.
Awards will vest at the end of the
performance period and be released
at the end of the retention period. The
Committee will determine the level of
vesting having due regard 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. The Executive has 12 months from
the end of the retention period to exercise
options if awards are structured as nil-cost
options.
Alternatively the Committee may determine
that awards should vest and be released
at the time of leaving on the basis set
out above. In these circumstances the
Executive has 12 months from his or her
date of leaving to exercise options if awards
are structured as nil-cost options.
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‘Good leavers’ as determined
by the Committee
Leavers in other circumstances
(other than gross misconduct)
Outstanding awards vest on leaving.
Awards will lapse on leaving.
The Executive has six months from leaving
to exercise options (12 months in the case
of death).
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.
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 and be released (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 the
Committee may determine the extent to which awards shall be time pro-rated.
DBP awards may vest on a change of control, reconstruction, winding up or demerger of the Company.
Alternatively, awards may be rolled over into equivalent awards in a different company.
Key elements of Non-Executive Director 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, 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 business expenses
and may settle any tax incurred in relation to these.
The Chairman and Non-Executive Directors do not currently
receive other benefits but reasonable benefits may be
provided in the future if appropriate.
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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
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Date of Appointment
28 May 2009
1 March 2011
25 January 2011
1 March 2014
Date of Current
Appointment
28 May 2015
1 March 2017
25 January 2017
1 March 2017
Date of resignation
—
—
—
—
Expiry Date
27 May 2018
29 February 2020
24 January 2020
29 February 2020
Unexpired term at the
date of this Report
12 months
33 months
32 months
33 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 Committee actively considers feedback received from
shareholders prior to and following each annual general meeting.
It also actively monitors guidance and directional themes emerging
from institutional shareholder bodies on the subject of executive
remuneration. This feedback, plus any emerging relevant guidance,
is considered as part of the Company’s annual review of
remuneration policy.
The Non-Executive Directors’ letters of appointment are available for
inspection by shareholders at the Company’s registered offices.
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.
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.
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Annual Remuneration Report
Structure and content of the Remuneration Report
This Remuneration Report has been prepared in accordance with the
provisions of the Companies Act 2006 and Schedule 8 of the Large
and Medium-sized Companies and Group (Accounts and Reports)
(Amendment) Regulations 2013. This Report meets the requirements
of the Listing Rules and the Disclosure Guidance and Transparency
Rules.
The information set out below represents auditable disclosures
referred to in the Auditor’s Report on pages 102 to 106, as specified
by the UK Listing Authority and the Regulations.
Committee Composition
During the year, the Committee comprised:
Claudia Arney (Chair)
Dennis Millard
David Adams
Helen Jones
There were five Committee meetings held during the year, attended
by all members; details are shown in the table on page 63. The
Chairman of the Remuneration Committee reported to the Board
on the key issues discussed. A number of informal discussions
were also held between the Committee Chairman and Committee
members throughout the year as the need arose.
All members are considered to be independent for the purposes of
the UK Corporate Governance Code. The Company Secretary acts
as secretary to the Committee.
Activities During the Year
During the year, the Committee has
• discussed and approved both financial and strategic annual
bonus metrics and targets;
• discussed and reviewed Directors’ and Senior Management
salaries;
• discussed and reviewed attainment against the performance
conditions for the Performance Share Plan and Company Share
Option Scheme due to vest during the period;
• approved grants under the Performance Share Plan, Company
Share Option Scheme (to senior managers below Board) and the
Sharesave Scheme;
•
•
•
reviewed the mechanics and assets of the Employee Benefit
Trust;
reviewed the Executive Remuneration Policy; and
reviewed the Terms of Reference of the Committee.
Advisors
During the year, the Committee has been supported by Jonathan
Crookall, People Director and Tim O’Gorman, Company Secretary.
The Chief Executive Officer and Chief Financial Officer also attend
Committee meetings on occasion, at the request of the Committee;
they are never present when their own remuneration is discussed.
The Committee also engaged with Deloitte LLP, which advised on
performance measures for the PSP, remuneration reporting and
other remuneration matters. Fees paid to Deloitte for this advice
were £10,016, their fees are charged on a time and materials basis.
Deloitte has also provided advice to management, to enable their
support of the Committee, primarily in relation to remuneration
reporting. Deloitte also provided unrelated tax advice during the year.
Deloitte is a founding member of the Remuneration Consultants
Group and adheres to the Remuneration Consultants Group Code of
Conduct when dealing with the Committee. We consider Deloitte’s
advice to be independent and impartial. We are also satisfied that the
Deloitte Engagement Partner and team, who provided remuneration
advice to the Committee, do not have connections with the Company
that might impair their independence. The Committee considered
the potential for conflicts of interest and judged that there were
appropriate safeguards against such conflicts.
Willis Towers Watson also provided the Committee with executive
salary market data. Willis Towers Watson is also a signatory of the
Remuneration Consultants Code of Conduct. Fees paid to Willis
Towers Watson for this advice were £3,500. Willis Towers Watson
also provides insurance broking services to the Group.
Shareholder Dialogue
The voting outcome from the 2016 Annual General Meeting reflected
very strong individual and institutional shareholder support. We
continue to be mindful of the concerns of our shareholders and
other stakeholders and welcome shareholder feedback on any
issue related to executive remuneration. In the event of a substantial
vote against a resolution in relation to Directors’ remuneration, we
would seek to understand the reasons for any such vote, determine
appropriate actions and detail any such actions in response to it in
the Directors’ Remuneration Report.
During the year we consulted with our major shareholders and
shareholder advisory bodies on the changes proposed to our
remuneration which are outlined in the Chairman’s letter on page 78.
In general shareholders were supportive of the changes proposed
and we adapted the proposals in certain areas to reflect the feedback
received.
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The following table sets out the votes cast at the 2016 AGM in respect of the previous Remuneration Report and the votes cast at the 2014
AGM in respect of the Remuneration Policy.
Votes in relation to the Annual Report on Remuneration
% of votes
For
98.66%
97.00%
% of votes
Against
1.34%
3.00%
Other
139,5502
—
Total ‘Single
Figure’
741,412
599,162
FY16 Directors’ Remuneration Report (2016 AGM)*
FY14 Directors’ Remuneration Policy (2014 AGM)**
* 1.0% votes were withheld in relation to this resolution.
** 0.56% votes were withheld in relation to this resolution.
How the Remuneration Policy was Implemented in 2016/17 – Executive Directors
Single remuneration figure (audited)
Base
Salary
515,100
353,500
Bonus
-1
175,463
Benefits
10,262
17,699
Pension
76,500
52,500
PSP
—
—
2016/2017
Jill McDonald1
Jonny Mason
2015/2016
Jill McDonald3
Jonny Mason6
450,513
166,026
159,3904
38,690
24,779
8,372
69,500
22,278
—
—
147,2795
76,2777
851,461
311,643
1. On 3 May 2017 it was announced that Jill McDonald has resigned to take up a role at another business. Jill is therefore no longer entitled to receive a bonus for
the year.
2. On 13 February 2017, Jill McDonald received an award of 38,635 ordinary shares as announced on 14 February 2017, made as compensation for Jill’s
forfeited entitlement to long-term incentives and share options with her previous employer.
3. Jill McDonald was appointed on 11 May 2015.
4. One third of Jill’s bonus was deferred into the Deferred Bonus Plan, for a period of three years. It was announced on 3 May 2017 that Jill McDonald has
resigned from her role of CEO and, therefore, her 2015/16 unvested Deferred Bonus Plan award will lapse in full when she leaves the Company.
5. On 13 February 2016 Jill McDonald received an award of 38,973 ordinary shares as announced on 15 February 2016, made as compensation for
Jill’s forfeited entitlement to long-term incentives and share options with her previous employer.
6. Jonny Mason was appointed on 12 October 2015.
7.
In accordance with the announcement on 2 July 2015 Jonny Mason received a payment of £71,777 in March 2016 to replace his pro-rated bonus from his
previous employer equivalent to the amount he would have received based on performance. In addition, in December 2015 Jonny was awarded a Save As You
Earn grant amounting to £4,500, based on the discount at grant. These awards were not included in last year’s disclosure.
2016/17 Annual Bonus
Annual bonuses for FY17 for Executive Directors were based 20.4% on Group PBT and 12.7% on the delivery of key strategic initiatives crucial
to the delivery of the Company’s strategy.
The PBT targets for the FY16/17 bonus were as follows:
15% payable at £73.0m (90% of budget)
50% payable at £81.1m (budget)
100% payable at £89.2m (110% of budget)
Annual bonuses reported in the table on page 90 and payable in June 2017 for the FY17 financial period were calculated as follows:
KPI
Sales matched to
customers
Engagement index
Service related
sales growth
Cycle Republic
NPS
Definition
Proportion of sales we can match to customers
FY17 outturn
59%
Threshold
30%
Maximum
40%
% achieved
(out of 4%)
4%
The index achieved in the survey planned to
take place in April 2017. Results available at end
of April
The growth in total WeFit (inc. 3Bs) and Cycle
Repair service and associated product sales
Like-for-like sales
Store performance
80%
80%
82%
2%
£89.6m
£83.3m
£101.8m
2.7%
27%
70
15%
71
25%
73
4%
0
The annual bonus outturn was reviewed in the context of the performance of the underlying business during the year and delivery against
strategy.
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Jonny Mason
PBT
£108,171
Strategic
Measures
£67,292
Total
£175,463
In accordance with the Deferred Bonus Plan, Jonny Mason’s bonus will be paid two-thirds in cash with one-third being deferred into shares
for a period of three years. As set out on page 79 it was announced on 3 May 2017 that Jill McDonald has resigned from her role of CEO
and therefore will not receive a bonus in respect of FY17. We are committed to providing the greatest possible transparency in relation to
retrospective achievement against the objectives that form part of the strategic bonus measures.
2015/16 Annual Bonus – PBT Targets
Last year the Company committed to disclose PBT targets for the bonus paid in respect of 2015/16. These were as follows:
15% payable at £81.5m
40% payable at £86.3m
100% payable at £91.8m
2014 Performance Share Plan Award
Awards granted in 2014 under the PSP were subject to the following performance conditions:
Award ‘Multiplier’
(up to 1.5× initial award) i.e. 225% of salary
Core Award
(150% of salary)
1.5× initial award vesting
Straight-line vesting
100% vesting
Straight-line vesting
30% vesting
0% vesting
Group Revenue
Growth – CAGR
(25% of the award)
7.5% or more
Between 6.5% and 7.5%
6.5%
Between 5.0% and 6.5%
5.0%
Below 5.0%
Group EBITDA
Growth
(75% of the award)
9.0% or more
Between 7.5% and 9.0%
7.5%
Between 5.0% and 7.5%
5.0%
Below 5.0%
The performance conditions for 2014 awards are based on Group revenue performance and Group EBITDA growth. The CAGR and EBITDA
performance are assessed on an independent basis. However, to ensure that the PSP continues to support sustainable performance, the
performance levels are set on a stepped basis, where vesting on the revenue measure is dependent upon the EBITDA threshold being met,
and in addition the revenue measure can only be one step above the EBITDA measure. Given that EBITDA growth was 2.4% the scheme did
not vest, even though the revenue growth was 5.2%.
The following table shows the history of PSP award vesting over the last five years.
PSP vestings (% of maximum)
FY13
0%
FY14
0%
FY15
15%
FY16
102.5%
FY17
0%
Jill McDonald was appointed to the Board on 11 May 2015 and Jonny Mason was appointed to the Board on 12 October 2015. Neither
therefore received a PSP award in 2014.
Benefits
Benefits include payments made in relation to life assurance, private health insurance and the provision of a fully expensed company car or
equivalent cash allowance and fuel card.
Pension
Pension payments represent contributions made either to defined contribution pension schemes or as a cash allowance. The CEO and CFO
both received a contribution of 15% of base salary.
Leaving Arrangements for Jill McDonald
On 3 May 2017 it was announced that Jill McDonald has resigned from her role of CEO. Jill will continue to work her six month contractual
notice period. Jill McDonald will not receive a bonus in respect of 2016/17. All of Jill’s unvested share awards under the Deferred Bonus Plan
and the Performance Share Plan will lapse in full when she leaves the Company. On her appointment it was agreed that Jill would be made
awards with a total value £529,819 to replace awards made by her previous employer that lapsed on resignation. These awards were to be
delivered in four annual tranches from 2016 to 2019. Two tranches have already been delivered, one in February 2016 and one in February
2017. Jill will forfeit the outstanding two tranches of this award, originally intended to be delivered in 2018 and 2019.
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Share Awards Granted During the Year (Audited)
Performance Share Plan
During the period we approved awards to the Executive Directors under the Performance Share Plan as follows:
Jill McDonald***
Date
of award
11 August 2016
Type
of award
Nil cost option
(0p exercise price)
Number
of shares*
214,586
Maximum face
value of award
(1.5x the number
of awards
granted)**
£1,158,764
Threshold
vesting (%
of target award)
30%
Performance
period
2 April 2016 to
29 March 2019
Jonny Mason
11 August 2016
147,265
£795,231
* These awards were based on 150% of salary
** Based on the mid-market price on the date of the awards of £3.60 on 11 August 2016
*** As set out on page 79 it was announced on 3 May 2017 that Jill McDonald has resigned from her role of CEO and her 2016 PSP award will lapse in full when she
leaves the Company
Performance Conditions
Awards granted in FY17 are subject to the following performance conditions:
Award ‘Multiplier’
(up to 1.5× initial award) i.e. 225% of salary.
Core Award
(150% of salary)
1.5× initial award vesting
Straight-line vesting
100% vesting
Straight-line vesting
30% vesting
0% vesting
Group Revenue
Growth – CAGR
(25% of the award)
6.7% or more
Between 5.5% and 6.7%
5.5%
Between 4.0% and 5.5%
4.0%
Below 4.0%
Group EBITDA
Growth – CAGR
(75% of the award)
7.5% or more
Between 6.0% and 7.5%
6.0%
Between 4.0% and 6.0%
4.0%
Below 4.0%
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 2019. To the extent that awards vest in line with the performance multiplier outlined above, these
shares will only become exercisable in August 2021, following a retention period of two years.
CEO Share Award
The Board agreed that upon joining the Company, Jill McDonald would be given an award of shares to compensate her for awards made by her
previous employer that lapsed on resignation. The value of these shares was £529,819. Two tranches have been delivered, one in February
2016 and one in February 2017. As set out on page 79 it was announced on 3 May 2017 that Jill McDonald has resigned from her role of CEO
and therefore will forfeit the outstanding two tranches of this award.
Deferred Bonus Plan
Awards granted during the year:
Mid-
market
price on
date of
awards
£
3.215
Awards
held
2 April
2016
Awarded
during
the
period
— 16,525
Dividend
Reinvestment1
1,247
Forfeited
during
the
period
—
Lapsed
during
the
period
—
Award date
Jill McDonald 30 June 2016
Exercised
during
the
year
Awards
held
31
March
2017
Vesting
— 17,772 30 June 2019-
30 June 2020
1.
Interim and final dividends have been reinvested in shares at prices between £3.615 and £3.87532
On 30 June 2016, one-third of Jill McDonald’s 2015/16 bonus was deferred into shares for a period of three years.
As set out on page 79 it was announced on 3 May 2017 that Jill McDonald has resigned from her role of CEO and, therefore, her 2015/16
unvested Deferred Bonus Plan award will lapse in full when she leaves the Company.
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Outstanding Share Awards (Audited)
Performance Share Plan
The following summarises outstanding awards under the PSP:
Mid-
market
price on
date of
awards
£
5.34
Awards
held
2 April
2016
142,916
Awarded
during
the
period
—
Dividend
Reinvestment1
10,787
Forfeited
during
the
period
—
Lapsed
during
the
period
—
Exercised
during
the
year
Awards
held
31
March
2017
— 153,703
3.60
— 214,586
16,196
3.95
123,966
—
9,357
3.60
— 147,265
11,115
—
—
—
—
—
—
— 230,783
— 133,322
— 158,380
Performance
period
3 years
to
30 March
2018
29 March
2019
30 March
2018
29 March
2019
Jill McDonald2
Award date
14 August
2015
11 August
2016
Jonny Mason3 12 November
2015
11 August
2016
Interim and final dividends have been reinvested in shares at prices between £3.615 and £3.87532
1.
2. Jill McDonald was appointed on 11 May 2015
3. Jonny Mason was appointed on 12 October 2015
As set out on page 79 it was announced on 3 May 2017 that Jill McDonald has resigned from her role of CEO and, therefore, her 2015 and
2016 unvested PSP award will lapse in full when she leaves the Company.
Save As You Earn (“SAYE”)
Jonny Mason
Award date
30 December
2015
Mid-
market
price on
date of
awards
£
2.979
Awards
held
2 April
2016
6,042
Awarded
during
the
period
—
Forfeited
during
the
period
—
Lapsed
during
the
period
—
Exercised
during
the
year
—
Awards
held
31
March
2017
6,042
Exercisable
Date
1 February
2019 –
1 August
2019
On 30 December 2015, Jonny Mason was granted 6,042 shares in the Company’s SAYE.
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CEO Pay Compared to Performance
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).
350
300
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Halfords Group
FTSE 350 General Retailers
Source: Thompson Datastream
The following table summarises the CEO single figure for the past eight 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.
CEO single
figure
(£000)
Annual bonus
(% of maximum)
PSP vesting
(% of
maximum)
Jill McDonald1
Matt Davies2
David Wild3
Jill McDonald
Matt Davies
David Wild
Jill McDonald
Matt Davies
David Wild
2009/10
—
—
1,134
—
—
80%
—
—
—
2010/11
—
—
531
—
—
—
—
—
—
2011/12
—
—
617
—
—
0%
—
—
99%
2012/13
—
499
198
—
50%
—
—
—
—
2013/14
—
1,372
—
—
97.5%
—
—
—
—
2014/15
—
645
—
—
—4
—
—
—
—
2015/16
851
54
—
23.5%
—4
—
—1
—
—
2016/17
741
—
—
—1
—
—
—1
—
—
1. Jill McDonald was appointed on 11 May 2015. On 3 May 2017, it was announced that Jill McDonald has resigned from her role of CEO. Jill will not be eligible to
receive any bonus for FY17
2. Matt Davies was appointed on 4 October 2012 and resigned as CEO on 30 April 2015. Matt did not receive PSP awards in 2012, as these were before he was
appointed.
3. David Wild resigned as CEO on 19 July 2012.
4. Matt Davies tendered his resignation prior to the payment of the FY15 bonus and, accordingly was not eligible to receive any bonus in respect of the period.
Shareholding Guidelines (Audited)
The Committee believes that it is important that Executive Directors’ interests are aligned with those of our 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. As set out on page 83 from 2017/18 the shareholding guideline for Executive Directors
has been increased to 200% of salary. Executives will be required to retain 75% of their vested shares under the Deferred Bonus Plan and PSP
until this guideline is met.
Shareholding requirement
Shareholding as at 31 March 2017
Current value (based on share price on 31 March 2017)
Current % of salary
Date by which guideline should be met
Jill
McDonald
100%
41,057
£145,629
28%
11 May
2020
Jonny
Mason
100%
75,000
£266,025
75%
12 October
2020
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 31 March 2017 and 24 May 2017.
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Outside Appointments
Halfords recognises that its Executive Directors may be invited to become non-executive directors of other companies. Such non-executive
duties can broaden experience and knowledge which can benefit Halfords. Subject to approval by the Board, Executive Directors are allowed
to accept non-executive appointments and retain the fees received, provided that these appointments are not likely to lead to conflicts of
interest. Jill McDonald received fees of £81,000 as a non-executive director of Inter Continental Hotels Group plc in the period.
Loss of Office Payments (Audited)
No loss of office payment was made to a Director during the year.
Payments to Former Directors (Audited)
No payments were made to former Directors during the year.
How the Remuneration Policy was Implemented in 2016/2017 – Non-Executive Directors
Non-Executive Director single figure comparison (audited)
Director
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Totals
Role
Chairman
Senior Independent Director & Audit
Committee Chairman
Remuneration Committee Chairman
CSR Committee Chairman
Non-Executive Director Shareholding
Director
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Board
Fees
185,000
50,000
50,000
50,000
335,000
Senior
Independent
Director
—
10,000
Committee
Chairman
Fees
—
10,000
—
—
10,000
10,000
5,000
30,000
Total
‘Single
Figure’
2017
185,000
70,000
60,000
55,000
370,000
2017
70,000
7,284
21,052
3,000
Total
‘Single
Figure’
2016
176,000
68,000
53,000
48,000
345,000
2016
60,000
6,780
21,052
3,000
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 31 March 2017 and 24 May 2017.
Non-Executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.
How the Remuneration Policy will be Implemented for 2017/18 — Executive Directors
Salary
Base salaries were reviewed with effect from 1 October 2016 and increases were made as per the details on page 79. Current salaries for the
Executive Directors are as follows:
Chief Executive Officer
Chief Financial Officer
Salaries will next be reviewed with effect from 1 October 2017.
£520,200
£357,000
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Annual Bonus
The annual bonus opportunity for 2017/18 will be as follows:
Chief Executive Officer and Chief Financial Officer
Maximum opportunity of 150% of base salary
2/3 paid in cash
1/3 paid in Halfords shares deferred for three years
The annual bonus will continue to be based 80% on Profit Before Tax (“PBT”) performance and 20% based on performance against strategic
objectives. PBT targets range from 90% of budget, where payment is 15% to 110% of budget for maximum payment. The Committee reviews
the goals included in the strategic objectives portion of the bonus to ensure that they remain appropriate. These objectives include metrics in
relation to customer service and colleague engagement.
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. Bonus targets are released retrospectively as they 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.
Performance Share Plan
As noted in the Chairman’s introduction, during the year the Committee undertook a review of remuneration arrangements and made
a number of changes to the structure and operation of the performance share plan to reflect market best practice and shareholder
expectations.
We have simplified the PSP for 2017/18 awards to remove the ‘multiplier’ award for exceptional performance and the maximum award level
has been reduced to 200% of salary. The level of vesting for threshold performance has been reduced to 25% of maximum.
The vesting of awards will be subject to meeting the following performance conditions:
Award
(200% of salary)
100% vesting
straight-line vesting
25% vesting
0% vesting
Group Revenue
Growth – CAGR
(25% of the award)
7.0%
Between 3.5% and 7.0%
3.5%
Below 3.5%
Underlying EPS
Growth - CAGR
(75% of the award)
6.0%
Between 1.5% and 6.0%
1.5%
Below 1.5%
2017 awards are based on underlying EPS growth and Group Revenue. EPS growth has replaced EBITDA growth to focus management on
driving returns for shareholder through improved bottom line profit performance measuring the overall success of the implementation of our
strategy. Group Revenue continues to be an important PSP measure which focuses the management team on driving volume in the business
and are not proposing to change this element. The two metrics will operate independently of each other.
The Committee believes that these targets are appropriately stretching in the context of the current retail environment, in particular the
substantial cost headwinds expected over the next few years.
When assessing the level of vesting under the PSP, the Committee will consider the underlying financial performance of the Company
and the value generated for shareholders and may adjust the level of vesting if it considers that the outcome based on the assessment of
performance does not reflect this. Any vesting of the PSP will be subject to an underpin whereby the net debt to EBITDA ratio remains below
1.5 times on average for the 3 years of the plan. In particular the Committee will consider the net debt to EBITDA ratio over the three-year
performance period to ensure 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.
For 2017 PSP awards, 50% of the shares that vest will be subject to a one-year holding period with the remaining 50% subject to a two-year
holding period. For 2018 awards and onwards a two-year holding period will apply to the full award. While committed to the use of equity-
based performance-related remuneration as a means of aligning Executive Directors’ interests with those of shareholders, we are aware
of shareholders’ concerns on dilution through the issue of new shares to satisfy such awards. Therefore, when reviewing remuneration
arrangements, we take into account the effects such arrangements may have on dilution. Halfords intends to comply with the Investment
Association guidelines relating to the issue of new shares for equity incentive plans.
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How the Remuneration Policy will be Implemented for 2017/18 — Non-Executive Directors
Fees
The fees of Non-Executive Directors are normally reviewed every two years to ensure that they are in line with market benchmarks. Any
changes to these 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 last increased with effect from 1 April 2016 this was the first increase in these fees since April 2013. Current fees for
Non-Executive Directors are as follows:
Chairman
Base fee
Additional fees
Senior Independent Director
Committee Chairman (Audit and Remuneration)
Committee Chairman (CSR)
2018
£185,000
£50,000
£10,000
£10,000
£5,000
2017
£185,000
£50,000
£10,000
£10,000
£5,000
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
% change in base salary
FY16 to FY17
2%
2.69%
% change in bonus earned
FY16 to FY17
-1
9%
% change in benefits
FY16 to FY17
No change
-2
The budget across the business was 3% and the application awarded to all colleagues was 2% with an additional 1% merit pot.
1. Jill McDonald resigned from her role as Chief Executive Officer on 3 May 2017, and therefore Jill is not eligible to receive a bonus in respect of FY17.
2.
In FY17, the Company introduced Life Assurance for all colleagues.
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
Payments to employees:
Wages and salaries
Including Directors1
1. Based on the single figure calculation, not all of which is included within wages and salary costs
2017
£108.7m
£75.4m
2016
£114.6m
£81.5m
£53.5m
£32.4m
£195.5m
£1.3m
£183.3m
£1.4m
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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 International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union (“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:
Responsibility Statement
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; and
the Annual Report and Accounts include a fair review of
the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties.
We consider the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
• select suitable accounting policies and then apply them
Approved by order of the Board.
Dennis Millard
Chairman
24 May 2017
consistently;
• make judgements and accounting 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
Group website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
98
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
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sluglinesluglineHalfords Annual Report 2017.indd 10007/06/2017 16:38:51 sluglineFinancial StatementsAuditor’s Report102Index to Financials107Consolidated Income Statement108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Changes in Shareholders Equity111Consolidated Statement of Cash Flows112Notes to Consolidated Statement of Cash Flows113Accounting Policies114Notes to the Financial Statements121Company Balance Sheet140Company Statement of Changes in Shareholders’ Equity141Accounting Policies142Notes to the Financial Statements143sluglineSTRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATIONHalfords Annual Report 2017.indd 10107/06/2017 16:38:54 Independent Auditor’s 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 for the period ended 31 March 2017 set out on pages 108 to 145. 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 31 March 2017 and of
the Group’s profit for the period then ended;
— the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by
the European Union;
— the parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework; 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.
Overview
Materiality: group financial statements as a whole
Coverage
Risks of material misstatement
Recurring risks
£3.3m (FY16:£4.0m)
4.7% (FY16: 5.0%) of profit before tax
100% (FY16:100%) of profit before tax
vs FY16
↑
←→
Carrying amount of
Autocentres Goodwill
Carrying value of Retail
division inventory
102
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
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,
in decreasing order of audit significance, were as follows:
Carrying amount of
Autocentres Goodwill
(£69.7 million; FY16: £69.7 million)
Refer to page 74 to 77 (Audit Committee
Report), page 116 (accounting policy) and
page 128 (financial disclosures).
The risk
Forecast-based valuation
Following the acquisition of Nationwide
Autocentres in 2010, the Group holds
significant goodwill in the Autocentres
division.
As set out in the Chief Executive’s Statement
on page 6, the results of the Autocentres
division were not in line with management’s
expectations, and, as such, the risk of
impairment to the associated goodwill has
increased.
The business operates in a competitive
market, and commercial factors, such as loss
of a significant customer, changes to market
share or changes to the frequency with which
customers replace their cars, may lead to a
risk that the business does not meet the
growth projections necessary to support
the carrying value of the goodwill.
The estimated recoverable amount is
subjective due to the inherent uncertainty
involved in forecasting these cash flows and
therefore, this is considered to be one of
the key judgemental areas that our audit is
concentrated on.
Our response
Our procedures included:
— Benchmarking assumptions: Comparing
the Group’s assumptions, in particular
those relating to forecast long term growth
rates and discount rates, to externally
derived data;
— Historical comparisons: Assessing the
Group’s performance against budget in
the current and prior periods to evaluate
the historical accuracy of the Group’s
forecasts;
— Sensitivity analysis: Performing
sensitivity analysis on the assumptions
noted above, including assumed EBITDA
growth of 10% and 0% over the next 5
periods;
— Comparing valuations: Comparing the
sum of the discounted cash flows to the
Group’s market capitalisation to assess the
reasonableness of those cash flows; and
— Assessing transparency: Assessing
whether the group’s disclosures about
the sensitivity of the outcome of the
impairment assessment to changes in key
assumptions reflected the risks inherent in
the valuation of goodwill.
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Independent Auditor’s Report to the
Members of Halfords Group plc only
Carrying value of Retail
division inventory
(£181.4 million; FY16: £153.3 million)
Refer to pages 74 to 77 (Audit Committee
Report), page 117 (accounting policy) and
page 130 (financial disclosures).
The risk
Subjective estimate
Inventories are carried at the lower of cost
and net realisable value. The estimated net
realisable value of inventory and associated
provisions are subjective due to the inherent
uncertainty in predicting consumer demand.
Further, changes in the Group’s provisioning
methodology could lead to inappropriate
releases to the income statement.
The obsolete stock provision is based on a
model which includes consideration of each
inventory line, recent sales of those lines and
the product’s position in its lifecycle. The
Group further overlays specific provisions to
account for other matters not captured in the
model, such as known stock losses and faulty
goods.
There is a risk that the Group’s assessment of
the level of these provisions is insufficient or
inaccurate.
Our response
Our procedures included:
— Assessing methodology: Assessing
the adequacy of the Group’s inventory
provision methodology based on our
knowledge of the industry and factors
specific to the Group.
— Our sector experience: Assessing and
challenging the directors assumptions
behind the changes to the provision
methodology against our own knowledge
of the industry and factors specific to the
Group;
— Tests of detail: Testing the key inputs to
the provisioning model, including recent
sales data and inventory costing. Obtaining
a report of sales made subsequent to
the period end at a negative margin to
ascertain whether those items should have
been provided for at the period end;
— Historical comparisons: Assessing
the accuracy of inventory provisioning
by checking the historical accuracy of
the level of inventory provisions in prior
periods; and
— Assessing transparency: Assessing
the adequacy of the Group’s disclosures
about the degree of estimation involved in
arriving at the provision.
104
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
3. Our application of materiality and an overview of
the scope of our audit
Materiality for the group financial statements as a whole was set
at £3.3 million (FY16: £4.0 million), determined with reference to a
benchmark of group profit before tax, of which it represents 4.7%
(FY16: 5.0%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.17 million (FY16: £0.20
million), in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 5 (FY16: 4) components, we subjected 5 (FY16: 4) to
full scope audits for group purposes. All components are located in
the UK.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The Group team approved the component materialities, which ranged
from £0.1 million to £3.0 million (FY16: £0.1 million to £4.0 million),
having regard to the mix of size and risk profile of the Group across
the components. The work on 5 of the 5 components (FY16: 4 of the
4 components) was performed by the Group team.
Profit before tax
£71.4m (FY16: £79.8m)
Profit before tax
Group materiality
Materiality
£3.3m (FY16: £4.0m)
£3.3m
Whole financial
statements materiality
(FY16: £4.0m)
£3.0m
Range of materiality at 5
components (£0.1m-£3.0m)
(FY16: £0.1m to £4.0m)
£0.17m
Misstatements reported to
the audit committee
(FY16: £0.20m)
Group revenue
Group profit before tax
100%
100%
100%
FY16: 100%
100%
FY16: 100%
Group total assets
100%
100%
FY16: 100%
Full scope for group audit purposes FY17
Full scope for group audit purposes FY16
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 period is consistent with the financial
statements.
Based solely on the work required to be undertaken in the course of
the audit of the financial statements and from reading the Strategic
Report and the Directors’ Report:
— we have not identified material misstatements in those reports;
and
— in our opinion, those reports have been prepared in accordance
with the Companies Act 2006.
5. We have nothing to report on the disclosures of
principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
— the Directors’ statement of viability on page 56, concerning
the principal risks, their management, and, based on that, the
Directors’ assessment and expectations of the Group’s continuing
in operation over the three periods to 3 April 2020; or
— the disclosures in the financial statements concerning the use of
the going concern basis of accounting.
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Independent Auditor’s Report to the
Members of Halfords Group plc only
6. 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 position and performance, business model
and strategy; or
— the Audit Committee Report does not appropriately address
matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 98, 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/
auditscopeukco2014a, 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.
Peter Meehan (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
— adequate accounting records have not been kept by the parent
24 May 2017
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’ statements, set out on page 56, in relation to going
concern and longer-term viability; and
— the part of the Corporate Governance Statement on page 58
relating to the company’s compliance with the eleven provisions
of the 2014 UK Corporate Governance Code specified for our
review.
We have nothing to report in respect of the above responsibilities.
106
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Index to Financials
Financial Statements
Consolidated Income Statement
108
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
Finance 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 Premiums
Sublease Income
Inventories
Provisions
Financial Instruments
Financial Assets
109
110
111
112
113
114
114
114
114
114
114
114
114
114
114
115
115
115
115
115
115
115
115
115
115
116
116
116
116
116
117
117
117
117
117
117
117
117
117
118
118
Trade receivables
Cash and cash equivalents
Investments
Financial Liabilities and Equity
Bank borrowings
Trade payables
Equity instruments
Derivative financial
instruments and hedge
accounting
Estimates and Judgements
Allowances Against the Carrying
Value of Inventories
Intangible Asset Valuations
Impairment of Assets
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
Acquisition of subsidiaries
Intangible Assets
Tangible Assets
Investments
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
118
118
118
118
118
118
119
119
119
119
119
119
120
120
121
122
122
123
124
124
125
126
126
127
128
129
130
130
130
131
131
132
132
132
133
133
133
133
133
134
134
134
134
135
Liquidity Risk
Capital and Reserves
Investment in Own Shares
Other Reserves
Share-based Payments
Halfords Company
Share Option Scheme
Halfords Sharesave Scheme
Performance Share Plan
Commitments
Pensions
Contingent Liabilities
Related Party Transactions
Transactions with Key
Management Personnel
Off Balance Sheet Arrangements
Post Balance Sheet Events
Company Balance Sheet
Company Balance Sheet
135
136
136
136
136
136
137
137
138
139
139
139
139
139
139
140
Reconciliation of Movements In Total
Shareholders Funds
Company Statement of Changes in
Shareholders’ Equity
Accounting Policies
Accounting Convention
Basis of Preparation
Share-based Payments
Investments
Dividends
Notes to the Financial Statements
Profit and Loss Account
Fees Payable to the Auditor
Staff Costs
Investments
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
Five Year Record
Five Year Record
Key Performance Indicators
Key Performance Indicators
Company Information
141
142
142
142
142
142
143
143
143
143
144
145
145
145
145
145
145
145
145
145
146
146
147
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Consolidated Income Statement
For the period
Revenue
Cost of sales
Gross profit
Operating expenses
Results from operating
activities
Finance costs
Finance income
Net finance expense
Profit before income tax
Income tax expense
Profit for the financial
period attributable to equity
shareholders
Earnings per share
Basic
Diluted
Notes
2
3
6
6
7
9
9
52 weeks to 31 March 2017
52 weeks to 1 April 2016
Before
Non-
recurring
items
£m
1,095.0
(536.4)
558.6
(481.5)
Non-
recurring
items
(note 5)
£m
—
—
—
(3.4)
77.1
(3.2)
1.5
(1.7)
75.4
(15.9)
(3.4)
(0.6)
—
(0.6)
(4.0)
0.9
Before
Non-
recurring
items
£m
1,021.5
(478.4)
543.1
(458.6)
84.5
(3.1)
0.1
(3.0)
81.5
(16.6)
Non-
recurring
items
(note 5)
£m
—
—
—
(1.7)
(1.7)
—
—
—
(1.7)
0.3
Total
£m
1,095.0
(536.4)
558.6
(484.9)
73.7
(3.8)
1.5
(2.3)
71.4
(15.0)
Total
£m
1,021.5
(478.4)
543.1
(460.3)
82.8
(3.1)
0.1
(3.0)
79.8
(16.3)
59.5
(3.1)
56.4
64.9
(1.4)
63.5
30.3p
30.2p
28.7p
28.6p
33.2p
33.0p
32.5p
32.4p
All results relate to continuing operations of the Group.
The notes on pages 121 to 145 are an integral part of these consolidated financial statements.
108
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Consolidated Statement
of Comprehensive Income
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
52 weeks to
31 March
2017
£m
56.4
52 weeks to
1 April
2016
£m
63.5
Notes
14.8
(12.8)
(5.1)
0.5
2.6
53.8
4.7
(2.9)
(0.6)
0.4
1.6
65.1
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
7
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 121 to 145 are an integral part of these consolidated financial statements.
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Consolidated Statement
of Financial Position
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
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
Deferred tax liability
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
31 March
2017
£m
Notes
11
12
13
14
15
21
16
17
21
18
19
17
18
20
19
22
22
22
22
394.1
102.8
8.1
505.0
191.1
58.4
5.2
16.5
271.2
776.2
(19.8)
(1.5)
(206.2)
(8.7)
(11.0)
(247.2)
24.0
(82.6)
(31.9)
(0.8)
(6.2)
(121.5)
(368.7)
407.5
2.0
151.0
(9.5)
0.6
263.4
407.5
1 April
2016
£m
362.9
107.3
—
470.2
157.9
60.7
4.2
11.9
234.7
704.9
(23.4)
—
(182.5)
(7.5)
(9.5)
(222.9)
11.8
(36.4)
(32.3)
—
(7.9)
(76.6)
(299.5)
405.4
2.0
151.0
(10.9)
3.2
260.1
405.4
The notes on pages 121 to 145 are an integral part of these consolidated financial statements.
The financial statements on pages 108 to 145 were approved by the Board of Directors on 24 May 2017 and were signed on its behalf by:
Jonny Mason
Finance Director
Company Number: 04457314
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Consolidated Statement of
Changes in Shareholders’ Equity
Attributable to the equity holders of the Company
Share
capital
£m
2.0
Share
premium
account
£m
151.0
Investment
in own
shares
£m
(13.6)
Other reserves
Capital
redemption
reserve
£m
0.3
Hedging
reserve
£m
1.3
Retained
earnings
£m
226.7
Total
equity
£m
367.7
—
—
—
—
—
—
—
—
—
—
—
—
2.0
—
—
—
—
—
—
—
—
—
—
—
—
2.0
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
2.7
—
—
—
2.7
(10.9)
—
—
—
—
—
—
—
1.4
—
—
—
1.4
(9.5)
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
63.5
63.5
4.7
(2.9)
(0.6)
0.4
1.6
1.6
—
—
—
—
—
2.9
—
14.8
(12.8)
(5.1)
0.5
(2.6)
(2.6)
—
—
—
—
—
0.3
—
—
—
—
—
63.5
—
3.0
(0.7)
(32.4)
(30.1)
260.1
4.7
(2.9)
(0.6)
0.4
1.6
65.1
2.7
3.0
(0.7)
(32.4)
(27.4)
405.4
56.4
56.4
—
—
—
—
—
56.4
—
1.0
(0.6)
(53.5)
(53.1)
263.4
14.8
(12.8)
(5.1)
0.5
(2.6)
53.8
1.4
1.0
(0.6)
(53.5)
(51.7)
407.5
Balance at 3 April 2015
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
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Balance at 1 April 2016
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
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Balance at 31 March 2017
The notes on pages 121 to 145 are an integral part of these consolidated financial statements.
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Consolidated Statement
of Cash Flows
Cash flows from operating activities
Profit after tax for the period, before non-recurring items
Non-recurring items
Profit after tax for the period
Depreciation – property, plant and equipment
Amortisation – intangible assets
Net finance costs
Loss on disposal of property, plant and equipment
Equity-settled share-based payment transactions
Fair value gain on derivative financial instruments
Income tax expense
(Increase) in inventories
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
(Decrease) in provisions
Finance income received
Finance costs paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Purchase of investment
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
Proceeds from loans, net of transaction costs
Repayment of borrowings
Payment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and bank overdrafts
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
Notes
59.5
(3.1)
56.4
21.6
10.0
2.3
0.2
1.0
(1.8)
15.0
(33.2)
2.3
14.6
(0.2)
1.5
(2.3)
(15.3)
72.1
(18.0)
(4.1)
(18.4)
(16.0)
(56.5)
1.4
297.0
(251.0)
(0.6)
(53.5)
(6.7)
8.9
(10.8)
(1.9)
64.9
(1.4)
63.5
23.8
6.3
3.0
0.4
3.0
(0.4)
16.3
(8.6)
(4.9)
2.3
(1.4)
0.1
(2.3)
(17.2)
83.9
—
—
(12.5)
(26.0)
(38.5)
2.7
219.0
(245.0)
(0.6)
(32.4)
(56.3)
(10.9)
0.1
(10.8)
I.
I.
Cash and cash equivalents at the period end consist of £16.5m (2016: £11.9m) of liquid assets and £18.4m (2016: £22.7m) of bank overdrafts.
The notes on pages 121 to 145 are an integral part of these consolidated financial statements.
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Notes to Consolidated Statement
of Cash Flows
I. Analysis of movements in the Group’s net debt in the period
Cash and cash equivalents at bank and in hand
Debt due after one year
Total net debt excluding finance leases
Finance leases due within one year
Finance lease due after one year
Total finance leases
Total net debt
At
1 April
2016
£m
(10.8)
(25.4)
(36.2)
(0.7)
(11.0)
(11.7)
(47.9)
Cash
flow
£m
8.9
(46.0)
(37.1)
0.6
—
0.6
(36.5)
Other
non-cash
changes
£m
—
(0.6)
(0.6)
(1.3)
0.4
(0.9)
(1.5)
At
31 March
2017
£m
(1.9)
(72.0)
(73.9)
(1.4)
(10.6)
(12.0)
(85.9)
Non-cash changes include finance costs in relation to the amortisation of capitalised debt issue costs of £0.7m (2016: £0.7m) and changes in
classification between amounts due within and after one year.
Cash and cash equivalents at the period end consist of £16.5m (2016: £11.9m) of liquid assets and £18.4m (2016: £22.7m) of bank overdrafts.
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Accounting Policies
General Information
Halfords Group plc is a company domiciled in the United Kingdom. The consolidated financial statements of the Company as at and for the
period ended 31 March 2017 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 56, 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 31 March 2017, whilst the comparative period covered the 52 weeks to 1 April 2016.
Basis of Consolidation
Subsidiary Undertakings
A subsidiary investment is an entity controlled by Halfords. Control is achieved when Halfords is exposed, or has rights to variable returns from
its involvement with the investee and has the ability to affect those returns through its power, directly or indirectly, over the investee.
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 subsidiary undertakings of the Company at 31 March 2017 are detailed in note 4 to the Company balance sheet on page 143.
Business Combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the
fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquiree. Acquisition related costs are recognised as expenses in the period in which the costs are incurred.
The identifiable assets, liabilities and contingent liabilities of the acquired entity that meet the conditions for recognition under IFRS 3
‘Business Combinations’ are recognised at their fair value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after
reassessment, the Group’s interest in the net fair value of these elements exceeds the cost of the business combination, the excess is
recognised immediately in the income statement.
Revenue Recognition
Retail
Retail revenue comprises the fair value of the sale of goods and services to external customers, net of value added tax, rebates, promotions
and returns. Revenue is recognised on the sale of goods when the significant risks and rewards of ownership of the goods have passed to the
buyer and the amount of revenue can be measured reliably. Revenue on goods delivered is recognised when the customer accepts delivery
and on services when those services have been rendered.
Car Servicing
Car Servicing revenue comprises the provision of servicing to external customers, net of value added tax, rebates and promotions. Revenue is
recognised at the point at which those services have been rendered.
Promotions and Returns
The Group operates a variety of sales promotion schemes that give rise to goods and services being sold at a discount to standard retail
price. Revenue is adjusted to show sales net of all related discounts. A provision for estimated returns is made representing the profit on
goods sold during the year which are expected to be returned and refunded after the year end based on past experience. Revenue is reduced
by the value of sales returns provided for during the year.
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Finance income
Finance income comprises interest income on funds invested. Income is recognised, as it accrues in profit or loss, using the effective interest
rate method.
Non-recurring Items
Non-recurring items are those items that are unusual because of their size, nature or incidence. The Group’s management consider that these
items should be separately identified within their relevant income statement category to enable a full understanding of the Group’s results.
Earnings Per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or
loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period,
adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which
comprise share options granted to employees.
The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-recurring items. A reconciliation
of this alternative measure to the statutory measure required by IFRS is given in note 9.
Foreign Currency Translation
Functional and Presentation Currency
The consolidated financial statements are presented in pounds sterling, which is the Group’s presentation currency and are rounded to the
nearest hundred thousand, except where it is deemed relevant to disclose the amounts to the nearest pound. Items included in the financial
statements of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the
functional currency).
Transactions and Balances
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date,
monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date.
Translation differences on monetary items are taken to the income statement with the exception of differences on transactions that are
subject to effective cash flow hedges, which are recognised in other comprehensive income.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated at the exchange rate
at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for
differences arising on qualifying cash flow hedges, which are recognised in other comprehensive income.
The assets and liabilities of foreign operations are translated to sterling at the exchange rate at the reporting date. The income and
expenses of foreign operations are translated to sterling at an average exchange rate. Foreign currency differences are recognised in other
comprehensive income and a separate component of equity. When a foreign operation is disposed of, the relevant amount in equity is
transferred to profit or loss.
Employee Benefits
i) Pensions
The Halfords Pension Plan is a contract-based plan, where each member has their own individual pension policy, which they monitor
independently. The Group pays fixed contributions and has no legal or constructive obligation to pay further amounts. The costs of
contributions to the scheme are charged to the income statement in the period that they arise.
ii) Share-based Payment Transactions
The Group operates a number of equity-settled share-based compensation plans.
The fair value of the employee services received under such schemes is recognised as an expense in the income statement. Fair values are
determined by use of an appropriate pricing model and incorporate an assessment of relevant market performance conditions.
The amount to be expensed over the vesting period is adjusted to reflect the number of awards for which the related service and non-market
vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that
meet the related service and non-market performance conditions at the vesting date.
At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the
revision of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity.
Taxation
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that
it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted, at the reporting date, and any adjustment to tax payable in respect of previous years.
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Accounting Policies
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an
entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its
carrying amount.
The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future
periods. In the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the
revenue that will not be taxable in future periods.
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of an
asset or liability in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable
profit or loss, it is not accounted for. Deferred taxation is calculated using rates that are expected to apply when the related deferred asset is
realised or the deferred taxation liability is settled.
Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Dividends
Final dividends are recognised in the Group’s financial statements in the period in which the dividends are approved by shareholders. Interim
equity dividends are recognised in the period they are paid.
Intangible Assets
i) Goodwill
Goodwill is initially recognised as an asset at cost and is reviewed for impairment at least annually. Goodwill is subsequently measured at cost
less any accumulated impairment losses. An impairment charge is recognised in profit or loss for any amount by which the carrying value of
goodwill exceeds its recoverable amount.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the
synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired.
For acquisitions prior to 3 April 2010 costs directly attributable to business combinations formed part of the consideration payable when
calculating goodwill. Adjustments to contingent consideration, and therefore the consideration payable and goodwill, are made at each
reporting date until the consideration is finally determined.
Acquisitions after this date fall under the provisions of ‘Revised IFRS 3 Business Combinations (2009)’. For these acquisitions transaction
costs, other than share and debt issue costs, will be expensed as incurred and subsequent adjustments to the fair value of consideration
payable will be recognised in profit or loss.
ii) Computer Software
Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will generate economic
benefits beyond one year are recognised as intangible assets. These intangible assets are stated at cost less accumulated amortisation and
impairment losses. Software is amortised over three to five years depending on the estimated useful economic life.
iii) Acquired Intangible Assets
Intangible assets that are acquired as a result of a business combination are recorded at fair value at the acquisition date, provided they are
identifiable and capable of reliable measurement.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill,
from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic
benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:
• Brand names and trademarks 2 years in respect of Autocentres, 10 years in respect of Boardman and 15 years in respect of Tredz
and Wheelies;
• Supplier relationships 10 to 15 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.
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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.
Leases
Finance Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the
minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element
of the rental is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. The benefit
of incentives from lessors are recognised on a straight-line basis over the term of the lease.
Landlord Surrender Premiums
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 a finance cost.
Details of the provisions recognised and the significant estimates and judgements can be seen in note 19.
Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset when the reimbursement
is certain.
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Accounting Policies
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 quantum and/or timing of the
amounts payable, and the time value of money has been incorporated into the provision amount to take account of this sensitivity.
Provision is also made for onerous contracts in loss-making stores and Autocentres which management do not expect to become profitable.
A rent review provision is recognised when there is expected to be additional obligations as a result of rent reviews where the review date
has passed and the review has not yet concluded. This forms part of the Group’s unavoidable cost of meeting its obligations under the lease
contracts. The provision is based on management’s best estimate of the rent payable after the review. Key uncertainties are the estimate of
the rent payable after the review has occurred.
A dilapidations provision is recognised when there is future obligation relating to the maintenance of leasehold properties. The provision is
based on management’s 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.
Provisions for employer and product liability claims are recognised when an incident occurs or when a claim made against the Group is
received that could lead to there being an outflow of benefits from the Group. The provision is based on management’s best estimate of
the settlement assisted by an external third party. The main uncertainty is the likelihood of success of the claimant and hence the pay-out;
however, a provision is only recognised where there is considered to be reasonable grounds for the claim.
Financial Instruments
Financial Assets
The Group’s financial assets include cash and cash equivalents, investments and trade and other receivables. All financial assets are
recognised when the Group becomes party to the contractual provisions of the instrument.
i) Trade receivables
Trade receivables are recognised and carried at original invoice amount less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. The amount of the provision is determined as the difference between the asset’s
carrying amount and the present value of estimated future cash flows, and is recognised in the income statement in operating expenses.
ii) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank
overdrafts in addition to the definition above.
iii) Investments
Investments are recognised and carried at cost less any provision for impairment.
Financial Liabilities and Equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
The Group’s financial liabilities comprise trade and other payables and borrowings. All financial liabilities are recognised initially at their fair
value and subsequently measured at amortised cost using the effective interest method.
i) Bank borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the
borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the
redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Finance cost comprises interest expense on borrowings, unwinding of the discount on provisions and the cost of forward foreign exchange
contracts.
ii) Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.
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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:
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.
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.
Impairment of Assets
Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that
their recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows,
which includes management assumptions and estimates of future performance. Details of the assumptions used in the impairment review of
goodwill and other assets are explained in note 11.
The carrying amount of these assets and liabilities can be seen in the notes to the financial statements on pages 121 to 145.
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Accounting Policies
Adoption of new and revised standards
The following standards and interpretations were adopted in the current period as they were mandatory for the year ended 31 March 2017,
but either had no material impact on the result or net assets of the Group or were not applicable.
•
•
•
•
IAS 1 ‘Presentation of financial statements’ - amendments relating to the Disclosure Initiative.
IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ - amendments relating to clarification of acceptable methods of
depreciation and amortisation.
IAS 27 ‘Separate financial statements’ - amendments relating to Equity method in separate financial statements.
IFRS 11 ‘Joint arrangements’ - amendments relating to acquisitions of interests in joint operations.
• Annual improvements to IFRS 2012–2014 Cycle.
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 9 ‘Financial instruments’ – finalised version, incorporating requirements for classification and measurement, impairment, general
hedge accounting and derecognition.
•
IFRS 15 ‘Revenue from contracts with customers’ – new standard and amendments.
The following standards and interpretations have been published but not yet endorsed by the EU. The Group does not believe the adoption of
these standards or interpretations would have a material impact on the consolidated results or financial position of the Group.
•
•
•
•
•
•
IAS 7 ’Statement of cash flows’ – amendments relating to the Disclosure Initiative.
IAS 12 ‘Income taxes’ – amendments relating to recognition of deferred tax assets for unrealised losses.
IAS 40 ‘Investment property’ - amendment relating to transfers of investment property.
IFRS 2 ‘Share based payment’ - amendment relating to classification and measurement of share-based payment transactions.
IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ - amendments relating to sale or
contribution of assets between an investor and its associate or joint venture.
IFRS 17 ‘Insurance contracts’ - new standard requiring insurance liabilities to be measured at a current fulfilment value and providing a
more uniform measurement and presentation approach for all insurance contracts.
•
IFRIC 22 ‘Foreign currency transactions and advance consideration’.
• Annual improvements to IFRS 2014–2016 Cycle.
In addition the above, IFRS 16 ‘Leases’ has been published but not yet endorsed by the EU. Given that all operating leases with a contract
life over 12 months will be treated in much the same way as a finance lease on balance sheet, the Group is currently undertaking an impact
assessment of the likely effect on the consolidated results and financial position of the Group, as it is not yet practicable to quantify the effect
of IFRS 16 on these consolidated financial statements.
120
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
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 believe
that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.
The following summary describes the operations in each of the Group’s reportable segments. Performance is measured based on segment
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
938.4
76.8
(3.1)
73.7
Car
Servicing
£m
156.6
2.2
(0.3)
1.9
Retail
£m
868.5
81.8
(1.2)
80.6
Car
Servicing
£m
153.0
3.8
(0.5)
3.3
52 weeks to
31 March
2017
Total
£m
1,095.0
79.0
(3.4)
75.6
(1.9)
73.7
(2.3)
71.4
(15.0)
56.4
52 weeks to
1 April
2016
Total
£m
1,021.5
85.6
(1.7)
83.9
(1.1)
82.8
(3.0)
79.8
(16.3)
63.5
1. Unallocated expenses have been disclosed to reflect the format of the internal management reports reviewed by the Chief Operating Decision Maker and
include an amortisation charge of £1.9m in respect of assets acquired through business combinations (2016: £1.1m).
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Notes to the Financial Statements
1. Operating Segments continued
Other segment items:
Capital expenditure
Depreciation expense
Amortisation expense
Other segment items:
Capital expenditure
Depreciation expense
Amortisation expense
52 weeks to
31 March
2017
Total
£m
36.1
21.6
8.1
52 weeks to
1 April
2016
Total
£m
40.3
23.8
5.2
Car
Servicing
£m
6.6
5.1
0.2
Car
Servicing
£m
8.2
4.7
—
Retail
£m
29.5
16.5
7.9
Retail
£m
32.1
19.1
5.2
There have been no significant transactions between segments in the 52 weeks ended 31 March 2017 (2016: £nil).
2. Operating Expenses
For the period
Selling and distribution costs
Administrative expenses, before non-recurring items
Non-recurring administrative expenses
3. Operating Profit
For the period
Operating profit is arrived at after charging/(crediting) the following expenses/(incomes) as categorised
by nature:
Operating lease rentals:
— plant and machinery
— property rents
— rentals receivable under operating leases
Landlord surrender premiums
Loss on disposal of property, plant and equipment
Amortisation of intangible assets
Depreciation of:
— owned property, plant and equipment
— assets held under finance leases
Trade receivables impairment
Staff costs (see note 4)
Cost of inventories consumed in cost of sales
52 weeks to
31 March
2017
£m
401.5
401.5
80.0
3.4
83.4
484.9
52 weeks to
1 April
2016
£m
385.7
385.7
72.9
1.7
74.6
460.3
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
2.0
91.7
(3.8)
(1.9)
0.2
10.0
20.8
0.8
0.1
219.7
524.7
2.8
89.6
(3.5)
(2.7)
0.4
6.3
23.0
0.8
0.2
206.4
472.8
122
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
3. Operating Profit continued
The total fees payable by the Group to KPMG LLP and their associates during the period was £0.4m (2016: £0.2m), 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 in respect of:
The audit of the Company’s subsidiary undertakings, pursuant to legislation
Audit-related assurance services
Other assurance services
All other services
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 23)
Contributions to defined contribution plans (note 25)
Average number of persons employed by the Group, including Directors, during the period:
Stores/Autocentres
Central warehousing
Support Centre
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
31 March
2017
£’000
30
52 weeks to
1 April
2016
£’000
30
205
15
75
75
400
144
15
—
—
189
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
195.5
16.3
1.0
6.9
219.7
183.3
14.4
3.0
5.7
206.4
Number
Number
9,729
527
945
11,201
9,869
382
785
11,036
52 weeks to
31 March
2017
£m
4.5
0.2
0.8
0.4
0.4
6.3
52 weeks to
1 April
2016
£m
4.9
0.1
0.8
0.4
1.5
7.7
Key management compensation includes the emoluments of the Board of Directors and the emoluments of the Halfords Limited and Halfords
Autocentres management boards.
Directors’ remuneration
For the period
Remuneration
52 weeks to
31 March
2017
£m
1.3
1.3
52 weeks to
1 April
2016
£m
1.4
1.4
Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 78 to 97 which form part of
these financial statements
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Notes to the Financial Statements
5. Non-recurring Items
For the period
Non-recurring operating expenses:
Acquisition and investment related fees (a)
Organisational Restructure Costs (b)
Operating lease obligation (c)
Costs in relation to a historic legal case (d)
Non-recurring operating expenditure
Acquisition related interest charge (e)
Non-recurring items before tax
Tax on non-recurring items (f)
Non-recurring items after tax
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
1.7
0.6
0.3
0.8
3.4
0.6
4.0
(0.9)
3.1
—
1.7
—
—
1.7
—
1.7
(0.3)
1.4
(a) Acquisition costs relate to the costs associated with purchase of the share capital of Tredz Limited and Wheelies Direct Limited during the
period, and the investment in Tyres on the Drive.
(b) Organisational restructuring was undertaken across Autocentres and Retail during the current and prior years, to better align resource to
the requirements of the business. This resulted in a non-recurring redundancy expense of £0.6m (2016: £1.7m). These restructure costs
relate to changes in operating structures which are not expected to be repeated.
(c) The operating lease obligation relates to rectification work to one of the Group’s retail stores, which was required to make good an area of
land upon which the store is located. The rectification work required was unique to the specific site and similar expense is not expected in
the future.
(d) During the year the Group settled a court case which related to activities during FY12. The size and historic nature of the settlement was
outside the normal experience of the Group.
(e) The acquisition related interest charge reflects the unwinding of the discounting applied to the contingent consideration due on the
acquisition of Tredz Limited.
(f) The tax credit of £0.9m represents a tax rate of 20% applied to non-recurring items. The prior period represents a tax credit at 20% applied
to non-recurring items.
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
Acquisition related interest charges
Interest payable on finance leases
Finance costs
Finance income:
Bank and similar interest
Income from forward foreign exchange contracts
Finance income
Net finance costs
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
(1.1)
(0.7)
(0.6)
—
(0.6)
(0.8)
(3.8)
0.1
1.4
1.5
(2.3)
(0.9)
(0.7)
(0.6)
(0.1)
—
(0.8)
(3.1)
0.1
—
0.1
(3.0)
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
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
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 20% (2016: 20%)
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
31 March
2017
£m
52 weeks to
1 April
2016
£m
16.1
(0.3)
15.8
(0.4)
(0.4)
(0.8)
15.0
13.1
—
13.1
3.1
0.1
3.2
16.3
52 weeks to
31 March
2017
£m
71.4
14.3
52 weeks to
1 April
2016
£m
79.8
16.0
1.7
—
0.3
(0.7)
(0.4)
(0.2)
15.0
1.1
(0.4)
(0.3)
0.1
(0.4)
0.2
16.3
The UK corporation tax rate reduced from 21% to 20% (effective 1 April 2015) and will be further reduced to 19% (effective from 1 April
2017) and 17% (effective from 1 April 2020) following changes substantively enacted on 26 October 2015. This will reduce the Company’s
future current tax charge accordingly. The deferred tax liability at 31 March 2017 has been calculated based on the rate of 17% substantively
enacted at the balance sheet date.
In the Chancellor’s March 2016 budget he announced plans to further reduce the corporation tax rate to 17% from 1 April 2020: however,
during this financial period, the UK corporation tax rate was 20% (2016: 20%).
The effective tax rate of 21.0% (2016: 20.5%) is higher than the UK corporation tax rate principally due to the non-deductibility of depreciation
charged on capital expenditure and non-deductible amortisation of intangible assets.
The tax charge for the period was £14.9m (2016: £16.3m), including a £0.9m credit (2016: £0.3m credit) in respect of tax on non-recurring
items.
An income tax credit of £0.5m (2016: £0.4m credit) on other comprehensive income relates to the movement in fair valuing forward currency
contracts outstanding at the year end. No other items within other comprehensive income have a tax impact.
In addition to the above, a £0.6m current tax debit (2016: £0.7m credit) and a £0.6m deferred tax credit (2016: £1.4m debit) is recognised in
reserves in relation to employee share options.
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 Company is fully committed to complying with all of its tax payment and
reporting obligations.
In this period, the Group’s contribution from both taxes paid and collected exceeded £160m (2016: £150m) with the main taxes including
corporation tax £15.3m (2016: £17.2m), net VAT £59.0m (2016: £50.2m), Employment taxes of £48.3m (2016: £45.3m) and business rates
£37.3m (2016: £36.9m).
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Notes to the Financial Statements
8. Dividends
For the period
Equity – ordinary shares
Final for the 52 weeks to 1 April 2016 – paid 11.34p per share (2016: 11.00p)
Interim for the 52 weeks to 31 March 2017 – paid 5.83p per share (2016: 5.66p)
Special dividend – paid 10.00p per share (2016: nil)
52 weeks to
31 March
2017
£m
52 weeks to
1 April
2016
£m
22.3
11.5
19.7
53.5
21.4
11.0
—
32.4
In addition, the Directors are proposing a final dividend in respect of the financial period ended 31 March 2017 of 11.68p per share (2016:
11.34p per share), which will absorb an estimated £22.9m (2016: £22.3m) of shareholders’ funds. It will be paid on 25 August 2017 to
shareholders who are on the register of members on 4 August 2017.
9. Earnings Per Share
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period. The weighted average number of shares excludes shares held by an Employee Benefit Trust (see
note 23) 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 31 March 2017.
The Group has also chosen to present an alternative earnings per share measure, underlying earnings per share, with profit adjusted for non-
recurring items because it better reflects the Group’s underlying performance. This measure is defined on page 18.
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
Finance costs
Tax on non-recurring items
Underlying earnings before non-recurring items
Earnings per share is calculated as follows:
For the period
Basic earnings per ordinary share
Diluted earnings per ordinary share
Basic underlying earnings per ordinary share
Diluted underlying earnings per ordinary share
52 weeks to
31 March
2017
Number of
shares
m
199.1
(2.5)
196.6
0.5
197.1
52 weeks to
1 April
2016
Number of
shares
m
199.1
(3.9)
195.2
1.1
196.3
52 weeks to
31 March
2017
£m
56.4
52 weeks to
1 April
2016
£m
63.5
3.4
0.6
(0.9)
59.5
1.7
—
(0.3)
64.9
52 weeks to
31 March
2017
28.7p
28.6p
30.3p
30.2p
52 weeks to
1 April
2016
32.5p
32.4p
33.2p
33.0p
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
10. Acquisition of Subsidiaries
On 23 May 2016 the Group acquired 100% of the issued share capital of Tredz Limited and Wheelies Direct Limited for initial cash
consideration of £19.2m (excluding transaction costs). The acquired business comprises an online retailer of premium bikes and cycling parts,
accessories and clothing, which trades UK-wide under the brand Tredz, and the UK’s largest provider of bicycle replacement for insurance
companies which trades under the brand Wheelies. The transaction has been accounted for using the acquisition method of accounting.
Contingent Consideration
In addition to the initial consideration, a liability of £5.5m was recognised at fair value in respect of contingent consideration due to the
previous shareholders. The contingent consideration is dependent upon the performance of Tredz for the year ended 28 February 2017. The
range of possible payments under the contingent arrangement is £nil to £12.5m.
The acquisition had the following impact on the Group’s assets and liabilities:
Book value
£m
Fair value
adjustment
£m
Final fair
value
£m
Tredz and Wheelies net assets at the acquisition date
Intangible assets and goodwill
Tangible assets
Inventories
Trade and other receivables
Cash
Trade and other payables
Borrowings
Current tax liabilities
Deferred tax liability
Total
Goodwill
Goodwill was recognised as a result of the acquisition as follows:
Total consideration
Less fair value of identifiable assets
Goodwill and intangible assets
Intangible Assets:
Supplier relationships
Tredz and Wheelies Brand Names
Computer Software
Deferred tax liability
Goodwill
0.8
1.3
5.7
1.8
1.2
(6.1)
(0.3)
(0.2)
(0.2)
4.0
(0.8)
(0.1)
(0.1)
—
—
—
—
—
—
(1.0)
—
1.2
5.6
1.8
1.2
(6.1)
(0.3)
(0.2)
(0.2)
3.0
£m
23.9
(3.0)
20.9
7.8
5.6
0.5
(2.5)
9.5
None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill relates to the assembled workforce of Tredz
and Wheelies and future expansion and growth opportunities.
The Tredz and Wheelies businesses contributed £36.7m revenue and a profit of £1.8m to the Group’s profit before tax for the period between
the date of acquisition and the balance sheet date.
If the acquisition of the Tredz and Wheelies businesses had been completed on the first day of the financial year, Group revenues for the
period would have been £6.7m higher and Group profit before tax of the parent would have been £0.5m higher (before amortisation of
intangible assets arising on consolidation).
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Notes to the Financial Statements
11. Intangible Assets
Cost
At 3 April 2015
Additions
Disposals
At 1 April 2016
Additions
Disposals
At 31 March 2017
Amortisation
At 3 April 2015
Charge for the period
At 1 April 2016
Charge for the period
At 31 March 2017
Net book value at 31 March 2017
Net book value at 1 April 2016
Brand
names and
trademarks
£m
Customer
relationships
£m
Supplier
relationships
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
4.2
—
—
4.2
5.6
—
9.8
1.3
0.3
1.6
0.6
2.2
7.6
2.6
14.9
—
—
14.9
—
—
14.9
8.5
0.7
9.2
0.7
9.9
5.0
5.7
—
—
—
—
7.8
—
7.8
—
—
—
0.4
0.4
7.4
—
2.3
—
—
2.3
—
—
2.3
0.4
0.1
0.5
0.1
0.6
1.7
1.8
25.1
12.5
(0.1)
37.5
18.3
—
55.8
13.0
5.2
18.2
8.2
26.4
29.4
19.3
355.2
—
—
355.2
9.5
—
364.7
21.7
—
21.7
—
21.7
343.0
333.5
Total
£m
401.7
12.5
(0.1)
414.1
41.2
—
455.3
44.9
6.3
51.2
10.0
61.2
394.1
362.9
No intangible assets are held as security for external borrowings.
Product rights of £0.2m, which are fully amortised, have been included within Brand names and trademarks.
Goodwill of £253.1m (2016: £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 being Retail. 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. Goodwill of £10.7m arose on the acquisition of Boardman Bikes Limited
and Boardman International Limited on 4 June 2014 and is allocated to the Retail segment. The goodwill relates to the two Boardman entities
which management monitors on an overall basis as part of the Retail cash-generating unit. Goodwill of £9.5m arose on the acquisition of Tredz
Limited and Wheelies Direct Limited on 23 May 2016 and is allocated to the Retail segment. The goodwill relates to the two entities which
management monitors on an overall basis as part of the Retail cash-generating unit.
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 goodwill on acquisition of the Boardman Bikes is attributable to a) operating synergies and increased control of operations, b) the value
of immaterial other intangible assets, and c) future income to be generated from new retail customer contracts and related relationships. The
goodwill on acquisition of Tredz and Wheelies is attributable to a) assembled workforce and b) future expansion and growth opportunities.
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.
The value-in-use of the goodwill held at 31 March 2017 and 1 April 2016 is driven by, and is most sensitive to, the key assumptions underlying
the recoverable amounts of the Group cash-generating units, which are the discount rate and growth rate.
Cash flow projections are based on financial budgets approved by management covering a three to five-year period and after consideration
of all available information, incorporating the strategies and risks of each segment. The growth rates used beyond the range of the budgets
are shown on the next page. Given the maturity of the Retail business, no growth rate has been assumed beyond the budget period.
The discount rate is a pre-tax rate that reflects the current market assessment of the time value of money and the risks specific to the cash-
generating units. The pre-tax discount rates used to calculate value in use are derived from the Group’s post-tax weighted average cost of
capital, as adjusted for the specific risks relating to each cash-generating unit. The discount rates used are shown on the next page.
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11. Intangible Assets continued
Discount rate
Growth rate
Notes:
1. Pre-tax discount rate applied to the cash flow projections.
2. Growth rate used to extrapolate cash flows beyond the budget period.
Retail
Car Servicing
Note
1
2
2017
7.3%
0.0%
2016
8.5%
0.0%
2017
7.3%
1.0%
2016
7.7%
1.0%
Sensitivity analysis on the key assumptions in the value-in-use calculations has been undertaken, which found that there is a more than
adequate amount of headroom before an impairment would be triggered. 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.
Overall, the directors have concluded that the recoverable amount of the Group’s CGUs exceeded their carrying amount.
12. Tangible Assets
Cost
At 3 April 2015
Additions
Disposals
At 1 April 2016
Additions
Disposals
At 31 March 2017
Depreciation
At 3 April 2015
Depreciation for the period
Disposals
At 1 April 2016
Depreciation for the period
Disposals
At 31 March 2017
Net book value at 31 March 2017
Net book value at 1 April 2016
No fixed assets are held as security for external borrowings.
Included in the above are assets held under finance leases as follows:
As at 31 March 2017
Cost
Additions
Accumulated depreciation
Net book value
As at 1 April 2016
Cost
Additions
Accumulated depreciation
Net book value
1. Relates to the Halfords support centre building lease, which expires in 2028.
Fixtures,
fittings
and
equipment
£m
Payments on
account and
assets in
course of
construction
£m
Land and
buildings
£m
67.3
6.6
(1.0)
72.9
5.0
(0.6)
77.3
34.6
4.3
(0.9)
38.0
4.8
(0.5)
42.3
35.0
34.9
185.9
21.2
(1.9)
205.2
12.5
(2.6)
215.1
114.8
19.5
(1.5)
132.8
16.8
(2.1)
147.5
67.6
72.4
—
—
—
—
0.2
—
0.2
—
—
—
—
—
—
—
0.2
—
Land and
buildings1
£m
Fixtures,
fittings, and
equipment
£m
12.7
—
(6.6)
6.1
12.7
—
(6.1)
6.6
2.5
0.5
(1.4)
1.6
1.4
1.1
(1.1)
1.4
Total
£m
253.2
27.8
(2.9)
278.1
17.7
(3.2)
292.6
149.4
23.8
(2.4)
170.8
21.6
(2.6)
189.8
102.8
107.3
Total
£m
15.2
0.5
(8.0)
7.7
14.1
1.1
(7.2)
8.0
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Notes to the Financial Statements
12. Tangible Assets continued
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
13. Investments
Available – for sale investments
carried at cost
Shares
Minimum
lease
payments
2017
£m
2.2
7.0
7.4
16.6
Interest
2017
£m
0.8
2.4
1.4
4.6
Principal
2017
£m
1.4
4.6
6.0
12.0
Minimum
lease
payments
2016
£m
1.4
6.1
9.1
16.6
Interest
2016
£m
0.7
2.4
1.8
4.9
Principal
2016
£m
0.7
3.7
7.3
11.7
Non-current
2017
£m
8.1
8.1
2016
£m
—
—
During the year the Group acquired a minority stake in an automotive related business, Tyres On The Drive. The investment is payable in
instalments, and comprises an initial cash consideration of £4.1m for the first tranche of shares, with a further £4.0m subject to performance
conditions being met for the second tranche of shares. The full £8.1m has been recognised as an investment, with a liability recognised for the
second instalment.
14. Inventories
Finished goods for resale
2017
£m
191.1
2016
£m
157.9
Finished goods inventories include £17.5m (2016: £15.7m) 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 £9.3m was recognised as an expense in respect of the write-down of inventories (2016: £5.1m) to net realisable value. No
inventories are held as security for external borrowings.
15. 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
2017
£m
20.0
(0.4)
19.6
8.9
29.9
58.4
2016
£m
17.9
(0.5)
17.4
9.3
34.0
60.7
During the period the Group charged the provision with £0.1m (2016: £0.2m) for the impairment of trade receivables and utilised £0.2m
(2016: £0.1m).
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15. Trade and Other Receivables continued
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
2017
£m
16.2
1.8
1.3
0.9
0.7
20.9
2016
£m
15.4
2.6
1.2
1.0
0.5
20.7
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 £1.3m (2016: £3.3m) of other receivables.
16. Cash and Cash Equivalents
Cash at bank and in hand
2017
£m
16.5
2016
£m
11.9
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of certain
other Group companies.
17. Borrowings
Current
Unsecured bank overdraft
Finance lease liabilities
Non-current
Unsecured bank loan and other borrowings1
Finance lease liabilities
2017
£m
18.4
1.4
19.8
72.0
10.6
82.6
2016
£m
22.7
0.7
23.4
25.4
11.0
36.4
1. The above borrowings are stated net of unamortised issue costs of £1.0m (2016: £1.6m).
The Group’s current debt facility came into effect from 14 November 2014 and is a five-year £170m revolving credit facility starting from
that date. The facility carries an interest rate of LIBOR plus a margin which is variable based on the gearing measures as set out in the facility
covenant certificate and which is currently 125 basis points. Both utilisation and non-utilisation fees are also applicable being charged when
utilisation 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
2017
£m
20.0
—
77.0
97.0
2016
£m
20.0
—
123.0
143.0
The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £97.0m
(2016: £143.0m) relates to the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.
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Notes to the Financial Statements
18. 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
19. Provisions
At 1 April 2016
Charged during the period
Utilised during the period
Released during the period
At 31 March 2017
Analysed as:
Current liabilities
Non-current liabilities
2017
£m
110.7
25.1
20.9
4.3
45.2
206.2
2016
£m
98.7
23.8
11.1
4.5
44.4
182.5
31.9
32.3
Property
related
£m
8.7
0.5
—
(0.2)
9.0
7.1
1.9
Other
trading
£m
8.7
2.1
(2.6)
—
8.2
3.9
4.3
Total
£m
17.4
2.6
(2.6)
(0.2)
17.2
11.0
6.2
Property related provisions consist of costs associated with vacant property, rent reviews and dilapidations. Also included are liabilities in
respect of previous assignments of leases where the lessee has entered into administration.
Other trading provisions comprise a sales returns provision and a provision for the costs associated with the cessation of the standalone
cycle concept ‘BikeHut’, including closure of stores where necessary, an employer/product liability provision and provision for unused gift
vouchers in issue.
20. 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 3 April 2015
Credit/(charge) to the income statement
Credit to other comprehensive income
Charge to equity
At 1 April 2016
Credit/(charge) to the income statement
Credit to other comprehensive income
Acquisition of subsidiary
Credit to equity
At 31 March 2017
Property
related
items
£m
1.0
0.5
—
—
1.5
3.5
—
—
—
5.0
Short-term
timing
differences
£m
3.5
(4.0)
0.4
—
(0.1)
(2.2)
0.5
(2.7)
—
(4.5)
Share-based
payments
£m
2.0
—
—
(1.4)
0.6
—
—
—
0.6
1.2
Intangible
assets
£m
(2.4)
0.4
—
—
(2.0)
(0.5)
—
—
—
(2.5)
Total
£m
4.1
(3.1)
0.4
(1.4)
—
0.8
0.5
(2.7)
0.6
(0.8)
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20. Deferred Tax continued
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:
31 March
2017
£m
6.2
(7.0)
(0.8)
1 April
2016
£m
2.1
(2.1)
—
Deferred tax assets
Deferred tax liabilities
21. 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 (“CFO”). The CFO 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 17.
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 £0.4m (2016: £0.4m).
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 a debt ratio, which is calculated as the ratio of net debt to Underlying EBITDA. This was 0.8:1 in
2017 (2016: 0.4:1).
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Notes to the Financial Statements
21. Financial Instruments and Related Disclosures continued
Fair Value Disclosures
The fair values of each class of financial assets and liabilities is the carrying amount, based on the following assumptions:
Trade receivables, trade payables and finance lease obligations,
short-term deposits and borrowings
Long-term borrowings
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.
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
Unsecured bank overdraft
Finance leases
Total financial liabilities
2017
£m
16.5
20.9
3.7
41.1
(178.4)
(73.1)
(18.4)
(12.0)
(281.9)
2016
£m
11.9
20.7
4.2
36.8
(154.2)
(27.0)
(22.7)
(11.7)
(215.6)
Trade and other payables within the scope of IAS 39 include all trade payables, all other payables and £46.0m (2016: £44.4m) 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 £41.1m (2016: £36.8m) 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 31 March 2017, 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 24-month basis. Hedging is performed through the use of foreign
currency bank accounts and forward foreign exchange contracts.
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21. Financial Instruments and Related Disclosures continued
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
31 March 2017
1 April 2016
USD
£m
4.3
(27.0)
(22.7)
Other
£m
0.2
(0.8)
(0.6)
USD
£m
2.3
(19.4)
(17.1)
Other
£m
(1.1)
(0.4)
(1.5)
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
2017
Increase/
(decrease)
in equity
£m
18.3
(14.9)
2016
Increase/
(decrease)
in equity
£m
10.2
(8.4)
A strengthening/weakening of Sterling, as indicated, against the USD at 31 March 2017 would have (decreased)/ increased 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.
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 £140m of the £170m available facility, to
include the Overdraft Facility of £20m.
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 amend and
extend agreement (November 2014). At the year-end the banks within the banking 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 Group banking agent. There have been no breaches of covenants
during the reported periods.
The contractual maturities of finance leases are disclosed in note 12. 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
31 March
2017
Bank
borrowings
£m
1.1
1.1
73.7
—
75.9
72.0
1 April
2016
Bank
borrowings
£m
1.1
1.1
28.9
—
31.1
25.4
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Notes to the Financial Statements
21. 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 31 March 2017 (1 April 2016).
Due less than one year
Due between 1 and 2 years
Contractual cash flows
Fair value
2017
2016
Receivables
£m
171.3
17.5
188.8
5.2
Payables
£m
(167.8)
(17.3)
(185.1)
(1.5)
Receivables
£m
89.9
8.3
98.2
4.2
Payables
£m
(85.8)
(8.2)
(94.0)
—
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
22. Capital and Reserves
Ordinary shares of 1p each
Allotted, called up and fully paid
2017
Number of
shares
199,116,632
2017
£000
1,991
2016
Number of
shares
199,116,632
2016
£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 the Company has not changed its share capital but during the prior period it increased by 53,410 shares, following
the issue of shares in relation to the exercise of options under the Company’s Sharesave Scheme. There was no significant impact on share
premium as a result of the transaction, which has remained at £151.0m (2016: £151.0m).
In total the Company received proceeds of £1.4m (2016: £2.7m) from the exercise of share options.
Investment in Own Shares
At 31 March 2017 the Company held in Trust 2,097,863 (2016: 2,984,289) of its own shares with a nominal value of £20,979 (2016: £29,843).
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 31 March 2017 was £7.4m (2016: £11.7m). In the current period nil (2016: nil) were repurchased and transferred into the
Trust, with 886,426 (2016: 1,761,344) 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.
23. Share-based Payments
The Group has three share award plans, all of which are equity–settled schemes. The Group Income Statement charge recognised in respect
of share-based payments for the current period is £1.0m (2016: £3.0m).
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 before August 2013 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.
Changes to the performance criteria of the CSOS scheme in relation to the awards granted from August 2013 onwards were made by the
Remuneration Committee. These changes were made in order to create better alignment with Group’s three-year strategic priorities following
the Moving Up A Gear programme. The awards are dependent on EBITDA performance and are only exercisable if EBITDA growth exceeds a
compound annual growth rate of 2.5% over the three-year performance period, or a total growth rate of 8.4%. 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.
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23. Share-based Payments continued
2. Halfords Sharesave Scheme
The SAYE is open to all employees with eligible employment service. Options may be exercised under the scheme if the option holder
completes their 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 2011, 2012 and 2013 under the Performance Share Plan earned final
dividends of 9.1p per share and were reinvested in shares at a cost of £4.82 per share. Shares awarded in 2012, 2013 and 2014 under the PSP
earned interim dividends of 5.5p per share and were reinvested in shares at a cost of £4.59 per share.
Changes to the performance criteria of the PSP in relation to the awards granted during 2015 were made by the Remuneration Committee.
These changes were 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 1.55 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 1.55 throughout the three-year
performance period.
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 31 March 2017
Outstanding at start of year
Granted
Shares representing dividends reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year
Exercise price range (£)
Weighted average remaining contractual
life (years)
CSOS
SAYE
PSP
Number
(’000)
5,288
1,848
—
(1,023)
(126)
(4)
5,983
197
WAEP (£)
3.96
3.59
—
4.03
3.48
3.02
3.87
3.36
2.20–5.43
8.0
Number
(’000)
2,419
2,038
—
(1,150)
(350)
(65)
2,892
—
WAEP (£)
3.12
2.50
—
3.07
2.56
3.11
2.77
—
1.56–4.25
2.7
Number
(’000)
1,337
1,013
177
(540)
(366)
(9)
1,612
—
WAEP (£)
—
—
—
—
—
—
—
—
1.7
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Notes to the Financial Statements
23. Share-based Payments continued
For the period ended 1 April 2016
Outstanding at start of year
Granted
Shares representing dividends reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year
Exercise price range (£)
Weighted average remaining contractual
life (years)
CSOS
SAYE
PSP
Number
(’000)
5,378
3,017
—
(1,243)
(77)
(1,787)
5,288
262
WAEP (£)
3.45
4.35
—
5.12
3.54
2.20
3.96
3.32
2.20 to 5.43
Number
(’000)
2,603
2,289
—
(897)
(1,573)
(3)
2,419
—
WAEP (£)
2.23
3.36
—
3.89
1,56
—
3.12
—
1.56 to 4.25
8.2
2.8
Number
(’000)
2,078
698
—
(955)
(73)
(411)
1,337
—
WAEP (£)
—
—
—
—
—
—
—
—
—
1.6
The following table gives the assumptions applied to the options granted in the respective periods shown:
Grant date
Share price at grant date (£)
Exercise price (£)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividend yield
Probability of forfeiture
Weighted average fair value of options granted
52 weeks to 31 March 2017
SAYE
3.49
2.50
31.66%
3
3.5
0.21%
4.87%
44%
£0.89
PSP
3.60
0
0
3
3
0
52 weeks to 1 April 2016
SAYE
CSOS
5.33 / 3.37
3.33 / 5.38
4.25 / 2.98
3.22 / 5.43
33%/ 33%
32%/ 32%
3
10
3.5
4.85
1.06%
1.31%
0.00% 3.07%/ 5.01% 3.1%/ 4.95%
44%
33%
£0.90
£0.86
PSP
5.33 / 3.95
0.00
31%
3
3
0
0.00%
30%
£5.02
30%
£3.60
CSOS
3.60
3.59
32.0%
10
4.85
0.17%
4.72%
33%
£0.57
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.
24. Commitments
Capital expenditure: Contracted but not provided
2017
£m
1.9
2016
£m
0.2
At 31 March 2017, 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
2017
£m
86.6
298.6
217.0
602.2
Other
assets
2017
£m
2.1
2.3
—
4.4
Land and
buildings
2016
£m
80.5
281.8
212.0
574.3
Other
assets
2016
£m
2.6
3.7
0.2
6.5
The Group leases a number of stores and warehouses under operating leases of varying length for which incentives/premiums are received/
paid under the relevant lease agreements. Land and buildings have been considered separately for lease classification. The operating lease
commitments are shown before total future minimum receipts of sublet income, which totalled £19.4m (2016: £20.0m).
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25. 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 £6.9m (2016: £5.7m).
In accordance with Government initiatives Halfords operates 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 are 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.
26. 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 31 March 2017 amounted to £3.7m (2016: £3.9m).
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
27. Related Party Transactions
The Groups ultimate parent company is Halfords Group plc. A listing of all related undertakings is shown within the financial statements of the
Company on page 144.
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 78 to 97. Key management compensation is disclosed in note 4.
Directors of the Company control 0.11% of the ordinary shares of the Company.
28. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
29. Post Balance Sheet Events
On 3 May 2017 the Group announced the resignation of its Group Chief Executive Officer, Jill McDonald, with a leaving date of the end
of October 2017.
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Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors falling due within one year
Cash and cash equivalents
Creditors: amounts falling due within one year
Net current assets
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
31 March
2017
£m
1 April
2016
£m
Notes
4
5
6
6
8
9
9
9
9
20.5
19.5
478.5
6.5
485.0
(142.7)
342.3
(72.0)
290.8
2.0
151.0
(9.5)
0.3
147.0
290.8
471.8
5.2
477.0
(132.8)
344.2
(25.3)
338.4
2.0
151.0
(10.9)
0.3
196.0
338.4
The notes on pages 143 to 145 are an integral part of the Company’s financial statements.
The Company has elected to prepare its financial statements under FRS 101 and the accounting policies are outlined on page 142.
The financial statements on pages 140 to 145 were approved by the Board of Directors on 24 May 2017 and were signed on its behalf by:
Jonny Mason
Chief Financial Officer
Company number: 04457314
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Company Statement of Changes in
Shareholders’ Equity
At 3 April 2015
Profit for the period
Share options exercised
Share-based payments
Dividends paid
At 1 April 2016
Profit for the period
Share options exercised
Share-based payments
Dividends paid
At 31 March 2017
Share
capital
£m
2.0
—
—
—
—
2.0
—
—
—
—
2.0
Share
premium
£m
151.0
—
—
—
—
151.0
—
—
—
—
151.0
Investment
in own
shares
£m
(13.6)
—
2.7
—
—
(10.9)
—
1.4
—
—
(9.5)
Capital
redemption
£m
0.3
—
—
—
—
0.3
—
—
—
—
0.3
Retained
earnings
£m
216.5
8.9
—
3.0
(32.4)
196.0
3.5
—
1.0
(53.5)
147.0
Total
£m
356.2
8.9
2.7
3.0
(32.4)
338.4
3.5
1.4
1.0
(53.5)
290.8
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Accounting Policies
Accounting Convention
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 31 March 2017, whilst the comparative period covered the 52 weeks to 1 April 2016.
The accounts are prepared under the historical cost convention, except where Financial Reporting Standards requires an alternative treatment
in accordance with applicable UK accounting standards and specifically in accordance with the accounting policies set out below. The
principal variation to the historical cost convention relates to share-based payments.
Basis of Preparation
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100). In the prior year the Company
adopted FRS 101 ‘Reduced Disclosure Framework’ and has ceased to apply all UK Accounting Standards issued prior to FRS 100. Therefore,
the recognition and measurement requirements of EU-adopted IFRS have been applied, with amendments where necessary in order to comply
with Companies Act 2006.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-
based payments, standards not yet effective, impairment of assets and related party transactions. Where required, equivalent disclosures are
given in the Group financial statements.
As permitted by section 408 of the Companies Act 2006, no profit or loss account is presented for this company. The profit for the year is
disclosed in note 1 to the financial statements. Additionally, no cash flow statement is presented as permitted by FRS 101.8 (h).
Employee Benefit Trusts (‘EBTs’) are accounted for under IFRS 10 and are consolidated on the basis that the parent has control, thus the
assets and liabilities of the EBT are included on the Company balance sheet and shares held by the EBT in the Company are presented as a
deduction from equity.
Share-based Payments
The Company operates a number of equity-settled, share-based compensation plans that are awarded to employees of the Company’s
subsidiary undertakings.
In accordance with FRS 101 ‘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.
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Notes to the Financial Statements
1. Profit and Loss Account
The Company made a profit before dividends paid for the period of £3.5m (52 week period to 1 April 2016: £8.9m). 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 Auditor
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 31 March 2017 the Company expensed £nil (2016: £nil) in fees relating to KPMG LLP.
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 Directors’ Remuneration Report on pages 78 to 97 which forms part of the audited information.
4. Investments
Shares in Group undertaking
Cost
As at 1 April 2016
Additions – share-based payments
At 31 March 2017
£m
19.5
1.0
20.5
The investments represent shares in the following subsidiary undertakings as at 31 March 2017 and the fair value of share-based
compensation plans that are awarded to employees of the Company’s subsidiary undertakings.
Subsidiary undertaking
Halfords Holdings (2006) Limited
* Registered in England and Wales
Ordinary
shares
percentage
owned %
Principal activities
100 Intermediate holding company
Incorporated in
Great Britain*
In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.
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Notes to the Financial Statements
4. Investments continued
The related undertakings of the Company at 31 March 2017 are as follows:
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories, cycles and cycle accessories
Dormant
Dormant
Intermediate holding partnership
Intermediate holding company
Dormant
Car servicing
Principal activity
Subsidiary undertaking
Subsidiaries registered in England & Wales, with a registered address of:
Icknield Street Drive, Redditich, Worcestershire, B98 0DE
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Halfords Payment Services Limited*
Savvy Bikes Limited*
Halfords Investments (2010) LP**
Halfords Autocentres Holdings Limited*
Halfords Autocentres Funding Limited*
Halfords Autocentres Limited*
Halfords Autocentres Acquisitions Limited* Dormant
NW Autocentres Limited*
Dormant
Halfords Autocentres Developments Limited* Dormant
Dormant
Stop N’ Steer Limited*
Dormant
Halfords Vehicle Management Limited*
Cycle design and cycle sales
Boardman Bikes Limited*
Cycle design and cycle sales
Boardman International Limited*
Dormant
Cycle Republic Limited*
Intermediate holding company
Performance Cycling Limited*
Retailing of cycles and cycle accessories
Tredz Limited*
Retailing of cycles and cycle accessories
Wheelies Direct Limited*
Giant (Wales) Limited*
Retailing of cycles and cycle accessories
Subsidiary registered in the Republic of Ireland, with a registered address of:
c/o DWF Dublin, 4 George’s Dock, IFSC, Dublin 1, DO1 X8N7
Halfords Limited (ROI)*
Other equity investment, registered in Northern Ireland, with a registered address of:
22 Derryhall Road, Portadown, Craigvon, Northern Ireland, BT62 1PL
Hamilton Internet Services Limited*
Other equity investment, registered in England & Wales, with a registered address of:
Cotton Court, Middlewich Road, Holmes Chapel, Crewe, England, CW4 7ET
Tyres On the Drive Limited*
E-Commerce
Dormant
Retailing of motor vehicle parts and accessories
% Ownership
of ordinary
equity
shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
7.6
5.7
* Shares held indirectly through subsidiary undertakings
** Wholly owned indirectly through subsidiary undertakings
The only subsidiaries to trade during the year were Halfords Limited, Halfords Autocentres Limited, Boardman Bikes Limited, Boardman
International Limited, Wheelies Direct Limited, Tredz Limited and Giant (Wales) Limited.
5. Debtors
Falling due within one year:
Amounts owed by Group undertakings
2017
£m
478.5
478.5
2016
£m
471.8
471.8
Amounts owed by Group undertakings are subject to interest. At 31 March 2017 the amounts bear interest at a rate of 1.75% (2016: 1.75%).
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6. Creditors
Falling due within one year:
Bank borrowings (note 7)
Accruals and deferred income
Falling due after more than one year:
Bank borrowings (note 7)
7. Borrowings
Current
Unsecured bank overdraft
Non-current
Expiring between two and five years
2017
£m
20.7
122.0
142.7
72.0
72.0
2017
£m
20.7
72.0
92.7
The above borrowings are stated net of unamortised issue costs of £1.0m (2016: £1.6m).
Details of the Company’s borrowing facilities are in note 17 of the Group’s financial statements.
8. Equity Share Capital
Ordinary shares of 1p each:
Allotted, called up and fully paid
2017
Number of
shares
199,116,632
2017
£000
1,991
2016
Number of
shares
199,116,632
2016
£m
26.2
106.6
132.8
25.3
25.3
2016
£m
26.2
25.3
51.5
2016
£000
1,991
During the current period the Company has not changed its share capital but during the prior period it increased by 53,410 shares following
the issue of shares in relation to the exercise of options under the Company’s Sharesave Scheme. There has been no significant impact on
share premium as a result of the transaction, which has remained at £151.0m (2016: £151.0m).
In total the Company received proceeds of £1.4m (2016: £2.7m) 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 23 of the Group’s financial statements.
Investment in Own Shares
At 31 March 2017 the Company held in Trust 2,097,863 (2016: 2,984,289) of its own shares with a nominal value of £20,979 (2016: £29,843).
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 31 March 2017 was £7.4m (2016: £11.7m). In the current period nil (2016: nil) were repurchased and transferred into the
Trust, with 886,426 (2016: 1,761,344) reissued on exercise of share options.
9. Reserves
The Company settled dividends of £53.5m (2016: £32.4m) in the period, as detailed in note 8 of the Group’s financial statements.
In the prior year, the receivable of £280.3m recognised in the Company balance sheet as a result of the 2015 dividend-in-specie was settled in
return for another receivable with a Group company. This resulted in the realisation of the £166.0m non-distributable reserves disclosed in the
accounts for period ended 3 April 2015.
10. Related Party Disclosures
Under FRS 101 ‘Related party disclosures’ the Company is exempt from disclosing related party transactions with entities which it wholly owns.
11. Contingent Liabilities
The Group’s banking arrangements include the facility for the bank to provide a number of guarantees in respect of liabilities owed by the
Group during the course of its trading. In the event of any amount being immediately payable under the guarantee, the bank has the right to
recover the sum in full from the Group. The total amount of guarantees in place at 31 March 2017 amounted to £3.7m (2016: £3.9m).
The Company’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of
other Group companies.
12. Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
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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
Underlying Profit Before Tax***
Non-recurring operating expenses
Non-recurring finance costs
Profit before tax
Taxation
Taxation on non-recurring items
Profit attributable to equity shareholders
Basic earnings per share
Basic underlying earnings per share***
Weighted average number of shares
52 weeks
to 29 March
2013
(audited)
£m
871.3
(394.2)
477.1
(400.0)
52 weeks
to 28 March
2014
(audited)
£m
939.7
(435.5)
504.2
(426.4)
52 weeks
to 27 March
2015
(pro forma)*
£m
1,004.9
(469.8)
535.1
(450.5)
52 weeks
to 1 April
2016
(audited)
£m
1,021.5
(478.4)
543.1
(458.6)
52 weeks
to 31 March
2017
(audited)
£m
1,095.0
(536.4)
558.6
(481.5)
78.1
(1.0)
77.1
(6.1)
72.0
(1.0)
—
71.0
(18.2)
(0.1)
52.7
27.2p
77.8
(0.2)
77.6
(5.0)
72.8
(0.2)
—
72.6
(17.0)
(0.1)
55.5
28.6p
84.6
(0.3)
84.3
(3.5)
81.1
(0.3)
—
80.8
(17.4)
(0.1)
63.3
32.5p
84.5
(1.7)
82.8
(3.0)
81.5
(1.7)
—
79.8
(16.6)
0.3
63.5
32.5p
77.1
(3.4)
73.7
(2.3)
75.4
(3.4)
(0.6)
71.4
(15.9)
0.9
56.4
28.7p
27.7p
194.3m
28.8p
194.0m
32.7p
194.2m
33.2p
195.2m
30.3p
196.6m
Key Performance Indicators
Revenue growth
Gross margin
Operating margin**
Underlying Group EBITDA***
Net debt***
52 weeks
to 29 March
2013
+1.0%
54.8%
8.8%
£103.4m
(£110.6m)
52 weeks
to 28 March
2014
+7.9%
53.7%
8.3%
£101.1m
(£99.6m)
52 weeks
to 27 March
2015
+6.9%
53.2%
8.4%
£109.9m
(£61.8m)
52 weeks
to 1 April
2016
+1.7%
53.2%
8.3%
£114.6m
(£47.9m)
52 weeks
to 31 March
2017
+7.2%
51.0%
7.0%
£108.7m
(£85.9m)
* The statutory 53-week period to 3 April 2015 comprises results that are non-comparable to the 52-week periods reported in other years. To provide a more
meaningful comparison, the above tables include the pro forma 52 weeks to 27 March 2015.
** Operating margin is defined as results from operating activities before non-recurring items as a percentage of revenue.
*** These alternative performance measures are defined on page 18.
146
Halfords Group plc Integrated Annual Report for the period ended 31 March 2017
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STRATEGIC REPORT / OUR GOVERNANCE / FINANCIAL STATEMENTS / SHAREHOLDER INFORMATION
Company Information
Financial Calendar
26 July 2017
Annual General Meeting
4 August 2017
Final Dividend Record Date
25 August 2017
Final Dividend Payment Date
5 September 2017
20 Week Trading Update
9 November 2017
Interim Results
Registered Office
Halfords Group plc
Icknield Street Drive
Redditch
Worcestershire
B98 0DE
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Auditors
KPMG Plc
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Joint Brokers
Investec plc
2 Gresham Street
London
EC2V 7QP
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Solicitors
Clifford Chance LLP
10 Upper Bank Street
London
E14 5JJ
STOCK CODE: HFD halfords.annualreport2017.com
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Shareholder Notes
148
Halfords Group plc Integrated Annual Report for the period ended 31 March 2017
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Corporate and IR website
www.halfordscompany.com
Online Annual Report 2017
halfords.annualreport2017.com
Commercial Website
www.halfords.com
Halfords Annual Report 2017.indd 1
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