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8
READYING
THE NATION
FOR LIFE’S
JOURNEYS
Halfords Group plc
Annual Report and Accounts
for the period ended 30 March 2018
Stock Code: HFD
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Halfords is a specialist service-led
retailer, differentiating us from our
competition.
Halfords is the UK’s leading retailer of
motoring, cycling and leisure products and
services. Through Halfords Autocentres, it
is also one of the UK’s leading independent
operators in vehicle, servicing, maintenance
and repairs.
Halfords is divided into
two business segments:
Retail and Autocentres
Category split of Halfords Group revenue
(between Retail and Autocentres)
Our Vision
Our vision is clear:
• To be first choice for customers’ life on the move
• We will achieve this by being Committed to
Making Customers’ Journeys Better
Retail
Autocentres
86%
14%
Category split of Halfords Group revenue
(between motoring and cycling)
Online Annual Report
Read our Annual Report online, including a link to the
full Remuneration Policy
halfords.annualreport2018.com
Corporate Website
Catch up with our latest news and learn more about
Halfords on our corporate website
www.halfordscompany.com
Motoring
Cycling
67%
33%
A little direction for your journey through our report
This icon signposts the reader
to other sections in this report
This icon signposts the reader
to more information that can be
found online
This icon accompanies ‘fast facts’
with figures that relate to 1 April
2017 – 30 March 2018
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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.
Our Approach
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 ensured that we discussed material matters both positive and negative in a
fair, balanced and understandable way.
STAKEHOLDER
ENGAGEMENT
Read more about Stakeholder
Engagement on pages 16 and 17
CORPORATE SOCIAL
RESPONSIBILITY
Read more about Corporate
Social Responsibility on pages
24 to 32
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
Our Strategy
Read more on
on pages 18 to 19
Business Model
The outputs of our business model - Financial Resources, Colleagues, Brand, Physical
and IT Infrastructure, Community and Environment - are detailed throughout the
report.
This icon is used to indicate content
on the outputs of the Business Model
Our Business
Read more on
Model
on pages 14 and 15
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Contents
Overview
Group Highlights
Chairman’s Statement
Chief Executive’s Statement
Strategic Report
Our Marketplace
Our Business Model
Stakeholder Engagement
Our Strategy
Our Key Performance Indicators
Corporate Social Responsibility
Chief Financial Officer’s Report
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
– Directors’ Remuneration Policy
Summary Report
– Annual Remuneration Report
Directors’ Responsibilities
Financial Statements
Independent Auditors’ Report
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
Note to Consolidated Statement
of Cash Flows
Accounting Policies
Notes to the Financial Statements
Company Balance Sheet
Company Statement of Changes in
Shareholders’ Equity
Accounting Policies
Notes to the Financial Statements
Shareholder Information
Five Year Record
Glossary of Alternative Performance
Measures
Company Information
02
04
06
12
14
16
18
20
24
34
40
48
50
56
70
72
74
78
80
82
91
94
100
101
102
103
104
105
106
117
142
143
144
145
150
151
152
01
OVERVIEWSTRATEGIC REPORT OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.com Group Highlights
This is an exciting time to be a part of Halfords. We have a clear plan
aimed at driving sustainable long-term growth.
Revenue
£m
+3.7%
18
17
16
15
14
Underlying profit before
tax* £m
Profit before tax, after
non-recurring items £m
£1,135.1m
£1,095.0m
£1,021.5m
£1,004.9m
£939.7m
-5.0%
18
17
16
15
14
£71.6m
£75.4m
£81.5m
£81.1m
£72.8m
-6.0%
18
17
16
15
14
£67.1m
£71.4m
£79.8m
£80.8m
£72.6m
Dividend per ordinary share
pence
Underlying basic earnings
per share* pence
Basic earnings per share, after
non-recurring items pence
+3.0%
18
17
16
15
14
18.0p
17.5p
17.0p
16.5p
14.3p
-2.3%
18
17
16
15
14
29.6p
30.3p
33.2p
32.7p
28.8p
-3.1%
18
17
16
15
14
27.8p
28.7p
32.5p
32.5p
28.6p
85%
of Halfords.com online
orders click & collected
12%
Group online sales
growth
59% 14%
of Retail transactions
matched to customers
Service-related Retail
sales growth
over 70 0.8x
In-store Retail services
across motoring and
cycling
Net debt to Underlying
EBITDA ratio*
* Alternative performance measures are defined in the glossary on page 151.
02
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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Chairman’s Statement
This will be my last Chairman’s statement as I will be standing
down at the conclusion of the Annual General Meeting having been
privileged to serve Halfords for nine wonderful years.
Halfords is a much-changed business from that at the start of the
decade, as is the retail landscape. The digital revolution, which now
encompasses every aspect of our lives, has transformed the way
we do business and we at Halfords have embraced that change.
However, we have not lost sight of Halfords’ key differentiator: our
people.
I am so proud of the progress we have made to lift our service ethic,
customer centricity and services focus. To this end, and on behalf of
my Board colleagues, I would like to thank each and every colleague
throughout the Group for making this a reality.
This year we have seen a change in executive leadership, with
our CEO Jill McDonald leaving the business in September 2017
and Jonny Mason taking over as interim CEO prior to the arrival in
January 2018 of Graham Stapleton, our new CEO. Graham is an
outstanding business leader with credentials spanning across the
retail, digital and services spaces. He is an ideal fit for Halfords and I
am confident that he will successfully lead Halfords through its next
phase of growth.
I would like to thank Jill for her significant contribution to Halfords,
some of which I have summarised below. Jonny Mason will also be
leaving us in a few months and I would also like to thank him for the
positive impact he has made over the last three years. We wish both
Jill and Jonny all the best for the future.
FY18 performance
Against the background of a challenging retail environment , we have
achieved good sales growth, introduced new in-store services and
continued to improve our product ranges, colleague training and
service delivery. We also grew service-related retail sales by 14%.
Underlying Profit Before Tax was down some £4m but this was in
the context of an additional c.£25m year-on-year cost of imported
goods as a result of the weaker pound against the US dollar. Our
actions to mitigate the impact of this headwind, both this and last
year, have worked well and, at current exchange rates, there is
virtually no further foreign exchange headwind to come.
Whilst earnings in the year were naturally adversely impacted by
currency and other cost headwinds, particularly from increased
labour costs, the underlying business performance was positive and
cash flow was robust.
Accordingly, the Board has recommended a final dividend of 12.03
pence per share, payable on 31 August 2018, which would result in a
dividend per share for the year of 18.03p, up 3.0% year-on-year and
consistent with our policy of paying an increasing ordinary dividend.
Gearing remains within our debt target.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Summary of strategic progress over recent years
In the report that follows, we have set out our progress against the
objectives and milestones in our Moving up a Gear strategy that was
set out in November 2015.
The strategy was investment led with a focus on continued colleague
development, infrastructure to drive the business forward digitally
and to better understand and serve our customers.
The year ahead
With changes to the executive management team and the Board,
Halfords is entering a new phase. We have a talented group of
engaged colleagues who remain focused on growing the business
and driving sustainable long-term growth. I am confident that
Halfords will continue to prosper in the coming years under the
capable leadership of Graham and his wider team.
Lastly, I welcome to Halfords my successor, Keith Williams, who
brings a wealth of experience. I trust that Keith will enjoy working, as
much as I have, with such a talented and engaged Board and such
wonderful colleagues throughout the Group.
Dennis Millard
Chairman
22 May 2018
Some of the highlights, which illustrate the positive impact of
investments we have made, are:
•
59% of Retail transactions can now be matched to customers
(up from 3% in 2015);
• Service-related Retail sales up 46%;
• Group online sales up 55%;
• over 70% of Retail colleagues trained to “Gear 2” level, up from
46% three years ago;
• Colleague turnover much improved from three years ago; and
•
9th in the Sunday Times Best Big Companies To Work For (from
18th in 2015).
The business cannot stand still and the time for refreshing our
strategy is upon us. The timing of Graham joining as CEO is thus
opportune and he and his team are currently working with the Board
to develop the next phase of strategic development to set Halfords
on a path to profitable growth.
The intention is to set this out to shareholders in September.
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OVERVIEWSTRATEGIC REPORT OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.com Chief Executive’s Statement
Summary of Group Results
Group revenue of £1,135.1m was up 3.7%, with like-for-like (“LFL”)*
sales growth of 2.0%. Group gross margin of 50.2% was 78 basis
points lower than the prior year, predominantly due to the impact
on the cost of imported goods as a result of the weaker pound
against the US dollar, partially offset by gross margin improvements
in Autocentres. Group operating costs before non-recurring items
rose by 2.9% reflecting continued investments in our colleagues, our
online and offline infrastructure and also more convenient fulfilment
solutions for customers.
The increase in cost of goods from the weaker pound against the
US dollar amounted to c.£25m year-on-year, of which a significant
proportion was mitigated in the year. Underlying EBITDA* was up
0.7% to £109.5m and Underlying EBIT* was £74.6m, which compares
with £77.1m in the prior year. Underlying Profit Before Tax* was
£71.6m and Underlying Basic Earnings Per Share* was 29.6 pence,
down 5.0% and 2.3% respectively. Profit after tax for the year was
£54.7m (FY17: £56.4m).
Cash generation remained robust, with Free Cash Flow* of £41.5m.
Net Debt* at the end of the year was broadly flat against the prior year-
end, despite planned follow-on M&A payments and the working capital
impact of VAT payment timing. Net debt:Underlying EBITDA* at the
year end was 0.8 times on a rolling 12 month basis (FY17: 0.8 times).
The Board has recommended a final ordinary dividend of 12.03
pence per share (FY17: 11.68 pence) which, if approved, would take
the full-year ordinary dividend to 18.03 pence per share, an increase
of 3.0% on the prior year. If approved, this will be paid on 31 August
2018 to shareholders on the register at the close of business on
27 July 2018. We continue to target dividend coverage of around
2 times on average over time and once the impact of adverse FX has
been fully mitigated.
Our capital allocation priorities and debt target remain unchanged.
We are currently in the process of developing plans for the next
phase of business growth and look forward to presenting these to
the market in September.
Retail Operational Review
Halfords Retail sales were up 4.1% to £977.2m. LFL* growth of
2.3% reflected Motoring LFL* of 1.9% and Cycling LFL* of 2.9%. Our
service-related sales grew by 14.2% as we continued to increase our
service-led retail proposition, training our colleagues and introducing
new services across both motoring and cycling categories.
Within Motoring, Car Maintenance revenues increased by 3.7% on
a LFL* basis, driven by growth in car parts and associated fitting
services. Nearly 42% of the bulbs, blades and batteries (“3B’s”) sold
were fitted to customers’ cars by our colleagues, which was up 175
basis points year-on-year. This reflects the increasing relevance
of our services proposition to the growing proportion of ‘do-it-
for-me’ customers. The LFL* growth also came from strong sales
of workshop and hand-tools, which continued to benefit from the
strong credentials of our ‘Halfords Advanced’ ranges.
In the reporting of financial information, the Directors have adopted various Alternative Performance Measures (APMs). These are denoted with an asterisk (*) in
this report. Further detail on these APMs, including definitions, can be found in the glossary on page 151.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 FX mitigation
The impact of the weaker pound has played out as guided. We
have now experienced a cumulative additional £40m of input costs
compared to FY16. Our plans to offset the impact (through supplier
negotiations, operational efficiencies and pricing) have worked well
and we have now recovered over half of the gross impact. At current
exchange rates we do not anticipate any further FX headwind in FY19
or FY20 and we continue to anticipate fully recovering the impact
over time - see outlook commentary on page 08.
Autocentres Operational Review
Total Autocentres revenues were up 0.8% and 0.2% on a LFL* basis.
As previously guided, we took the decision to exit low-margin affiliate
tyre business at the start of the year and instead focused on direct
tyre sales and on service, maintenance and repair work. As a result
of this decision, gross margin and EBIT have increased year-on-year.
We opened 3 Autocentres in the year. Online booking revenues grew
15% and contributed 28% of total Autocentre sales.
As previously noted, we undertook an operational review of
Autocentres during the year and identified that there are good
opportunities for profit improvement by implementing better
systems and consistent application of best practice. This includes
improving visibility and control in centres and improving the systems
infrastructure. A proportion of our centres have good profit margins
and there is an opportunity to share the best practices in these
high-performing centres with the rest of the estate. The programme
to transform the operating model will take some time, but is well
underway and the early progress is encouraging as indicated by
improved year-on-year profit, particularly in the second half.
Car Enhancement LFL* revenues were -2.2%, principally reflecting
the continued market decline in Sat Nav sales. Despite this, we
gained share in Sat Navs year-on-year as others exited the market.
Dash-cam sales grew strongly in the period, as we continued to
invest in colleague training to support our market-leading fitting
proposition. Shortly after the year end we launched our own Halfords
branded range of dash-cams.
Travel Solutions LFL* revenues increased 3.6%, driven by good
growth in roof bars / boxes, cycle carriers and camping equipment,
as we supported customers with their ‘staycation’ journeys
throughout the period. The category also benefited from improved
fitting capability, with colleagues receiving refreshed training to
support an enhanced service proposition. Child car seat sales were
down year-on-year, as a result of annualising the legislative tailwind
of last year.
Cycling sales improved by 2.9% on a LFL* basis despite the
unfavourable weather in the fourth quarter and not repeating the
volume-driving summer promotion of the previous year. Whilst our
bike volumes declined year-on-year as expected, this was more
than offset by an increase in sales value. Parts, Accessories and
Clothing (“PACs”) sales continued to grow, supported by improved
attachment rates.
Sales of electric bikes (“e-bikes”) were strong, reflecting the
popularity of our new own-brand ranges launched in the year.
We also rolled out colleague training so that our trusted, expert
colleagues were able to advise on the features and benefits for the
customer. Our cycle repair services and ‘cycle to work’ business also
performed strongly.
Tredz and Cycle Republic continued to perform well and deliver good
LFL* sales growth. Four new Cycle Republic stores were opened in
the year, with one shortly after the year end, taking the total to 20
stores. Last month we opened the Boardman Performance Centre, a
state-of-the-art facility to enhance the Boardman brand and provide
a destination for cycling enthusiasts.
Service-related Retail sales, which consist of the revenue generated
from paid in-store fitting and repair services plus the associated
product attached to the transaction, grew by 14.2%, with particularly
good performances from our 3B’s fitting, dash cam fitting and cycle
repair services. This is a reflection of our continued focus in growing
awareness of our services and enhancing the delivery of them
through regular colleague training.
Retail online sales were up 6.0% on a like-for-like* basis. The
importance of our store network and service overlay continued
to be highlighted by the strength of click & collect, with around
85% of Halfords.com online orders picked up in store. This high
proportion continues to differentiate us from other retailers. Instead
of cannibalising our bricks and mortar operation, online sales have
driven store footfall; both our online and store sales were in growth
for the year.
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OVERVIEWSTRATEGIC REPORT OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.com Chief Executive’s Statement
Summary of strategic progress over recent years
The Group has made good progress in recent years. A few of the key
improvements are noted as follows:
The business has some key visible strengths:
•
strong heritage and brand awareness;
• market leader in many of its categories;
• Continued investment in our colleagues. We launched the ‘Gears’
training programme in 2014 and this is now well-embedded in
the Retail business and is integral to providing enhanced product
knowledge to our customers and our ability to efficiently and
effectively deliver our services. Over 70% of Retail colleagues
are now trained to “Gear 2” level, up from 46% three years ago.
•
Improved colleague engagement. This is evidenced by our
own internal surveys and also by the Sunday Times Best Big
Companies To Work For in which Halfords came 9th in the year,
up from 18th in 2015.
• Better customer insights. We know our customers better than we
did before. A single customer view has been implemented across
all of our Retail businesses and Autocentres, with a database
containing details of millions of customers. We can now match
59% of transactions to customers in Retail, up from 3% in
November 2015. The foundations are there to leverage this to be
more relevant for our customers in the future.
• Solid foundations have been laid for the services business.
These include building the comprehensive suite of services and
training our colleagues to deliver them. We now have over 70
in-store services in the Retail business and service-related Retail
sales have grown by 46% over the last three years. Investment in
colleague headsets across the estate has supported increased
colleague knowledge and specialist support for customers.
• Enhanced presence in the cycling market. In recent years we
have launched Cycle Republic and acquired Tredz. Through these
investments we can now service all segments of the cycling
market from a child’s first bike to the enthusiast with multiple
bikes.
• Selective store refreshes underway. A store refresh programme
was launched in 2013 and updated in 2016, focused on the look
and feel of stores. Around a third of stores have been refreshed
during this period.
• Ongoing improvements to our infrastructure. After a number
of years of under-investment, investments have been made
in a more resilient IT infrastructure, the embedding of a new
delivery-to-store model in 2015, improvements towards a more
agile approach to website development, the launch of a single
view of stock and the implementation of the ‘Dayforce’ colleague
resource planning system.
Initial thoughts on joining Halfords
I have been with Halfords for four months now. During this time I have
been learning about the business and our markets, customers and
competitors, visiting our facilities, meeting with colleagues and have
also started to work with the team to identify opportunities for the
next phase of growth.
This is a business that has good foundations. As set out above,
there has been progress in previous years firstly in colleague
development and customer service, and then latterly in becoming
more customer-focused.
•
•
trained and engaged colleagues with a “can do” attitude; and,
cash generative with a resilient financial position.
There are also a few hidden gems, which Halfords has not yet
leveraged to their full potential:
•
services businesses; a key differentiating factor, but many
people aren’t aware of what we can do;
• group-wide customer database; and,
•
established B2B business, across both our motoring and cycling
specialisms.
However, the world of retail is ever changing; customers are
becoming more demanding and new entrants continue to disrupt
the market. This brings its own challenges but it also brings real
opportunities for those who can truly position themselves as
service-led specialists.
In summary, Halfords is a good business with a great future. By
focusing more on our specialisms and our services, ensuring that
we always provide great value to our customers and presenting
a more seamless and inspirational omni-channel experience, we
have an exciting future of growth ahead of us. I will provide further
operational and financial detail on our plans in September 2018.
Summary and Outlook
We anticipate the motoring market will remain robust and we
continue to see good growth prospects for the cycling market over
time. Last year the cycling market was challenging, exacerbated
by poor weather in the fourth quarter. We do not now expect to
see price rises in cycling this year, like we saw in the previous year.
We now anticipate the remainder of FX mitigation to arise from an
improved pound/US dollar exchange rate, which will be mostly in
FY20 due to the timing of our hedging programme. We also plan to
accelerate investments in the current year in further developing our
services proposition and in customer relationships and data. In light
of the above, we currently anticipate FY19 Profit Before Tax to be
broadly in line with FY18.
On 22 May 2018, the Board announced the appointment of Keith
Williams as Non-Executive Chairman with effect from 24 July 2018.
He will succeed Dennis Millard who will retire from the Board on that
date.
I would like to thank all colleagues for the warm welcome they have
given me and for their enthusiasm. I am excited about Halfords’
future and look forward to working with our colleagues and the Board
to drive the next phase of growth.
Graham Stapleton
Chief Executive Officer
22 May 2018
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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STRATEGIC
REPORT
Our Marketplace
Our Business Model
Stakeholder Engagement
Our Strategy
Our Key Performance Indicators
Corporate Social Responsibility
Chief Financial Officer’s Report
Our Principal Risks And Uncertainties
12
14
16
18
20
24
34
40
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Our Marketplace
Competitive landscape
Halfords principally operates in two broad markets: Motoring and Cycling.
Around 67% of Group sales are generated from products and services that are
principally Motoring related with the remaining 33% coming from Cycling.
Motoring Market
Within Motoring, the Halfords Group operates in two segments:
• Car parts, accessories, consumables and technology; and
• Car servicing and aftercare
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
After a record year for new car registrations in 2016, the Society of
Motor Manufacturers and Traders (“SMMT”) reported a decline in
new car registrations of around 6% in the 2017 calendar year and
circa 12% in the year to March 2018.
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 continue 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.
Cars are also becoming more complex and customers increasingly
need support for small as well as large maintenance jobs. We are
seeing an ongoing trend from ‘do it yourself’ to ‘do it for me’. In the
year we continued to invest in equipment and in our colleagues
to remain at the forefront of technological changes, to give us a
competitive advantage in a fragmented market of independent
operators. We have made significant progress in training
Autocentres colleagues in hybrid and electric training, which is
accredited by a leading industry body.
12
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Cycling Market
In recent years Halfords has developed Cycle Republic and acquired
Tredz. This means that the Group can now service the needs of all
cyclists from mainstream to commuter to enthusiast. The majority of
bikes sold by Halfords are own-brand. These brands include Apollo,
Carrera and Boardman. Alongside these brands, our Pendleton
and Wiggins ranges, which have been developed together with the
respective athletes, have also resonated well with customers. We
support our ranges with other selected third party bike brands,
such as Specialized, Giant, Cannondale, Cube, Haibike, Basso and
Lapierre, available at either Tredz or Cycle Republic.
The cycling market is highly fragmented. There are an estimated
2,500 bike shops in the UK. Other than Halfords and a handful
of other much smaller chains, the vast majority of the market is
represented by independent bike distributors. As the market leader,
we conduct extensive research into customer behaviour and trends,
as well as the competitive landscape.
Market Trends
The majority of bikes for the UK market are sourced in US dollars
from the Far East markets. In 2017, bike prices in the market rose
significantly due to the weaker pound, which increased the cost of
imported bikes. We anticipated a year ago that this would lead to
temporarily lower bike volumes and this has been the case. However,
we still believe that volumes will recover in line with their longer term
growth trends, over time. This trend was observed over the last
significant depreciation in the value of the pound in the late 2000s.
Looking ahead we continue to see good growth prospects for the
cycling market for several reasons:
• participation levels in the UK remain lower than in many other
European countries;
•
•
the level of female participation in the UK also remains very low;
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.
The weather will continue to have an impact on the timing of
customer purchases, but overall trends are positive.
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Our Business Model
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 the expertise of our partners and
well-trained colleagues . . .
Training and accreditation, such as our 3-Gears training
programme in Retail or our electric / hybrid vehicle maintenance
training in Autocentres, ensures that consistent product
knowledge and service reaches our customers across
all locations.
We are able to leverage the Halfords brand . . .
Halfords is the nation’s go-to-retailer for motorists and cyclists.
We have a range of exclusive and highly-regarded brands including
Apollo, Carrera and Boardman in Cycling, as well as our Halfords
Advanced ranges in Motoring.
1
4
2
3
. . . to delight our customers every time
We 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:
Prices you can trust
Quality you can trust
Range you can rely on
Service that wows
Through our portfolio of convenient Retail stores
and Autocentres, efficient distribution network
and agile, 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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Our model is underpinned by our financial discipline, astute purchasing
and strategic reinvestments.
We are a cash generative business and are well supported by our banking syndicate, having amended and extended our
debt facility in the year.
Our 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.
Outputs
Financial Resources
Brand
Generating returns to our shareholders through effective
management of our financial resources.
Developing our brand through innovation and expertise.
Read the Chief Financial Officer’s Report on
pages 34 to 39
Colleagues
Physical and IT Infrastructure
Developing, rewarding and retaining our circa 10,000 colleagues
so that they are engaged and driving our long-term sustainable
growth ambitions.
Maintaining and developing our infrastructure and sales
channels to strengthen competitive advantages.
Read more about the “3 Gears training
programme” on page 29
Community
Environment
Building relationships with suppliers, customers and the
communities around us.
The environmental resources that Halfords utilises
in its operations.
Read more in the Corporate Social
Responsibility section on pages 24 to 32
Read more in the Corporate Social
Responsibility section on pages 24 to 32
This icon is used to indicate content on the outputs of the business model.
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Stakeholder Engagement
We have set out over the next two pages the nature and quality of our
key stakeholder relationships.
We have provided details of: how we engage with these groups; how we
address the issues that affect them; and how each contributes to deliver value.
Customers
Suppliers
Colleagues
Investors
Government
Communities
Media
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Stakeholder
Customers
Colleagues
Suppliers
Investors
Why it is
important to engage
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
Ensures continued viability of the
business into the long-term. We
aim to contribute positively to the
communities and environment in
which we operate.
Media
Government
Ensures transparency of
information on the business.
As a business-to-consumer
company, we need strong multi-
channel exposure to connect
with customers and our wider
stakeholder audience.
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.
Ways we engage
Stakeholders’ key interests
• Satisfaction surveys
• Availability of services
• Rewards
• Customer service
• Commercial website
• Convenience
• Social media engagement
• Ranges
•
‘3-Gears’ training programme
• Career opportunities
• Listening: surveys and colleague
• Wellbeing
groups
•
‘Aspire’ store management
development courses
• Recognition and reward
• Apprenticeship programme
• Far East trading office developing
mutually beneficial relationships
• Logistics efficiencies and
environmental management
• Supplier conferences
•
Infrastructure
• Training and development
• Pay and conditions
• Colleague engagement
• Quality management
• Cost efficiency
• Ethical Trading policy
• Long-term relationships
• Annual reports
• Future-oriented information
• RNS announcements
• 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
• CSR agenda
• Media channels
• Re-cycle initiatives
• Prison initiatives
• Product videos and peer reviews
• Reliable range, product and
• TV and radio advertising campaign
• Email and PR customer
engagement
•
Improving Twitter, Facebook and
Youtube content
pricing information
• Transparency of reliable and
timely Group information
• Cycle to Work policy campaigning
• Transport policies and schemes
• DAB Radio working groups
• CO2 reduction strategies
• Driver training and vehicle safety
enhancements
• Engaging with VOSA, DVLA, TSI,
ASA and HSE
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Our Strategy
Recap on past 3 years’ achievements
In November 2015 we launched the ‘Moving Up a Gear’ strategy.
This strategy was an evolution from the previous ‘Getting into Gear’ strategy
and comprised five pillars.
We have set-out below a description and the objectives of each strategic pillar, together with achievements over the last 3 years.
Putting Customers in
the Driving Seat
Service in Our
DNA
Building on Our
Uniqueness
Description
Description
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
A seamless customer experience, online as
Moving from fixing the basics to improving
well as in store
efficiency and fulfilment
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
Achievements
Achievements
Achievements
Achievements
• % of sales matched to customers
in Retail improved from 3% to 59%;
foundations built to increase relevance
to customers
• 10 new Retail services launched taking
the total to over 70 in-store services
• Over 70% of colleagues trained to ‘Gear
2’ level, up from 46% three years ago
• More personalised email marketing,
including product recommendations
• Utilising data for customer insight
• Mix of eReceipts, tokenisation and
improved data matching powering our
‘single customer view’ database
• Colleague headsets rolled-out across
the store estate supporting better
customer service and colleague
knowledge sharing
• Launch of own-brand ranges including
Carerra electric bike and Halfords
dash-cam
• Acquisition of Tredz enabling the group
to cater for all types of cycling customer
• Growth in trade sales supported by an
enhanced central support team and
ability to use trade cards online
• An average of eight ‘Gear 2’ trained
fitters per Retail store, to meet
customers’ servicing and repair
requirements
• Service-related Retail sales +46%
• Launch of Boardman Performance
Centre
• Significant increase in colleague
retention across Group
• Received 9th place in the ‘Best big
companies to work for 2018’ up 9 places
in 3 years
• Colleague training in dash cam fitting
and e-bike maintenance
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• 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
Cycle Republic
• Continue to target growth in areas where
developing value-adding colleague and
customer-facing IT applications
we have relatively low market share
• Continue our strategy of right-sizing,
relocating and renegotiating leases
upon expiry
Achievements
• 78 stores refreshed in various formats,
• 3 distribution centres (Daventry,
including development of ‘high street’
Coventry and Washford) well embedded
and ‘light’ versions of the latest refresh
and operating to plan, coupled with a
format
change from 5-day to 3-day a week
• We have started to take a more agile
delivery
approach to web development; recent
• Efficiency improvement programme ‘we
improvements include ‘personalised
operate for less’ delivering efficiency
shopping’ or ‘frequently bought together
saving across the Group
with’ tools
30%
•
Increased mobile participation in FY18
training in Autocentres
with traffic up 14% and order values up
• Electric / hybrid vehicle maintenance
• More ‘store-friendly’ deliveries
introduced to optimise unpacking of
• Halfords Mobile Expert trial launched,
stock by store colleagues
• Single view of stock supporting
customer visibility of stock availability
as we trial and learn about how we may
offer fitting services on a mobile basis
• We now have 20 Cycle Republic stores
and in Summer 2016 launched a
transactional website
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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
Fast fact
46%increase in service
related Retail sales
over three years
customer value
Objectives
it in how we do business. Our ability
to offer great service is one of our key
differentiators
Objectives
•
Improve understanding of our
• Maintain 3-Gears training programme
• Maintain and develop a pipeline of
• Update stores using our evolved store
customers
and increase emphasis on service and
relevant innovation
refresh concept
• Maintain short-term stability of our supply
chain operations through peak periods
Fast fact
Objectives
Objectives
Objectives
• Combine our pools of customer data
selling skills
into a single view
• Develop talent throughout the Group,
• Nurture and complement our
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
and tailor offers
Apprenticeship programmes
• Refresh brand positioning to create
a more emotional connection
• Address areas where we may be
underperforming
• Reward skills through enhanced pay
• Grow service-related sales
Cycle Republic
• Continue to target growth in areas where
we have relatively low market share
developing value-adding colleague and
customer-facing IT applications
• Continue our strategy of right-sizing,
relocating and renegotiating leases
upon expiry
20Cycle Republic
stores now
operational
Achievements
Achievements
Achievements
Achievements
Achievements
• % of sales matched to customers
• 10 new Retail services launched taking
• Launch of own-brand ranges including
in Retail improved from 3% to 59%;
the total to over 70 in-store services
Carerra electric bike and Halfords
foundations built to increase relevance
• Over 70% of colleagues trained to ‘Gear
dash-cam
to customers
• More personalised email marketing,
including product recommendations
• Utilising data for customer insight
• Mix of eReceipts, tokenisation and
2’ level, up from 46% three years ago
• Acquisition of Tredz enabling the group
• An average of eight ‘Gear 2’ trained
fitters per Retail store, to meet
customers’ servicing and repair
requirements
• Growth in trade sales supported by an
enhanced central support team and
ability to use trade cards online
improved data matching powering our
• Service-related Retail sales +46%
• Launch of Boardman Performance
‘single customer view’ database
• Significant increase in colleague
Centre
• Colleague headsets rolled-out across
retention across Group
the store estate supporting better
customer service and colleague
knowledge sharing
• Received 9th place in the ‘Best big
companies to work for 2018’ up 9 places
in 3 years
• Colleague training in dash cam fitting
and e-bike maintenance
to cater for all types of cycling customer
• We have started to take a more agile
• 78 stores refreshed in various formats,
including development of ‘high street’
and ‘light’ versions of the latest refresh
format
approach to web development; recent
improvements include ‘personalised
shopping’ or ‘frequently bought together
with’ tools
•
Increased mobile participation in FY18
with traffic up 14% and order values up
30%
• Halfords Mobile Expert trial launched,
as we trial and learn about how we may
offer fitting services on a mobile basis
• We now have 20 Cycle Republic stores
and in Summer 2016 launched a
transactional website
• 3 distribution centres (Daventry,
Coventry and Washford) well embedded
and operating to plan, coupled with a
change from 5-day to 3-day a week
delivery
• Efficiency improvement programme ‘we
operate for less’ delivering efficiency
saving across the Group
• Electric / hybrid vehicle maintenance
training in Autocentres
• More ‘store-friendly’ deliveries
introduced to optimise unpacking of
stock by store colleagues
• Single view of stock supporting
customer visibility of stock availability
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19
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT 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.
2018
2017
2016
£71.6m
£75.4m
£81.5m
Underlying profit
before tax declined
by 5.0% year-on-
year, primarily due
to the impact of
the weaker pound
on the cost of
imported goods.
Underlying
earnings per
share
Underlying
EBIT &
Underlying
EBITDA
Profit after income
tax and before non-
recurring items as shown
in the Group Income
Statement, divided by
the number of shares
in issue.
Underlying EBIT is
results from operating
activities before
non-recurring items.
Underlying EBITDA
further removes
Depreciation and
Amortisation.
EPS is a measure of our investment
thesis and as such we aim to
manage revenues, margins and
invest in long term growth.
Underlying earnings
per share declined
by 2.3% year-on-
year. See above for
explanation.
2018
2017
2016
The Board considers that these
measurements of profitability are
a viable alternative to underlying
profit and uses these measures to
incentivise Management.
29.6p
30.3p
33.2p
£109.5m
£108.7m
£114.6m
2018
2017
2016
The above numbers represent
Underlying EBITDA
2018
2017
2016
18.03p
17.5p
17.0p
Underlying EBIT
declined by
3.2% year-on-
year. See above
for explanation.
Underlying EBITDA
increased by 0.7%
year-on-year. The
reason for the
improved EBITDA
result compared
to PBT and EPS
is because it is
before an additional
year-on-year
£1.3m of interest
costs and £3.3m of
depreciation and
amortisation.
The Board has
recommended
a final ordinary
dividend of 12.03
pence per share
(FY17: 11.68 pence),
which if approved
would take the
full-year ordinary
dividend to 18.03
pence per share, an
increase of 3.0% on
the prior year.
Dividend
per Ordinary
Share
Cash returned to
shareholders as a return
on their investment in
the Company.
Our prevailing policy is to grow
the dividend every year with cover
of around 2x underlying earnings
on average over time. The impact
of adverse FX movements will
reduce cover temporarily until fully
mitigated, which will take some
time.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 KPI
Definition
Commitment
Performance
Historic Performance
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 currently continue to target
a ratio of 1.0x, 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.
Net Debt has
remained broadly
flat on FY17 levels,
despite planned
follow-on M&A
payments and the
working capital
impact of VAT
payment timing.
The Group had
a Net debt to
underlying EBITDA
ratio of 0.8 times at
the end
of FY18.
A balanced result
across both Retail
and Autocentres.
2018
2017
2016
2018
2017
2016
£87.8m
£85.9m
£47.9m
0.8x
0.8x
0.4x
FY18 LFL
revenue
movement
+2.0%
+2.3%
+1.9%
+3.7%
-2.2%
+3.6%
+2.9%
+0.2%
Halfords Group
Retail
Motoring
Car Maintenance
Car Enhancement
Travel Solutions
Cycling
Autocentres
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21
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Our Key Performance Indicators
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.
Service-
related
Retail sales
growth
Service-related Retail
sales is the income
derived from the fitting
or repair services
themselves along with
the associated product
sold within the same
transaction.
To grow service-related Retail
sales faster than total Retail sales
growth.
Proportion
of Retail
transactions
matched to
a customer
The proportion of
transactions in Halfords
Retail that can be
matched to a specific
customer in our
database.
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.
Cycle
Republic
stores
(cumulative)
The number of Cycle
Republic stores that
are trading.
We do not have a fixed store
rollout target.
Store and
Autocentre
refreshes
The number of Retail
stores and Autocentres
refreshed in the year.
We are committed to refreshing
the design of our physical portfolio
in order to improve the customer
experience.
By the end of the
year over 70% of
our eligible Retail
store colleagues
were qualified at
Gear 2 level.
Service-related
Retail sales grew
by 14% in the year.
We also added new
services, taking
the total in-store
offering to over 70
services across
motoring and
cycling.
We can match
59% of Retail
transactions to
customers, up
from 46% at the
end of last year.
Understanding our
customers even
better means that
we can continue
to become more
relevant to them.
We opened 4 stores
in FY18, in Reading,
Derby, Cheltenham
and Canary Wharf,
with Glasgow
following shortly
after the year end.
This takes the total
to 20 stores as of
May 2018.
During the year
we refreshed 36
Retail stores and 6
Autocentres in the
latest format.
2018
2017
2016
71%
67%
72%
The above numbers represent
the proportion of colleagues
qualified at Gear 2 level
2018
2017
2016
14.2%
11.1%
8.5%
2018
2017
2016
15%
59%
46%
2018
2017
2016
20
15
10
2018
2017
2016
36
17
25
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.
Our online sales
represented around
16% of total Retail
sales.
2018
2017
2016
15.7%
14.8%
12.1%
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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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
10,000
Number of colleagues
85%Colleague engagement score
(2017: 80%)
33% Halfords Retail Turnover
Awards
Sunday Times #9
Developing Potential Award
FTSE4GOOD Index
Colleagues
Developing, rewarding and retaining our colleagues,
ensuring they are fully engaged to drive our long
term sustainable growth ambitions
A great and improving place to work
Last year, we celebrated our position at number 13 in ‘The Sunday
Times 25 Best Big Companies To Work For’. This year, we were
absolutely delighted to improve further and to take 9th place as one
of three retailers in the Top 10.
In addition, we were delighted to win the Developing Potential award
presented by Department for Work and Pensions for a second
time. The award recognises the work Halfords provides to support
Prisoner Rehabilitation, the Gears Apprenticeship programme, the
Traineeship scheme and the Aspire programmes to accelerate
career progression into management roles.
Finding, supporting and developing great people
throughout their Halfords journey
As indicated last year, 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. To achieve this, we continue to
invest heavily in our ‘Gears in Retail’, apprenticeship and leadership
development programmes and actively look for ways in which we
can promote and increase the diversity of our workforce.
We aim to meet business objectives by motivating and encouraging
all colleagues to be responsive to the needs of our customers
and continually improve operational performance. This aim 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, technical
workshops, one-on-one coaching and shop floor experience
modules and are then recognised for their success through
certification, career progression and increased pay awards. Our
Performance Cycling division, which trades as Tredz and Wheelies,
is undertaking a series of colleague training and development
programmes. These include; customer focused training for retail and
call centre colleagues; offering apprenticeships for colleagues in
business, administration, customer service, management and team
leading. Those colleagues who complete these programmes achieve
24
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 ‘Gears in Retail’. 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 FY18, over 70% of the eligible headcount were 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 the 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. As mentioned above
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.
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
nationally recognised qualifications. In addition, those colleagues
who work in our Cycle Republic stores also undertake store supplier
training which is provided by various major cycling 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 392 technicians in the IMI Hybrid Level 2
in Servicing.
We also run a series of Leadership Development programmes, called
Aspire, to identify, nurture and develop colleagues across the Group.
This continues our drive to develop and therefore promote, from
within.
We continue to invest in our apprenticeship programme in both
our Retail and Autocentres businesses. In our Retail business, this
continued investment has meant that since June 2017 all new
starters in our shops are enrolled onto our Retail Level 2 Gears
Apprenticeship Programme. And at Halfords Autocentres we
have one of the largest apprenticeship schemes in light vehicle
maintenance in the UK. We currently have 193 apprentices at
differing stages of our three-year programme, and expect a further
100 to join in 2018.
We are 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 or gender reassignment, pregnancy
and maternity, race, religious beliefs, age, nationality or ethnic origin.
Full and fair consideration is given to employment applications by
people with disabilities wherever suitable opportunities exist, having
regard to their particular aptitudes and abilities. There is a Group
Diversity Policy which is reviewed annually by the Board 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.
We have an established framework of communications, which
provides colleagues with information on matters of concern to
them and on overall business performance. We seek to encourage
the engagement of every colleague to ensure the delivery of 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 Chief Executive Officer, as well as channels to share
operational information.
A Whistleblowing Policy and supporting procedures enable
colleagues to report concerns on matters affecting the Group or
their employment, without fear of recrimination. In addition, we do not
tolerate discrimination, harassment or bullying in any aspects of our
business operations. Appropriate and robust policies and procedures
are in place for reporting and dealing with such matters.
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25
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Female
Male
27%
(2017: 23%)
73%
Women on the Board
Female
Male
33%
(2017: 50%)
67%
Women in Senior Management Team
Female
Male
26%
(2017: 40%)
74%
Corporate Social Responsibility
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.
Diversity
Total Women
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. As an example,
27% of our total population of employees are female (which is an
increase from 23% in 2017). 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 2017 ‘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.
A commitment to reducing our Gender Pay Gap
The Gender Pay Gap Report highlighted that across the Halfords
Group of companies, our mean and median hourly pay gap is less
than the national average, with a women’s mean hourly rate being
6.12% lower than men’s and the median hourly rate 2.83% lower than
men’s.
But our focus remains on two areas, firstly increasing the overall
number of women at Halfords and secondly increasing the number of
women appointed into and promoted into more senior roles, with the
number of women in senior management roles continuing to grow.
This has seen us enhance our recruitment process to ensure more
females are appointed, and managers have been retrained to
support this.
Our internal progression programmes are reviewed and monitored
to ensure increasing levels of female applicants and we have also
enhanced our maternity pay package, whilst additionally providing
flexible work patterns to match the needs of a broad range of
colleagues.
Our Gender Pay Metrics can be found online at
www.halfordscompany.com/media/388689/2017-Gender-
Pay-Metrics.pdf
26
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Case Study
Halfords helps women offenders
get their lives back on track
Halfords now works across two locations at Onley Prison near
Rugby and Drake Hall, Staffordshire. As the UK continues to
battle high reoffending rates, with 83% of former prisoners
remaining jobless a year after release, the UK’s biggest cycling
retailer is encouraging other businesses to follow suit and open
up to the possibilities of an increase in the talent pool, lowering
the cost of reoffending and contributing to safer communities
for all.
The Halfords Academy at HMP Drake Hall was launched one
year ago with the support of Justice Minister Phillip Lee. The
Halfords Academy offers participants the opportunity to
train as Cycle Mechanics, creating the prospect of steady
employment and a chance to put their past firmly behind them.
The programme can be tailored for each participant with an
added focus on mechanics, customer services or retail.
Within a year of launch, the Halfords Academy has been a
huge success and is currently training nine female offenders.
Two graduates have already joined Halfords as full-time Cycle
Mechanics following their release, and another two graduates
are due to start employment soon following their release from
HMP Drake Hall on temporary licence.
Fully supported by Halfords colleagues, participants are
subject to the same high standards of training as colleagues
in Halfords shops. The training programme is thorough and
comprehensive. It is designed to challenge participants and
raise their aspirations. The programme provides offenders with
the opportunity to be trained and work on bicycles that are
being reconditioned. The majority of these fully refurbished
bikes are then donated to primary schools in disadvantaged
areas which helps children access cycling through the Halfords
school bike donation scheme.
Even though women only constitute approximately 5% of the
total prison population, research has shown that a gender-
sensitive approach with a focused and targeted effort can lead
to a significant reduction in their reoffending rates. At Halfords
we were delighted to be involved with this project which offers
potentially life transforming opportunities to participants.
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Corporate Social Responsibility
>30,000
People benefited from free workshops
Community
Using our knowledge and expertise to benefit the
communities around us
Helping to keep families safer on their journeys and
encouraging an active lifestyle
We continue to believe that we have a key role to play in encouraging
people to cycle more as part of an active lifestyle. To this end, we
have continued with our school bike workshops, focused on primary
school children. We have increased our investment by 44% and
added an additional 715 schools to our database to help drive
attendance. Pleasingly, Customer feedback has improved +5% Year
on Year.
In June, we supported Bike Week 2017 with Cycling UK and continue
to grow our relationship with Bikeability. We are currently looking at
how we can increase our focus in this area next year.
Case Study
Journey of a Lifetime
Last year we created our ‘Journey of a Lifetime’ competition. This
enables the winners to undertake an epic journey with their fellow
colleagues. It not only provides a great experience for them but
is also used to raise funds for the NSPCC which is our nominated
charity as it was selected by a vote of our colleagues.
Following the success of the first trip in February 2017, when
a team of colleagues raised funds, collected bikes, loaded a
container and followed it over to Gambia, where they met with
partners on the ground and delivered bike workshops to local
children, we have repeated this competition this year. The
2018 winners trekked to Everest Base Camp where they built
a bike and hung pennants which had been created specially
by children who have benefited from holidays provided by
NSPCC. The team raised £25,233.94 for NSPCC. It was a tough
but hugely beneficial trip and the winning colleagues really did
experience a ‘Journey of Lifetime’.
28
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Halfords AR2018 Strategic.indd 28
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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 FY18, over 70% of our colleagues had qualified
for Gear 2 and we had over 700 Gear 3 level colleagues. There
are many benefits of this investment in training. We have more
multi-skilled colleagues; an average of eight ‘Gear 2’ trained
fitters per store, up from only a handful three years ago. The
benefits of this training are demonstrated by our improved
colleague engagement score and 9th placing in the Sunday
Times Best Big Companies To Work For.
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29
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Environment
The environmental resources Halfords uses in
its operations.
Corporate Social Responsibility
96%Retail waste diverted from landfill
(2017: 94%)
94%Autocentres waste diverted
from landfill
(2017: 91%)
226,260
Batteries recycled by
Retail and Autocentres
(2017: 274,000)
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.
Additionally, we already ensure that our suppliers give preference to
the use of recycled materials in the manufacturing and packaging of
our goods and to help achieve this we have a clause in our standard
terms of business with the suppliers who provide the goods that
are sold in our stores which requires them to: i) use reasonable
endeavours to minimise the packaging use; and ii) conduct an annual
review of their packaging to make sure they are using recycled or
recyclable materials wherever possible.
30
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Halfords AR2018 Strategic.indd 30
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Global Greenhouse Gas Emissions
Global Greenhouse Gas Emissions
Retail inc Cycle Republic Directly Purchased Electricity
Autocentres Directly Purchased Electricity
Tredz and Wheelies Directly Purchased Electricity
Halfords Group Directly Purchased Electricity
Retail inc Cycle Republic Combustion of Gas
Autocentres Combustion of Gas
Tredz and Wheelies Combustion of Gas
Halfords Group Combustion of Gas
2016
tCO2E
2017
tCO2E
2018
tCO2E
28,507.45
4,648.26
N/A
N/A
6,488.28
3,329.25
N/A
N/A
18,448.01
3,379.41
N/A
N/A
7,035.65
3,339.91
N/A
N/A
19,638.34
2,790.05
88.27
22,516.66
6,187.43
3,483.44
17.84
9,688.71
Cars on Company Business
889.22
911.45
1,080.00
TOTAL
43,862.46
33,114.43
33,285.37
Company’s Chosen Intensity Measurement: tCO2 E per £1m Group Revenue
42.90
33.10
29.32
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Corporate Social Responsibility
41,965
Bikes recycled to date
Responsible Management
Building and maintaining the highest standards
amongst our suppliers
Responsible Trading
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.
Our principles are based on International standards, including
the International Labour Organisation (ILO) conventions and
recommendations, which in turn are based on the United Nations
(UN) Universal Declaration of Human Rights and Convention on
Rights of the Child.
As required by applicable regulation we have set out our Modern
Slavery Statement on our website and are conducting an audit of
our supply chain. While this audit is not yet fully complete the data
and response received so far has been extremely positive and no
instances of unacceptable conduct have been reported.
Read more online at
www.halfordscompany.com/investors/governance
32
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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Chief Financial Officer’s Report
Jonny Mason
Financial Resources
Generating returns for our stakeholders through effective
management of our financial resources.
Group revenue in FY18, at £1,135.1m,
was up 3.7% and comprised Retail
revenue of £977.2m and Autocentres
revenue of £157.9m.
Alternative Performance Measures
In the reporting of financial information, the Directors have adopted
various Alternative Performance Measures (APMs). These are
denoted with an asterisk (*) in this report. Further detail on these
APMs, including definitions, can be found in the glossary on
page 151.
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”), and Performance Cycling Limited (together, “Tredz and
Wheelies”) trading entities. All references to Group represent the
consolidation of the Retail and Autocentres segments.
The “FY18” accounting period represents trading for the 52 weeks to
30 March 2018 (“the financial year”). The comparative period “FY17”
represents trading for the 52 weeks to 31 March 2017 (“the prior
year”).
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 £1,135.1m
GROUP
REVENUE
£71.6m
UNDERLYING
GROUP PBT*
29.6p
UNDERLYING
BASIC EPS*
Group Financial Results
Group Revenue
Group Gross Profit
Underlying EBIT*
Underlying EBITDA*
Net Finance Costs before non-recurring items
Underlying Profit Before Tax*
Profit Before Tax, after non-recurring items
Underlying Basic Earnings per Share*
* Alternative performance measures are defined in the glossary on page 151.
FY18
£m
1,135.1
570.2
74.6
109.5
(3.0)
71.6
67.1
29.6p
FY17
£m
1,095.0
558.6
77.1
108.7
(1.7)
75.4
71.4
30.3p
Change
+3.7%
+2.1%
-3.2%
+0.7%
-5.0%
-6.0%
-2.3%
Group revenue in FY18, at £1,135.1m, was up 3.7% and comprised
Retail revenue of £977.2m and Autocentres revenue of £157.9m.
This compared to FY17 Group revenue of £1,095.0m, which
comprised Retail revenue of £938.4m and Autocentres revenue
of £156.6m. Group gross profit at £570.2m (FY17: £558.6m)
represented 50.2% of Group revenue (FY17: 51.0%), reflecting a
decrease in the Retail gross margin of 123 basis points (“bps”) to
47.4% and increase in the Autocentres gross margin of 238 bps
to 67.5%.
Total operating costs before non-recurring items increased to
£495.6m (FY17: £481.5m) of which Retail comprised £391.0m
(FY17: £379.8m), Autocentres £102.5m (FY17: £99.8m) and
unallocated costs £2.1m (FY17: £1.9m). 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
Tredz and Wheelies in May 2016, which arise on consolidation of
the Group.
Group Underlying EBITDA* increased 0.7% to £109.5m (FY17:
£108.7m), whilst net finance costs before non-recurring items were
£3.0m (FY17: £1.7m).
Underlying Profit Before Tax* for the year was down 5.0% at £71.6m
(FY17: £75.4m). Net non-recurring items of £4.5m in the year (FY17:
£4.0m) related predominantly to organisational restructure costs and
the Autocentres operational review. After non-recurring items,
Group Profit Before Tax was £67.1m (FY17: £71.4m).
Retail
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-recurring items
EBIT after non-recurring items
Underlying EBITDA*
* Alternative performance measures are defined in the glossary on page 151.
FY18
£m
977.2
463.6
47.4%
(391.0)
72.6
(4.8)
67.8
99.0
FY17
£m
938.4
456.6
48.6%
(379.8)
76.8
(3.1)
73.7
101.1
Change
+4.1%
+1.5%
-123 bps
+2.9%
-5.5%
-8.0%
-2.1%
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35
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Chief Financial Officer’s Report
Revenue for the Retail business of £977.2m reflected, on a constant-currency basis, a like-for-like (“LFL”)* sales increase of 2.3%. Non LFL
revenue in the year included sales from the Tredz and Wheelies businesses prior to the annualisation of the acquisition date, alongside the
contribution from Cycle Republic stores that have been open for less than 12 months.
Please refer to the Retail Operational Review in the Chief Executive’s Statement for further commentary on the trading performance in the
year. Like-for-like revenues and total sales revenue mix for the Retail business are split by category below:
Motoring
Car Maintenance
Car Enhancement
Travel Solutions
Cycling
FY18
LFL (%)
+1.9
+3.7
-2.2
+3.6
+2.9
FY18
Total sales
mix (%)
61.0
31.6
18.2
11.2
39.0
FY17
Total sales
mix (%)
62.0
31.4
19.0
11.6
38.0
Gross profit for the Retail business at £463.6m (FY17: £456.6m) represented 47.4% of sales, 123bps down on the prior year (FY17: 48.6%).
This movement is explained as follows:
Gross impact of the weaker pound against the US dollar (pre-mitigation)
First time inclusion of Tredz and Wheelies for the period prior to annualisation of the acquisition in May 2016
The mix effect of relatively faster cycling sales growth, partially offset by Sat Nav sales decline and higher margin service
sales growth
Mitigation of FX impact and other
Total Retail gross margin movement
-270 bps
-20 bps
-30 bps
+197 bps
-123 bps
As previously guided, in the first half of FY18 the impact of the depreciation of the pound against the US dollar, pre-mitigation, reached its
highest level of any half year period since the EU referendum. If exchange rates remain at around current levels, we do not anticipate further
adverse impact in FY19. The table below shows the average exchange rate reflected in cost of sales along with the year-on-year movement.
Average USD:GBP rate reflected in cost of sales
Year-on-year movement in rate
Operating Costs before non-recurring items were £391.0m (FY17: £379.8m). The breakdown is set out below:
Store Colleagues
Store Occupancy
Warehouse & Distribution
Support Costs
Total Operating Costs before non-recurring items
FY18
£m
115.5
142.4
51.6
81.5
391.0
FY18
full year
$
$1.29
$(0.18)
FY17*
£m
111.2
138.6
48.9
81.1
379.8
FY17
full year
$
$1.47
$(0.12)
Change
+3.9%
+2.7%
+5.5%
+0.5%
+2.9%
* The prior year costs have been restated from those disclosed in the prior year, in order to allocate the costs of the Tredz & Wheelies business to the respective
cost categories.
Store Colleague costs increased by 3.9% and reflected the continued inflation in the living and minimum wage rates, additional labour hours,
the impact of additional Cycle Republic stores and also the first-time inclusion of a full-year of Tredz & Wheelies costs.
Store Occupancy costs increased by 2.7%, principally driven by the write-off of assets no longer required, increased utility costs driven by
the cold weather in the early Spring and additional costs associated with the store refreshes and new Cycle Republic stores. Rent and rates
on the existing estate were broadly flat.
Warehouse & Distribution costs increased by 5.5%, driven by a combination of wage inflation, an increase in storage costs and also additional
courier costs, resulting from our improved home delivery proposition. There was also an impact of greater demand for more bulky items, such
as roof boxes, cycle carriers, camping products and metal storage.
Support Costs increased by 0.5%, reflecting the impact of pay rises and increased depreciation, partially offset by savings elsewhere as
costs were tightly controlled.
36
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Autocentres
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-recurring items
EBIT after non-recurring items
Underlying EBITDA*
FY18
£m
157.9
106.6
67.5%
(102.5)
4.1
—
4.1
10.5
FY17
£m
156.6
102.0
65.1%
(99.8)
2.2
(0.3)
1.9
7.6
Change
+0.8%
+4.5%
+238 bps
+2.7%
+86.4%
+115.8%
+38.2%
* Alternative performance measures are defined in the glossary on page 151.
Autocentres generated total revenues of £157.9m (FY17: £156.6m), an increase of 0.8% on the prior year with a LFL* increase of 0.2%.
This sales performance reflected the successful transition away from low-margin third party affiliate tyre sales, towards direct tyre sales,
and service, maintenance and repair work, which, along with improved purchasing, resulted in an improvement in gross margin.
Gross profit at £106.6m (FY17: £102.0m) represented a gross margin of 67.5%; an increase of 238 bps on the prior year.
Autocentres’ Underlying EBITDA* of £10.5m (FY17: £7.6m), was 38.2% higher than FY17, and Underlying EBIT* was £1.9m higher than FY17
at £4.1m (FY17: £2.2m).
Portfolio Management
The Retail store portfolio at 30 March 2018 comprised 480 stores (end of FY17: 479).
The following table outlines the changes in the Retail store portfolio over the year:
Relocations
Leases re-negotiated
Rightsized
Openings
Closed
Number
5
32
1
4
3
36 Retail stores were refreshed in the year (FY17: 17). Management currently anticipates continuing to refresh stores and to open new Cycle
Republic stores in FY19; further guidance to be provided later in the year.
Three Autocentres were opened in the year, taking the total number of Autocentre locations to 316 as at 30 March 2018 (end of FY17: 313).
Six Autocentres were refreshed in the year (FY17: 16).
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 just less than 6 years.
Net Non-Recurring items
The following table outlines the components of the non-recurring items recognised in the year:
Organisational restructure costs
Autocentres operational review
Acquisition and investment related fees
Operating lease obligation
Costs in relation to a historic legal case
Net non-recurring operating costs
Acquisition related interest (credit)/charge
Net non-recurring items
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FY18
£m
4.3
0.6
0.2
(0.3)
—
4.8
(0.3)
4.5
FY17
£m
0.6
—
1.7
0.3
0.8
3.4
0.6
4.0
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OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Chief Financial Officer’s Report
Capital Expenditure
Capital investment in the year totalled £37.3m (FY17: £36.1m)
comprising £30.3m in Retail and £7.0m in Autocentres.
Within Retail, £12.8m (FY17: £11.5m) was invested in stores,
including store relocations and refreshes, and the opening of four
Cycle Republic stores. Additional investments in Retail infrastructure
included a £12.2m investment in IT systems, including development
of the till hardware and software upgrade. The balance of £5.3m was
invested in warehousing and logistics upgrades, trading initiatives
and Tredz & Wheelies infrastructure improvements.
The £7.0m (FY17: £6.6m) capital expenditure in Autocentres
principally related to the replacement of garage equipment and
replacement of fixtures and fittings, and development of new till
hardware and software.
On a cash basis, total capital expenditure in the year was £37.0m
(FY17: £34.4m).
Inventories
Group inventory held as at the year end was £195.5m (FY17:
£191.1m). Retail inventory increased to £194.1m (FY17: £189.8m),
reflecting increased stock in transit, higher Tredz and Wheelies stock
and the impact of the weaker pound, which increased the cost of
imported goods.
Autocentres’ inventory was £1.4m (FY17: £1.3m). The Autocentres
business model is such that only modest levels of inventory are held
within the centres, with most parts being acquired on an as-needed
basis.
Cashflow and Borrowings
Adjusted Operating Cash Flow* during the year was £95.4m (FY17:
£90.0m). After acquisitions, taxation, capital expenditure and net
finance costs, Free Cash Flow* of £41.5m (FY17: £37.7m) was
generated in the year. Group Net Debt* was £87.8m (FY17: £85.9m),
with the Underlying EBITDA ratio* at 0.8:1. During the year there
were £8.6m of planned follow-on payments in respect of the Tredz
acquisition and Tyres on the Drive investment, and c.£9m working
capital impact from timing of VAT payments. The latter is anticipated
to reverse out over the medium-term, but not in FY19.
In the current and prior year, separate and unrelated organisational
restructuring activities were undertaken. These comprised:
• Redundancy costs of £0.7m (FY17: £0.6m);
•
•
•
£1.0m provision for compensation to the new CEO on joining for
foregoing entitlements from a previous employer, as outlined at
the time of announcement of his appointment;
£1.5m in relation to a restructure of the Boardman business.
Boardman has stopped selling directly to customers through
the Boardman website. The website will be maintained as a
‘brand’ website, with customers being directed to purchase bikes
predominantly through Cycle Republic; and
£1.1m in relation to asset write-offs, principally resulting
from the strategic decision to close the marketplace offer on
Halfords.com.
Costs of £0.6m were incurred in FY18 in relation to the review of the
operating model of the Autocentres business.
Explanations of the remaining non-recurring items are included in
Note 5 to the Group financial statements later in this report.
Finance Expense
The net finance expense (before non-recurring items) for the year
was £3.0m (FY17: £1.7m). The increase was due to the non-repeat of
£1.4m income from forward foreign exchange contracts. The interest
costs on bank borrowings were slightly down on the previous year,
reflecting the improved terms negotiated in the amendment of the
revolving credit facility.
Taxation
The taxation charge on profit for the financial year was £12.4m
(FY17: £15.0m), including a £0.8m credit (FY17: £0.9m credit) in
respect of non-recurring items. The effective tax rate of 18.5%
(FY17: 21.0%) differs from the UK corporation tax rate (19%)
principally due to non-deductible depreciation charged on capital
expenditure, overseas tax rates and the impact of share options
accounting.
Earnings Per Share (“EPS”)
Underlying Basic EPS* was 29.6 pence and after non-recurring items
27.8 pence (FY17: 30.3 pence, 28.7 pence after non-recurring items),
a 2.3% and 3.1% decrease on the prior year. Basic weighted-average
shares in issue during the year were 197.0m (FY17: 196.6m).
Dividend (“DPS”)
The Board has recommended a final dividend of 12.03 pence per
share (FY17: 11.68 pence), taking the full year ordinary dividend to
18.03 pence per share, an increase of 3.0%. If approved the final
dividend will be paid on 31 August 2018 to shareholders on the
register at the close of business on 27 July 2018.
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Principal Risks and Uncertainties
The Board considers risk assessment, identification of mitigating
actions and internal control to be fundamental to achieving Halfords’
strategic corporate objectives. In the Annual Report & Accounts the
Board sets out what it considers to be the principal commercial and
financial risks to achieving the Group’s objectives. The main areas
of potential risk and uncertainty in the balance of the financial year
are described in the Strategic Report on page 40 of the 2018 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
• 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
22 May 2018
Brexit
As we have previously explained, 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. We have
previously set out the main areas in which we considered Brexit was
likely to impact the Group. We reaffirm and update our assessment
of these below:
1.
Impact on exchange rates. The Group buys a significant
proportion of its goods in US dollars; between $250m and
$300m a year. As previously guided, the majority of our US dollar
sourcing is for cycling products, and, in 2017, bike prices rose
across the cycling market, both from suppliers into retailers and
then onto customers. We have also increased some of our bike
prices, but we maintained good value against the competition.
Our bike volumes declined, but this was more than offset by the
increase in average selling prices.
We have now experienced a cumulative additional £40m of input
costs compared to FY16, in respect of the weaker pound against
the US dollar. Our plans to offset the gross impact (through
supplier negotiations, operational efficiencies and pricing)
have worked well and the net impact on Retail gross margin
visibly improved over the year with a year-on-year movement in
gross margin of -182bps in H1 and -48bps in H2. We have now
recovered over half of the gross impact and at current exchange
rates we do not anticipate any further FX headwind in FY19 or
FY20.
As explained in the CEO statement, we now expect the remaining
unmitigated amount to be recovered through the improved
exchange rates rather than through further price rises. Given our
hedging policy, this benefit will be mostly felt in FY20 rather than
in FY19.
2. 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.
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39
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT
Our Principal Risks and Uncertainties
Like all businesses, our Group faces risks and uncertainties that could impact the achievement of the Group’s strategy. These risks are
accepted as being a part of doing business. 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 Internal Audit team 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 56 to 68 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 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 129.
Key Risk and Uncertainty
Mitigation
Risk Movement
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.
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 39 for further information.
Key to risk movement
Risk increasing
No risk movement
Risk decreasing
40
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Key Risk and Uncertainty
Mitigation
Risk Movement
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, Cycle Republic and Tredz &
Wheelies businesses could fail to meet
growth expectations.
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.
The Group set out the ‘Moving Up A Gear’ strategy in November
2015. 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.
In January 2018 we welcomed our new CEO, Graham Stapleton,
who is reviewing the strategy in close liaison with the Board with
a view to communicating this externally later in the year.
The Group has delegated authorities processes to approve
significant investments, including review by an Investment
Committee and the Board. Our Business Transformation Director,
an executive level role with a Group-wide remit, oversees strategic
project management.
Autocentres, Cycle Republic and Tredz & Wheelies 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.
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’ and ‘Boardman’.
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.
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41
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Our Principal Risks and Uncertainties
Key Risk and Uncertainty
Mitigation
Risk Movement
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.
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.
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. A General Data Protection Regulation
(GDPR) Steering Group is overseeing the introduction of the
compliant GDPR arrangements.
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.
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Key Risk and Uncertainty
Mitigation
Risk Movement
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.
The Group constantly seeks to enhance its position as the shop
or centre of first choice in each of the markets that it serves.
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 “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 regional and 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.
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43
OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWSTRATEGIC REPORT Our Principal Risks and Uncertainties
Key Risk and Uncertainty
Mitigation
Risk Movement
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.
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.
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 we have
undertaken network penetration testing.
The Audit Committee is briefed by senior IT management on the
business’ IT security framework and continues to closely monitor
this area.
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 summarised on pages 80 to 81 details
the strategies in place to ensure that high calibre executives are
attracted and retained. The Group looks to improve its senior
manager cadre through operating a talent management process
to help individuals achieve their full potential within Halfords and to
ensure that appropriate succession plans are in place to meet the
future needs of the business. At a junior level, the Group continues
to invest in graduate and apprenticeship programmes and shop
and Autocentre colleague training and development.
Dennis Millard
Chairman
22 May 2018
44
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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OUR
GOVERNANCE
Board of Directors
Directors’ Report
Corporate Governance Report
Nomination Committee Report
Corporate Social Responsibility
Committee Report
Audit Committee Report
Remuneration Committee Report
– Directors' Remuneration Policy
Summary Report
– Annual Remuneration Report
Directors’ Responsibilities
48
50
56
70
72
74
78
80
82
91
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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, and
Senior Independent Director of Superdry Plc. In addition, Dennis is a Trustee of the Holy
Cross Children's Trust.
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.
Graham Stapleton C
Chief Executive Officer
Graham was appointed Chief Executive Officer on 15 January 2018.
Previously, Graham was Chief Executive Officer (“CEO”) of Dixons Carphone plc’s
software business, Honeybee. Prior to that he was CEO of Dixons Carphone’s Connected
World Services Division from 2015 to 2017 and CEO of Carphone Warehouse UK &
Ireland from 2013 to 2015. Graham’s early career covered senior leadership roles in
Kingfisher plc from 2001 to 2005 and Marks and Spencer plc from 1994 to 2001. Prior to
which Graham set up and ran his own business for several years. Graham was a Trustee of
the Make-A-Wish charity.
Jonny Mason
Chief Financial Officer
Jonny has been Group Chief Financial Officer ("CFO") since 12 October 2015. Jonny was
Interim Chief Executive Officer between September 2017 and January 2018.
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 was also a Director of the charity Dimensions (UK) Limited.
48
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 currently holds Non-Executive Director roles at
Debenhams plc and Thinksmart plc. He chairs the Audit Committee at Debenhams and
Thinksmart. In addition, David is a Trustee of the charity Walk the Walk.
Previously, David was Finance Director and Deputy Chief Executive of House of Fraser
plc, Non-Executive Chairman of Conviviality plc becoming Executive Chairman, a Non-
Executive Director of Hornby plc, a Non-Executive Director of Elegant Hotels plc, a
Non-Executive Director at Fevertree Drinks plc and Executive Chairman of Jessops plc,
becoming Non-Executive Chairman. His former board appointments include Chairman
at Moss Bros plc and Alexon plc. In addition he has held several Executive and Non-
Executive roles in 30 years in retailing including ten years as a plc Finance Director.
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 is currently a Non-Executive
Director of Aviva plc, Derwent London plc and the Premier League.
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.
Helen Jones A C N R
Independent Non-Executive Director
Helen joined the Board as a Non-Executive Director on 1 March 2014 and became
Chairman of the Corporate Social Responsibility Committee in January 2016.
Helen held a senior executive role at Caffè Nero until June 2017, and 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 is currently a member of the Supervisory Board of Directors of Ben and Jerry’s and
Viapiano SE.
Committee Membership
A
C
N
R
Audit Committee
Corporate Social Responsibility Committee
Nomination Committee
Remuneration Committee
49
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Directors’ Report
The Directors present their report and the audited financial statements of Halfords Group plc (the “Company”) together with its subsidiary
undertakings (the “Group”) for the period ended 30 March 2018.
Halfords Group plc
Registered Number
Registered Office Address
Country of Incorporation
Type
04457314
Icknield Street Drive, Washford West, Redditch, Worcestershire, B98 0DE
England and Wales
Public Limited Company
Statutory Information
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, together with those required under the 2013 Large and Medium-
sized Companies and Groups (Accounts and Reports) Regulations 2008, are cross referenced in the following table:
Topic
Modern Slavery 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
Branches outside of the UK
Charitable Donations
Colleagues’ Involvement; Diversity; and Disability
Community
Compensation for Loss of Office
Creditor Payment Policy
Directors’ Biographies
Directors’ Indemnities
Directors’ Interests
Directors’ Remuneration Report and Remuneration Policy Summary
Directors’ Responsibility Statement
Financial Instruments
Future Developments of the Business
Financial position of the Group, its cash flows, liquidity position and
borrowing facilities
Gender Pay Gap Report
Greenhouse Gas Emissions
Going Concern
Important Events Since Year End
Independent Auditor
Internal Controls and Risk Management
Nomination Committee Report
Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Audit Committee Report
Directors’ Report
Directors’ Report
Corporate Governance Report
Directors’ Report
Strategic Report: Corporate Social Responsibility
Directors’ Report
Strategic Report: Corporate Social Responsibility
Strategic Report: Corporate Social Responsibility
Directors’ Report
Directors’ Report
Board of Directors
Directors’ Report
Directors’ Report
Annual Remuneration Report
Directors’ Report
Note 21 to the Group Financial Statements
Chief Executive's Statement
Chief Financial Officer’s Review
Strategic Report: Corporate Social Responsibility
Strategic Report: Corporate Social Responsibility
Directors’ Report
Directors’ Report
Independent Auditor’s Report
Corporate Governance Report
Nomination Committee Report
Page
55
52
54
55
74
54
52
56-68
55
24
53
24
28
53
55
48
53
52
78-90
91
129
8
34-39
26
31
54
55
94-99
66
70-71
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Topic
Political Donations
Powers of the Directors
Principal Activities
Re-election of Directors
Restrictions on transfer of securities
Share Capital
Significant Shareholders
Subsidiary and Associated Undertakings
Statement of Corporate Governance
Strategic Report
Risk Management
Viability Statement
Voting Rights
Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Note 22 to the Group Financial Statements
Directors’ Report
Note 4 to the Company Financial Statements
Corporate Governance Report
Strategic Report
Strategic Report
Directors’ Report
Directors’ Report
Page
54
52
52
52
53
53
136
54
146
56-68
12-44
40-44
55
53
Disclosures Required by the Financial Conduct Authority’s (“FCA”) Listing Rule 9.8.4R
The information required by Listing Rule 9.8.4R is disclosed on the following pages:
Disclosure
Long-term incentive schemes
(Performance Share Plan and Restricted Share Plan)
Waiver of Dividends
Page
79, 81, 83,
85, 86
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51
STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Directors’ Report
Principal Activities
The principal activities of the Group are: the retailing of motoring,
cycling and leisure products and services; and garage servicing and
auto repair. The principal activity of the Company is that of a holding
company. The Company’s registrar is Link Asset Services, 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 100. The profit before tax on ordinary
activities was £67.1m (2017: £71.4m) and the profit after tax
amounted to £54.7m (2017: £56.4m). The Board proposes that a final
dividend of 12.03 pence per ordinary share be paid on 31 August
2018 to shareholders whose names are on the register of members
at the close of business on 27 July 2018. This payment, together
with the interim dividend of 6 pence per ordinary share paid on 19
January 2018, makes a total for the year of 18.03 pence per ordinary
share. The total final dividend payable to shareholders for the year is
estimated to be £35.5m.
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 Key Performance Indicators (“KPIs”) and periodic
review of various aspects of the Group’s operations. The Group
considers that the KPIs listed on pages 20 to 22 are appropriate
measures to assess the delivery of the Group's strategy.
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 2017 Annual
General Meeting, held on 26 July 2017, will expire on the date of the
2018 Annual General Meeting. Since the date of the 2017 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
The following were Directors of the Company during the period
ended 30 March 2018 and at the date of this Annual Report:
Directors’ Interests
The Directors’ interests in, and options over, ordinary shares in the
Company are shown in the Annual Remuneration Report on page 88.
• Dennis Millard
• Graham Stapleton (appointed 15 January 2018)
• Jonny Mason
• David Adams
• Claudia Arney
• Helen Jones
• Jill McDonald (resigned 29 September 2017)
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 30 March 2018
will retire and offer themselves for re-election at the 2018 Annual
General Meeting (“AGM”), with the exception of Dennis Millard who
will be stepping down at the date of the AGM. Graham Stapleton, who
was appointed on 15 January 2018, together with Keith Williams,
the new Chairman, will stand for election for the first time at the 2018
AGM.
On 27 March 2018, it was announced that Jonny Mason, Chief
Financial Officer resigned from the business to take up the position
as Group Finance Director at Dixons Carphone plc. Jonny will
remain as Chief Financial Officer until the end of his notice period in
September 2018. The process for the appointment of his successor
is under way.
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 and the register is updated
accordingly.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 The Group takes a zero-tolerance approach to matters of
discrimination, harassment and bullying in all aspects of its business
operations. Appropriate policies and procedures are in place for
reporting and dealing with such matters.
Whistleblowing
The Group is committed to conducting its business with honesty
and integrity, and it expects all colleagues to maintain high standards
in accordance with its corporate culture. An understanding of
openness and accountability is essential in order to prevent illegal or
unethical conduct or malpractice and to enable any such situations
to be addressed should they ever occur. The Group Whistleblowing
Policy and Procedure (the “Whistleblowing Policy”) is annually
reviewed and communicated to all colleagues around the Group
and enables colleagues to report concerns on matters affecting
the Group or their employment, without fear of recrimination. The
Whistleblowing Policy sets out how concerns may be raised and
when response can be expected from the Company.
Share Capital and Shareholder Voting Rights
Details of the Company’s share capital and 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 139.
Directors’ Indemnities
Directors’ and Officers’ insurance 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.
Colleague Involvement
The Group places significant emphasis upon colleague
engagement at all levels and has an established framework of
colleague communications providing colleagues with regular
information on business performance and other relevant matters.
This framework facilitates and encourages the engagement of
every colleague through a programme of regular conferences,
monthly magazines, team meetings and huddles and a weekly blog
from the CEO. In addition, the Group undertakes its own annual
colleague engagement survey and participates in the external ‘Best
Companies’ survey which is published by the Sunday Times. Further
information on colleague engagement is included in the CSR Report
on page 25.
Colleague Training and Development
The Group strives to meet its business objectives by motivating
and encouraging all colleagues to be responsive to the needs of its
customers and continually improve operational performance. This
is delivered through a range of structured training and development
programmes, across the Group, in Retail, Autocentres, Performance
Cycling, Boardman and Cycle Republic. The Group also continues
to invest in its apprenticeship programme. Further information
on colleague training and development, and the apprenticeship
programme can be found on page 25 of the CSR Report.
In addition, the Group runs a Leadership Development programme,
called Aspire, to identify 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.
Colleague Diversity and Disabled Persons
There is a Group Diversity Policy which is reviewed annually by the
Board. The Group is committed to providing equal opportunities
in recruitment, training, career development and promotion for all
colleagues, potential colleagues or contractors. This commitment
to equality of opportunity applies regardless of anyone’s physical
ability, gender, sexual orientation or gender reassignment, pregnancy
and maternity, race, religious beliefs, age, nationality or ethnic origin.
Full and fair consideration is given to employment applications from
people with disabilities wherever suitable opportunities exist, having
regard to their particular aptitudes and abilities. 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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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Directors’ Report
Significant Shareholders
As at 30 April 2018, 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.
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.
Holder
Jupiter Asset Management Limited (UK)
Schroders Plc
Wise Investments Ltd (UK)
J O Hambro Capital Management (UK)
Rathbones
Norges Bank Investment Management
Dimensional Fund Advisors
HSBC Global Asset Management
Wellington Management Company
Aberforth Partners LLP (SC)
BlackRock Inc
Number
of shares
20,549,795
17,310,181
10,797,000
10,731,015
8,904,014
7,978,058
7,772,290
7,513,337
7,161,795
6,818,647
6,279,367
% of
issued
shares
10.32
8.69
5.42
5.39
4.47
4.01
3.90
3.77
3.60
3.42
3.15
Authority to Purchase Shares
At the 2017 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 1 June 2017, such authority
expiring at the conclusion of the Annual General Meeting to be held
in 2018 or, if earlier, on 30 September 2018.
Transactions with Related Parties
During the period, the Company did not enter into any material
transactions with any related parties.
Political Donations
The Group made no political donations and incurred no political
expenditure during the year (FY17: 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 £200m revolving credit facility, ending in September
2021 with a one-year extension option to September 2022. At the
year end, the Group had undrawn borrowing facilities of £116m
(2017: £97m). 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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 2 April 2021. 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 2 April 2021. As is customary when dealing with longer
term debt facilities, the Board 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 key risks, mitigations and assessment processes are
set out on pages 40 to 44.
Modern Slavery Statement
The Group operates retail stores across the UK and Ireland and
garages throughout the UK. The products the Group sells are
sourced from a broad range of national and international suppliers.
Many of those international supplier relationships are sourced and
managed by a dedicated Halfords Global Sourcing (“HGS”) team
based in Hong Kong, Taiwan and Shanghai
During the financial year, the Group updated its Ethical Trading
Statement, which details how its complies with the legislation
which is applicable to Ethical Trading, and sets out the standards
expected of its suppliers. This is particularly in regard to conditions
of employment, wages and benefits, child labour, human trafficking,
as well as health and safety and environmental policy. To ensure that
policies and standards are communicated as effectively as possible,
the Group follows a dual strategy:
1.
2.
requiring suppliers to confirm compliance with relevant
legislation, which includes the Modern Slavery Act 2015 (via an
annual ‘Supplier Compliance Declaration’); and
the establishment of a specific Code of Conduct which primarily
applies to the organisations that supply the goods sold by the
Group. These suppliers are the ones that deal mainly with the
Global Sourcing Operation, HGS.
Furthermore, the Group has amended its terms of business when
purchasing Goods For Resale so that the contracts now oblige
suppliers to comply with their obligations under the Modern Slavery
Act 2015 Act. The responses from suppliers to the audit of the
supply chain have been positive and the completed replies have
identified good levels of compliance and have not unearthed any
adverse findings.
The Modern Slavery Statement is annually reviewed by the Board of
Directors and was last approved on 29 September 2017.
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 30 March 2018 for the Group was 66 days (2017: 59 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.
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 22 May 2018, it was announced that Keith Williams will be joining
Halfords as Chairman on 24 July 2018.
Annual General Meeting (“AGM”)
The AGM will be held at the Hilton Garden Inn, 1 Brunswick Square,
Brindleyplace, Birmingham, B1 2HW on Tuesday 24 July 2018. The
Notice of the AGM and explanatory notes regarding the ordinary and
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
22 May 2018
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
Dennis Millard – Chairman
Chairman’s Introduction
As Chairman my role is to lead the Board, ensure it
operates effectively and contains the right balance of
skills, diversity and experience. The Board is collectively
responsible for the long-term success of the Company
and for setting and executing the business strategy.
Good corporate governance is a key element of our business
success and we have in place a strong and effective
governance framework and practices to ensure 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 2016.
I would encourage you to attend this year’s Annual General
Meeting where you can meet me and my Board colleagues.
Dennis Millard
Chairman
22 May 2018
Good corporate governance is a key
element of our business success and
we have in place a strong and effective
governance framework and practices
to ensure that high standards of
governance, values and behaviours
are consistently applied throughout
the Group.
Corporate Governance Statement
The Board confirms that during the year ended 30 March 2018,
and as at the date of this report, the Company has fully complied,
without exception, with the provisions of the UK Corporate
Governance Code 2016 (the “Code”), and will continue to do so. A
copy of the Code is available on the Financial Reporting Council’s
website at www.frc.org.uk.
This report, together with the other statutory disclosures and
reports from the Audit, Nomination and Remuneration Committees,
provides details of how the Company has applied the principles of
good governance set out in the Code during the period under review.
The Company has also complied with the requirements under the
Disclosure Guidance and Transparency Rules, the Listing Rules
and the BIS Directors’ Remuneration Reporting regulations and
narrative reporting requirements.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Board Composition
As at the date of this report, the Board of Directors comprised of six
members; the Non-Executive Chairman, three other Non-Executive
Directors and two Executive Directors. The composition of the Board
is as set out on page 52 and the biographies of individual Directors,
including any other business commitments, are available on pages
48 to 49. The Board believes it has an appropriate balance of
Executive and independent Non-Executive Directors having regard
to the size and nature of the business.
During the year, on 1 February 2018, our Chairman was appointed as
Senior Independent Director of Superdry plc.
Chairman 1
Executive Directors 2
Non-Executive Directors 3
Board Changes
In May 2017, Jill McDonald tendered her resignation as Chief
Executive Officer in order to take up a senior position at Marks and
Spencer plc. Jill was appointed in May 2015, and made a positive
impact across the business. Jill left Halfords on 29 September
2017 with a strong team and clear strategy to drive future growth.
On 13 September 2017, we completed our search for a new Chief
Executive Officer and welcomed Graham Stapleton to the business
on 15 January 2018. In the period between Jill McDonald leaving
the Company and Graham Stapleton joining, Jonny Mason, Chief
Financial Officer, acted as Interim Chief Executive Officer.
As announced on 27 March 2018, Jonny Mason resigned from the
position of Chief Financial Officer to take up the position of Group
Finance Director at Dixons Carphone plc. Jonny will remain as Chief
Financial Officer until the end of his notice period in September
2018. The process is under way by the Nomination Committee to
find his replacement.
On 22 May 2018, it was announced that Keith Williams will be joining
Halfords as Chairman on 24 July 2018. As mentioned in last year’s
annual report, Dennis Millard will have been in office for nine years
this year, and so in accordance with the Code and best practice,
Dennis will stand down at the conclusion of the Annual General
Meeting (“AGM”) on 24 July 2018.
Board Independence
The Company recognises the importance of its Non-Executive
Directors remaining independent and the Code recommends that,
at least half of the Board of Directors, excluding the Chairman
should comprise of Non-Executive Directors, determined by the
board to be independent in character and judgement and free from
relationships or circumstances which may affect or could appear
to affect the Director’s judgement. Following a rigorous review, the
Board considers David Adams, Claudia Arney and Helen Jones to
be independent in character and judgement in accordance with
the Code. As a result, in compliance with the Code, at least half of
the Board, excluding the Chairman, are deemed to be independent.
In accordance with the Code, the Chairman, Dennis Millard, was
considered independent upon his appointment.
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
Director Tenure and Board Succession
Succession planning for the Board continues to be ongoing and
will be considered in more detail during the annual evaluation
of the Board performance. It is also expected that, following the
appointment of the new Chairman and Chief Financial Officer, the
new Chairman will review the composition, skills and experience of
the Board. This is especially relevant given that both David Adams
and Claudia Arney have already served several years and will both be
due to stand down in the next two years.
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Graham Stapleton
Jonny Mason
9yrs 0mths
7yrs 2mths
7yrs 4mths
4yrs 2mths
4mths
2yrs 7mths
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
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p
A
1
6
1
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1
7
1
0
2
l
i
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A
1
8
1
0
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l
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A
1
Re-election
In compliance with the Code and the Company’s Articles of
Association, the majority of the Directors on the Board as at 22
May 2018, will seek re-election at the 2018 Annual General Meeting
(“AGM”), these being, David Adams, Helen Jones, Claudia Arney and
Jonny Mason. Graham Stapleton and Keith Williams will be elected
for the first time at the 2018 AGM.
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 14 to
19 .
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Shareholders
The Chairman – Key Responsibilities
• Manages and provides leadership to the Board
• 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 advisor 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 61 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:
• Responsible for the day-to-day management of the
Key Responsibilities:
• Provides a sounding board for the Chairman
Company
• Develops the Group objectives and strategy for Board
approval
• Holds meetings with the other Non-Executive Directors
without the Chairman at least once a year to appraise the
Chairman’s performance
• Creates and recommends to the Board an annual budget and
• Acts as an intermediary for the other Directors
financial plan
• Delivers the annual budget and plan and other objectives and
executes the agreed Group strategy
•
Identifies and executes new business opportunities and
potential acquisitions or disposals
• Manages the Group’s risks in line with the Board approved
risk profile
• 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 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 Performance
Cycling retail stores, Autocentres outlets and distribution
centres
• Meet together without the Executive Directors present
• Participate in a training programme including store visits
and updates from management
•
Formulate Executive Director remuneration and succession
planning
Key Responsibilities:
• Works closely with the Chairman, Group Chief Executive
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
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
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 64
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
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 Chief
Executive Officer, 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;
consideration of senior executive
remuneration and oversight of
remuneration matters generally;
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 90
Chair:
Dennis Millard
Members:
David Adams
Claudia Arney
Helen Jones
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 at
www.halfordscompany.com/investors/governance/our-committees or on request from the Company Secretary.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Board Responsibilities
The key responsibilities of Board members are set out in the chart on page 59.
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 59. 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.
Board Meetings and Attendance
Board Member
Executive Directors
Graham Stapleton (appointed 15 January 2018)
Jonny Mason
Jill McDonald (resigned 29 September 2017)
Non-Executive Directors
Dennis Millard
David Adams2
Claudia Arney
Helen Jones
Board
Meetings
Scheduled: 8
Audit
Committee
Meetings
Scheduled: 3
Remuneration
Committee
Meetings
Scheduled: 5
Nomination
Committee
Meetings
Scheduled: 3
3/3
8/8
3/3
8/8
7/8
8/8
8/8
n/a
n/a
n/a
n/a
2/3
3/3
3/3
n/a
n/a
n/a
5/5
4/5
5/5
5/5
n/a
n/a
0/11
3/3
2/3
3/3
3/3
1 Until Jill McDonald’s resignation in September 2017, she was a member of the Nomination Committee. In November 2017, the Terms of Reference of the
Nomination Committee were amended, in accordance with best practice, to reflect that no Executive Director be allowed to become a member of the
Nomination Committee.
2 David Adams was unable to attend the Board meeting, the Audit Committee Meeting, the, Remuneration Committee meeting and the Nomination Committee
meeting on 22 March 2018 due to an unexpected and pressing commitment in relation to another company.
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 30 March 2018. In addition to those scheduled meetings, three further unscheduled Board and Remuneration
Committee meetings were convened to discuss and approve the exit remuneration arrangements for Jill McDonald and Jonny Mason, and
to approve the appointment of Graham Stapleton as Chief Executive Officer and his associated remuneration package. Furthermore, two
additional Board calls were held during the period to review and approve the 20 week and Q3 trading statements. These additional meetings
were all quorate, and all directors received the relevant papers and provided the required approval.
Other members of the Senior Management Team and advisors attended Board meetings by invitation as appropriate throughout the year.
At each Board meeting, the Chief Executive Officer delivers a high level update on the business, and 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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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
Board Activity in FY18
Key Board discussions and actions during the period
May
2017
• Review of trading performance
• Review of the Group’s annual colleague engagement
survey
• Review of Autocentres
• Review of Cycling
•
Final review of the FY17 Annual Report and Financial
Statements
• Approval to recommend the FY17 final dividend
• Update on Financial Control Process
• Review of Board Evaluation results
• Review of cyber attack actions
• Approval of Directors’ Appointment and Directors’
• Amendment and extension to Bank Debt Facility
•
5 Year Plan Update
Conflicts of Interest Register
• Approval of Risk Register
• Review of the preliminary results announcement
• Approval of Notice of Meeting and Proxy Form for FY17
AGM
• Review of trading performance
• Approval of Halfords Group plc Share Dealing Policy
July
2017
• Review of Autocentres
• Q1 Forecast
• Approval of role of Chairman, role of Chief Executive
Officer and role of Senior Independent Director
• Review of trading performance
•
Investor Relations Update
and Share Dealing Code
• Review of 2017 proxy voting figures and shareholder
feedback
• Met with shareholders at the 2017 AGM
Aug
2017
Sept
2017
Nov
2017
Dec
2017
Jan
2018
• Review of trading performance
• Review and approval of Halfords’ Modern Slavery
• Update on Cycling Performance and Market
• Update on Digital and Autocentres
Statement
• Review and approval of Sanctions Policy
• Review of 20 week trading results
• Review of trading performance
• Review of draft interim results announcement and
• Review of Infrastructure
• Update on Group Cycling Strategy
• Update on Autocentres plan
proposed messaging
• Approval of interim dividend and dividend policy
• Approval of Data Protection Policy
• Review of trading performance
• Review of planned projects for FY19
• Discussion of Halfords Autocentres Transformation
• Update on potential M&A
Programme
• Update on Tyres On The Drive – 1 year on
•
Investor Relations Update
• Review of trading performance
• Discussion of Gender Pay Gap Report
• Update on Boardman Performance Centre
• GDPR Update
•
Implemented the induction process for the new Chief
Executive Officer Graham Stapleton
• Review of Q3 results
• Review of trading performance
• Review the proposal on the election and re-election of
March
2018
• CEO’s Interim Review of the Business
• Review of FY19 budget
Directors at the FY18 AGM
• Review NED programme for FY19
• Review and approve Environmental Policy and Health
and Safety Policy
• Review and approve Matters Reserved for the Board
• Review of draft reports for inclusion in the FY18 Annual
Report and Financial Statements
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Board Committees
The Board’s principal Committees are the Audit Committee, the
Nomination Committee and the Remuneration Committee, as
detailed in the chart on page 60. A Corporate Social Responsibility
(“CSR”) Committee was established in December 2015, comprising
of 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 at
www.halfordscompany.com/investors/governance
On the following pages each Committee Chairman reports how the
Committee he/she chairs discharged its responsibilities in FY18 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 meetings or Remuneration Committee meetings 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.
Concerns
The 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.
Skills and Experience of the Board
DELIVERING THE JOURNEY
The below graphic illustrates the number of Directors on the Board who have the relevant skills and experience.
Leadership 6
Corporate
6
Strategy
6
Banking
4
Cross-functional 4
Governance 6
Finance
5
M & A
4
Supply Chain 4
Digital
4
Brand building
6
Retail
6
Brand development 6
Customer service 6
Marketing
5
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
Diversity
The Group recognises the importance of diversity, including
gender diversity, at all levels of the organisation. The Group’s
Diversity Policy (the “Policy”) is reviewed annually and sets out our
commitment to eliminating unlawful discrimination and promoting
equality of opportunity. The Policy is applied to the Group including
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 Group does not apply a fixed quota on diversity to decisions
regarding recruitment. The Nomination Committee considers the
Policy and ensures we have a sufficiently diverse Board in terms
of age, gender and educational and professional background.
The Nomination Committee also keeps under review the structure,
size and composition of the Board and 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, experience and diversity
on the Board. Those appointed are deemed to be the best able
to help lead the Company in its long-term strategy. At Halfords a
third of the Board is female, which is in line with the recommended
target as published by the Hampton-Alexander Review (“Improving
Gender Balance in FTSE Leadership”) in November 2017. The charts
below demonstrate the gender split at Board level, within senior
management and across the workforce as a whole.
Board Level
Female
Male
33%
67%
Senior Management Level
Female
Male
26%
74%
All Colleagues
Female
Male
27%
73%
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Effectiveness
Directors’ Induction
New Directors receive a full, formal and personally tailored induction
on joining the Board. This includes meeting with the Directors, the
executive team, and other key personnel, together with visiting the
Group’s stores, Autocentres and other operational and distribution
sites. The induction also includes training on governance and the
Group’s corporate social responsibility strategy, which focuses on
four key areas, these being colleagues, community, environmental
management and responsible trading. The induction programme
facilitates their understanding of the Group and the key drivers
of the business’ performance. Graham Stapleton, received a full
tailored induction following his appointment in January 2018. The
new Chairman, Keith Williams, and the new Chief Financial Officer will
receive the same upon their appointment.
Directors’ Training and Development
All 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, regulatory and 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.
Board Evaluation
In accordance with the Code, the Board is responsible for undertaking a formal and rigorous annual evaluation of its own performance and
that of its Committees and individual Directors. In FY18 the process was facilitated externally by the Board, with the assistance of Oliver
Ziehn of Lintstock. Neither, Mr Ziehn nor Lintstock has any other connection with the Company. This external review satisfied the Code’s
recommendation that an external review should be undertaken externally at least every third year, the previous one was undertaken in 2015.
Progress on FY17 evaluation (internal review)
The outcomes of the internal Board evaluation for FY17 were reported in the 2017 Annual Report. Details of progress made on these areas
are set out below:
FY17 outcomes
Progress made in FY18
Strategy Day
More focus on Board
Strategy Day
Following his appointment in
January 2018, Graham Stapleton
has organised a comprehensive
review of the strategy of the
business. This work is currently
ongoing but it is expected that
once completed it will replace
the current strategy known as
'Moving Up A Gear' which was
introduced as a three year plan in
2015 by Graham's predecessor,
Jill McDonald.
Succession planning
Improved succession
planning required
Although the succession
plans for the Board have been
considered during the year, they
will need to be fully reviewed
again, following the appointment
of the new Chairman in
succession to Dennis Millard. It is
expected that the new Chairman
will work with the Chief Executive
Officer and will review the overall
Board structure particularly as
part of the ongoing process of
appointing a new Chief Financial
Officer.
Corporate governance
and NED programme
More corporate governance
updates to be provided
Ensuring continuation of
NED training programme
During the period, the
Non-Executive Directors have
undertaken a comprehensive
programme of visits to the major
locations where the business
operates. These structured
meetings have enabled
them to spend time with the
Executive Directors, the senior
management team and numerous
colleagues in retail stores and
Autocentres. This programme
will continue and improvements
will be incorporated wherever
necessary. To ensure that the
Directors are kept informed
of ongoing developments in
corporate governance, they have
been provided during the year
with reports and updates both
on proposed new changes to the
UK Corporate Governance Code
and on the voting guidelines
or recommendations from
shareholders (such as Aviva) and
shareholder bodies (such as ISS).
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
FY18 Board Performance Evaluation (externally
facilitated review)
The responses to the external evaluation surveys were submitted
by the Directors and then collated by Lintstock. Many areas were
positively or highly rated such as: Board Dynamics, Management of
Meetings; Board Support; Focus of Meetings; Strategic Oversight;
Risk Management and Internal Control. The responses also indicated
various areas on which the Board should focus in the coming year.
The priorities for the incoming Chairman in their first year included:
supporting the new Chief Executive; addressing strategic issues;
developing relationships with stakeholders; understanding the
business and markets; and reviewing the Board composition. The
priorities for the Board for the coming year included: supporting
the Chief Executive (particularly in regard to strategy); focussing
on strategy; completing recruitment; and addressing talent and
succession. These matters will be considered, developed and
monitored throughout the coming year.
Directors and their Other Interests
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 78 to 90.
In line with the requirement 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), and a register of these is maintained by the Company
Secretary.
During the period Claudia Arney notified the Company of her
interest in Aviva plc, of which she is a director, following Aviva plc’s
appointment as underwriter for the Group’s main liability insurance
policies (property, motor, employee and product). Claudia did not
take part in any discussions or negotiations relating to either the
insurance renewal or the contract in particular.
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.
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.
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 Internal Audit function. 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 Internal Audit function within regular internal audit
progress reports. The process has been in place throughout the period ended 30 March 2018, 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. Among the routine areas for improvement, the Board has considered certain control
enhancements in areas such as cash recording in stores, supplier master file amendments, and user access rights to IT systems.
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 40 to 44.
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 shareholder communication during the year. 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 FY18
• 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;
• Board and Management changes and succession planning;
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.
IR PROGRAMME
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 meetings.
• 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
attends and presents at various conferences hosted by
a variety of brokers to ensure a wide variety of existing
shareholders and potential 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 FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Governance Report
IR calendar for FY19
•
FY18 Prelim Results
• UK Management Roadshow
• Annual General Meeting
•
FY19 20 Week Trading Update
• Strategy Presentation
• UK Management Roadshow
•
FY19 Interim Results
• UK Management Roadshow
•
FY19 Q3 Trading Statement
May
2018
July
2018
Sept
2018
Nov
2018
Jan
2019
We aim to encourage our shareholders to receive communications
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
22 May 2018
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Nomination Committee Report
Dennis Millard – Chairman of the Nomination Committee
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.
The Committee’s key objective is to ensure that the Board
comprises individuals with the necessary skills, knowledge,
experience and diversity to ensure that the Board is effective
in discharging its responsibilities. During the year, the
Committee oversaw the process for the appointment of the
Group’s new Chief Executive Officer, Graham Stapleton, and
my successor Keith Williams.
The Committee’s key objective is
to ensure that the Board comprises
individuals with the necessary skills,
knowledge, experience and diversity
to ensure that the Board is effective in
discharging its responsibilities.
Committee Composition
During the year, the Committee comprised:
• Dennis Millard (Chairman)
• David Adams
• Claudia Arney
• Helen Jones
• Jill McDonald (resigned 29 September 2017)
Three Committee meetings were held during the year, attended
by all members, with the exception of David Adams who was
unable to attend the Committee meeting on 22 March 2018 due
to an unexpected and pressing commitment in relation to another
company. After each Committee meeting, I reported to the Board
on the key issues that we had discussed. A number of informal
discussions, particularly relating to the appointment of a new Chief
Executive Officer, were also held between Committee members and
me throughout the year as the need arose.
Activities During the Year
During the year, the Committee’s main focus was on the search for
a new Chief Executive Officer and a new Chairman as detailed on
page 71.
During the year, the Committee also:
•
•
considered the terms of reference regarding the appointments
and roles of the new Chief Executive Officer and Chairman;
reviewed the composition of the Board and its succession plan
with particular reference to the succession of the new Chairman;
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
•
•
•
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.
Board Appointments
The search for a Group Chief Executive Officer was concluded
in September 2017 with the announcement of the appointment
of Graham Stapleton with effect from 15 January 2018. MWM
Consulting was appointed as advisor to the Committee in the search
for external candidates and this process was led by myself, as
Chairman, together with the Committee. MWM Consulting does not
have any other connection with the Company. The Committee also
considered and appointed Jonny Mason, Chief Financial Officer as
Interim Chief Executive Officer with effect from September 2017
until Graham Stapleton joined the Company in January 2018.
As announced last year, I will be stepping down as Chairman at
the Annual General Meeting in July, and so in November 2017 the
Committee began the process of identifying suitable candidates.
Odgers Berndston was appointed as an advisor, and the process was
led by David Adams, as Senior Independent Director, together with
the Committee but excluding myself. Odgers Berndston does not
have any other connection with the Company. On 22 May 2018 it was
announced that Keith Williams will be appointed as my successor, as
Chairman on 24 July 2018.
Diversity
The Group’s Diversity Policy (“Diversity Policy”) sets out our
commitment to eliminate discrimination and to encourage
diversity and equality across the Board of Directors and amongst
all our colleagues, irrespective of their gender, race, ethnic origin,
disability, age, nationality, national origin, sexual orientation, gender
reassignment, marital or civil partnership status, pregnancy or
maternity, religion, beliefs and social class. This year, the Board
has not considered it necessary to set a formal target for including
diversity on the Board, this is because one third of our Board
is female and we are in excess of the recommended target as
published by the Hampton-Alexander Review in November 2017.
The Diversity Policy 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 gender,
race, ethnic origin, disability, age, nationality, national origin, sexual
orientation, gender reassignment, marital or civil partnership status,
pregnancy or maternity, religion, beliefs and social class. The
Company does not currently publish specific diversity targets but in
practice, we have created a more balanced and diverse Board and
Senior Management Team. We continue to work to monitor these
issues across the entire business, in particular in relation to gender
diversity.
Further information regarding Board diversity can be found on page
64 and gender diversity in the Group as a whole on page 26.
Looking Ahead
It was announced on 27 March 2018, in the year ahead, that Jonny
Mason will resign from the position of Chief Financial Officer to
take up the position of Group Finance Director at Dixons Carphone
plc. Jonny will remain as Chief Financial Officer until the end of his
notice period in September 2018. The process is under way by the
Committee to find his replacement.
The Committee will also continue to assess the Board and Senior
Management Team composition and how they both may be
enhanced.
The Terms of Reference for the Committees are available at
www.halfordscompany.com/investors/governance
Dennis Millard
Chairman of the Nomination Committee
22 May 2018
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Corporate Social Responsibility Committee Report
Helen Jones – CSR Committee Chairman
Chairman’s Letter
In the last year we have continued to make great progress on
our Corporate Social Responsibility ("CSR") initiatives.
We have four CSR pillars which we focus on:
• Colleagues;
• Community:
•
Environmental Management: and
• Responsible Trading
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.
We consider that these four pillars
are the right areas of focus and we
are constantly seeking to ensure that
our Corporate Social Responsibility
Strategy is aligned to our Company
goals and values.
Fast fact
4CSR Pillars
We consider that these four pillars are the right areas of focus and
we are constantly seeking to ensure that our Corporate Social
Responsibility Strategy is aligned to our Company goals and values.
Committee Composition and Meetings
The Committee consisted of:
• Helen Jones (Chairman)
• Graham Stapleton (appointed 15 January 2018)
• Jonathan Crookall
• Andy Randall
•
Ian Carter (appointed 22 March 2018)
• Richard Street (resigned 22 March 2018)
• Jill McDonald (resigned 29 September 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 covered.
I also held informal discussions between Committee members and
business leaders throughout the year as the need arose.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 our annual review of the CSR Policy;
carried out our 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
24 to 32 of the Strategic Report.
Looking Ahead
Once again, we have identified our work on Environmental
Management as a key area of focus in the year ahead. We have
reprioritised our resources to support this including the appointment
of a new external agency to assess us in this regard. They will help us
in agreeing detailed benchmarks for measuring our performance and
the development of our strategy.
The Terms of Reference for the Committees are available at
www.halfordscompany.com/investors/governance
Helen Jones
Chairman of the CSR Committee
22 May 2018
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Audit Committee Report
David Adams – Chairman of the Audit Committee
Chairman’s Introduction
I am pleased to present the report of the Audit Committee
for the financial year ended 30 March 2018.
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
cash-in-store fraud risks, GDPR and tax strategy.
This report explains in detail how the Committee undertook
its duties.
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.
Fast fact
3Committee meetings held
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
two 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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 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 30 March 2018 and nothing of note was reported.
b. Remit
The Audit Committee’s responsibilities include:
Principal Activities During the Year
The Audit Committee met three times during the year with the
following timetable:
May 2017
• Review of Year End Chief Financial Officer’s
Report
• 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
• making recommendations to the Board on the appointment of
Nov 2017
• 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
• Management presentation on GDPR readiness
• Review of anti-bribery and corruption risk
assessment and approval of Anti-Bribery and
Corruption Policy
• Review of Committee’s Terms of Reference
March 2018 • Review of External Auditor’s annual strategy
and fees
• Review of Internal Audit Progress Report including
update on the Company’s internal control
systems
• Review of Group Register of Risks and Controls
• Update on new Accounting Standards: IFRS9,
IFRS15 and IFRS16
• Review of Whistleblowing Policy
• Review and approval of Tax Strategy, Tax Policy
and Treasury Policy
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;
reviewing 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 colleagues
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;
listening to and reviewing presentations on key topics or salient
risk areas, which in the last two years has included GDPR,
cash-in-stores controls, tax strategy, supplier rebates and
contributions, cyber security and global sourcing.
approving the Group’s Tax Policy, and for the first time this year,
the externally published tax strategy; and
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 the full Terms of Reference are available on the Company’s
website or on request from the Company Secretary.
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE 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 100 to 105. The Committee’s review included
consideration of the following key accounting judgements:
•
Impairment of Goodwill associated with Autocentres (Car
Servicing);
•
Following the acquisition of Nationwide Autocentres 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 124 of the
Financial Statements); and
• The Audit Committee has received detailed reports from
Halfords’ finance team and reports from the 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 127 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 reports from the 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 2018, 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. The most
recent rotation took place this year with Michael Froom 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 24 July 2018,
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 a list of prohibited activities. Other than for
these, 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 Chief
Executive Officer 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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 3 on page 119 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. This
team maintains an audit universe that lists all of the potential areas
of audit, from which the annual programme is derived. 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 ensures that there are sufficient resources
to undertake the audit programme.
Our Internal Audit programme features 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.
Other than a period of a few months during the year when the
Chief Financial Officer was interim Chief Executive Officer, Internal
Audit reports on a day-to-day basis to the Chief Financial Officer,
but is independent in action and reporting of issues, with direct
line of communication to the Audit Committee Chairman. The
findings of the independent audits are reported initially to executive
management and any necessary corrective actions are agreed.
Summaries of these reports are presented to, and discussed with,
the Audit Committee along with details of progress against action
plans as appropriate. The internal audit reports are distributed to the
External Auditor as and when they are completed during the year.
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 40 to 44.
David Adams
Chairman of the Audit Committee
22 May 2018
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Remuneration Committee Report
Claudia Arney – Chairman of the Remuneration Committee
Dear Shareholder
On behalf of the Remuneration Committee, I am pleased to
present the Remuneration Report for the financial period
ended 30 March 2018.
The Report consists of three sections:
• Annual Statement – A summary of the key messages on
pay for FY18, and our plans for FY19.
• Summary Remuneration Policy Report – The Company’s
Remuneration Policy (the “Policy”) was approved at the
2017 AGM. No changes have been made to the Policy
and accordingly, we are not seeking approval for a new
Policy this year. This section is for information only and a
copy of our full Policy is available on our website.
• Annual Directors’ Remuneration Report – This
summarises the remuneration outcomes for FY18 and
explains how we intend to apply the Remuneration Policy
in FY19.
Our remuneration philosophy is aimed
at providing Executive Directors with
incentive opportunities strongly aligned
to growth, profitability and shareholder
returns.
FY18 business context
The Group achieved a good sales performance in a challenging retail
environment with sales up 3.7% in total and 2.0% on a like-for-like
basis. Underlying Profit Before Tax was down £3.8m but this was
after absorbing circa £25m of additional input costs as a result of the
weaker pound against the US dollar. Cash generation remains robust
and there were continued operational improvements including
enhancing customer data capabilities and strong growth of 14% in
service-related Retail sales as the Group builds its credentials as a
service-led specialist retailer.
Remuneration outcomes for FY18
The annual bonus for Executive Directors is based on the
achievement of Group PBT targets (80%), and key strategic initiatives
(20%) with the latter based on specific targets; these are NPS,
Engagement Index, Service Related Sales Growth and Digital Sales.
This year we achieved Group PBT of £71.6m, which resulted in a
bonus payment of 40.1% of the maximum. Our service related sales
growth was above maximum and our digital sales growth was above
threshold. The Engagement Index progressed to meet the threshold
level, whilst NPS did not achieve any of the targets. As a result the
performance was 10.25% out of the 20% maximum for KPIs.
As a result of this performance, annual bonus out-turns for Graham
Stapleton and Jonny Mason were 70% and 42.3% of maximum,
respectively. As set out in more detail in the following section,
Graham Stapleton’s out-turn was prorated to reflect the period
worked during the year, while Jonny Mason was only eligible for
the cash element (two thirds) of his annual bonus as a result of his
resignation in March 2018. Jill McDonald was not eligible for an FY18
annual bonus following her resignation in September 2017.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 No Executive Director had outstanding 2015 Performance Share
Plan ("PSP") awards, so no vesting events occurred in respect of the
FY16-FY18 performance period.
The 2017 PSP award granted during the year is subject to underlying
Group EPS (75%) and Group Revenue targets (25%), with a net debt
to EBITDA ratio underpin. Performance against these measures will
be assessed at the end of FY20.
Remuneration for FY19
In FY19 we will continue to operate our remuneration arrangements
in line with the Policy approved by shareholders at the 2017 AGM. A
summary of this Policy is set out on pages 80 to 81.
No other material changes are being made to the Executive
Directors’ remuneration arrangements in FY19, aside from the
transition to the new PSP holding period now being complete, such
that the full 2018 PSP award will be subject to a two-year holding
period.
Executive Director changes
During the year there were several changes in our Executive
Directors. In considering the appointment and departure terms for
these individuals, we have sought to act fairly and not pay any more
than is necessary, while wishing to ensure a successful transition
between individuals for the benefit of Halfords and our shareholders.
Graham Stapleton
Graham was appointed as Chief Executive Officer (“CEO”) on an
annual basic salary of £535,000. This is considered to be reasonable
in light of his retail, digital, services and category credentials.
Graham’s package is fully aligned with our Policy.
Graham’s maximum annual bonus opportunity is 150% of salary, in
line with Policy, and this was prorated for the period of 2017/18 that
he served. One-third of his annual bonus was deferred into Halfords
shares for a period of three years. In line with our Policy, Graham
has a maximum opportunity under the PSP of 200% of salary, and
an award at this level was made under the 2017/18 PSP cycle upon
appointment.
Graham received a buy-out of 185,872 shares to compensate
for awards forfeited when leaving his previous employer, Dixons
Carphone plc, which will vest in January 2021, subject to him not
having resigned before that date. This matches the release profile of
the forfeited award.
In addition, a contribution will be made towards the Dixons Carphone
plc annual bonus he forfeited upon leaving, prorated for the portion
of the year he worked there. This will be paid following the Dixons
Carphone plc year end, and will be based upon the actual out-turn as
disclosed in their Report and Accounts. The Committee considers
that his treatment is appropriate as it directly matches what he would
have received had he remained at this previous employer.
An additional payment will be made to Graham to compensate
him for the loss of a cash entitlement of £695,617 under the 2013
Carphone Warehouse scheme. This payment is subject to clawback
provisions, should he resign before July 2021.
Graham will be eligible for reimbursement of certain, capped costs of
up to £15,000 should he relocate within 2 years of joining.
Leaving Arrangements for Jonny Mason
In March 2018, it was announced that Jonny Mason had resigned
from his role as Chief Financial Officer (“CFO”), and will remain as
CFO until the end of his notice period in September 2018. Jonny will
forfeit the deferred element of his FY18 annual bonus, together with
all other unvested DBP, PSP, and SAYE awards.
Leaving Arrangements for Jill McDonald
In May 2017 Jill McDonald resigned as CEO and subsequently left
the business in September 2017. She did not receive a bonus in
respect of FY18, and all of her unvested DBP and PSP awards lapsed
in full upon her leaving date. The unvested portion of awards made
as compensation for awards forfeited when leaving her previous
employer have also been forfeited.
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.
Claudia Arney
Chairman of the Remuneration Committee
22 May 2018
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Directors’ Remuneration Policy Summary Report
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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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Our Directors’ Remuneration Policy was approved by shareholders at the 2017 AGM. The full Policy is available on the Company’s website,
but as context for the rest of this report, the main elements of the Policy, as well as how the Policy was implemented during the year, are
summarised below:
Elements
Base salary
Objective
Attract and retain
talent of an appropriate
calibre.
Benefits
Provide market
competitive benefits
consistent with the
role.
Pension
To provide individuals
with retirement
arrangements.
Annual bonus
Incentivise the
achievement of annual
financial targets
and key strategic
objectives.
Key features
Reviewed annually,
with changes typically
effective from October.
Maximum salary
increases generally
in line with wider
employees.
Set at an appropriate
level taking into
account the individual’s
circumstances and
market practice.
Contributions made
either to defined
contribution pension
schemes or as an
equivalent cash
allowance.
Total contribution
capped at 15% of salary.
Maximum opportunity of
150% of salary.
One-year performance
period.
One-third of any award is
deferred into shares for
three years.
Malus and clawback
provisions apply.
Performance
Share Plan
Align interests with
those of shareholders
by incentivising
individuals to deliver
the strategy, create a
sustainable business
and maximise
shareholder returns.
Maximum opportunity of
200% of salary.
Three-year performance
period.
Two-year holding period
after vesting (for 2018
awards onwards).
Malus and clawback
provisions apply.
Shareholding
guidelines
Align individuals with
shareholders.
Executive Directors are
encouraged to acquire
and retain shares equal
to a value of at least
200% of their salary.
Expectation that 75% of
any post-tax shares that
vest from incentive plans
are retained until the
guideline is met.
Implementation
in FY18
Graham Stapleton (appointed CEO in
January 2018) – £535,000
Jonny Mason – £364,140 (increased to
£500,000 while acting as Interim CEO)
Jill McDonald (left the business
September 2017) – £520,200
Executive Directors received benefits
including life assurance, private health
insurance and a company car or
equivalent allowance, to the following
total values:
Graham Stapleton – £15,908 p.a.
Jonny Mason – £18,348 p.a.
Jill McDonald – £10,026 p.a.
All Executive Directors received cash
allowances of 15% of salary.
Based on performance against Group
PBT targets and key strategic objectives,
the annual bonus paid out at 70% of
maximum for Graham Stapleton and
42.3% of maximum for Jonny Mason.
Individual awards were:
Graham Stapleton – £115,802 (includes
prorating for service)
Jonny Mason – £176,971 (only eligible
for the cash element due to resignation)
Jill McDonald – £nil (not eligible due to
resignation)
No Executive Director had outstanding
2015 PSP awards so there were no
vesting events in respect of FY18.
Graham Stapleton and Jonny Mason
were granted 2017 PSP awards over
200% of salary (the latter’s award
subsequently lapsed upon resignation).
Vesting dependent on performance
against underlying EPS (75%) and
revenue (25%) targets, with a net debt to
EBITDA ratio underpin.
50% of any shares vesting subject to
a one-year holding period, 50% a two-
year holding period.
Both Executive Directors were subject to
a 200% of salary shareholding guideline.
Executive Directors are expected to
retain 75% of any post-tax shares that
vest under any share incentive plans
until this shareholding guideline is
reached. There have not been any share
incentive plan vestings this financial
year.
Implementation
in FY19
Graham Stapleton –
£535,000, no change.
Chief Financial Officer –
£364,140, no change.
No changes proposed.
Executive Directors will
receive cash allowances
of 15% of salary.
Executive Directors
will have a maximum
opportunity of 150% of
base salary.
80% will be based on
Group PBT, 20% on key
strategic objectives.
One-third will be
deferred into shares for
three years.
Executive Directors
will have a maximum
opportunity of 200% of
salary for the 2018 PSP
award.
Performance based on
underlying EPS (75%)
and revenue (25%)
targets, with a net debt
to EBITDA ratio underpin.
All shares vesting
subject to a two-year
holding period.
Executive Directors
remain subject to
a 200% of salary
shareholding guideline.
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81
STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE 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 (the “Regulations”). This Report
meets the requirements of the UK 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 94 to 99, 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 61. In addition
three further unscheduled meetings were called to discuss and
approve the exit remuneration arrangements of Jill McDonald
and Jonny Mason, and the remuneration package of Graham
Stapleton, as new Chief Executive Officer. These additional meetings
were quorate and all Committee members received the relevant
papers and provided the required approval. 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 feedback received from shareholder bodies on the
Directors’ Remuneration Policy which was approved at the
Annual General Meeting in July 2017;
•
reviewed and approved the Directors’ Remuneration Report in
the FY17 Annual Report and Accounts;
• discussed and reviewed attainment against the performance
conditions for the Performance Share Plan ("PSP") and Company
Share Option Scheme ("CSOS") due to vest during the period;
• discussed and approved FY18 executive bonus payments;
• discussed and approved both financial and strategic annual
bonus metrics and targets;
•
approved grants under the Performance Share Plan, Company
Share Option Scheme (to senior managers below Board) and the
Sharesave Scheme;
• discussed and approved the introduction of the Restricted Share
Plan ("RSP") (to senior managers below Board);
• discussed outline of share scheme approvals across all
discretionary and all employee share plans, and approved
grants under the Performance Share Plan, Restricted Share Plan
(to senior managers below Board) and the Save As You Earn
(Sharesave) Scheme;
reviewed and approved the updated plan rules for the Deferred
Bonus Plan, Performance Share Plan, Save As You Earn
(Sharesave) Scheme and Company Share Option Scheme;
reviewed the Terms of Reference of the Committee;
reviewed the mechanics and assets of the Employee Benefit
Trust and hedging arrangements;
•
•
•
• discussed and recommended, to the Halfords Group plc
Board, the terms of the remuneration package for the new
Chief Executive Officer (“CEO”), the temporary increase in the
remuneration for the Chief Financial Officer as interim CEO and
the Non-Executive Directors’ fees;
•
•
reviewed the Executive Remuneration Policy; and
reviewed and approved appointment of remuneration advisors.
Advisors and Other Attendees
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.
In carrying out its responsibilities, the Committee is authorised to
obtain the advice of external independent remuneration consultants
and is solely responsible for their appointment, retention and
termination. During the year, the Committee has taken advice from
Deloitte LLP (“Deloitte”), which advised on performance measures
for the PSP, remuneration reporting and other remuneration matters.
Deloitte also provided unrelated tax advice during the year. Total fees
paid to Deloitte were £88,300, charged on a time and materials basis.
Deloitte is a founding member of the Remuneration Consultants
Group and adheres to the Remuneration Consultants Group Code
of Conduct when providing services. The Committee considers
Deloitte’s advice independent and impartial, and is also satisfied that
the Deloitte Engagement Partner and team, 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 Group Code of Conduct. Fees paid to
Willis Towers Watson for this advice were £4,041. Willis Towers
Watson also provide insurance broking services and employee
benefits services to the Group.
82
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Shareholder Dialogue
The voting outcome from the 2017 Annual General Meeting reflected very strong individual and institutional shareholder support for both our
Directors’ Remuneration Report and our new Directors’ Remuneration Policy (the “Policy”). We consulted extensively with shareholders prior
to introducing the new Policy and we would like to thank shareholders for their time and constructive feedback.
We continue to be mindful of the views of our shareholders and other stakeholders and are open to discussion with shareholders 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.
The following table sets out the votes cast at the 2017 AGM in respect of the previous Directors’ Remuneration Report and Directors’
Remuneration Policy.
FY17 Directors’ Remuneration Report (2017 AGM)*
FY17 Directors’ Remuneration Policy (2017 AGM)†
* 1.04% votes were withheld in relation to this resolution.
† 0.27% votes were withheld in relation to this resolution.
How the Remuneration Policy was Implemented in FY18– Executive Directors
Single remuneration figure (audited)
2017/2018
Graham Stapleton1
Jonny Mason3
Jill McDonald5
2016/2017
Jill McDonald5
Jonny Mason
Base
Salary
115,917
399,752
247,095
515,100
353,500
Bonus
115,8022
176,9714
—
—5
175,463
Benefits
15,908
18,348
10,026
10,262
17,699
Pension
17,387
59,479
38,250
76,500
52,500
% of votes
For
99.93%
99.04%
% of votes
Against
0.07%
0.96%
PSP6
—
—
—
—
—
Other
1,553,3371
—
—
Total ‘Single
Figure’
1,818,351
654,550
295,371
139,550
—
741,412
599,162
1 Graham Stapleton was appointed on 15 January 2018. To compensate Graham for remuneration forfeited when leaving his previous employer, Dixons
Carphone plc, he will receive the following: a compensation bonus equal to £695,617 in July 2018 (the first £100,000 of which will be satisfied by the issue and
allotment of shares and the balance as cash); a replacement cash bonus of £269,026 in July 2018; and he will be granted an award of 185,872 shares equating
to £588,694 in January 2021.
2 Graham Stapleton’s bonus was prorated from date of joining on 15 January 2018 to 30 March 2018. One third of this bonus was deferred into the Deferred
Bonus Plan, this will be paid on 31 May 2018.
3 Jonny Mason was interim Chief Executive Officer from September 2017 until Graham Stapleton joined in January 2018. Jonny’s salary increased from the
current level of £364,140 to £500,000 p.a. to which bonus and pension were applied for that period.
4 Jonny Mason announced his resignation as Chief Financial Officer on 27 March 2018. Jonny will be eligible to receive only the cash element of his annual bonus
for the year ended 30 March 2018.
5 Jill McDonald left the business in September 2017. She did not receive a bonus for the period.
6 No Executive Director received any vesting under the PSP granted in 2015. Jonny Mason was granted a PSP award in 2015, however, this lapsed upon his
resignation. The following table shows the history of PSP award vesting over the last five years.
PSP vestings (% of maximum)
FY18 Annual Bonus
The annual bonuses for FY18 for the Executive Directors were based as follows:
FY14
0%
FY15
FY16
15% 102.5%
FY17
0%
FY18
0%
Chief Executive Officer
Chief Financial Officer
Graham Stapleton
Jonny Mason
50% PBT and 50% personal objectives
80% PBT and 20% delivery of key strategic initiatives
The PBT performance for FY18 was £71.6m which generated 40.1% achievement of the profit target.
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Annual Remuneration Report
The table below sets out the key strategic initiatives which made up the remainder of the annual bonus for the Chief Financial Officer, along
with performance and resulting out-turn against each measure.
KPI
NPS
Engagement Index
Service Related Sales Growth
Digital Sales Growth
Definition
Combined NPS of Retail and
Autocentres (weighted)
Index achieved for Group in April 2018
Growth in total service related sales
including product (Retail)
Total digital sales orders through
website or app.
FY18 out-turn
69.4%
Threshold
71%
Maximum
73%
% achieved
(out of 5%)
0%
81%
14%
9%
81%
8%
8%
83%
12%
15%
2.5%
5.0%
2.75%
The annual bonus out-turn was reviewed in the context of the performance of the underlying business during the year and delivery against
strategy, with the final out-turn set out below.
Name of Executive
Graham Stapleton1
Jonny Mason2
PBT
£33,146
(40.1% of maximum)
£134,118
(40.1% of maximum)
Strategic Measures
£82,656
(100% of maximum)
£42,853
(51% of maximum)
Total
£115,802
(70% of maximum)
£176,971
(42.3% of maximum)
1 Graham Stapleton was appointed on 15 January 2018 and his bonus was prorated accordingly.
2 Jonny Mason resigned from his role as Chief Financial Officer, as announced on 27 March 2018. Jonny will be eligible to receive only the cash element of his annual
bonus for the year ended 30 March 2018. Jonny’s bonus has been based on the higher salary for the period that he acted as interim Chief Executive Officer.
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 or chauffeur 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.
Appointment terms for Graham Stapleton
Regular package
Graham was appointed as Chief Executive Officer (“CEO”) on an annual basic salary of £535,000. This is considered to be reasonable in
light of his retail, digital, services and category credentials. Graham will receive a pension contribution of 15% of basic salary and standard
benefits, in line with our Remuneration Policy (the “Policy”).
Graham’s maximum annual bonus opportunity is 150% of salary, in line with Policy, and this was prorated for the period of 2017/18 that he
served. One-third of his annual bonus was deferred into Halfords shares for a period of three years. In line with our Policy, Graham has a
maximum opportunity under the PSP of 200% of salary, and an award at this level was made under the 2017/18 PSP cycle upon appointment.
Buy-out arrangements
Graham received a buy-out of 185,872 shares to compensate for awards forfeited when leaving his previous employer, Dixons Carphone plc,
which will vest in January 2021, subject to him not having resigned before that date. This matches the release profile of the forfeited award.
In addition, a contribution will be made towards the Dixons Carphone plc annual bonus he forfeited upon leaving, prorated for the portion
of the year he worked there. This will be paid following the Dixons Carphone plc year end, and will be based upon the actual out-turn as
disclosed in their Report and Accounts. The Committee considers that this treatment is appropriate as it directly matches what he would
have received had he remained at this previous employer.
An additional payment will be made to Graham to compensate him for the loss of a cash entitlement of £695,617 under the 2013 Carphone
Warehouse scheme. This payment is subject to clawback provisions, should he resign before July 2021.
Graham will be eligible for reimbursement of certain capped costs of up to £15,000 should he relocate within two years of joining.
Leaving Arrangements for Jonny Mason
Jonny Mason resigned from his role as Chief Financial Officer (“CFO”), as announced on 27 March 2018, to take up a position of Group
Finance Director at Dixons Carphone plc. Jonny will remain as CFO until the end of his notice period in September 2018 and will continue to
receive his normal salary and associated benefits, until his leaving date. Jonny will receive the cash element of his annual bonus for the year
ended 30 March 2018, but all annual bonus deferred share awards will lapse. Jonny’s long-term incentive arrangements in respect of his
awards under the PSP and SAYE schemes will also lapse.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Leaving Arrangements for Jill McDonald
In May 2017 Jill McDonald resigned as CEO in order to take up a position at Marks and Spencer plc and she subsequently left the business
in September 2017. Jill did not receive a bonus in respect of 2017/18 and all of her unvested DBP and PSP awards lapsed in full upon her
leaving date.
Upon her appointment in 2015, it was agreed that awards with a total value £529,819 would be made as compensation for awards forfeited
when leaving her previous employer. The final two tranches of this award, which were due to vest in 2018 and 2019 and had a value at her
leaving date of £130,016, have lapsed in full (previous tranches has already vested prior to her departure).
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:
Graham Stapleton3
Date
of award
24 January 2018
Jonny Mason
13 September 2017
Type
of award
Nil cost option
(0p exercise price)
Nil cost option
(0p exercise price)
1 These awards were based on 200% of salary.
Number
of shares1
304,207
Maximum face
value of award2
£1,089,061
Threshold
vesting (% of
target award)
25%
230,496
£735,282
25%
Performance
period
1 April 2017 to
3 April 2020
1 April 2017 to
3 April 2020
2 Based on the mid-market price on the date of the awards of £3.58 on 24 January 2018 for Graham Stapleton’s award and £3.19 on 13 September 2017 for
Jonny Mason’s award.
3 Graham Stapleton was appointed on 15 January 2018 and became eligible to receive a PSP award following his appointment, as set out in the announcement
made by the Company on 13 September 2017.
Performance Conditions
Awards granted in FY18 are subject to 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%
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 1.5× 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 Award shares that vest
will become exercisable in August 2020. Fifty percent 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.
Deferred Bonus Plan
Awards granted during the year:
Jonny
Mason
Award date
30 June
2017
Mid-market
price on date
of awards
£
Awards
held
1 April
2017
Awarded
during
the
period
Forfeited
during
the
period
Lapsed
during
the
period
Exercised
during
the
year
Awards
held
30 March
2018
Dividend
Reinvestment1
3.420
— 17,101
931
—
—
— 18,032
Vesting
29 June 2020 –
30 June 2021
1 Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.
On 30 June 2017, one-third of Jonny Mason’s FY17 bonus was deferred into shares for a period of three years. Following the announcement
made on 27 March 2018 regarding Jonny’s resignation, these awards will lapse.
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Annual Remuneration Report
Outstanding Share Awards (Audited)
Performance Share Plan (“PSP”)
The following summarises outstanding awards under the PSP:
Graham
Stapleton2
Jonny
Mason3
Jill
McDonald4
Award
date
24 January
2018
12 November
2015
11 August
2016
13 September
2017
1 August
2015
11 August
2016
Mid-market
price on date
of awards
£
3.58
Awards
held
1 April
2017
Awarded
during
the
period
— 304,207
Forfeited
during
the
period
—
Lapsed
during
the
period
—
Exercised
during
the
year
Awards
held
30 March
2018
— 304,207
Performance
period
3 years
to
3 April 2020
Dividend
Reinvestment1
—
3.95 133,322
3.60 158,380
—
—
3.19
— 230,496
7,264
8,630
3,926
—
—
—
—
—
—
— 140,586 30 March 2018
— 167,010 29 March 2019
— 234,422
3 April 2020
5.34 153,703
3.60 230,783
—
—
5,661
— 159,364
8,500
— 239,283
—
—
—
—
N/A
N/A
1 Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.
2 Graham Stapleton was appointed on 15 January 2018.
3 As announced on 27 March 2018, Jonny's outstanding PSP awards will lapse upon him leaving the business in September 2018.
4 Jill McDonald left the business in September 2017, to take up a senior role at Marks and Spencer plc. Jill’s unvested PSP awards lapsed in full upon her leaving.
Deferred Bonus Plan (“DPB”)
Mid-
market
price on date
of awards
£
Award date
Awards
held
1 April
2017
Awarded
during
the
period
Forfeited
during
the
period
Lapsed
during
the
period
Exercised
during
the
year
Awards
held
30 March
2018
Dividend
Reinvestment1
Jonny
Mason
30 June 2017
3.420
— 17,101
931
—
—
— 18,032
1 Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.
Vesting
29 June 2020 –
30 June 2021
As announced on 27 March 2018, and as detailed on page 85, Jonny Mason’s outstanding DBP award will lapse upon him leaving the
business in September 2018.
Save As You Earn (“SAYE”)
Mid-
market
price on date
of awards
£
Awards
held
1 April
2017
Awarded
during
the
period
Forfeited
during
the
period
Lapsed
during
the
period
Exercised
during
the
year
2.979
6,042
—
—
—
—
Awards
held
30 March
2018 Exercisable Date
1 February 2019
– 1 August 2019
6,042
Jonny
Mason
Award date
30 December
2015
As announced on 27 March 2018, Jonny Mason’s outstanding SAYE award will lapse upon him leaving the business in September 2018.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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
2018
Halfords Group
FTSE 350 General Retailers
Source: Thompson Datastream
The following table summarises the CEO single figure for the past nine 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)
Graham
Stapleton1
Jonny Mason2
Jill McDonald3
Matt Davies4
David Wild5
Graham
Stapleton
Jonny Mason2
Jill McDonald
Matt Davies
David Wild
Graham
Stapleton
Jonny Mason2
Jill McDonald
Matt Davies
David Wild
FY10
—
—
—
—
1,134
—
—
—
—
80%
—
—
—
—
—
FY11
—
FY12
—
FY13
—
—
—
—
531
—
—
—
—
—
—
—
—
—
—
—
—
—
617
—
—
—
—
0%
—
—
—
—
99%
—
—
499
198
—
—
—
50%
—
—
—
—
—
—
FY14
—
—
—
1,372
—
—
—
—
97.5%
—
—
—
—
—
—
FY15
—
FY16
—
FY17
—
FY18
1,818
—
—
645
—
—
—
—
—
—
—
—
—
—
—
—
851
54
—
—
—
23.5%
—
—
—
—
—
—
—
—
741
—
—
—
—
—
—
—
—
—
—
—
—
236
295
—
—
70%
42.3%
—
—
—
—
—
—
—
—
1 Graham Stapleton was appointed in January 2018.
2 Jonny Mason was appointed as interim Chief Executive Officer for the period from September 2017 to the date of Graham Stapleton joining in January 2018,
and the figures represent prorated amounts of his bonus and overall remuneration for FY18.
3 Jill McDonald was appointed in May 2015 and resigned as CEO in September 2017.
4 Matt Davies was appointed in October 2012 and resigned as CEO in April 2015.
5 David Wild resigned as CEO in July 2012.
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STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Annual Remuneration Report
Shareholding Guidelines
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 200% of their annual base salary. Executive Directors are expected to retain
75% of any post-tax shares that vest under any share incentive plans until this shareholding guideline is met.
Shareholding guideline
Shareholding as at 29 March 2018*
Current value (based on share price on 29 March 2018*)
Current % of salary
* This being the last trading day of the Financial Year ended 30 March 2018.
Graham
Stapleton
200%
0
£0
0%
Jonny
Mason
200%
75,000
£244,500
67%
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 30 March 2018 and 22 May 2018.
Outside Appointments
Halfords recognises that its Executive Directors may be invited to become non-executive directors of other companies. Such non-executive
duties can broaden experience and knowledge which can benefit Halfords. Subject to approval by the Board, Executive Directors are allowed
to accept non-executive appointments and retain the fees received, provided that these appointments are not likely to lead to conflicts of
interest. During the year, between 1 April 2017 and 29 September 2017, Jill McDonald received fees of £43,500 as a non-executive director
of Inter Continental Hotels Group plc.
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 FY18 – Non-Executive Directors
Non-Executive Director single figure comparison (audited)
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
25,000
Director
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Totals
Role
Chairman
Senior Independent Director and
Audit Committee Chairman
Remuneration Committee Chairman
CSR Committee Chairman
Non-Executive Director Shareholding
Director
Dennis Millard
David Adams
Claudia Arney
Helen Jones
Total
‘Single
Figure’
2018
185,000
70,000
60,000
55,000
370,000
2018
70,000
7,675
21,052
3,000
Total
‘Single
Figure’
2017
185,000
70,000
60,000
55,000
370,000
2017
70,000
7,284
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 30 March 2018 and 22 May 2018.
Non-Executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.
88
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 How the Remuneration Policy will be Implemented for FY19 — Executive Directors
Salary
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 2018.
Annual Bonus
The annual bonus opportunity for 2018/2019 will be as follows:
£535,000
£364,140
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 95% 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, colleague engagement, digital and service sales growth.
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 (“PSP”)
As outlined in the Remuneration Committee Chair's letter, it is important that the performance targets attached to the FY19 LTIP awards are
fully aligned with Halfords' strategy over the next three years. As we set out elsewhere in the annual report, it is anticipated that our strategic
review will be finalised and the outcome communicated to the market in September 2018. Immediately following this, the Committee will
consider and set the performance targets, which is currently expected to be in September 2018. Full details of the targets will be disclosed to
shareholders at that time, and also in next year's Remuneration Report.
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89
STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE Annual Remuneration Report
How the Remuneration Policy will be Implemented for FY19 — Non-Executive Directors
Fees
The fees of Non-Executive Directors are normally reviewed every two years. Any changes to these fees will be approved by the Board as a
whole following a recommendation from the Chief Executive Officer. In March 2018, the fees of Non-Executive Directors were reviewed, as
the previous review was in April 2016.
Following this review, the basic fee of the Chairman and the Non-Executive Directors was increased by 4% with effect from 1 April 2018.
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)
2019
£192,400
£52,000
£10,000
£10,000
£5,000
2018
£185,000
£50,000
£10,000
£10,000
£5,000
Change in Remuneration of Chief Executive Officer Compared to Group Employees
The table below sets out the increase in total remuneration of the Chief Executive Officer and that of all colleagues.
Chief Executive Officer
All colleagues
% change in base salary
FY17 to FY18
2%1
2.37%
% change in bonus earned
FY17 to FY18
No change
45%2
% change in benefits
FY17 to FY18
No change
No change
1 The budget across the business was 3% and the application awarded to all colleagues was 2% with an additional 1% merit pot.
2 Based on all colleagues in receipt of bonus in both years.
Gender Pay Gap Report
Details of the Group’s Gender Pay Gap Report for 5 April 2017 can be found in the CSR Report on page 26.
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 (underlying)
PBT (underlying)
Returned to shareholders:
Dividend
Payments to employees:
Wages and salaries
Executive Directors1
1 Based on the single figure calculation, not all of which is included within wages and salary costs.
2018
£109.5m
£71.6m
2017
£108.7m
£75.4m
N/A
£53.5m
£210.5m
£2.8m
£195.5m
£1.3m
90
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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:
•
select suitable accounting policies and then apply them
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, 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 comply with that law and those regulations.
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.
Approved by order of the Board.
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.
Dennis Millard
Chairman
22 May 2018
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91
STRATEGIC REPORT FINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWOUR GOVERNANCE 25675
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FINANCIAL
STATEMENTS
Independent Auditors’ Report
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
Note to Consolidated Statement
of Cash Flows
Accounting Policies
Notes to the Financial Statements
Company Balance Sheet
Company Statement of Changes in
Shareholders’ Equity
Accounting Policies
Notes to the Financial Statements
94
100
101
102
103
104
105
106
117
142
143
144
145
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Independent Auditor’s Report to the
Members of Halfords Group plc only
1. Our opinion is unmodified
We have audited the financial statements of Halfords Group plc for the year ended 30 March 2018 which comprise the Consolidated Income
Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Company Balance Sheet,
Consolidated Statement of Cash Flows, Consolidated and Company Statements of Changes in Shareholders’ Equity, and the related notes,
including the accounting policies on pages 100 to 147.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 March 2018 and
of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU);
the parent Company financial statements have been properly prepared in accordance with UK Accounting Standards, 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 29 July 2009. The period of total uninterrupted engagement is for the 9 financial years
ended 30 March 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that
standard were provided.
Overview
Materiality: group financial statements as a whole
Coverage
Risks of material misstatement
Recurring risks
Parent company
£3.2m (2017: £3.3m)
4.7% (2017: 4.7%) of normalised profit
before tax
100% (2017:100%) of group profit before tax
vs 2017
Carrying amount of
Autocentres Goodwill
Carrying value of
Retail division inventory
Recoverability of parent
company’s debtor balance
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. We summarize below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together
with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These
matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a
separate opinion on these matters.
Carrying amount of Autocentres (Car
Servicing) Goodwill
(£69.7 million; FY17: £69.7 million)
Refer to page 76 (Audit Committee Report),
page 108 (accounting policy) and page 124
(financial disclosures).
The risk
Our response
Forecast-based estimate
Our procedures included:
Following the acquisition of Nationwide
Autocentres in 2010, the Group holds
significant goodwill in the Autocentres
division.
The business operates in a competitive
market, and commercial factors, 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.
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.
• Benchmarking assumptions:
Comparing the Group’s assumptions, in
particular those relating to forecast long
term growth rates and discount rates,
to externally derived data and budgeted
growth rate to industry forecasts and
assessing the historical forecasting
accuracy;
• 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,
including budgeted growth rates,
discount rate and terminal growth rate;
• 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.
Our result
We have found the carrying amount of
Autocentres (Car Servicing) goodwill to be
acceptable.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Independent Auditor’s Report to the
Members of Halfords Group plc only
Carrying value of Retail division inventory
Subjective estimate:
Our procedures included:
The risk
Our response
(£186.8 million; FY17: £181.4 million)
Refer to page 76 (Audit Committee Report),
page 110 (accounting policy) and page 127
(financial disclosures).
Recoverability of parent’s debt due from
group entities
(£485.8 million; FY17: £478.5 million)
Refer to page 146 (financial disclosures).
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.
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.
• 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;
• Assessing assumptions: 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;
• 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.
Our result
As a result, we consider the carrying value of
retail division inventory to be acceptable.
Low risk, high value
Our procedures included:
The carrying amount of the group
undertakings represents 95% of the
parent company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due
to their materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
• Tests of detail: Assessing 100% of
group debtors balance to identify, with
reference to the relevant debtors net
assets, both individually and collectively
with their own subsidiaries where
relevant, to consider whether they have
a positive net asset value and therefore
coverage of the debt owed. We
considered the results of our audit work
over those net assets.
Our result
We found the group’s assessment of the
recoverability of the group debtor balance to
be acceptable.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 £3.2 million (FY17: £3.3 million), determined with reference to a
benchmark of group profit before tax normalised to exclude one
off Directors’ remuneration (see note 5), of £68.1 million, of which
it represents 4.7% (FY17: with reference to a benchmark of group
profit before tax, of which it represented 4.7%).
Materiality for the parent company financial statements as a
whole was set at £2.8 million (FY17: £ 3.0 million), determined with
reference to a benchmark of total assets, of which it represents 0.6%
(FY17: 0.6%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.16 million (FY17: £0.17
million), in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 4 (FY17: 5) components, we subjected 4 (FY17: 5) to
full scope audits for group purposes. Cycle Republic was split out as
a separate component in FY17 but this year has been included within
Halfords Retail. 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 £0.5 million to £2.9 million (FY17: £0.1 million to £3.0
million), having regard to the mix of size and risk profile of the Group
across the components. The work, including the audit of the parent
Company, was performed by the group team. The group team also
performed procedures on the items excluded from normalised group
profit before tax.
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to in
relation to the directors’ statement on page 91 to the financial
statements on the use of the going concern basis of accounting
with no material uncertainties that may cast significant doubt
over the Group and Company’s use of that basis for a period of
at least twelve months from the date of approval of the financial
statements; or
•
the related statement under Listing Rules set out on page 56 is
materially inconsistent with our audit knowledge
We have nothing to report in these respects.
Normalised profit
before tax*
£68.1m (FY16: £71.4m)
Group materiality
Profit before tax
* FY18 profit before tax was
normalised to exclude one
off Directors’ remuneration
(see note 5)
Group revenue
Materiality
£3.2m (2017: £3.3m)
£3.2m
Whole financial
statements materiality
(2017: £3.3m)
£2.8m
Range of materiality at
4 components (£0.4m-£2.8m)
(2017: £01m to £3m)
£0.16m
Misstatements reported
to the audit committee
(2017: £0.17m)
FY2017
FY2018
100%
100%
Group profit before tax
FY2017
FY2018
100%
100%
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Independent Auditor’s Report to the
Members of Halfords Group plc only
5. We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that
work we have not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
• we have not identified material misstatements in the strategic
We have nothing to report in these respects.
report and the directors’ report;
•
•
in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
6. We have nothing to report on the other matters
on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in
our opinion:
•
•
•
adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term
viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in
relation to:
•
•
•
the directors’ confirmation within the viability statement on
page 55 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and
liquidity;
the disclosures describing these risks and explaining how they
are being managed and mitigated; and
the directors’ explanation in the viability statement of how they
have assessed the prospects of the Group, over what period
they have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
98
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 8. The purpose of our audit work and to whom we
owe our responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a
body, for our audit work, for this report, or for the opinions we have
formed.
Michael Froom (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway Birmingham
B4 6GH
22 May 2018
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 91,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group
and parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and using
the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see
below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud, other irregularities or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from
our sector experience through discussion with the directors and
other management (as required by auditing standards).
We had regard to laws and regulations in areas that directly affect the
financial statements including financial reporting (including related
company legislation) and taxation legislation. We considered the
extent of compliance with those laws and regulations as part of our
procedures on the related financial statement items.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
As with any audit, there remained a higher risk of non-detection of
non-compliance with relevant laws and regulations, irregularities,
as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
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99
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS 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 30 March 2018
52 weeks to 31 March 2017
Before
Non-
recurring
items
£m
1,135.1
(564.9)
570.2
(495.6)
Non-
recurring
items
(note 5)
£m
—
—
—
(4.8)
74.6
(3.1)
0.1
(3.0)
71.6
(13.2)
(4.8)
0.3
—
0.3
(4.5)
0.8
Before
Non-
recurring
items
£m
1,095.0
(536.4)
558.6
(481.5)
77.1
(3.2)
1.5
(1.7)
75.4
(15.9)
Non-
recurring
items
(note 5)
£m
—
—
—
(3.4)
(3.4)
(0.6)
—
(0.6)
(4.0)
0.9
Total
£m
1,135.1
(564.9)
570.2
(500.4)
69.8
(2.8)
0.1
(2.7)
67.1
(12.4)
Total
£m
1,095.0
(536.4)
558.6
(484.9)
73.7
(3.8)
1.5
(2.3)
71.4
(15.0)
58.4
(3.7)
54.7
59.5
(3.1)
56.4
29.6p
29.4p
27.8p
27.5p
30.3p
30.2p
28.7p
28.6p
All results relate to continuing operations of the Group.
The notes on pages 117 to 141 are an integral part of these consolidated financial statements.
100
25675
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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
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
52 weeks to
30 March
2018
£m
54.7
52 weeks to
31 March
2017
£m
56.4
Notes
(11.0)
—
1.3
0.2
(9.5)
45.2
14.8
(12.8)
(5.1)
0.5
(2.6)
53.8
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 117 to 141 are an integral part of these consolidated financial statements.
25675
8 June 2018 3:44 PM
Proof 10
101
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS 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
30 March
2018
£m
31 March
2017
£m
Notes
11
12
13
14
15
21
16
17
21
18
19
17
18
20
19
22
22
22
22
393.9
101.3
8.1
503.3
195.5
56.0
0.3
27.0
278.8
782.1
(20.8)
(5.4)
(187.0)
(3.3)
(11.9)
(228.4)
50.4
(94.0)
(31.2)
(2.7)
(3.9)
(131.8)
(360.2)
421.9
2.0
151.0
(9.4)
(2.9)
281.2
421.9
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
The notes on pages 117 to 141 are an integral part of these consolidated financial statements.
The financial statements on pages 100 to 141 were approved by the Board of Directors on 22 May 2018 and were signed on its behalf by:
Jonny Mason
Chief Financial Officer
Company Number: 04457314
102
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8 June 2018 3:44 PM
Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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
(10.9)
Other reserves
Capital
redemption
reserve
£m
0.3
Hedging
reserve
£m
2.9
Retained
earnings
£m
260.1
Total
equity
£m
405.4
—
—
—
—
—
—
—
—
—
—
—
—
2.0
—
—
—
—
—
—
—
—
—
—
—
—
—
2.0
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
—
—
—
—
—
—
151.0
—
—
—
—
—
—
—
1.4
—
—
—
1.4
(9.5)
—
—
—
—
—
—
—
—
0.1
—
—
—
0.1
(9.4)
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
56.4
56.4
14.8
(12.8)
(5.1)
0.5
(2.6)
(2.6)
—
—
—
—
—
0.3
—
—
—
—
—
14.8
(12.8)
(5.1)
0.5
(2.6)
56.4
53.8
—
1.0
(0.6)
(53.5)
(53.1)
263.4
1.4
1.0
(0.6)
(53.5)
(51.7)
407.5
—
54.7
54.7
(11.0)
—
(11.0)
1.3
1.7
0.2
(7.8)
(7.8)
4.3
—
—
—
—
—
(3.2)
—
(1.7)
—
(1.7)
1.3
—
0.2
(9.5)
53.0
45.2
—
—
(0.4)
—
(34.8)
(35.2)
281.2
4.3
0.1
(0.4)
—
(34.8)
(35.1)
421.9
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
Total comprehensive income
for the period
Profit for the period
Other comprehensive income
Cash flow hedges:
Fair value changes in the period
Transfers to net profit:
Cost of sales
Transfer between reserves
Income tax on other comprehensive
income
Total other comprehensive income for
the period net of tax
Total comprehensive income for the
period
Hedging gains and loses and costs
of hedging transferred to the cost of
inventory
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 30 March 2018
The notes on pages 117 to 141 are an integral part of these consolidated financial statements.
25675
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Proof 10
103
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS 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 and impairment - property, plant and equipment
Amortisation - intangible assets
Net finance costs
Loss on disposal of property, plant and equipment
Equity-settled share-based payment transactions
Exchange movement
Income tax expense
(Increase) in inventories
Decrease in trade and other receivables
(Decrease)/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
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
Notes
58.4
(3.7)
54.7
24.0
10.9
2.7
4.1
0.4
1.9
12.4
(4.4)
2.4
(10.6)
(1.4)
0.1
(2.0)
(16.1)
79.1
(5.1)
(3.5)
(18.0)
(19.0)
(45.6)
0.1
415.2
(404.0)
(0.6)
(34.8)
(24.1)
9.4
(1.9)
7.5
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)
Net increase in cash and bank overdrafts
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
I.
I.
Cash and cash equivalents at the period end consist of £27.0m (2017: £16.5m) of liquid assets and £19.5m (2017: £18.4m) of bank overdrafts.
The notes on pages 117 to 141 are an integral part of these consolidated financial statements.
104
25675
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Note 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 31 March
2017
£m
(1.9)
(72.0)
(73.9)
Cash flow
£m
9.4
(11.2)
(1.8)
Other non-
cash changes
£m
—
(0.5)
(0.5)
At 30 March
2018
£m
7.5
(83.7)
(76.2)
(1.4)
(10.6)
(12.0)
(85.9)
0.6
—
0.6
(1.2)
(0.5)
0.3
(0.2)
(0.7)
(1.3)
(10.3)
(11.6)
(87.8)
Non-cash changes include finance costs in relation to the amortisation of capitalised debt issue costs of £0.5m (2017: £0.7m) and changes in
classification between amounts due within and after one year.
Cash and cash equivalents at the period end consist of £27.0m (2017: £16.5m) of liquid assets and £19.5m (2017: £18.4m) of bank
overdrafts.
25675
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Proof 10
105
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
General Information
Halfords Group plc is a company domiciled in the United Kingdom. The consolidated financial statements of the Company as at and for the
period ended 30 March 2018 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 54, and under the historical cost convention, except where adopted
IFRSs require an alternative treatment. The principal variations relate to financial instruments (IFRS 9 “Financial instruments”) and share-
based payments (IFRS 2 “Share-based payment”).
The financial statements are presented in millions of UK pounds, rounded to the nearest £0.1m.
The accounts of the Group are prepared for the period up to the Friday closest to 31 March each year. Consequently, the financial statements
for the current period cover the 52 weeks to 30 March 2018, whilst the comparative period covered the 52 weeks to 31 March 2017.
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 30 March 2018 are detailed in note 4 to the Company balance sheet on page 142.
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.
106
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Promotions, Gift Cards 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. Deferred income in relation to gift card redemptions is estimated on the basis of
historical returns and redemption rates.
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. 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.
25675
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Proof 10
107
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
The amount to be expensed over the vesting period is adjusted to reflect the number of awards for which the related service and non-market
vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that
meet the related service and non-market performance conditions at the vesting date.
At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the
revision of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity.
Taxation
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that
it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted, at the reporting date, and any adjustment to tax payable in respect of previous years.
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an
entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to
its carrying amount.
The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future
periods. In the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of
the revenue that will not be taxable in future periods.
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of an
asset or liability in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable
profit or loss, it is not accounted for. Deferred taxation is calculated using rates that are expected to apply when the related deferred asset is
realised or the deferred taxation liability is settled.
Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
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.
108
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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, and 10 years in respect of cBoardman;
• Customer relationships - 5 to 15 years; and
•
Favourable leases - over the term of the lease.
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
Property, Plant and Equipment
Property, plant and equipment is held at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation of property, plant and equipment is provided to write off the cost, less residual value, on a straight-line basis over their useful
economic lives as follows:
•
•
Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period of the lease;
Leasehold improvements are depreciated over the period of the lease to a maximum of 25 years;
• Motor vehicles are depreciated over 3 years;
•
Fixtures, fittings and equipment are depreciated over 4 to 10 years according to the estimated life of the asset;
• Computer equipment is depreciated over 3 years; and
•
Land is not depreciated.
Depreciation is expensed to the income statement within operating expenses.
Residual values, remaining useful economic lives and depreciation periods and methods are reviewed annually and adjusted if appropriate.
Impairment of Assets
Tangible and intangible assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). For goodwill, an annual impairment review is performed at each balance sheet date.
Leases
Finance Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the
minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element
of the rental is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. The benefit
of incentives from lessors are recognised on a straight-line basis over the term of the lease.
Landlord Surrender Payments
Payments received from landlords in respect of the surrender of all or part of units previously occupied by the Group that do not represent
an incentive for future rental commitments are recognised in the income statement on the exchange of contracts, where there are no further
substantial acts to complete.
25675
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Proof 10
109
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
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 purchase costs, 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.
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 in to 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 the rent review, which forms part of the
Group’s unavoidable cost of meeting its obligations under the lease contracts. The provision is based on management’s best estimate of the
rent payable after the review. Key uncertainties are the estimate of the rent payable after the review has occurred.
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
i) Recognition and initial measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised
when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair
value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a
significant financing component is initially recognised at the transaction price.
ii) Classification and subsequent measurement
Financial assets – policy applicable from 1 April 2017
On initial recognition, a financial asset is measured at: amortised cost; FVOCI – equity instrument; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in
the business model.
110
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
•
•
It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
On initial recognition of an equity instrument that is not held for trading, the Group may irrevocably elect to present subsequent changes in
the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial
assets (Note 21). On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would
otherwise arise.
Financial assets: Business model assessment – policy applicable from 1 April 2017
The Group makes an assessment of the objective of the business model in which a financial asset is held at a CGU level because this best
reflects the way the business is managed and information is provided to management. The information considered includes:
• The stated policies and objectives for the business unit and the operation of those policies in practice. This includes whether a
management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate portfolio, matching the
duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale
of the assets;
• How the performance of the business unit is evaluated and reported to Group’s management;
• The risks that affect the performance of the business model (and the financial assets held within that business unit) and how those risks
are managed;
• The frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future
sales activity.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest –
policy applicable from 1 April 2017
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as
consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period
of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of
the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
• Contingent events that would change the amount or timing of cash flows;
• Terms that may adjust the contractual coupon rate, including variable rate features;
• Prepayment and extension features; and
• Terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).
Financial assets: Subsequent measurement and gains and losses – policy applicable from 1 April 2017
Financial assets at FVTPL
Financial assets at amortised cost
Equity investments at FVOCI
These assets are subsequently measured at fair value. Net gains and losses, including any interest
or dividend income, are recognised in profit and loss. However, see Note 21 for derivatives
designated as hedging instruments.
These assets are subsequently measured at amortised cost using the effective interest method.
The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains
and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is
recognised in profit or loss.
These assets are subsequently measured at fair value. Dividends are recognised as income in
profit or loss unless the dividend clearly represents a recovery of part of the cost of investment.
Other net gains and losses are recognised in OCI and never reclassified to profit or loss.
Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as FVTPL if it is classified as held for
trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains
and losses, including any interest expense, are recognised in profit and loss. All other financial liabilities are recognised initially at their fair
value and subsequently measured at amortised cost using the effective interest method.
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111
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
iii) Derecognition
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial
asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not
retain control of the financial asset.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also
derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which
case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any
non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
iv) Offsetting
Financial assets and financial liabilities are offset and the net position presented in the statement of financial position when, and only when,
the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the
asset and settle the liability simultaneously.
v) Derivatives
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 initially recognised at fair value on the date a contract is entered into and are subsequently remeasured at their fair value.
At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the
hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the
changes in the cash flows of the hedged item and hedging instrument are expected to offset each other.
The effective element of any gain or loss from re-measuring the derivative instrument is recognised in OCI and accumulated in the hedging
reserve. Any element of the re-measurement 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 the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount
accumulated in the hedging reserve is included directly in the initial cost of the non-financial item when it is recognised.
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.
vi) Impairment
Policy applicable from 1 April 2017
The Group recognises loss allowances for expected credit losses (“ECLs”) on financial asset measured at amortised cost. These are always
measured at an amount equal to lifetime ECL. The maximum period considered when estimating ECLs is the maximum contractual period
over which the Group is exposed to credit risk.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL,
the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both
qualitative and quantitative information and analysis, based on the Group’s historical experience and informed credit assessment and
forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group
considers a financial asset to be in default when the financial asset is more than 90 days past due.
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of
recovery. This is generally the case when the Group determines that the debtor does not have the assets or sources of income that could
generate sufficient cash flows to repay the amounts subject to the write off. However, financial assets that are written off could still be subject
to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.
112
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Policy before 1 April 2017
A provision for impairment of trade receivables was established when there was objective evidence that the Group would not be able
to collect all amounts due according to the original terms of receivables. The amount of the provision was determined as the difference
between the asset’s carrying amount and the present value of estimated future cash flows, and was recognised in the income statement in
operating expenses.
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.
Judgements made by the directors in the application of these accounting policies that have a significant effect on the financial statements,
relating to intangible asset valuations, estimates with a significant risk of material adjustment in the next year, relating to allowances against
the carrying value of inventories, and other estimates, relating to impairment of assets 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.
Intangible Asset Valuations
The measurement of fair values on a business combination, the most recent of which was in FY17, 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 intangible 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. As stated in the Audit Committee report on page 76, the key judgement relates
to the Car Servicing business. 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 117 to 141.
Adoption of New and Revised Standards
The following standards and interpretations are applicable to the Group were adopted in the current period as they were mandatory for the
year ended 30 March 2018 but either had no material impact on the result or net assets of the Group or were not applicable.
•
•
•
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.
IFRS 4 ‘Insurance contracts’ – amendments relating to applying IFRS 9 with this standard.
• Annual improvements to IFRS 2014 – 2016 Cycle (amendments to IFRS 12).
The Group has early adopted IFRS 9 ‘Financial Instruments’ issued in July 2014 with a date of initial application of 1 April 2017. The
requirements of IFRS 9 represent a significant change from IAS 39 ‘Financial Instruments: Recognition and Measurement’.
The nature and effects of the key changes to the Group’s accounting policies resulting from its adoption of IFRS 9 are summarised below.
As a result of the adoption of IFRS 9, the Group adopted consequential amendments to IFRS 7 ‘Financial Instruments: Disclosures’ that are
applied to disclosures about 2017 but generally have not been applied to comparative information.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
i) Classification of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. The
classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its
contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available
for sale. Under IFRS 9, investments in equity instruments that do not have a quoted price in an active market for an identical instrument are
now measured at fair value rather than at cost. At application, any difference between the previous carrying amount and the fair value is
recognised in the opening retained earnings for the financial year ended 30 March 2018.
For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, see
Note 21.
The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies for financial liabilities.
ii) Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial
assets measured at amortised cost, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than
under IAS 39 – see Note 21.
iii) Hedge accounting
The Group has elected to adopt the new general hedge accounting model in IFRS 9. This requires the Group to ensure that hedge accounting
relationships are aligned with risk management objectives and strategy and to apply a more qualitative and forward-looking approach to
assessing hedge effectiveness.
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 re-measuring 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
re-measurement 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.
As the derivatives are used for forecast inventory purchases, the amounts accumulated in the cash flow hedge reserve are included directly
in the initial cost of the inventory item once the inventory is recognised.
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.
For an explanation of how the Group applies hedge accounting under IFRS 9, see Note 21.
iv) Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below:
• The following assessments have been made on the basis of facts and circumstances that existed at the date of initial application:
−
−
−
The determination of the business model within which a financial asset is held.
The designation and revocation of certain financial assets and financial liabilities as measured at FVTPL.
The designation of certain investments in equity not held for trading as at FVOCI.
• Changes to hedge accounting policies have been applied prospectively.
• All hedging relationships designated under IAS 39 at 31 March 2017 met the criteria for hedge accounting under IFRS 9 at 1 April 2017
and are therefore regarded as continuing hedging relationships.
There was no impact, net of tax, on reserves and retained earnings at 1 April 2017.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
v) Classification of financial assets and financial liabilities on the date of initial application of IFRS 9
The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each
class of the Group’s financial assets and liabilities as at 1 April 2017.
Financial assets
Equity investments
Forward exchange contracts used
for hedging
Trade and other receivables*
Cash and cash equivalents
Total financial assets
Note
Original
classification
under IAS 39
New
classification
under IFRS 9
Original
carrying amount
under IAS 39
£m
New
carrying amount
under IFRS 9
£m
13
15
16
FVPTL
Fair value – hedging
instrument
Loans and receivables
Loans and receivables
FVOCI
Fair value – hedging
instrument
Amortised cost
Amortised cost
8.1
5.2
28.5
16.5
58.3
8.1
5.2
28.5
16.5
58.3
Original
classification under
IAS 39
New
classification
under IFRS 9
Note
Original
carrying amount
under IAS 39
£m
New
carrying amount
under IFRS 9
£m
Financial liabilities
Forward exchange contracts used
for hedging
Borrowings
Fair value – hedging
instrument
17 Other financial liabilities
Current tax liabilities
Other financial liabilities
Finance lease liabilities
17 Other financial liabilities
Trade and other payables**
18 Other financial liabilities
Fair value – hedging
instrument
Other financial
liabilities
Other financial
liabilities
Other financial
liabilities
Other financial
liabilities
Total financial liabilities
(1.5)
(90.4)
(8.7)
(12.0)
(113.2)
(225.8)
(1.5)
(90.4)
(8.7)
(12.0)
(113.2)
(225.8)
* Prepayments and accrued income of £29.9m are not included as a financial asset.
** Other taxation and social security payables of £25.1m, deferred income of £36.2m, accruals of £42.7m and other payables of £20.9m are not included as a
financial liability.
The Group’s accounting policies on the classification of financial instruments under IFRS 9 are set out in Note 21. The application of these
policies resulted in reclassifications set out in the table above and explained below.
a. These equity investments represent investments that the Group intends to hold for the long term for strategic purposes. As permitted
by IFRS 9, the Group has designated these investments at the date of initial application as measured at FVOCI. There is no impact
recognition of the investment as transition.
b. Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. There was no
increase in the allowance for impairment that was recognised in opening retained earnings at 1 April 2017 on transition to IFRS 9.
Hedge accounting
The retrospective application of IFRS 9 to hedge accounting has had no impact on the amounts presented for 2017 in respect of reserves or
retained earnings.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Accounting Policies
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.
•
•
•
IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’.
IFRS 2 ‘Share-based payment’ – amendment relating to classification and measurement of share-based payment transactions.
IFRS 40 ‘Investment property’ – amendment relating to transfers of investment property.
• Annual improvements to IFRS 2014 – 2016 Cycle (amendments to IFRS 1 and IAS 28).
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.
•
•
•
•
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.
IAS 28 ‘Investments in associates’ – amendments relating to long-term interests in associates and joint ventures.
IAS 19 ‘Employee benefits’ – amendments relating to plan amendment, curtailment or settlement.
IFRIC 23 ‘Uncertainty over Income Tax Treatments’.
• Annual improvements to IFRS 2015 – 2017 Cycle.
• Amendments to References to the Conceptual Framework in IFRS standards.
The key new standards and interpretations affecting the Group are described below. The Group does not intend to early adopt these
standards.
•
•
IFRS 15 ‘Revenue from contracts with customers’ will be first effective for the year ended 29 March 2019. The Group has substantially
completed an assessment of the impact of IFRS 15 and it is expected that adoption will not materially impact the Group’s profit or net
assets, on the basis that the majority of the Group’s sales are for standalone products made direct to customers at standard prices either
in-store or online. Provisions are already held for expected levels of returns and gift cards.
IFRS 16 ‘Leases’ will be first effective for the year ending 3 April 2020. The Group has a large portfolio of leased properties and other
equipment, including stores and warehouses. The minimum lease commitment on these is disclosed in note 12.
On adoption of IFRS 16, the lessee is required to recognise a right of use asset and a lease liability for future lease payables. The nature of
expenses related to these leases will change because IFRS 16 replaces the straight line operating lease expense with a depreciation charge
for right of use assets and interest expense on lease liabilities.
The Group has completed an initial assessment of the potential impact on its consolidated financial statements, but has not yet completed
its detailed assessment. The exact financial impact of the standard is as yet unknown, as a number of factors will impact the calculation of the
liability, such as discount rate and the expected term of leases including renewal options.
The Group plans to apply IFRS 16 initially on 30 March 2019, using a modified retrospective approach. Therefore, the cumulative effect of
adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 30 March 2019, with no restatement of
comparative information.
When applying a modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on
a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group is assessing the potential impact of using
these practical expedients.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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
977.2
72.6
(4.8)
67.8
Car
Servicing
£m
157.9
4.1
—
4.1
Retail
£m
938.4
76.8
(3.1)
73.7
Car
Servicing
£m
156.6
2.2
(0.3)
1.9
52 weeks to
30 March
2018
Total
£m
1,135.1
76.7
(4.8)
71.9
(2.1)
69.8
(2.7)
67.1
(12.4)
54.7
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
1 Unallocated expenses have been disclosed to reflect the format of the internal management reports reviewed by the Chief Operating Decision Maker and
include an amortisation charge of £2.1m in respect of assets acquired through business combinations (2017: £1.9m).
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
1. Operating Segments continued
Other segment items:
Capital expenditure
Depreciation and impairment expense
Amortisation expense
Other segment items:
Capital expenditure
Depreciation and impairment expense
Amortisation expense
52 weeks to
30 March
2018
Total
£m
37.3
24.0
8.8
52 weeks to
31 March
2017
Total
£m
36.1
21.6
8.1
Car
Servicing
£m
7.0
5.9
0.5
Car
Servicing
£m
6.6
5.1
0.2
Retail
£m
30.3
18.1
8.3
Retail
£m
29.5
16.5
7.9
There have been no significant transactions between segments in the 52 weeks ended 30 March 2018 (2017: £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 and impairment of:
– owned property, plant and equipment
– assets held under finance leases
Trade receivables impairment
Staff costs (see note 4)
Cost of inventories consumed in cost of sales
52 weeks to
30 March
2018
£m
410.0
410.0
85.6
4.8
90.4
500.4
52 weeks to
31 March
2017
£m
401.5
401.5
80.0
3.4
83.4
484.9
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
2.8
92.1
(3.6)
(2.1)
4.1
10.9
23.0
1.0
0.2
231.4
555.9
2.0
91.7
(3.8)
(1.9)
0.2
10.0
20.8
0.8
0.1
219.7
524.7
118
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 3. Operating Profit continued
The total fees payable by the Group to KPMG LLP and their associates during the period was £0.2m (2017: £0.4m), in respect of the services
detailed below:
For the period
Fees payable for the audit of the Company’s accounts
Fees payable to KPMG 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)
For the period
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
30 March
2018
£’000
30
52 weeks to
31 March
2017
£’000
30
171
15
—
—
216
205
15
75
75
400
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
210.5
15.0
0.4
5.5
231.4
195.5
16.3
1.0
6.9
219.7
Number
Number
9,678
564
944
11,186
9,729
527
945
11,201
52 weeks to
30 March
2018
£m
3.9
0.1
0.6
0.3
0.1
5.0
52 weeks to
31 March
2017
£m
4.5
0.2
0.8
0.4
0.4
6.3
Key management compensation includes the emoluments of the Board of Directors (including Non-Executive Directors) and the emoluments
of the Halfords Limited and Halfords Autocentres management boards.
Full details of Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 82 to 90 which form part of
these financial statements.
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119
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
5. Non-recurring Items
For the period
Non-recurring operating expenses:
Organisational Restructure Costs (a)
Autocentres operational review (b)
Acquisition and investment related fees (c)
Operating lease obligation (d)
Costs in relation to a historic legal case (e)
Non-recurring operating expenditure
Acquisition related interest charge (f)
Non-recurring items before tax
Tax on non-recurring items (g)
Non-recurring items after tax
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
4.3
0.6
0.2
(0.3)
—
4.8
(0.3)
4.5
(0.8)
3.7
0.6
—
1.7
0.3
0.8
3.4
0.6
4.0
(0.9)
3.1
a.
In the current and prior year separate and unrelated organisational restructuring activities were undertaken. These comprised:
−
Redundancy costs of £0.7m (FY17: £0.6m);
−
−
−
£1.0m provision for compensation to the new CEO on joining for foregoing entitlements from a previous employer, as outlined at the
time of announcement of his appointment;
£1.5m in relation to a restructure of the Boardman business. Boardman has stopped selling directly to customers through
the Boardman website. The website will be maintained as a ‘brand’ website, with customers being directed to purchase bikes
predominantly through Cycle Republic; and
£1.1m in relation to asset write-offs, principally resulting from the strategic decision to close the marketplace offer on Halfords.com.
b. Costs of £0.6m were incurred in FY18 in relation to the review of the operating model of the Autocentres business.
c.
In FY18 further acquisition and investment related fees were incurred relating to the investment in Tyres On The Drive. Prior year costs
predominantly related to the acquisition of Tredz & Wheelies.
d. The operating lease obligation in the current year related to a provision release of £0.3m from amounts originally provided for the Group’s
guarantor obligations arising from historically held lease guarantees. Prior year costs related 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.
e. During the prior 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.
f. There was a £0.3m credit from the release of the remaining portion of interest charge due on the contingent consideration for Tredz,
which was paid in May 2017.
g. The tax credit of £0.8m represents a tax rate of 19.0% 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
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
120
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Proof 10
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
(1.3)
(0.5)
(0.5)
0.3
(0.8)
(2.8)
0.1
—
0.1
(2.7)
(1.1)
(0.7)
(0.6)
(0.6)
(0.8)
(3.8)
0.1
1.4
1.5
(2.3)
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
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
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
12.5
(2.2)
10.3
0.8
1.3
2.1
16.1
(0.3)
15.8
(0.4)
(0.4)
(0.8)
Total tax charge for the period
12.4
15.0
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 19% (2017: 20%)
Factors affecting the charge for the period:
Depreciation on expenditure not eligible for tax relief
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
30 March
2018
£m
67.1
52 weeks to
31 March
2017
£m
71.4
12.7
0.7
0.3
(0.9)
(0.3)
(0.1)
12.4
14.3
1.7
0.3
(0.7)
(0.4)
(0.2)
15.0
The UK corporation tax rate reduced from 20% to 19% (effective 1 April 2017) and will be further reduced to 17% (effective from 1 April 2020)
following changes substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The
deferred tax asset at 30 March 2018 has been calculated based on the rate of 17% substantively enacted at the balance sheet date.
The effective tax rate of 18.5% (2017: 21.0%) 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 £12.4m (2017: £15.0m), including a £0.8m credit (2017: £0.9m credit) in respect of tax on non-recurring
items.
An income tax credit of £0.2m (2017: £0.5m 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 £nil current tax debit (2017: £0.6m credit) and a £nil deferred tax credit (2017: £0.6m credit) 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 £168m (2017: £160m) with the main taxes including
corporation tax of £16.1m (2017: £15.3m), net VAT of £67.2m (2017: £59.0m), employment taxes of £47.3m (2017: £48.3m) and business
rates of £37.5m (2017: £37.3m).
25675
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121
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS
Notes to the Financial Statements
8. Dividends
For the period
Equity – ordinary shares
Final for the 52 weeks to 31 March 2017 – paid 11.68p per share (2017: 11.34p)
Interim for the 52 weeks to 30 March 2018 – paid 6.0p per share (2017: 5.83p)
Special dividend – nil p per share (2017: 10.0p)
52 weeks to
30 March
2018
£m
52 weeks to
31 March
2017
£m
23.0
11.8
—
34.8
22.3
11.5
19.7
53.5
In addition, the Directors are proposing a final dividend in respect of the financial period ended 30 March 2018 of 12.03p per share (2017:
11.68p per share), which will absorb an estimated £23.7m (2017: £23.0m) of shareholders’ funds. It will be paid on 31 August 2018 to
shareholders who are on the register of members on 27 July 2018.
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 22) and has been adjusted for the issue/purchase of shares during the period.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market
price of the Company’s ordinary shares during the 52 weeks to 30 March 2018.
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 151.
52 weeks to
30 March
2018
Number of
shares
m
199.1
(2.1)
197.0
1.6
198.6
52 weeks to
30 March
2018
£m
54.7
52 weeks to
31 March
2017
Number of
shares
m
199.1
(2.5)
196.6
0.5
197.1
52 weeks to
31 March
2017
£m
56.4
4.8
(0.3)
(0.8)
58.4
3.4
0.6
(0.9)
59.5
52 weeks to
30 March
2018
27.8p
27.5p
52 weeks to
31 March
2017
28.7p
28.6p
29.6p
29.4p
30.3p
30.2p
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
122
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Proof 10
Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 10. Acquisition of Subsidiary
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 businesses comprise, 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 was paid in May 2017 for £5.1m.
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.
25675
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123
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
11. Intangible Assets
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Reclassification to Tangibles
Additions
Disposals
At 30 March 2018
Amortisation
At 1 April 2016
Charge for the period
At 31 March 2017
Reclassification to Tangibles
Charge for the period
Disposals
At 30 March 2018
Net book value at 30 March 2018
Net book value at 31 March 2017
Brand
names and
trademarks
£m
Customer
relationships
£m
Supplier
relationships
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
4.2
5.6
—
9.8
—
—
—
9.8
1.6
0.6
2.2
—
0.7
—
2.9
6.9
7.6
14.9
—
—
14.9
—
—
—
14.9
9.2
0.7
9.9
—
0.7
—
10.6
4.3
5.0
—
7.8
—
7.8
—
—
—
7.8
—
0.4
0.4
—
0.5
—
0.9
6.9
7.4
2.3
—
—
2.3
—
—
—
2.3
0.5
0.1
0.6
—
0.1
—
0.7
1.6
1.7
37.5
18.3
—
55.8
(4.4)
18.0
(4.5)
64.9
18.2
8.2
26.4
(0.4)
9.3
(1.6)
33.7
31.2
29.4
355.2
9.5
—
364.7
—
—
—
364.7
21.7
—
21.7
—
—
—
21.7
343.0
343.0
Total
£m
414.1
41.2
—
455.3
(4.4)
18.0
(4.5)
464.4
51.2
10.0
61.2
(0.4)
11.3
(1.6)
70.5
393.9
394.1
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 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 30 March 2018 and 31 March 2017 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 five-year period, which are reviewed by the board.
Budgets are based on both past performance and expectations for future market development, linked to the strategy of the Group as set out
in the Strategic Report section in these financial statements.
The growth rates used to extrapolate cash flows beyond the budget period, as set out in the table on the next page, do not exceed long-term
industry averages and reflect the revenue growth and ongoing efficiency initiatives, and the relative maturity of the Retail and Autocentres
businesses.
124
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
11. Intangible Assets continued
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 below.
Discount rate
Growth rate
Notes
1
2
Retail
2018
9.5%
0.0%
2017
9.1%
0.0%
Car Servicing
2018
9.5%
1.0%
2017
9.1%
1.0%
Notes:
1 Pre-tax discount rate applied to the cash flow projections (the prior year numbers above have been updated to also show the pre-tax rate).
2 Growth rate used to extrapolate cash flows beyond the five year budget period.
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. As stated in the Audit Committee report on page 76, the key
judgement relates to the Car Servicing business. The Directors are confident that a reasonably possible change in the key assumptions,
including a +1.0% change in the discount rate and a -1.0% change in the growth rate, would not cause the carrying amounts to exceed the
estimated recoverable amounts.
Overall, the Directors have concluded that the recoverable value of the Group’s CGUs exceeded their carrying amount.
12. Property, Plant and Equipment
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Reclassification from intangibles
Additions
Disposals
At 30 March 2018
Depreciation and impairment
At 1 April 2016
Depreciation and impairment for the period
Disposals
At 31 March 2017
Reclassification from intangibles
Depreciation and impairment for the period
Disposals
At 30 March 2018
Net book value at 30 March 2018
Net book value at 31 March 2017
No fixed assets are held as security for external borrowings.
Fixtures,
fittings
and
equipment
£m
Payments on
account and
assets in
course of
construction
£m
Land and
buildings
£m
72.9
5.0
(0.6)
77.3
—
3.6
(0.8)
80.1
38.0
4.8
(0.5)
42.3
—
5.7
(0.7)
47.3
32.8
35.0
205.2
12.5
(2.6)
215.1
4.4
13.9
(4.2)
229.2
132.8
16.8
(2.1)
147.5
0.4
17.9
(3.1)
162.7
66.5
67.6
—
0.2
—
0.2
—
1.8
–
2.0
—
—
—
—
—
—
—
—
2.0
0.2
25675
8 June 2018 3:44 PM
Proof 10
Total
£m
278.1
17.7
(3.2)
292.6
4.4
19.3
(5.0)
311.3
170.8
21.6
(2.6)
189.8
0.4
23.6
(3.8)
210.0
101.3
102.8
125
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
12. Property, Plant and Equipment continued
Included in the above are assets held under finance leases as follows:
Land and
buildings1
£m
Fixtures,
fittings, and
equipment
£m
As at 30 March 2018
Cost
Additions
Accumulated depreciation
Net book value
As at 31 March 2017
Cost
Additions
Accumulated depreciation
Net book value
1 Relates to the Halfords support centre building lease, which expires in 2028.
Finance lease liabilities are payable as follows:
Minimum
lease
payments
2018
£m
2.0
6.9
6.8
15.7
Interest
2018
£m
0.7
2.3
1.1
4.1
Principle
2018
£m
1.3
4.6
5.7
11.6
Less than one year
Between one and five years
More than five years
13. Investments
Equity Investments – at FVOCI
Investment in Tyres On The Drive
12.7
—
(7.1)
5.6
12.7
—
(6.6)
6.1
Minimum
lease
payments
2017
£m
2.2
7.0
7.4
16.6
Total
£m
15.7
0.6
(8.1)
8.2
15.2
0.5
(8.0)
7.7
3.0
0.6
(1.0)
2.6
2.5
0.5
(1.4)
1.6
Interest
2017
£m
0.8
2.4
1.4
4.6
Principle
2017
£m
1.4
4.6
6.0
12.0
Non-current
2018
£m
8.1
8.1
2017
£m
8.1
8.1
During the prior year the Group acquired a minority stake in an automotive related business, Tyres On The Drive. The investment is payable
in instalments, and comprised an initial cash consideration of £4.1m in FY17. An additional £3.5m has been invested in FY18, with a further
£0.5m subject to performance conditions being met. A total of £8.1m has been recognised as an investment, with a liability held for the
remaining instalment.
At 1 April 2017, the Group designated the investments shown above as equity investments as at FVOCI because these represent investments
that the Group intends to hold for long term strategic purposes. In the prior year, these were classified as available for sale – see Note 21.
Equity Investments – at FVOCI
Investment in Tyres On The Drive
Fair value
at 30 March
2018
Dividend
income
recognised
in the period
8.1
8.1
—
—
No strategic investments were disposed of during the year, and there were no transfers of any cumulative gain or loss within equity relating to
these investments.
Information about the Group’s exposure to credit and market risks, and fair value measurement is included in Note 21.
126
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 14. Inventories
Finished goods for resale
2018
£m
195.5
2017
£m
191.1
Finished goods inventories include £18.0m (2017: £17.5m) 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 £9.0m was recognised as an expense in respect of the write-down of inventories (2017: £9.3m) 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
Other receivables
Prepayments and accrued income
2018
£m
10.2
17.9
27.9
56.0
2017
£m
19.6
8.9
29.9
58.4
Information about the Group’s exposure to credit and market risks and impairment losses for trade and other receivables is included in
Note 21.
16. Cash and Cash Equivalents
Cash at bank and in hand
2018
£m
27.0
2017
£m
16.5
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
2018
£m
19.5
1.3
20.8
83.7
10.3
94.0
2017
£m
18.4
1.4
19.8
72.0
10.6
82.6
1 The above borrowings are stated net of unamortised issue costs of £1.3m (2017: £1.0m).
The Group’s current borrowing facility was amended and extended in the year. It is a four-year £200m revolving credit facility starting from
4 September 2017, with the option of a further year. 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 100 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.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
17. Borrowings continued
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
2018
£m
20.0
—
85.0
105.0
2017
£m
20.0
—
77.0
97.0
The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £105.0m
(2017: £97.0m) relates to the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.
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 31 March 2017
Charged during the period
Utilised during the period
Released during the period
At 30 March 2018
Analysed as:
Current liabilities
Non-current liabilities
2018
£m
109.3
15.2
18.1
5.1
39.3
187.0
2017
£m
110.7
25.1
20.9
4.3
45.2
206.2
31.2
31.9
Property
related
£m
9.0
2.5
(1.1)
(0.7)
9.7
8.8
0.9
Other
trading
£m
8.2
2.9
(3.4)
(1.6)
6.1
3.1
3.0
Total
£m
17.2
5.4
(4.5)
(2.3)
15.8
11.9
3.9
Property related provisions consist of costs associated with vacant property, rent reviews and dilapidations. Also included are prior period
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.
128
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 1 April 2016
Credit/(charge) to the income statement
Credit to other comprehensive income
Acquisition of subsidiary
Charge to equity
At 31 March 2017
Credit/(charge) to the income statement
Credit to other comprehensive income
Credit to equity
At 30 March 2018
Property
related items
£m
1.5
3.5
—
—
—
5.0
(1.4)
—
—
3.6
Short-term
timing
differences
£m
(0.1)
(2.2)
0.5
(2.7)
—
(4.5)
(1.9)
0.2
(0.3)
(6.5)
Share-based
payments
£m
0.6
—
—
—
0.6
1.2
0.3
—
0.3
1.8
Intangible
assets
£m
(2.0)
(0.5)
—
—
—
(2.5)
0.9
—
—
(1.6)
Total
£m
—
0.8
0.5
(2.7)
0.6
(0.8)
(2.1)
0.2
—
(2.7)
Deferred income tax assets and liabilities are offset when the Group has a legally enforceable right to do so and when the deferred income
taxes relate to the same fiscal authority. The offset amounts are as follows:
52 weeks to
30 March
2018
5.4
(8.1)
(2.7)
52 weeks to
31 March
2017
6.2
(7.0)
(0.8)
Deferred tax assets
Deferred tax liabilities
21. Financial Instruments and Related Disclosures
a. 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.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
21. Financial Instruments and Related Disclosures continued
b. Accounting classifications and fair value
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value
hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount
is a reasonable approximation of fair value.
30 March 2018
Financial assets measured at fair
value
Forward exchange contracts used for
hedging
Equity investments
Financial assets not measured at
fair value
Trade and other receivables*
Cash and cash equivalents
Financial liabilities measured at fair
value
Forward exchange contracts used for
hedging
Financial liabilities not measured at
fair value
Borrowings
Current tax liabilities
Finance lease liabilities
Trade and other payables**
Fair Value
– hedging
instruments
£m
Mandatorily
at FVTPL
– others
£m
Note
Carrying amount
FVOCI
– equity
instruments
£m
Amortised
cost
£m
Other
financial
liabilities
£m
Total
carrying
amount
£m
13
15
16
17
17
18
0.3
—
0.3
—
—
—
(5.4)
(5.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.1
8.1
—
—
—
—
—
—
—
—
—
—
—
—
—
28.1
27.0
55.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(103.2)
(3.3)
(11.6)
(112.4)
(230.5)
0.3
8.1
8.4
28.1
27.0
55.1
(5.4)
(5.4)
(103.2)
(3.3)
(11.6)
(112.4)
(230.5)
* Prepayments and accrued income of £27.9m are not included as a financial asset.
** Other taxation and social security payables of £15.2m, deferred income of £36.3m, accruals of £36.2m and other payables of £18.1m are not included as a
financial liability.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 21. Financial Instruments and Related Disclosures continued
31 March 2017
Financial assets measured
at fair value
Forward exchange contracts used for
hedging
Equity investments
Financial assets not measured
at fair value
Trade and other receivables*
Cash and cash equivalents
Financial liabilities measured
at fair value
Forward exchange contracts used for
hedging
Financial liabilities not measured
at fair value
Borrowings
Current tax liabilities
Finance lease liabilities
Trade and other payables**
Fair Value
– hedging
instruments
£m
Mandatorily
at FVTPL
– others
£m
Note
Carrying amount
FVOCI
– equity
instruments
£m
Amortised
cost
£m
Other
financial
liabilities
£m
Total carrying
amount
£m
13
15
16
17
17
18
5.2
—
5.2
—
—
—
(1.5)
(1.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.1
8.1
—
—
—
—
—
—
—
—
—
—
—
—
—
28.5
16.5
45.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(90.4)
(8.7)
(12.0)
(113.2)
(224.3)
5.2
8.1
13.3
28.5
16.5
45.0
(1.5)
(1.5)
(90.4)
(8.7)
(12.0)
(113.2)
(224.3)
* Prepayments and accrued income of £29.9m are not included as a financial asset.
** Other taxation and social security payables of £25.1m, deferred income of £36.2m, accruals of £42.7m and other payables of £20.9m are not included as a
financial liability.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
21. Financial Instruments and Related Disclosures continued
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, except for the investment in Tyres On The
Drive, as shown in Note 13, which is valued at Level 3.
c. Financial Risk Management
The Group has exposure to the following risks arising from financial instruments:
• Credit risk
•
Liquidity risk; and
• Market risk.
i) Risk Management framework
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Board of Directors are responsible for establishing the Group’s risk management policies.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and
controls and to monitor risks and adherence to limits. Risk management policies and systems are regularly reviewed to reflect changes in
market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a
disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group Audit Committee oversees how management monitors compliance with the Group’s risk management framework in relation to the
risks faced by the Group. The Group Audit Committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular
and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
ii) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date
was £55.4m (2017: £50.2m) as detailed in the tables above.
Impairment losses on financial assets recognised in profit or loss were as follows:
£m
Impairment loss on trade and other receivables
Impairment loss on cash and cash equivalents
52 weeks to
30 March
2018
0.5
—
0.5
52 weeks to
31 March
2017
0.3
—
0.3
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 21. Financial Instruments and Related Disclosures continued
Trade receivables
The Group does not have any individually significant customers and so no significant concentration of credit risk.
The majority of the Group’s sales are paid in cash at point of sale which further limits the Group’s exposure The Group’s exposure to credit
risk is influenced mainly by the individual characteristics of each customer. The Board of Directors has established a credit policy under
which each new customer is analysed individually for creditworthiness before the Group’s standard payment terms and conditions are
offered. The Group limits its exposure to credit risk from trade receivables by establishing a maximum payment period of one month for
customers. All trade receivables are based in the United Kingdom.
The Group has taken into account the historic credit losses incurred on trade receivables and adjusted it for forward looking estimates. The
movement in the allowance for impairment in respect of trade receivables during the year was £0.2m.
Cash and cash equivalents
The Group held cash and cash equivalents of £27.0m at 30 March 2018 (2017: £16.5m). The cash and cash equivalents are held with bank
and financial institution counterparties which are designated ‘A-’ by Standard & Poor and Fitch and A3 by Moody’s. The Group does not
consider there to be any impairment loss in respect of these balances (2017: £nil).
Derivatives
The derivatives are entered into with bank and financial institutions counterparties which are designated at least BBB by Standard & Poor and
Fitch and Baa3 by Moody’s.
iii) 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.
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.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency,
amount and timing of their respective cash flows. The Group assesses whether the derivative designated in each hedging relationship is
expected to be and has been effective in offsetting changes in cash flows of the hedging item using the hypothetical derivative method.
In these hedge relationships, the main sources of ineffectiveness are:
• The effect of the counterparty and Group’s own credit risk on the fair value of the forward exchange contracts, which is not reflected in
the change in the fair value of the hedged cash flows attributable to the change in exchange rates; and
• Changes in the timing of the hedged item.
During the 52 weeks to 30 March 2018, the foreign exchange management policy was to hedge via forward contract purchase between 75%
and 100% of the material foreign exchange transaction exposures on a rolling 18-month basis. Hedging is performed through the use of
foreign currency bank accounts and forward foreign exchange contracts.
At 30 March 2018, the Group held the following instruments to hedge exposures to changes in foreign currency:
Forward exchange contracts
Net exposure (in £m)
Average GBP:USD forward contract rate
1 – 6
months
119.3
1.3483
At 31 March 2017, the Group held the following instruments to hedge exposures to changes in foreign currency:
Forward exchange contracts
Net exposure (in £m)
Average GBP:USD forward contract rate
1 – 6
months
134.9
1.3095
Maturity
6 – 12
months
46.8
1.3647
Maturity
6 – 12
months
53.3
1.2751
More than
one year
27.0
1.3891
More than
one year
17.5
1.2570
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
21. Financial Instruments and Related Disclosures continued
The amounts at the reporting date relating to items designated as hedged items were as follows:
Forward currency risk
At 30 March 2018
Inventory purchases
At 31 March 2017
Inventory purchases
Change in value used
for calculating hedge
ineffectiveness
£m
Cash flow
hedge reserve
£m
Balances remaining in the cash
flow hedge reserve from hedging
relationships for which hedge
accounting is no longer applied
£m
20.1
21.5
(5.1)
3.7
—
—
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as
follows:
Cash and cash equivalents
Trade and other payables
30 March 2018
31 March 2017
USD
£m
0.2
(23.8)
(23.6)
Other
£m
0.5
(0.9)
(0.4)
USD
£m
4.3
(27.0)
(22.7)
Other
£m
0.2
(0.8)
(0.6)
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
2018
Increase/
(decrease) in
equity
£m
15.3
(12.5)
2017
Increase/
(decrease) in
equity
£m
18.3
(14.9)
A strengthening/weakening of Sterling, as indicated, against the USD at 30 March 2018 would have increased/(decreased) equity and profit
or loss by the amounts shown above. This analysis is based on foreign currency exchange rate variances that the Group considered to be
reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain
constant.
The movements in equity relates to the fair value movements on the Group’s forward contracts that are used to hedge future stock
purchases.
Interest rate risk
The Group’s policy aims to manage the interest cost of the Group within the constraints of the Business Plan and its financial covenants. The
Group’s borrowings are currently subject to floating rate interest rates and the Group will continue to monitor movements in the swap market.
If interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) were to
change by + or – 1% the impact on the results in the Income Statement and equity would be a decrease/increase of £0.6m (2017: £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
2018 (2017: 0.8:1).
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 21. Financial Instruments and Related Disclosures continued
Pension liability risk
The Group has no association with any defined-benefit pension scheme and therefore carries no deferred, current or future liabilities in
respect of such a scheme. The Group operates a number of Group Personal Pension Plans for colleagues.
Liquidity risk
The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is
sufficient cash or working capital facilities to meet the cash requirements of the Group for the current Business Plan. The minimum liquidity
level is currently set at £30m, such that under Treasury Policy the maximum drawings would be £170m of the £200m available facility, 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 the amend and
extend agreement (September 2017). The Group may, subject to Board approval in any and every such incidence, allow a counterparty to
have a credit rating of less than A but no less than investment grade at the time of signing the facilities on the basis that the counterparty only
has a junior role in the debt syndicate and has zero ancillary business until if/when its credit rating is designated A-. At the year-end the senior
banks within the banking group maintained a credit rating of A- or above, in line with Treasury policy, with the junior bank holding a credit
rating of BB+. The counterparty credit risk is reviewed by the Chief Financial Officer regularly as part of the Treasury Committee process. In
addition, the Head of Tax & Treasury reviews credit exposure on a daily basis.
The risk is measured through review of forecast liquidity each month by the Head of Tax & Treasury 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 one and two years
Expiring between two and five years
Expiring after five years
Contractual cash flows
Carrying amount
30 March
2018
Bank
borrowings
£m
1.1
1.3
85.0
—
87.4
83.7
31 March
2017
Bank
borrowings
£m
1.1
1.1
73.7
—
75.9
72.0
The following table provides an analysis of the anticipated contractual cash flows for the Group’s forward currency contracts. Cash flows
receivable in foreign currencies are translated using spot rates as at 30 March 2018 (31 March 2017).
Due less than one year
Due between one and two years
Contractual cash flows
Fair value
2018
Receivables
£m
133.6
20.7
154.3
0.3
2018
Payables
£m
(138.4)
(20.7)
(159.1)
(5.4)
2017
Receivables
£m
171.3
17.5
188.8
5.2
2017
Payables
£m
(167.8)
(17.3)
(185.1)
(1.5)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
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STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
22. Capital and Reserves
Ordinary shares of 1p each:
Allotted, called up and fully paid
2018
Number of
shares
199,116,632
2018
£000
1,991
2017
Number of
shares
199,116,632
2017
£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.
There has been no change in share premium, which has remained at £151.0m (2017: £151.0m).
In total the Company received proceeds of £0.1m (2017: £1.4m) from the exercise of share options.
Investment in Own Shares
At 30 March 2018 the Company held in Trust 2,060,363 (2017: 2,097,863) of its own shares with a nominal value of £20,604 (2017: £20,979).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value
of these shares at 30 March 2018 was £6.7m (2017: £7.4m). In the current period nil (2017: nil) were repurchased and transferred into the
Trust, with 37,500 (2017: 886,426) 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 five 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 £0.4m (2017: £1.0m).
1. Halfords Company Share Option Scheme
The CSOS was introduced in June 2004 and the Company has made annual grants up to and including the prior year. Options were 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 became 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.
136
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 23. Share-based Payments continued
2. Management Share plan (‘MSP’)
In the year the CSOS was replaced by the MSP. Nil cost options have been granted which can be exercised on or after the third anniversary of
the date on which they are granted. The option cannot be exercised later than 10 years from the date on which it was granted. Exercise of an
option is subject to continued employment.
The expected volatility is based on historical volatility of a peer group of companies. 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.
3. 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.
4. 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.
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. The shares awarded under the Performance Share Plan in 2013, 2015 and 2016 earned final dividends of 11.68p per share and
were reinvested in shares at a cost of £3.17 per share. Shares awarded in 2013, 2015, 2016 and 2017 under the PSP earned interim dividends
of 6.0p per share and were reinvested in shares at a cost of £3.52 per share.
The current PSP performance criteria is weighted 25% towards Group revenue growth targets and 75% towards Group EPS growth targets.
In order to focus management the awards will be underpinned by the Remuneration Committee determining whether, in its opinion, the extent
to which the performance conditions have been satisfied is a genuine reflection of the Company’s underlying financial performance and has
generated value for Company’s shareholders over the performance period, and by a net debt to EBITDA ratio no greater than 1.5x throughout
the three-year performance period.
For other senior participants conditions are based on the performance of the individual business units. The awards are weighted 37.5%
towards Group EPS growth targets, 12.5% weighted towards Group revenue growth targets and 50% weighted toward EBIT of the individual
business unit.
Options were valued using the Black-Scholes option-pricing models.
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137
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
23. Share-based Payments continued
5. Restricted Share Plan – Senior Management Plan (‘RSP-SMP’)
In the year two RSP-SMP awards were granted to senior management excluding the CEO and CFO. They were granted to participants on
13 September 2017 and have two different performance period end dates: 30 March 2018 and 29 March 2019.
Nil cost options have been granted which can be exercised on the first anniversary and second anniversary of the grant date for the 2018 and
2019 schemes respectively. Exercise of an option is subject performance conditions in relation to Group PBT and continued employment.
Options were valued using the Black-Scholes option-pricing models.
The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP) for all share award
plans.
For the period ended 30 March 2018
CSOS
MSP
SAYE
PSP
RSP-SMP
Number
(‘000)
5,983
—
WAEP
(£)
3.87
—
Number
(‘000)
—
360
WAEP
(£)
—
—
Number
(‘000)
2,892
899
WAEP
(£)
2.77
2.77
Number
(‘000)
1,612
1,204
WAEP
(£)
—
—
Number
(‘000)
—
591
WAEP
(£)
—
—
Outstanding at start of year
Granted
Shares representing
dividends reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year
—
(750)
(5)
(1,030)
4,198
118
—
4.05
3.07
4.66
3.64
—
(2)
—
—
358
—
Exercise price range (£)
Weighted average remaining
contractual life (years)
2.20- 5.43
7.3
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)
—
—
—
—
—
—
9.4
—
(636)
(33)
(44)
3,078
—
—
2.84
2.64
2.63
2.76
77
(541)
—
(266)
2,086
—
2.50-4.25
2.0
—
—
—
—
—
1.8
—
(30)
—
—
561
—
—
—
—
—
—
—
0.8
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
138
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 23. Share-based Payments continued
The following table gives the assumptions applied to the options granted in the respective periods shown:
52 weeks to 30 March 2018
CSOS
—
—
—
—
—
—
—
—
—
MSP
3.26
—
28.99%
10
3
—
5.37%
33%
2.78
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 (£)
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 (£)
SAYE
3.33
2.77
PSP
3.19/3.58
—
RSP -SMP
3.19
—
28.89% 28.89%/30.53% 22.01%/31.38%
0.75/1.75
0.5/1.5
—
—
10%/20%
3.19
3
2.5/2.2
—
—
32%/0%
3.19/3.58
3
3.5
0.35%
5.26%
44%
0.60
52 weeks to 31 March 2017
CSOS
3.60
3.59
32.0%
10
4.85
0.17%
4.72%
33%
0.57
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
0.00%
30%
3.60
As the MSP, PSP and RSP-SMP 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.
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139
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
24. Commitments
Capital expenditure: Contracted but not provided
2018
£m
0.7
2017
£m
1.9
At 30 March 2018, 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
2018
£m
85.3
281.2
183.4
549.9
Other
assets
2018
£m
2.2
3.3
—
5.5
Restated
Land and
buildings
2017
£m
84.8
292.1
212.8
589.7
Other
assets
2017
£m
2.1
2.3
—
4.4
The Group leases a number of stores and warehouses under operating leases of varying length for which incentives/premiums are received/
paid under the relevant lease agreements. Land and buildings have been considered separately for lease classification. The operating lease
commitments are shown before total future minimum receipts of sublet income, which totalled £5.7m (2017 restated: £6.9m). The prior year
figures for payments in respect of non-cancellable operating leases and sublet income have been restated by £12.5m to remove intergroup
leases.
No leases place any commercial restriction on the Group’s ability to conduct its business in the manner it sees fit (for instance restrictions on
dividends, debt levels or further leases). No lease has clauses that link rental payments to performance, for instance turnover leases and no
lease contains contingent rent clauses. All leases include rent escalation clauses setting out the basis for future rent reviews. Typically these
are based on open market conditions or are linked to RPI or CPI.
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 £5.5m (2017: £6.9m).
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.
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 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 30 March 2018 amounted to £3.6m (2017: £3.7m).
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 Group’s ultimate parent company is Halfords Group plc. A listing of all related undertakings is shown within the financial statements of the
Company on pages 142 to 147.
Transactions with Key Management Personnel
The key management personnel of the Group comprise the Executive and Non-Executive Directors and the Halfords Limited and Halfords
Autocentres management boards. The details of the remuneration, long-term incentive plans, shareholdings and share option entitlements
of individual Directors are included in the Directors’ Remuneration Report on pages 82 to 90. Key management compensation is disclosed in
Note 4.
Directors of the Company control 0.09% 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
The Group announced the resignation of its Group Chief Financial Officer, Jonny Mason, on 27 March 2018, with a leaving date of
September 2018. On 22 May 2018, the Group announced that Keith Williams will be joining as Chairman on 24 July 2018.
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141
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS
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
30 March
2018
£m
31 March
2017
£m
Notes
4
5
6
6
8
9
9
9
9
20.9
20.5
485.8
6.7
492.5
(169.0)
323.5
(83.7)
260.7
2.0
151.0
(9.4)
0.3
116.8
260.7
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
The notes on pages 145 to 147 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 144.
The financial statements on pages 142 to 147 were approved by the Board of Directors on 22 May 2018 and were signed on its behalf by:
Jonny Mason
Chief Financial Officer
Company number: 04457314
142
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Company Statement of Changes in
Shareholders’ Equity
At 1 April 2016
Profit for the period
Share options exercised
Share-based payments
Dividends paid
At 31 March 2017
Profit for the period
Share options exercised
Share-based payments
Dividends paid
At 30 March 2018
Share
capital
£m
2.0
—
—
—
—
2.0
—
—
—
—
2.0
Share
premium
£m
151.0
—
—
—
—
151.0
—
—
—
—
151.0
Investment
in own
shares
£m
(10.9)
—
1.4
—
—
(9.5)
—
0.1
—
—
(9.4)
Capital
redemption
£m
0.3
—
—
—
—
0.3
—
—
—
—
0.3
Retained
earnings
£m
196.0
3.5
—
1.0
(53.5)
147.0
4.2
—
0.4
(34.8)
116.8
Total
£m
338.4
3.5
1.4
1.0
(53.5)
290.8
4.2
0.1
0.4
(34.8)
260.7
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143
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS 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 30 March 2018, whilst the comparative period covered the 52 weeks to 31 March
2017. 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. Additionally, no cash flow
statement is presented as permitted by FRS 101.8 (h). The profit for the year is disclosed in note 1 to the financial statements.
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.
144
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 Notes to the Financial Statements
1. Profit and Loss Account
The Company made a profit before dividends paid for the period of £4.6m (52 week period to 31 March 2017: £3.5m). The Directors have
taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a profit and loss account for
the Company alone.
2. Fees Payable to the Auditors
Fees payable by the Group to KPMG LLP and their associates during the current and prior period are detailed in Note 3 to the Group financial
statements.
3. Staff Costs
The Company has no employees other than the Directors. Full details of the Directors’ remuneration and interests, including those details
required by Schedule 5, are set out in the Remuneration Report on pages 82 to 90 which forms part of the audited information.
4. Investments
Shares in Group undertaking
Cost
As at 31 March 2017
Additions – share-based payments
At 30 March 2018
£m
20.5
0.4
20.9
The investments represent shares in the following subsidiary undertakings as at 30 March 2018 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.
Incorporated in
Great Britain*
Ordinary shares
percentage owned
%
100
Principal
Activities
Intermediate holding company
In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.
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145
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS Notes to the Financial Statements
4. Investments continued
The related undertakings of the Company at 30 March 2018 are as follows:
Principal activity
Intermediate holding company
Intermediate holding company
Intermediate holding company
Retailing of auto parts, accessories, cycles and cycle accessories
Dormant
Intermediate holding partnership
Intermediate holding company
Dormant
Car servicing
Dormant
Dormant
Dormant
Dormant
Dormant
Cycle design and cycle sales
Cycle design and cycle sales
Dormant
Subsidiary undertaking
Subsidiaries registered in England & Wales, with a registered address of:
Icknield Street Drive, Redditch, Worcestershire, B98 0DE
Halfords Holdings (2006) Limited
Halfords Holdings Limited*
Halfords Finance Limited*
Halfords Limited*
Halfords Payment Services Limited*
Halfords Investments (2010) LP**
Halfords Autocentres Holdings Limited*
Halfords Autocentres Funding Limited*
Halfords Autocentres Limited*
Halfords Autocentres Acquisitions Limited*
NW Autocentres Limited*
Halfords Autocentres Developments Limited*
Stop N’ Steer Limited*
Halfords Vehicle Management Limited*
Boardman Bikes Limited*
Boardman International Limited*
Cycle Republic Limited*
Performance Cycling Holdings Limited
(previously Performance Cycling Limited)*
Tredz Limited*
Wheelies Direct Limited (previously Savvy
Bikes Limited)*
Performance Cycling Limited (previously
Wheelies Direct Limited)*
Giant (Wales) Limited*
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 Derryall Road, Portadown, Craigavon, 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*
Retailing of cycles and cycle accessories
Non-trading
Intermediate holding company
Non-trading
Retailing of motor vehicle parts and accessories
E-Commerce
Dormant
Dormant
% 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
7.7
5.1
* 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 and Performance Cycling Limited.
5. Debtors
Falling due within one year:
Amounts owed by Group undertakings
2018
£m
485.8
485.8
2017
£m
478.5
478.5
Amounts owed by Group undertakings are subject to interest. At 30 March 2018 the amounts bear interest at a rate of 1.75% (2017: 1.75%).
146
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 6. Creditors
Falling due within one year:
Bank borrowings (note 7)
Amounts owed by group undertakings
Accruals and deferred income
Falling due after more than one year:
Bank borrowings (note 7)
7. Borrowings
Current
Unsecured bank overdraft
Non-current
Unsecured bank loan and other borrowings (expiring between two and five years)
The above borrowings are stated net of unamortised issue costs of £1.3m (2017: £1.0m).
Details of the Company’s borrowing facilities are in Note 17 to the Group’s financial statements.
2018
£m
19.7
148.7
0.6
169.0
83.7
83.7
2018
£m
19.7
83.7
103.4
2017
£m
20.7
121.3
0.7
142.7
72.0
72.0
2017
£m
20.7
72.0
92.7
8. Equity Share Capital
Ordinary shares of 1p each:
Allotted, called up and fully paid
2018
Number of
shares
199,116,632
2018
£000
1,991
2017
Number of
shares
199,116,632
2017
£000
1,991
During the current period the Company has not changed its share capital. There has been no change in share premium, which has remained
at £151.0m (2017: £151.0m).
In total the Company received proceeds of £0.1m (2017: £1.4m) from the exercise of share options.
Potential Issue of Ordinary Shares
The Company has five employee share option schemes, three of which were set up following the Company’s flotation, and the MSP and
RSP-SMP which have been set up in the year. Further information regarding these schemes can be found in Note 23 to the Group’s financial
statements.
Investment in Own Shares
At 30 March 2018 the Company held in Trust 2,060,363 (2017: 2,097,863) of its own shares with a nominal value of £20,604 (2017: £20,979).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value
of these shares at 30 March 2018 was £6.7m (2017: £7.4m). In the current period nil (2017: nil) were repurchased and transferred into the
Trust, with 37,500 (2017: 886,426) reissued on exercise of share options.
9. Reserves
The Company settled dividends of £34.8m (2017: £53.5m) in the period, as detailed in Note 8 to the Group’s financial statements.
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 30 March 2018 amounted to £3.6m (2017: £3.7m).
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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147
STRATEGIC REPORT OUR GOVERNANCESHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comOVERVIEWFINANCIAL STATEMENTS 25675
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SHAREHOLDER
INFORMATION
Five Year Record
Glossary of Alternative Performance Measures
Company Information
150
151
152
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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
28 March
2014
(audited)
£m
939.7
(435.5)
504.2
(426.4)
52 weeks to
27 March
2015
(proforma)*
£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)
52 weeks to
30 March
2018
(audited)
£m
1,135.1
(564.9)
570.2
(495.6)
77.8
(0.2)
77.6
(5.0)
72.8
(0.2)
—
72.6
(17.0)
(0.1)
55.5
28.6p
28.8p
194.0m
84.6
(0.3)
84.3
(3.5)
81.1
(0.3)
—
80.8
(17.4)
(0.1)
63.3
32.5p
32.7p
194.2m
84.5
(1.7)
82.8
(3.0)
81.5
(1.7)
—
79.8
(16.6)
0.3
63.5
32.5p
33.2p
195.2m
77.1
(3.4)
73.7
(2.3)
75.4
(3.4)
(0.6)
71.4
(15.9)
0.9
56.4
28.7p
30.3p
196.6m
74.6
(4.8)
69.8
(2.7)
71.6
(4.8)
0.3
67.1
(13.2)
0.8
54.7
27.8p
29.6p
197.0m
* 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.
** These alternative performance measures are defined on page 151.
150
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018
Glossary of Alternative Performance Measures
In the reporting of financial information, the Directors have adopted
various Alternative Performance Measures (“APMs”), previously
termed as ‘Non GAAP measures’. APMs should be considered
in addition to IFRS measurements, of which some are shown on
page 100. The Directors believe that these APMs assist in providing
useful information on the underlying performance of the Group,
enhance the comparability of information between reporting
periods, and are used internally by the Directors to measure the
Group’s performance.
The key APMs that the Group focuses on are as follows:
1. Like-for-like (“LFL”) sales represent revenues from stores,
centres and websites that have been trading for at least a year
(but excluding prior year sales of stores and centres closed
during the year) at constant foreign exchange rates.
2. Underlying EBIT is results from operating activities before
non-recurring items. Underlying EBITDA further removes
Depreciation and Amortisation.
3. Underlying Profit Before Tax is Profit before income tax and non-
recurring items as shown in the Group Income Statement.
4. Underlying Earnings Per Share is Profit after income tax before
non-recurring items as shown in the Group Income Statement,
divided by the number of shares in issue.
5. Net Debt is 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.
6. Net Debt to Underlying EBITDA ratio is represented by the ratio
of Net Debt to Underlying EBITDA (both of which are defined
above).
7. Adjusted Operating Cash Flow is defined as EBITDA plus
share-based payment transactions and loss on disposal of
property, plant and equipment, less working capital movements
and movement in provisions; as reconciled below.
Underlying EBITDA
Non-recurring operating
expenses
EBITDA
Share-based payment
transactions
Loss on disposal of property,
plant & equipment
Working capital movements
Provisions movement & other
Adjusted Operating Cash Flow
FY18
£m
109.5
(4.8)
104.7
0.4
4.1
(12.6)
(1.2)
95.4
FY17
£m
108.7
(3.4)
105.3
1.0
0.2
(16.3)
(0.2)
90.0
8. Free Cash Flow is defined as Adjusted Operating Cash Flow
(as defined above) less capital expenditure, net finance costs,
taxation, exchange movements and arrangement fees on loans;
as reconciled below.
Adjusted Operating Cash Flow
Capital expenditure
Net finance costs
Taxation
Exchange movements
Arrangement fees on loans
Free Cash Flow
FY18
£m
95.4
(37.0)
(1.9)
(16.1)
1.9
(0.8)
41.5
FY17
£m
90.0
(34.4)
(0.8)
(15.3)
(1.8)
—
37.7
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151
STRATEGIC REPORT OUR GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTOCK CODE: HFD halfords.annualreport2018.comSHAREHOLDER INFORMATIONOVERVIEW Company Information
Financial Calendar
24 July 2018
Annual General Meeting
27 July 2018
Final Dividend Record Date
31 August 2018
Final Dividend Payment Date
4 September 2018
20 Week Trading Update
7 November 2018
Interim Results
Registered Office
Halfords Group plc
Icknield Street Drive
Redditch
Worcestershire
B98 0DE
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Auditors
KPMG LLP
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
152
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Halfords Group plc Integrated Annual Report for the period ended 30 March 2018 25675
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Corporate and IR website
www.halfordscompany.com
Online Annual Report 2018
halfords.annualreport2018.com
Commercial Website
www.halfords.com
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