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TO INSPIRE AND SUPPORT A LIFETIME
OF MOTORING AND CYCLING
Halfords Group plc
Annual Report and Accounts for the
period ended 29 March 2019
Stock code: HFD
Halfords is the UK’s leading provider of
motoring and cycling products and services.
Through Halfords Autocentres, it is also one
of the UK’s leading independent operators in
vehicle servicing, maintenance and repairs.
Our Vision
Our vision is clear:
• To Inspire and Support a Lifetime of motoring and cycling
Online Annual Report
Read our Annual Report online, including a link to the full
Remuneration Policy
halfords.annualreport2019.com
Corporate Website
Catch up with our latest news and learn more about Halfords
on our corporate website
www.halfordscompany.com
Our Integrated Report
This is our fifth 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 then developed it further 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.
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 is used to indicate
content on the outputs of the
business model.
What’s inside
this Annual Report
Our Marketplace
Halfords operates in two distinct markets –
motoring and cycling – selling products
and services across the UK and Republic
of Ireland.
Read more about Our Marketplace
on pages 14 to 18
Business Model
Effective utilisation of our resources and
relationships are an integral part of our plan
to drive long-term sustainable growth.
Read more about our Business
Model on pages 20 and 21
Stakeholder Engagement
Relationships with our stakeholders are a
key part of our business – how we engage
these groups, how we address issues and
how they contribute to the business.
Read more about Stakeholder
Engagement on pages 22 and 23
Our Strategy
Inspire
Support
Lifetime
Read more abour Our Strategy
on pages 24 to 27
Corporate Social Responsibility
We constantly look to ensure that our
Corporate Responsibility Strategy is aligned
to our Company goals and values.
Read more about Corporate
Social Responsibility on
pages 32 to 42
Overview
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
2
6
8
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22
24
28
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01
halfords.annualreport2019.com
Group Highlights
FINANCIAL
Revenue
+0.3%
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Underlying Profit
Before Tax
-17.9%
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Profit Before Tax
-24.0%
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Dividend Per
Ordinary Share
+3.0%
Underlying Basic
Earnings Per Share
-17.2%
Basic Earnings Per Share
-23.7%
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An exciting time
for Halfords
We have a clear plan aimed at driving
sustainable long-term growth.
Our new strategy will ensure that
we remain focused on our core
motoring and cycling offers, enabling
customers to buy products and
services with features and benefits
that they not only desire but are only
available at Halfords.
Halfords Group has
delivered sales and Free
Cash Flow growth in what
remains a challenging UK
consumer environment.
While motoring continued
to be impacted by
extremely mild weather
conditions, we are pleased
to have seen continued
and sustained growth
in cycling, underpinned
by improvement in our
exclusive own brand ranges.
Graham Stapleton
Chief Executive Officer
OPERATIONAL
75%
Group revenue matched
to customers
24%
Total Group sales which
are service-related
80
In-store Retail services
across motoring and
cycling
0.8:1
Net debt to Underlying
EBITDA ratio
83%
of halfords.com online
orders click and
collected in-store
20%
Group revenue from
online sales
Our Annual Report and Accounts includes Alternative Performance Measures (APMs) which we believe provide readers with important additional information on
the Group. A glossary of terms and reconciliation to IFRS amounts is included on page 166.
02
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Investment Case
FIVE REASONS TO INVEST
Overview
5
Net Debt
Group Net Debt of 0.8
EBITDA in FY19, remains
below the 1.0
This target ranges up to
for appropriate M&A
1.5
target.
5
5
Strong balance
sheet and cash
generative
Halfords Group ends the
year in a strong financial
position with a healthy
balance sheet and
remains cash generative.
Free Cash Flow, in line
with our medium-term
financial targets, remains
in growth in the year.
Consistent
dividend
returns
Our strong financial
position has meant
that Halfords has
consistently maintained
its progressive dividend
policy, with 3% growth in
the ordinary dividend per
year. The growth in Free
Cash Flow in the year,
continues to support the
dividend.
Scaled and
growing
business
Halfords has 797 locations
in the UK; from Retail
stores, to Autocentres,
Performance Cycling stores
and our fleet of Halfords
Mobile Expert vans. We
continue to invest in our
business, both the physical
and online estate, ensuring
that we are fit for the future
and making us even more
relevant and convenient for
our customers.
Operating in
established
markets
Halfords has a strong
position in well established
markets with good long-
term growth prospects. Our
growth in key markets, such
as E-Bikes, is well above the
market rate, strengthening
our position as market
leaders as we gain share
from our competitors.
Through innovation, new
products and new services,
the markets in which we
operate are continuing to
grow. Continued investment
in these means we are able
to remain relevant to our
customers.
SHARE PRICE CHART
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03
halfords.annualreport2019.com
Group at a Glance
As a Group we are stronger and more efficient together
Category split of Halfords
Group revenue (between
motoring and cycling)
A
B
66%
34%
A
B
Motoring
Cycling
Category split of Halfords
Group revenue (between
Retail and Autocentres)
A
B
86%
14%
A
B
Retail
Autocentres
04
Motoring
Cycling
Retail
Our strong heritage and brand means
Halfords is a destination for consumers
who want any assistance with their cars.
We continue to make progress in our
markets through investment in our stores
and colleagues to help deliver innovative
products and services. Significantly, we have
an established and growing ability to provide
services on demand in-store through our
We-Fit proposition.
Autocentres
Via our Autocentres, Halfords offers great
value and convenience for UK customers of
car servicing, repairs and MOT. The strength
of our brand and the scale of our estate
enables us to invest in the most up-to-date
equipment and technology. This year, focus
has been on providing industry-accredited
training to colleagues in the servicing and
maintenance of hybrid and electric vehicles.
Retail
The cycling market is highly fragmented,
with an estimated 2,500 bike shops in the
UK, the majority of which are independently
owned. Halfords Group is the market leader,
with strong brand awareness in bicycles,
parts, accessories and clothing.
Through Tredz and Cycle Republic we
operate in the Performance Cycling market.
These two brands, alongside our Retail
stores, mean we are able to 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. However, we
support our ranges with other selected
third party bike brands, such as Specialized,
Giant, Cannondale, Cube, Scott, Haibike and
recently Brompton and G-tech.
Our Store Portfolio
Our key brands
451Retail stores
317Autocentres
22Cycle Republic stores
3Tredz stores
1Boardman Performance
Centre
3Halfords Mobile Expert vans
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Overview
05
halfords.annualreport2019.com Chairman’s Statement
Key facts from the year
This is a business that
has good foundations,
a strong heritage and
market leading positioning
in many of its categories.
£58.8m
Underlying Profit Before Tax
£42.7m
Free Cash Flow
18.57p
Full-year ordinary dividend
Initial views of Halfords Group
Having joined the Group in July 2018, this
is my first statement as Chairman and
I would like to take this opportunity to
say how excited I am to be a part of the
Halfords Group. This is a business that
has good foundations, a strong heritage
and market leading positioning in many
of its categories. The new strategy looks
to leverage these strengths by creating a
more specialist, unique and differentiated
shopping experience for our customers,
with a convenient and easy to shop service
offering that allows us to build lifelong
relationships with our customers.
In a year which has been tough for many
retail businesses, the passion, dedication
and “can do” attitude of the colleagues
within our business has been admirable. The
year has also seen a number of changes in
the executive leadership team; principally
our new Chief Financial Officer, Loraine
Woodhouse, who joined the business in
November 2018. Loraine brings strong
expertise and has made a great early
impression on the team.
As incoming Chairman, I would like to take
this opportunity to thank Dennis Millard for
his hard work and dedication to the business
during his nine-year tenure at Halfords and
wish him all the best for future. Similarly, I
would like to thank Claudia Arney for her
considerable contribution in nine-years as
a Non-Executive Director and to extend a
warm welcome to Jill Caseberry as a new
Board director.
FY19 Performance
Throughout the year, Brexit dominated
the headlines and the retail and consumer
environment suffered as a result. Despite
the tough back drop, the Group delivered
positive like-for-like sales growth of +1.1%
in the year.
Our Retail performance was impacted by
milder winter temperatures and a more
cautious customer in the year. This resulted
in a sharp drop in profits for the year and a
disappointing shortfall in profit versus our
expectation. Nonetheless, investment in
our services proposition, and an improved
product offering in a number of categories,
E-Bikes, for example, resulted in good
growth in a number of product areas.
Autocentres performance was significantly
improved in the year, with underlying
EBIT growing 34.1% year-on-year. Strong
revenue growth, with improvements
in margin and tight cost control, led
Autocentres to a second year of profit
growth.
Keith Williams
Chairman
06
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Underlying Profit Before Tax of £58.8m,
was down £12.8m year-on-year, principally
reflecting the milder winter weather,
weakened consumer confidence during
the run up to Christmas, cost inflation and
strategic investment.
Notwithstanding the profit challenge, Free
Cash Flow in the year was ahead of the
previous year. Given the cash generative
position of the business, the Board has
recommended a final dividend payment of
12.39 pence, taking the full-year ordinary
dividend to 18.57 pence, up 3.0% year-on-
year.
To Inspire and Support a lifetime
of motoring and cycling
The new strategy, presented in September
2018, is detailed within this report (pages 24
to 27). We have a clear and simple customer
objective – inspiring and supporting a
lifetime of motoring and cycling.
The strategy will ensure that we remain
focused on our core motoring and cycling
offers, enabling customers to buy products
and services with features and benefits that
Overview
they not only desire but are only available at
Halfords. Looking ahead, customers will be
able to access a broader range of services
more easily from a single integrated website
and more convenient locations. Finally,
customers will enjoy building relationships
with Halfords for the long term as they are
encouraged to explore and benefit from all
that we do in both motoring and cycling over
their lifetime.
• Inspire our customers through a
differentiated super-specialist shopping
experience
• Support our customers through an
integrated, unique and more convenient
services offer
• Enable a lifetime of motoring and cycling
The year ahead
The economic backdrop continues to be
challenging, with no real certainty on the
timing or form of Brexit. Regardless of the
environment, longer term Halfords Group
remains in a strong position, with a talented
group of colleagues who remain focused
on delivering an outstanding customer
experience. Under the leadership of a new
executive team, the business will focus on
delivering against its strategic objectives
and returning to a position of long-term
sustainable growth.
Keith Williams
Chairman
21 May 2019
07
halfords.annualreport2019.com Chief Executive’s Statement
Positive long-term
prospects for the Group
1.1%Group Sales growth
(like-for-like)
24%Total Group sales which
are service-related
34.1%Underlying Autocentres
EBIT growth
Since launching our
new strategy, we have
seen encouraging early
progress. As we strengthen
our unique services
proposition, customers
are responding positively,
and we are particularly
pleased that nearly a quarter
of all Halfords sales are now
service-related.
Summary of Group Results
Group revenue of £1,138.6m was up 0.3%,
with like-for-like (“LFL”) sales growth of
+1.1%, despite a challenging consumer
environment.
Gross profit improved in the year, up 1.5%,
with a 70bps improvement year-on-year in
gross margin. The improvement reflected
several factors including a positive FX
tailwind, stock loss improvements and a
continued focus on buying efficiencies.
These were partially offset by softer
motoring sales growth in the year.
Group operating costs increased by 4.3%
in the year, with Retail costs up 5.0% and
Autocentres costs up 1.7%. The year-
on-year movement principally reflected
inflationary increases and strategic
investment for the future growth and
sustainability of the business. These costs
were partially offset by the reduction in
incentive payments year-on-year. Costs
within H2 were well controlled, with Retail
costs at 2.0%, an improvement against the
3.0% guidance provided at the Interims.
Underlying Profit Before Tax of £58.8m was
a decline of £12.8m on last year. The decline
was driven by a lower motoring mix year-
on-year due to mild winter temperatures,
weakened consumer confidence in the run
up to Christmas, retail cost inflation and
investment in strategic projects. Underlying
Basic Earnings Per Share at 24.5p were down
-17.2% in the same period. Profit before Tax
of £51.0m was -24.0% down year-on-year.
Basic Earnings Per Share were 21.2p, down
23.7% year-on-year. Profit after tax for the
year was £41.9m, down -23.4% year-on-year.
Cash generation remained strong, with Free
Cash Flow of £42.7m, up £1.2m on last year.
Despite unseasonal weather and “Brexit”
related challenges, the Group reduced
stock holding by £11.9m in the year through
effective inventory management. Net debt
of £81.8m at the end of the period was
£6.0m lower than the prior year end. Net
debt to Underlying EBITDA at the period end
was 0.8:1 on a rolling 12-month basis (FY18:
0.8 times).
The Board has proposed a final ordinary
dividend of 12.39 pence per share
(FY18:12.03 pence) which would take the full-
year ordinary dividend to 18.57 pence per
share, an increase of 3.0% on the prior year. If
approved, this will be paid on 30 August 2019
to shareholders on the register at the close of
business on 26 July 2019.
Graham Stapleton
Chief Executive Officer
Our Annual Report and Accounts includes
Alternative Performance Measures (APMs)
which we believe provide readers with important
additional information on the Group. A glossary
of terms and reconciliation to IFRS amounts is
included on page 166.
08
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Operational Review
In Retail, sales were £977.2m, which
were +0.8% up on an LFL basis. Cycling
sales increased by +2.6% on a LFL basis,
reflecting strong growth in our own brand
and exclusive range of electric bikes and
parts, accessories and clothing (“PACs”).
Motoring LFL sales declined by -0.4% in
the year, impacted by extremely mild winter
temperatures. Bulbs, blades and batteries
(“3Bs”) and associated winter products were
in LFL decline.
Despite tough comparators, Retail
delivered positive LFL growth in Q4. Cycling
performance, at +12.4% LFL, more than
offset the decline in Motoring performance
of -5.4% LFL. Temperatures on average were
70% milder in the quarter versus last year.
Sales of E-Bikes continued to perform well
in the year, highlighting the strength of our
own brand and exclusive brand propositions.
E-Bikes now account for 11% of total bike
sales across the group and have grown
47.2% on a LFL basis. We continue to inspire
our customers by further strengthening
Overview
our cycling specialist credentials via
agreements with Brompton and Scott
(exclusive to Cycle Republic) to sell their
products across the Halfords Group, as well
as an exclusive deal with G-tech.
Retail gross margin increased by 60 bps
in the period. The improvement reflected
several factors including a positive FX
tailwind, stock loss improvements and a
continued focus on buying efficiencies.
These benefits were partially offset by the
negative motoring mix year-on-year and
increased price investment in branded
products, driven by market competitiveness.
Retail operating costs increased by 5.0%
to £410.5m. Retail cost growth in H2 was
well controlled at 2.0%, an improvement
against the 3.0% guidance given in our
Interim statement. The full-year cost
increase primarily comprised the following:
1) inflationary impacts; and 2) strategic
investment for the future growth and
sustainability of the business. These costs
were partially offset by a reduction in
incentive payments year-on-year.
Total Autocentres revenues were up +2.6%
on a LFL basis, reflecting strong growth
in sales of servicing, tyres and MOT.
The strong progress of the Autocentres
transformation plan continued into H2,
delivering tangible benefits. EBIT increased
significantly by 34.1% to £5.5m in the year.
A clear focus on the operating model, along
with good revenue growth and tight cost
control, led Autocentres to a second year of
profit growth.
During the period we opened three Cycle
Republic stores, a Boardman “Wind Tunnel”
Performance Centre, two Autocentres and
rolled out two more mobile vans, extending
our Halfords Mobile Expert trial to three
cities. We closed six Halfords Retail stores, a
Tredz concession store and one Autocentre.
Group service-related sales, which consist
of the revenue generated from paid fitting
and repair services plus the associated
product attached to the transaction,
continue to be in growth in the year. The
number of service jobs completed increased
by 4.0% in the period, with service-related
sales now accounting for 24% of the overall
Group sales.
09
halfords.annualreport2019.com Chief Executive’s Statement
In Retail, 42% of 3B’s sold were fitted
to customers’ cars by our colleagues
(“penetration”). Despite a decline in 3Bs
product sales, due to an extremely mild
winter, penetration was up 40 bps year-on-
year. This continues to reflect the increasing
relevance of our services proposition to
the growing proportion of ‘do-it-for-me’
customers. The number of on-demand
services available in retail stores increased
to 80 in the year (vs 30 services in FY17),
with the trial of on-demand services
delivering promising results in Autocentres.
Sales through financial services, through
a strengthened customer offer, grew 30%
year-on-year with financial services now
representing 5% of total group sales.
Group online sales were up +9.5% in the
period, with 20% of our total Group sales now
being delivered through our online platform.
The importance of our store network and
service overlay continues to be highlighted by
the strength of our Click & Collect proposition,
with around 83% of online orders made
through Halfords.com being collected in store.
The continued investment in understanding
our customer means the Group can
now match 75% of its total customer
transactions. The number of customers
shopping across the Group has increased by
7.2% year-on-year, accelerated by the “Free
MOT” promotion earlier in the year.
Investment in our colleagues has remained
paramount during the year, from capability
building within the executive team through to
investment in our store colleagues to ensure
they have the right training to support our
customers. Halfords came 15th in the Sunday
Times Best Big Companies To Work For survey.
In response to the increasing relevance of
electric and hybrid motoring technology,
over 500 Autocentre technicians have been
accredited to the Institute of Motor Industry
(“IMI”) Level 2. Autocentres were also
awarded the Garage Chain of the Year award
by CAT (Car and Accessory Trader) in
March 2019.
Brexit
There remains a considerable amount of
uncertainty as to how and even whether,
the UK will exit from the EU. This uncertainty
continues to have an impact on the Halfords
Group, in the areas highlighted below:
•
•
impact on exchange rates. The Group
buys a significant proportion of its
goods in US dollars; between $200m
and $300m a year. As previously
guided, the majority of our US dollar
sourcing is for cycling products.
However, over the last 18 months
the group has focused on looking at
near sourcing opportunities, moves
in appropriate products areas have
already been made, including bikes.
prolonged uncertainty over exit terms
and continued weakness in Sterling
could lead to a slowdown in the UK
economy and, consequently, a further
weakening of consumer confidence,
impacting trading conditions for the
Group. Working groups have been held
throughout the year to identify, assess
and implement mitigations for the risks
of a hard Brexit. However, Halfords has
strong positions in fragmented motoring
and cycling markets, and a service-led
offer that differentiates us from our
competitors, both physical and online.
Summary and FY20 Outlook
In summary, despite a challenging UK
consumer environment, the group delivered
like-for-like sales growth in both Retail and
Autocentres and continues to make positive
progress against the new strategy.
Autocentres delivered a second year of
profit growth, with continued focus on the
operating model, as well as good revenue
growth and tight cost control.
Group operating costs were well controlled
in the second half of the year and the
continued focus on working capital
efficiencies drove a £11.9m reduction
in Group stock year-on-year. The Group
continued to be cash generative with Free
Cash Flow of £42.7m up £1.2m year-on-
year, which supports the final dividend
payment of 12.39p in the year (FY dividend
payment:18.57p; +3% year-on-year).
The Group reconfirms its guidance on FY20
Profit Before Tax to be broadly in line with
FY19. Our view assumes average weather
conditions across the year and a consumer
and economic outlook broadly similar to
that experienced during the second half of
FY19. We remain confident in our ability to
generate consistent levels of Free Cash Flow
which, for FY20, will be underpinned primarily
by working capital efficiencies.
Specifically, whilst we remain confident
in the long-term growth prospects for
the cycling market, we expect short-term
underlying economic conditions to continue
to be challenging. Even though Q2 and Q4
this year saw a strong performance driven
by the weather, cycling continues to be
a discretionary, big ticket category and
is not immune to consumer uncertainty.
10
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Overview
The Board is confident that the customer
strategy remains right for the long-term
sustainability of the business and that near-
term performance is robust and underpinned
by cost savings and working capital
opportunities.
Graham Stapleton
Chief Executive Officer
21 May 2019
As already noted, the current economic
environment and consumer confidence
continues to remain challenging, as
a business we are having to respond
accordingly by continuing to put greater
emphasis on improving our cost base and
maximising efficiencies across the Group.
The emphasis on cost and efficiency will
continue to be a key priority for FY20, and
within the current economic environment is
key to underpinning profit growth in FY21.
We continue to believe our customer
strategy to be the right direction for the
long-term sustainability of our business,
the delivery is likely to take longer than we
expected as we adapt the plan to the current
environment. Capital investment is likely
to be c.£35m, which is slightly below the
£40m to £60m guidance for FY20, revenue
investment will be self-funded via rigorous
cost-efficiency programmes.
Unsurprisingly, bike volumes overall have
been subdued across the market in FY19.
While motoring tends to be a more resilient
category, key product areas are impacted
by weather extremes. A more normalised
weather pattern should see a strengthening
of winter category sales but, for big ticket,
discretionary items, sales remain vulnerable
to consumer confidence.
Given the economic backdrop, we expect
underlying sales growth to be muted in
FY20. Although it is still early in the delivery
of our strategic transformation, we believe
that progress in visible customer initiatives,
such as a strengthened financial services
offering, will deliver a modest boost to sales.
Underlying operating cost growth in FY20 will
reflect inflation, employment costs in relation
to changes in case law and an increase in
incentive costs year-on-year. Any increase
in costs driven by strategic investment in
FY20 will be self-funded through rigorous
cost efficiency plans, such as goods not for
resale (“GNFR”) and goods for resale (“GFR”)
programmes. Despite the factors driving the
underlying cost increase, we expect cost
growth overall in FY20 to be lower than FY19.
halfords.annualreport2019.com
11
Inspire our customers
through a differentiated,
super-specialist shopping
experience
Read more on our Strategy on pages 24 to 27
Strategic Report Our Marketplace
Motoring Market
Halfords Group addresses two distinct areas of the UK’s highly-fragmented motoring market - car parts, accessories, consumables and
technology; and car servicing and aftercare. From the perspective of the former, there is no single equivalent competitor. In respect of the
latter, there are over 30,000 garages in the UK, an estimated two-thirds of which are small independents.
Car Parts, Accessories,
Consumables and Technology
Car Servicing
and Aftercare
Key Facts
>£3bn
Market size
20%Our market
share
2+%Forecasted
Market Growth
Key Facts
>£9bn
Market size
2%Our market
share
2+%Forecasted
Market Growth
Market Trends
Market Trends
The UK car parc has exhibited
steady growth . . .
. . . with the average age
of cars gradually rising
Cars are becoming more
reliable . . .
. . . but more expensive to fix
UK Car Parc
Average Age
of UK Cars
Visit to Garage Per Year
Light Vehicle – Frequency
Average Visit
Spend – £
%
+ 1.1
%
+ 1.8
%
+ 0.7
8
.
7
8
.
7
0
.
8
1
.
8
1
.
8
4
.
2
3
.
2
3
.
2
3
.
2
2
.
2
9
5
1
1
5
1
6
5
1
8
4
1
6
4
1
6
0
0
2
0
1
0
2
4
1
0
2
8
1
0
2
8
1
0
2
2
2
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
Our response
Car parts, accessories, consumables and technology
Our strong heritage and brand means Halfords is a destination for
consumers who want assistance with their cars. We continue to
make progress in our markets through investment in our stores and
colleagues to help deliver innovative products and services to our
customers when and where they want them.
Our response
Car servicing and aftercare
We will continue to invest in equipment and colleague training in
order to remain at the forefront of technological changes. This
will give us a competitive advantage in a fragmented market of
independent operators.
Specifically, we have made significant progress in providing
industry-accredited training to Autocentres colleagues in the
servicing and maintenance of hybrid and electric vehicles.
14
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Motoring Market – Competitor Landscape
Car products and related fitting
• Limited number of specialists but a highly diverse and
competitive set of retailers
• Limited retail bricks and mortar competition
• Wholesalers and generalists moving into specialist retail
markets with strong omnichannel offer
• Supermarkets and garage forecourts continue to sell a
limited range of high-volume, high-margin products
• Independent garages offering car parts and associated
fitting
How is Halfords Group different?
Our 125-year heritage has established Halfords as a
household name, with over 90% of the UK population
living within 20 minutes of a Halfords store. We have
many outstanding strengths that differentiate us, notably
our diverse product range and our colleague expertise.
Significantly, we have an established and growing ability to
provide services on demand in-store.
Long-term market trends
As UK motorists become more engaged with issues affecting
their impact on the environment, they are seeking ways of
mitigating against them. At the same time, the Government
has increased taxation of diesel cars. As a result, 2018 saw
a c.30% reduction in diesel car registrations and an increase
in petrol registrations of 9%. Significantly, hybrid and electric
registrations were up 21%. Although relatively low volume in
comparison, this trend continues to gain momentum.
Cars are becoming more complex. Alongside advances in engine
technology, cars are being equipped with an increasing number
of intelligent features in order to meet the rising expectation
of consumers. Obvious examples include mobile telephone
technology enabling the legal and safe making of calls on the
move, and advanced satellite navigation capability. The long-
term expectation will be that all devices will offer an integrated
‘always-on’ flow of information.
Car Servicing
• Technological advancements limit scope for effective
delivery by independents
• Car dealerships expanding into used car servicing
• Some evidence of sales aggregation (e.g. My Car Needs
A…) and mobile services entrants (e.g. Tyres On The Drive)
How is Halfords Group different?
Via our Autocentres, Halfords Group offers great value and
convenience for UK consumers of car servicing, repairs
and MOT compliance. The strength of our brand and the
scale of our store and garage estate enables us to invest in
the most up-to-date equipment and technology. We have
recently begun trialling Halfords Mobile Expert which delivers
elements of car servicing, such as battery replacement, tyres
and diagnostic checks, direct to the customer at their home
or workplace.
Autonomous cars, whilst a futuristic concept, are the focus of
significant investment by global innovators such as Google and
Tesla. Many new cars are now partially-autonomous, providing
lane change assistance, parking assistance and adaptive cruise
control. There is a high probability that children born today may
never need to drive a car.
All of these disruptive changes mean that it is becoming less
likely that car owners will possess the knowledge or equipment
to replace worn parts or service their own cars in the future. The
increasing demand for a ‘do it for me’ proposition will continue
to rise.
15
Strategic Report halfords.annualreport2019.com Our Marketplace
Cycling Market
The cycling market is highly fragmented, with an estimated 2,500 bike shops in the UK, the majority of which are independently owned.
Our research shows that these shops are closing at an average of 10% per year. Halfords Group is the market leader, with strong brand
awareness in bicycles, parts, accessories and clothing.
Cycling
Key Facts
Overall
>£2bn
Market size
Performance Cycling
19%Our market
share
2%Forecasted
Market Growth
>£0.7bn
Market size
9%Our market
share
1.5%Forecasted
Market Growth
Our response
Cycling
Market leaders lead from the front. To do so, we continually develop
ways in which to leverage the market. Through our partnership with
the Government-supported Bikeability scheme, we help deliver
vital cycling proficiency skills to schoolchildren and our support for
corporate Cycle-to-Work schemes enable us to bring innovative
services and products to a large and diverse market. A great
example of this is our recent release of the Cybic Legend range –
the world’s first Alexa-connected ‘smart bike’.
Our response
Performance Cycling
As the cycling market continues to grow, we know the importance
of keeping pace with latest trends. We have invested in the growing
popularity of E-Bikes; growing our proposition through targeted
marketing and by offering products and services for which we
know strong demand exists, such as the Brompton E-Bike and
E-Bike servicing plans.
As a result, we are one of the UK’s leading retailers in the
emerging E-Bike market and have trained colleagues in every
store to deliver E-Bike servicing and maintenance.
16
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Cycling Market – Competitor Landscape
Mainstream Cycling
• Predominantly generalist competitors with own-label bikes
Performance Cycling
• Predominantly branded bikes
• Limited online penetration in mainstream bikes
• Physical service locations are important
• Cycle-to-Work continues to be an important driver
• Traditional specialists and independents struggling
• Big brands starting to go direct to customers
• Online pure-play continuing to grow and consolidate
• Major sports retailers starting to diversify into cycling e.g.
JD Sports / Go Outdoors
• Physical service locations are important
• Cycle-to-Work is an important driver
How is Halfords Group different?
Halfords Group boasts the biggest and most popular cycle
brand in the UK – Carrera. We also sell other own brands
for both children and adults. Our stores are conveniently-
located, and our online platform provides support and
information to help customers choose the product and
services they want.
Many customers take advantage of our Click & Collect offer,
placing orders online via our website and picking up from a
designated store at a time which is convenient to them. This
also drives positive store footfall. Additionally, we are a leading
partner of the UK’s Cycle-to-Work scheme; supporting sales
and introducing new customers to our brand.
How is Halfords Group different?
Through Tredz and Cycle Republic, Halfords has a strong
and increasing foothold in the performance cycling market.
Offering products and services of particular appeal to
performance cyclists has contributed to growth in the
overall number of customers. Cycle-to-Work vouchers can
also be redeemed at both Tredz and Cycle Republic stores,
contributing significantly to the ongoing success of that
partnership. Both brands’ bold online presence differentiates
them from the independent cycle shop community and helps
them stay relevant and competitive in a challenging market
environment.
Finally, existing participants in the cycling market are willing to
spend more on their cycles and accessories. As a result, whilst
volume is predicted to remain relatively flat, the value of the
market will grow via demand for cycle and accessory upgrades
or additional cycles for a different style of riding.
Whilst the unpredictability of the weather will continue to impact
the timing of purchases, the overall trends in the market are
positive and show that scope for growth remains.
Long-term market trends
Looking ahead, we continue to see good growth prospects for
the cycling market. Participation levels in the UK remain lower
than in many other European countries, particularly among the
female population. Government-led schemes and investment in
cycle-friendly city infrastructure continues to support a positive
future outlook.
In addition, consumers are increasingly engaged with issues
which affect the environment and which influence the living of
a healthy lifestyle; both of which are intrinsically linked to the
benefits of cycling.
The advent of E-Bikes – power-assisted cycling – is serving to
widen the market by providing cycling opportunities for older
generations and consumers less physically able. E-Bikes are
rapidly growing in popularity and, if the UK trend continues to
mirror those experienced in Germany and the Netherlands, the
expectation is that E-Bike sales will increase from the current level
of 8% of all bikes sold, to around 20% over the next few years.
17
Strategic Report halfords.annualreport2019.com Our Marketplace
Macro-customer trends
DIY to DIFM
Convenience
Sustainability
Consumers are increasingly moving
from a ‘Do It Yourself’ to a ‘Do It For Me’
mindset. Our research shows that 70%
of people are too time-poor or lack the
necessary skills to carry out DIY tasks.
As cars become increasingly complex,
we expect this attitudinal shift to intensify
further; resulting in increased demand for
specialist knowledge and equipment.
Consumers’ lifestyles are getting busier,
free time is becoming more valuable, and
consumers want retailers to fit around
their routines, at some levels wanting
everything at the click of a button. Our
customers want the problem with their
car or bike fixed as easily as possible and
when it suits them, even if the convenient
solution comes at a higher price.
Sustainability is a rapidly growing trend in
the world of Retail with consumers being
increasingly mindful of ‘Green’ living,
reduction of plastic consumption and
ethical recycling. The impact that we are
having on the world and the footprint we
are leaving behind is a concept that is set
to shape markets in the future.
Link to strategy
Link to strategy
Link to strategy
Less Brand Loyalty
Personalisation
Move from Owning to Using
Online searching and comparison is
challenging traditional notions of brand
loyalty. Alternative products offering
better value or convenience can be
identified within seconds; making brand
loyalty harder to earn and maintain
without possessing a compelling unique
selling point.
Personalisation is a key way of standing
out from the vast array of competitors.
Enabling customers to feel valued
through personalised communications
or products is a good way to build strong
relationships and drive loyalty.
Economic uncertainty and Brexit-
related nervousness reduces consumer
willingness to purchase ‘big ticket’ items.
Instead, consumers are choosing to
rent these items rather than buy, a good
example being leasing and driving a car
under the terms of a PCP scheme instead
of purchasing up front.
Link to strategy
Link to strategy
Link to strategy
Omnichannel Shopping
Experiences over Product
Modern consumers expect a seamless
shopping experience across all channels.
We want to ensure that our increasingly
popular online proposition also continues
to entice customers into our stores.
Our aim is to support the continuation
of a frictionless customer journey via
the provision of additional service and
expertise by our in-store colleagues.
The popularity of experiential shopping
is continuing to increase. Retailers
and retail parks are building non-
core concessions and entertainment
concepts, turning one-off ‘impulse’ visits
into ‘destination’ shopping experiences.
Key to strategic link
Inspire
Support
Lifetime
Link to strategy
Link to strategy
Read more about Our strategy
on pages 24 to 27
18
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
19
Strategic 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 model is underpinned by our financial discipline, astute purchasing and strategic investments.
Resources and relationships
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.
What we do
Motoring
Offer car parts, accessories,
consumables and technology to our
customers meaning we are a destination
for customers who want any assistance
with their cars.
Autocentres
Provide trusted and specialist car
services, MOT and repairs.
Cycling
Lead the market in selling bicycles, parts,
accessories and clothing. Our colleagues
are highly trained and provide customers
with expert knowledge and advice.
Partners
Halfords is proud to work with distributors
and other industry partners to drive our
business forward, supporting the sale of
our products and services and enabling us
to work with communities across the UK.
Brand
Halfords is the nations 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.
How we do it
Inspire
Support
• Inspire our customers through a
differentiated, super-specialised
shopping experience.
• Support our customers through
an integrated, unique and more
convenient services offer.
• Become a super-specialist,
• Unify our services identity across
increasing our core motoring and
cycling products.
• Lead and differentiate our markets
with customer-led innovation.
• Improve our customer shopping
journey online and in-store bringing
Halfords products and services
together.
the Group
• Improve services for our
customers via a unique and more
convenient proposition combining
physical estate with online and
mobile services
Read more in Group at a
Glance on page 04
Read more about ‘Inspire’ on
page 25
Read more about ‘Support’ on
page 26
What makes Halfords Group different
A scaled business
Halfords has 797 locations in the UK from
Retail stores to Autocentres, Performance
Cycling stores and our fleet of Halfords
Mobile Expert vans. We continue to invest in
our business, both the physical and online
estate, ensuring that we are fit for the future
and making us even more relevant and
convenient for our customers.
Strong heritage and
brand awareness
Halfords is a household-name retailer with
125 years of heritage and a strong brand.
Our products and services – such as our
WeFit offer – are well established and have
high awareness across the UK.
Engaged colleagues
Our colleagues are at the heart of our business
and have passion, dedication and a “can
do” attitude making them the driving force
behind our success as a business. Colleagues
benefit from great training through our Gears
programme and we continue to invest in them,
ensuring they can deal with the latest industry
products and services.
20
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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.
Infrastructure/Assets
Our estate of convenient Retail stores,
Autocentres and mobile vans combined with
our efficient distribution network.
Financial
Given the prudent balance sheet and cash
generative nature of the business means
that over the years we have invested in
appropriate systems, capabilities and
people that help support and grow our
business.
We make four promises to
our customers:
Fair pricing
Range you can rely on
Quality you can trust
Service that differentiates
Lifetime
• Enabling a lifetime of motoring
and cycling.
• Grow our business via the
acquisition of new customers,
harnessing the scale of the Group
• Drive customer loyalty and
retention via loyalty programmes
optimising lifetime value and
advocacy
Read more about ‘Lifetime’ on
page 27
Customer journey
Many customers take advantage of our Click
& Collect offer, placing orders online via our
website and picking up from a designated
store at a time which is convenient to them,
driving positive store footfall.
Outputs
Long-term value creation
Colleagues
Developing, rewarding and investing in
our c.10,200 colleagues so that they
are engaged and driving our long-term
sustainable growth ambitions.
Read more about our
colleagues on pages 34
to 37
Community
Building relationships with suppliers,
customers and the communities around us.
Read more on pages 38 to 39
Brand
Developing our brand through innovation
and expertise.
Infrastructure/Assets
Maintaining and developing our
infrastructure and sales channels to
strengthen competitive advantages.
Financial
Generating good returns to our
shareholders through effective
management of our financial resources.
Read the Chief Financial
Officer’s Report on pages
44 to 49
Environmental
The environmental resources that Halfords
utilises in its operations.
Read more on pages 40 to 41
This icon is used to indicate
content on the outputs of the
business model.
21
Strategic Report halfords.annualreport2019.com Stakeholder Engagement
We have set out over the next two pages the nature and quality of our
key stakeholder relationships
Effective utilisation of our resources and relationships are an integral part of our plan to drive long-term sustainable growth.
Our model is underpinned by our financial discipline, astute purchasing and strategic reinvestments.
Customers
Suppliers
Colleagues
Investors
Government
Communities
Media
22
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 We have set out over the next two pages the nature and quality of our
key stakeholder relationships
Stakeholder
Why it is important to engage
Ways we engage
Stakeholders’ key interests
Customers
Colleagues
Suppliers
Investors
Communities
Media
Government
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 Company’s brand.
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.
Ensures continued viability of the
business into the long-term. We
aim to contribute positively to the
communities and environment in
which we operate.
Ensures transparency of information
on the business. As a business-to-
consumer company, we need strong
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.
• 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
• Training and development
• Pay and conditions
• Colleague engagement
• Far East trading office developing
mutually beneficial relationships
• Quality management
• Cost efficiency
• Logistics efficiencies and
environmental management
• Supplier conferences
• Infrastructure
• Ethical Trading policy
• Long-term relationships
• Annual report
• Operating and financial
• RNS announcements
• Annual General Meeting
• Investor presentations
• Corporate website
• One-on-one meetings
performance
• Dividend
• Risk information
• Access to Management
• Future-oriented information
• Community investment initiatives
• Impact of Group activities on the
• Media channels
• Re-cycle initiatives
• Prison initiatives
wider community
• Corporate Social Responsibility
(“CSR”) agenda
• Product videos and peer reviews
• Reliable range, product and pricing
• TV and radio advertising campaign
information
• Email and PR customer engagement
• Transparency of reliable and timely
• Improving Twitter, Facebook and
Youtube content
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
23
Strategic Report halfords.annualreport2019.com Our Strategy
Inspire
Support
Lifetime
To
and
a
of motoring and cycling
Halfords is a household-name retailer with
125 years of heritage and a strong brand.
During that time, we have seen the dramatic
evolution of the car and the bicycle; new
and innovative products come and go; and
customer requirements evolve. Our core
focus is on providing our customers with the
products and services they need, whenever
and wherever they require them.
Our new strategy builds on our core
strengths but seeks to make transformational
changes to the business in order to
solidify our position as market leader in the
categories that matter most to us and our
customers. In developing this strategy, we
have conducted extensive research with
customers across the UK, analysed market
trends and investigated the wider macro
trends affecting the UK.
This has helped us create a strategy
which will ensure we stay relevant to our
existing customers; are able to attract new
customers; and stay ahead of the evolving
retail landscape by scaling a convenient and
differentiated services business.
Strategic component
Description
Inspire our
customers through a
differentiated, super-
specialist shopping
experience
Support
our customers
through an integrated,
unique and more
convenient services
offer
Enable a
motoring and cycling
lifetime
of
• General-specialist to super-specialist
• Lead and differentiate our markets with customer-led innovation
• Redefine and further differentiate our own label ranges
• New customer experience in stores and garages, linking online and offline journeys
• Enhance our cycling specialism with investment in our Performance Cycling business
• Offer convenience though an integrated and expanded ‘on-demand’ service proposition
across stores, garages and mobile
• Enhance the digital customer journey from booking through to service delivery
• Enhance our unique position in E-Bike servicing and hybrid and electric vehicle servicing
with the most fully trained technicians outside the dealer network
• Increase awareness of Halfords services by leveraging the Halfords brand
• A more focused and targeted approach to loyalty at a Group level in order to optimise
lifetime value of our customers
• Accelerating the development of our Customer Relationship Management (“CRM”)
programme, offering compelling reasons for our customers to return
• Fully leveraging our Single Customer View and increasing the investment in customer
data management
24
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019
Inspire our customers through a differentiated,
super-specialist shopping experience
Innovation
Innovation is industry-led with unique products
comprising a very small proportion of our
ranges. We have a good own-brand product
range, but this is not highly differentiated.
Customer Experience
The customer experience is improving with
a strong ‘Click & Collect’ online proposition
delivering growth in performance. However
there are significant opportunities for
improvement, such as upgrading our estate,
leading on services, and defragmenting our
online and offline customer journeys.
Innovation
We will lead and differentiate our markets
with customer-led innovation by:
Customer Experience
We will improve our customer shopping
journey online and in-store by:
• Utilising customer insight to develop
• Bringing Halfords’ services and products
products we know they want and need
together on one website
• Investing in a focused innovation team to
develop new and truly unique products
• Focusing on personalisation by leveraging
our Group-wide Single Customer View
• Integrating the Services booking
experience to include nearest available
location and timeslot
• Enhancing store and autocentre facilities
and layouts
Since implementation, the amount of
stock we hold in our warehouses has
reduced by 20% but we have continued to
maintain our high standards of being able
to offer a bulb for 97% of the car parc. Our
customers have responded well to the
changes we have made, demonstrated
through our customer rating scores being
up year-on-year.
Priorities for the year
• One Group website that is faster
and more dynamic
• Better store layouts which are
easier to shop
• More ranges of own-brand
products
• Developing plans for enhanced
in-store experience
• Improved in-store and in-garage
systems and selling tools
Where we are now
Specialism
We are currently a ‘generalist’ with a focus on
motoring and cycling but also a range of other
loosely-associated product categories. Our
customers tell us that this generalist approach
undermines our aspiration to demonstrate
specialist credentials.
Where we will be moving to
Specialism
We will become a super-specialist by:
• Reducing our non-core products
• Increasing our online ranges of motoring and
cycling products
• Investing in training with even greater focus
on specialism
• Enhancing our cycling specialism credentials
via growth in our Performance Cycling
business; adding exclusive brands to
our range; and strengthening strong,
collaborative relationships with our key
suppliers
Case Study
During Q3, Halfords made significant
changes to the range of bulbs that are
offered in-stores and online. In our stores,
the space given to bulbs was reduced
from seven bays to four and our overall
bulb SKU count reduced by 36%.
The journey that customers experienced
became simpler by removing the
complexities from the range and
improving the in-store marketing. In
our range of Halfords own-brand bulbs,
we have implemented a clear ‘Good’,
‘Better’, ‘Best’ range to further simplify the
customer shopping experience, and for
brand loyal customers we have simplified
selection and offer such customers
GE-branded bulbs in addition to our own-
brand products.
25
Strategic Report halfords.annualreport2019.com Our Strategy
Support our customers through an integrated,
unique and more convenient services offer
Where we are now
Integrated
Services are a core part of our business,
but our services businesses are not
integrated, e.g. we have separate Retail and
Autocentres websites.
Unique
We have a number of differentiated services,
such as our 3Bs (Blades, Batteries and
Bulbs) fitting, but there is an opportunity
to do more. For example, there is low
awareness of our E-Bike servicing and
hybrid car servicing capabilities.
Convenient
The average drive time for a member
of the public to a Halfords Autocentre
is 30 minutes. However, we know
customers want a drive time of no more
than 20 minutes. In addition, the manual
booking process is difficult to navigate
and needs to be improved.
Where we will be moving to
Integrated
We will have a unified services identity
across the Group through:
Unique
The introduction of Halfords Mobile Expert
(HME) provides:
• One seamless website, combining
Halfords Retail and Halfords
Autocentres
• A comprehensive mobile mechanic
offer covering over a quarter of UK
households via a fleet of vans
• We-Fit services available on demand
in garages
• Digital colleague booking process and
control of service delivery
• The option of having services performed
at the customer’s home or place of work,
with bookable time slots
• 12 service offerings including battery
and tyre repair and replacement; air
conditioning service; and windscreen
chip repair
Convenient
Convenience will be improved by:
• Combining our physical estate with a
consistent mobile services offer and
increased availability
• Future roll-out of garages to reduce
average drive time from 30 minutes to
20 minutes
• Roll out of HME services to major urban
areas
these products and services delivered to
your door seven days a week is appealing
to our customers and it will open up a
new route to market, with us able to reach
customers who otherwise would not be
Halfords customers.
Our goal is for our customers to be able
to purchase a product or service on our
website and choose where to have it
fitted – in a retail store, in an Autocentre,
or fitted at their home through Halfords
Mobile Expert. Crucial to this is the
booking platform in which we are
investing, and which will unify all of our
businesses via a single portal.
Priorities for the year
• Group booking platform through
one Group website
• Extension of the PACE platform in
Autocentres allowing us to actively
monitor and improve utilisation
across the estate, facilitating a
paperless operation
• Trial of a new garage format across
our Autocentres estate
• Further investment in Halfords
Mobile Expert
• The roll-out of on-demand services
is being expanded to a regional trial
Case Study
The year has seen us increase our focus on
mobile servicing through Halfords Mobile
Expert. We now have a comprehensive offer
covering a quarter of UK households via our
fleet of mobile vans.
Through Halfords Mobile Expert,
customers can have a wide range
of services provided at a location
convenient to them. Services include
tyre replacement, battery fitting, air
conditioning top up, windscreen chip
repair as well as oil and fluid replacements
and car diagnostic checks.
There has been a strong positive
reception to Halfords Mobile Expert,
receiving excellent customer reviews
across the board. The ability to have
26
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Enable a lifetime of motoring
and cycling
Where we are now
Strong Customer Platform
We have a customer database of 22 million which has increased
our ability to personalise our interactions and maximise customer
value via predictive modelling.
Loyalty Programmes
We currently have limited and fragmented loyalty programmes.
Our Cycle Republic Rewards Card customers spend more than
double that of other customers whilst our Tradecard customers
visit five times more often than non-Tradecard customers.
Where we will be moving to
Customer-led Action Culture
We have started to drive meaningful action from our insight which
has been used to:
Loyalty and Retention
We are now ready to more actively drive customer loyalty and
retention by:
• Define future range decisions
• Supercharging our CRM programme, providing compelling
• Change the labour operating model to better reflect customer
reasons for customers to return to our brand
needs
• Building cross-Group loyalty programmes to optimise lifetime
• Obtain a greater understanding of customer pain points and
value and advocacy
moments that matter
• Offer a Group-wide Financial Services offer
Case Study
The partnership between Halfords and
the Bikeability Trust will help 25,000
primary school age children access cycle
training in England.
To date, £150,000 of Halfords funding
has been fed into a new ‘Innovation Fund’
being administered by The Bikeability
Trust which teaches children to cycle
‘competently, confidently and proficiently’
on the roads.
Each of the 400 Bikeability providers
across the country has received funding
and are being encouraged to use it to
increase training for riders with Special
Education Needs and Disabilities (“SEND”).
In partnership with Halfords, the
Bikeability Trust has set up the
Participants’ Hub - a webpage where
Bikeability trainees and their families
can access vouchers for free bike
safety checks, discounts on servicing
and products, the chance to enter
competitions to win a Carrera child’s bike
every three months, plus useful hints
and tips to encourage ongoing cycling.
Registration numbers to the Participants’
Hub continue to rise steadily.
4,000 Halfords branded hi-visibility
tabards have been well received by the
cycle training industry with demand for
more. Halfords has also worked with the
trust to identify several products with
‘Bikeability Approved’ branding. Each
product will be functional, affordable and
relevant to young cyclists beginning their
lifelong relationship with cycling.
Halfords is also helping to celebrate
success with the sponsorship of the
second annual Bikeability awards, held in
conjunction with the annual conference.
A representative from the company will
be giving a keynote address as well as
presenting the awards.
Priorities for the year
• The design of our first loyalty
programme
• More customers shopping across
the Group
• Improved Financial Services offer
27
Strategic Report halfords.annualreport2019.com Our Key Performance Indicators (“KPIs”)
Shareholder KPIs
Definition
KPI
Underlying
profit before
tax
Profit before income
tax and non-
underlying items as
shown in the Group
Income Statement.
Underlying
earnings per
share(“EPS”)
Underlying
EBIT and
Underlying
EBITDA
Profit after income
tax and before non-
underlying items as
shown in the Group
Income Statement,
divided by the number
of shares in issue.
Underlying EBIT
results from operating
activities before
non-underlying items.
Underlying EBITDA
further removes
Depreciation and
Amortisation.
Dividend
per Ordinary
Share
Cash returned to
shareholders as
a return on their
investment in the
Company.
Commitment
Performance
Historic Performance
2019
2018
2017
2019
2018
2017
2019
2018
2017
£58.8m
£75.4m
£71.6m
24.5p
29.6p
30.3p
£98.2m
£109.5m
£108.7m
The above numbers represent
Underlying EBITDA
2019
2018
2017
18.57p
18.03p
17.5p
The Board considers
that this measurement
of profitability provides
stakeholders with
information on trends and
performance, before the
effect of non-underlying
items.
EPS is a measure of our
investment thesis and as
such we aim to manage
revenues, margins and
invest in long-term growth.
Underlying profit before tax
declined by -17.9% year-
on-year, primarily driven by
mild winter temperatures,
weakened consumer
confidence, retail cost
inflation and investment in
strategic projects
Underlying earnings per
share declined by -17.2%
year-on-year. See above for
explanation.
The Board considers that
these measurements of
profitability are a viable
alternative to underlying
profit and uses these
measures to incentivise
Management.
Underlying EBIT declined
by -16.6% year-on-year.
See above for explanation.
Underlying EBITDA
decreased by -10.3% year-
on-year.
5
Our prevailing policy is to
grow the dividend every
year with cover of around
underlying earnings
2
on average over time.
The impact of adverse FX
movements will reduce
cover temporarily until fully
mitigated, which will take
some time.
The Board has recommended
a final ordinary dividend
of 12.39 pence per share
(FY18: 12.03 pence), which,
if approved, would take the
full-year ordinary dividend
to 18.57 pence per share,
an increase of +3.0% on the
prior year. Our dividend cover
would reduce to c.1.3
the full year, however this is
expected in the medium-term
as we invest for sustainable
long-term growth, moving
towards 2 times over time.
for
5
Free Cash
Flow
Adjusted Operating
Cash Flow less
capital expenditure,
net finance costs,
taxation, exchange
movement and
arrangement fees on
loans.
Our medium-term target
is to grow Free Cash Flow
over the next three years
(FY19 – FY21) compared
with the previous three
years (FY16 – FY18)
For the year, the Group had
Free Cash Flow of £42.7m up
+2.9% year-on-year.
2019
2018
2017
£42.7m
£41.5m
£37.7m
Net Debt to
Underlying
EBITDA ratio
Represented by the
ratio of Net Debt to
Underlying EBITDA.
28
5
, with a
to allow
We currently continue to
target a ratio of 1.0
5
range of up to 1.5
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.
The Group had a Net debt to
underlying EBITDA ratio of
0.8 times at the end of FY19.
2019
2018
2017
0.8x
0.8x
0.8x
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 KPI
Definition
Commitment
Performance
Historic Performance
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.
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.
Group like-for-like sales
performance of +1.1%.
Retail +0.8% like-for-like and
Autocentres +2.6%. In Retail,
motoring has been affected
by mild winter temperatures
which has correspondingly
benefitted cycling.
FY19 LFL
revenue
movement
+1.1%
+0.8%
-0.4%
-1.1%
-0.6%
+1.7%
+2.6%
+2.6%
Halfords Group
Retail
Motoring
Car Maintenance
Car Enhancement
Travel Solutions
Cycling
Autocentres
29
Strategic Report halfords.annualreport2019.com Our Key Performance Indicators
Operational KPIs
KPI
Definition
Service-
related
Group 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.
Commitment
Performance
Historic Performance
To grow service-related Group
sales faster than total Group
sales growth.
FY19:
1.6%
Service-related Group
sales grew faster
than overall sales, up
+1.6% in the year and
represented 24% of
overall group sales.
We have added new
services, taking the
total in-store offering to
over 80 services across
motoring and cycling.
Group
Colleague
Engagement
The proportion of
Group colleagues who
respond positively to
the questions in the
Colleague Engagement
Survey.
We aim to improve Colleague
Engagement across the Group
with specific focus on required
areas identified by colleagues.
2019
2018
Our Group Colleague
Engagement for FY19
was at 79%, a fall of 2%
on the previous year
but is still ahead of the
Retail benchmark.
79%
81%
Customer
Net Promoter
Score
(“NPS”)
Measure the changes in
NPS of our Retail stores
and Autocentres.
We are committed to improving
the score with our customers
across the Group.
Retail NPS was 62.9
down 0.8 points from
the previous year.
This was the first full
financial year in which
Autocentres measured
NPS – it achieved
a score of 65.6.
Retail FY19:
62.9
Retail FY18:
63.7
Autocentres FY19:
65.6
30
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
31
Strategic Report Corporate Social Responsibility
Our Corporate Social Responsibility (“CSR”) Strategy is . . .
We are committed to being environmentally and socially accountable to all stakeholders – our colleagues, customers, shareholders and the
wider world.
Within our existing strategy our commitments and actions focus on four key pillars: Colleagues, Community, Environmental Management and
Responsible Trading. We have made huge progress this year particularly with our colleague training including a focus on growing our E-Bike skills
across the business. Our community activity goes from strength to strength with Bikeability Training and the high volume of recycled bikes.
Our 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.
Environment
Managing our impact on the environment in a responsible and ethical manner.
Responsible Trading
Building and maintaining the highest standards of ethics amongst our suppliers.
Page
34
38
40
42
32
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
33
Strategic Report Corporate Social Responsibility
Colleagues
Developing, rewarding and retaining our colleagues, ensuring they are fully engaged to drive our long-term sustainable growth ambitions.
Key Facts
c.10,200
Number of colleagues
A great and improving
place to work
Last year, we celebrated our position at
number 9 in ‘The Sunday Times 25 Best Big
Companies To Work For’. This year, we are
delighted to have remained in the Top 25 and
to be one of only three retailers on the list.
Finding, supporting and
developing great people
throughout their Halfords journey
We aim to be an inclusive employer
of choice: giving colleagues equal
opportunities to prosper within rewarding
and inspiring teams.
Separately, our own annual Colleague
Engagement Survey this year revealed that
96% of our people understand how their
work contributes to our collective success,
93% feel trusted to do their job, and 90%
feel their manager treats them with respect.
From best-in-class training and career
development, to driving positive change
to our gender pay gap, our commitment to
colleague well-being is evidenced by a year
of multiple achievements and awards.
• Our in-house training and development
academies clocked-up a landmark
11,000 days of upskilling to over 5,000
colleagues since their launch in 2015.
• Our gender pay gap is below the national
average, with our mean hourly rate for
women being 5.52% less than men.
• We won the coveted Princess Royal
Training Award, an accreditation awarded
in conjunction with City & Guilds to
organisations that demonstrate that they
have created a lasting impact through
delivering skills development which drives
business performance.
• We were presented with a
commemorative plaque from the
Chartered Institute of Logistics and
Training for our contribution to their
organisation.
We strive to ensure all colleagues enjoy their
work and have opportunities to consistently
inspire and support our customers through
their ‘super-specialist’ expertise. To achieve
this, we continue to invest heavily in our
technical 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’, 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 career progression and
increased pay awards.
Tredz, is undertaking a series of colleague
training and development programmes.
These include supporting line managers to
continuously develop their leadership skills.
In addition, those colleagues who work in
our Cycle Republic stores also benefit from
supplier training provided by various major
cycling brands.
In our Retail business, our apprenticeships
are run in-house by our Ofsted-graded
‘Good’ apprenticeship team. In FY19 all
new eligible starters in our shops were
enrolled onto our Retail Level 2 Gears
Apprenticeship Programme. We currently
have 1,069 apprentices completing their
apprenticeships.
420
Number of colleagues graduated
to management roles
Awards
Sunday Times #9
Developing
Potential Award
FTSE4GOOD Index
This icon is used to indicate
content on the outputs of the
business model.
34
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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. Our Group Diversity
Policy 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
provided if necessary.
Our ‘Gears in Retail’ qualification programme
plays a key role in enabling colleagues to
achieve industry-recognised qualifications.
They are rewarded as they progress ‘through
the gears’, by gaining experience and
qualifications.
A guided learning suite that offers
individuals the opportunity to take their
careers further and become leaders, Aspire
has enabled 420 colleagues to graduate
to new roles as an Assistant Manager or a
Store Manager.
Additionally, our ‘Aspire to Assistant’ and
‘Aspire to Store Manager’ programmes are
mapped retrospectively to level 3 and level
4 apprenticeship programmes, meaning our
colleagues achieve a formal qualification
as part of their programme. 195 colleagues
are currently completing their management
apprenticeships.
An additional benefit is that the vast
majority of store manager vacancies are
filled internally, reflecting our permanent
desire to develop and promote from within.
Equal opportunities for all
We are committed to providing equality of
opportunity to colleagues and potential
colleagues.
This applies to recruitment, training, career
development and promotion, regardless of
physical ability, gender, sexual orientation
or gender reassignment, pregnancy and
maternity, race, religious beliefs, age,
nationality or ethnic origin.
All new colleagues complete Gear 1
within their first three months. Gear 2 is a
programme leading to an expert level of
specialist knowledge in either Auto and
Leisure or Cycling.
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.
We are delighted that 710 colleagues have
now trained to Gear 3 level.
Our established training programmes aside,
we also continually enhance and update.
This year we delivered additional ‘Customer
First’ training to all of our store management
and customer service colleagues. The
same training was rolled-out to Support
Centre colleagues engaged in the customer
experience and in driving up customer
satisfaction.
We also continue to train colleagues on new
products and services, for example E-Bikes
and scooters.
Meanwhile, Halfords Autocentres runs a
number of technical training courses in
conjunction with the Institute of Motor
Industry (“IMI”) designed to develop
colleagues’ skills.
A total of 246 colleagues have achieved the
IMI’s DVSA MOT tester accreditation with a
further 140 on track for FY20. Responding
to the increasing relevance of electric and
hybrid technology, 553 colleagues gained
the IMI’s Hybrid Electric Vehicle Level 2
accreditation, with a further 250 scheduled
to follow the same path in FY20.
Autocentres is also proud to have one
of the largest light vehicle maintenance
apprenticeship schemes in the UK, with 178
apprentices at differing stages of our three-
year programme. We expect a further 100 to
join in 2019.
For colleagues further along their Halfords
journey, we run our ‘Aspire’ series of leadership
programmes designed to identify, nurture and
develop colleagues across the Group.
35
Strategic Report halfords.annualreport2019.com Corporate Social Responsibility
Diversity
Total Women
A
B
77% 23%
A
Men
B
Women
Women on the Board
A
B
50% 50%
Always talking
Excellent colleague communication is key
for us.
We have an established framework of
internal communication channels which
seek to inform, engage and inspire – both on
matters of concern to colleagues, plus wider
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 Intranet and interactive Yammer channels
to share operational information and drive
positive culture.
Importantly, this coming year, representation
of our colleagues’ views on the Board will
become the responsibility of our Non-
Executive Director, Helen Jones.
Whistleblowing
We do not tolerate discrimination,
harassment or bullying in any aspects of
our business operations. A Whistleblowing
Policy and supporting procedures enable
colleagues to report concerns on matters
affecting the Group or their employment,
without fear of recrimination. Appropriate
and robust policies and procedures are in
place for reporting and dealing with such
matters.
Driving for diversity
We recognise the value that diversity brings.
Our focus remains on increasing the
overall number of women at Halfords - and
to increase the number appointed and
promoted into more senior roles.
Disappointingly, despite our efforts across
the training and recruitment process, the
overall number of women has fallen as a
percentage of the total workforce this year,
from 27% to 23%.
More positively, we have increased the
percentage of women on the Board from
33% to 50% and in the Senior Management
Team from 26% to 37.5%.
A
Men
B
Women
Women in Senior Managament Team
A
B
62.5% 37.5%
A
Men
B
Women
36
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Halfords Group signed the Armed Forces Covenant in February 2019
We offer guaranteed interviews to service leavers
and reservists for all roles where candidates meet
the minimum requirements.
We also support service leavers and
reservists by recruiting through the Career
Transition Partnership (CTP), offering ten
days additional unpaid leave for reservists
and a range of discounts for those serving in
the Armed Forces.
As a result we are now a Bronze Level
employer in the MOD’s Employer
Recognition Scheme, with plans to reach
Silver Level soon.
Digital Product Owner, Charlotte, joined
Halfords last March and balances her role
optimising the customer journey on our
website with her duties as a Royal Navy
Reservist.
She has leveraged the skills learned as a
Reservist to help improve her confidence
in delivering presentations, coaching and
decision making. It means our commitment
to the Covenant is beneficial to our
colleagues and our business.
It’s great to work for a
company that is supportive
of my Reservist activities.
The Armed Forces is a family,
but it feels like I have joined
another one in Halfords.
Charlotte
Our Work Continues to Support Offenders
Halfords works across two locations at HMP
Onley, near Rugby, and HMP Drake Hall,
Staffordshire.
As the UK continues to battle high
reoffending rates, with 83% of former
prisoners remaining jobless a year after
release, we want to increase the talent pool,
lower the cost of reoffending and contribute
to the creation of safer communities for all.
The Halfords Academy at HMP Drake
Hall 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.
Fully supported by Halfords colleagues,
participants are subject to the same high
standards of training as colleagues in
Halfords shops. 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.
We are delighted to be offering potentially
life-transforming opportunities to those who
need them most.
37
Strategic Report halfords.annualreport2019.com Corporate Social Responsibility
Community
Helping to keep families safer on their journeys and encouraging an active lifestyle.
Key Facts
NSPCC benefitted from total
donations of
£53,222
400,000
Number of schoolchildren trained
per year by our partnership with
the Bikeability scheme
This icon is used to indicate
content on the outputs of the
business model.
Using our knowledge and
expertise to benefit the
communities around us
We continue to believe that we have a key
role to play in encouraging people to cycle
more as part of an active lifestyle.
Our partnership with the Government’s
‘Bikeability’ scheme supports the safe cycle
training of over 400,000 schoolchildren per
year and introduces them to Halfords as
their cycling partner of choice.
Our valuable work with the rehabilitation of
offenders continues.
Our bespoke training academies in HMP
Drake Hall, in Staffordshire, and HMP
Onley, in Warwickshire, continue to place
participating inmates on an optimistic and
practical path to a positive new life upon
release.
This year, one of the graduates of our Cycle
Academy at HMP Onley joined us as a bike
technician at one of our stores and is now
training to be an Assistant Manager.
Charity support also remains an important
aspect of our contribution to the wider
community in which we play a role. This
year, our nominated charity the NSPCC
benefitted from total donations of £53,222
made by customers via shop collection tins
and by colleagues via a range of fundraising
events.
38
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Bikeability
In June 2018, Halfords launched a partnership
with the Bikeability Trust, the national charity
for cycle training, to help 25,000 more primary
school children in England access safe cycling
programmes.
It helps beginners to learn to ride in
traffic-free environments before eventually
developing their skills and confidence to
progress on to local roads.
The partnership provides free bike safety
checks for every child taking part, as well
as for their parents, teachers and trainers.
We have supported Bikeability in the
creation of a participants’ online hub to
offer further support, offers and advice
post-training. Bikeability already helps
children access cycling safely and
continues to engage more children and
parents than ever.
Re-cycle
The bicycle charity Re-Cycle was set up
in 1997 with a mission to create an ‘Africa
unlimited by transport’.
Since then, it has sent over 100,000 bikes
to 16 different countries in Africa as well
as taught families how to maintain them.
Working with partners in Africa, Re-Cycle
refurbish bikes locally before distributing
them to people living in rural communities.
Bikes can cut average journey times by
75%, helping keep children in school and
can increase the income of families by
35%. There are further health benefits as
bikes can help people carry up to five times
the amount of clean water.
Halfords runs national trade-in events
giving customers the opportunity to
donate unwanted bikes for Re-Cycle at
any of our retail stores. This year, 19,000
of our recycled bikes have benefitted
disadvantaged people and we have also
donated new helmets to primary school
children in economically-challenged areas
of the UK.
39
Strategic Report halfords.annualreport2019.com Corporate Social Responsibility
Environment
The environmental resources Halfords uses in its operations
Key Facts
Our work has an impact
on the environment and we
have a duty to manage that
impact in a responsible and
ethical manner.
100%
Batteries we fitted
were recycled
1,700 tonnes
Reduction in annual carbon
dioxide emissions
This icon is used to indicate
content on the outputs of the
business model.
40
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.
We have a legal obligation to dispose of
waste batteries responsibly, and this year we
recycled 100% of the batteries we fitted, at
no cost to our customer.
All of our batteries are supplied by GS
Yuasa. 98% of the raw materials used in their
manufacturing process is recycled at the
end of life and used again to manufacture
new battery products, thus achieving a
‘closed loop’ lifecycle.
GS Yuasa’s manufacturing plants comply
with Environmental Management Standard
ISO 14001 and they are also at the leading
edge of the development of next generation
batteries using eco-friendly products such
as lithium ion.
Waste batteries are collected from our
sites as frequently as once a week by a
specialist recycler that is compliant with UK
Battery Regulations. These set targets for
the recycling efficiency of waste batteries
and define the amount of useful material
that must be recovered from each tonne of
batteries sent for recycling. This year 3,313
tonnes of batteries were recycled on our
behalf.
We already ensure that our suppliers give
preference to the use of recycled materials
in the manufacturing and packaging of our
goods. But we want to do more.
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 This year we are committed to starting a journey to review our packaging materials in a bid to further reduce our environmental impact,
specifically with regards to the use of plastic.
Reducing the size of our carbon footprint remains a priority. A roll-out of energy-saving LED lighting across our estate is now contributing
positively to our ongoing aspirations in this area.
This year, 180 locations will benefit from the installation of 45,000 individual lamps, resulting in a 40% reduction in energy consumption –
the equivalent of a 1,700 tonnes reduction in annual carbon dioxide emissions
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
Cars on Company Business
TOTAL
Company’s Chosen Intensity Measurement: tCO2E per £1m Group Revenue
2017
tCO2E
18,448.01
3,379.41
N/A
N/A
7,035.65
3,339.91
N/A
N/A
911.45
33,114.43
33.10
2018
tCO2E
19,638.34
2,790.05
88.27
22,516.66
6,187.43
3,483.44
17.84
9,688.71
1,080.00
33,285.37
29.32
2019
tCO2E
13,843.35
2,275.26
111.43
16,230.04
7,306.56
1,842.17
6.41
9,155.08
1,123
26,508.18
23.28
41
Strategic Report halfords.annualreport2019.com Corporate Social Responsibility
Responsible Trading
Building and maintaining the highest standards amongst our suppliers.
Key Fact
Our principles are based
on international standards,
including the International
Labour Organisation
(“ILO”) conventions and
recommendations.
We are committed to maintaining the
highest ethical 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.
We will not accept human trafficking or the
exploitation of children and young people in
our business and we 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.
We have statements about Modern Slavery
in our Standard Conditions of Purchase and
require all suppliers to self-declare that they
comply.
We carry out a rolling programme of Code
of Conduct audits across social, ethical and
CSR issues.
No instances of unacceptable conduct have
been reported.
Read more online at
www.halfordscompany.com/
investors/governance
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content on the outputs of the
business model.
42
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
43
Strategic Report Chief Financial Officer’s Report
Financial Resources
Generating returns for our shareholders through effective management
of our financial resources
£1,138.6m
Group Revenue
£62.2m
Underlying Group EBIT
24.5p
Underlying Basic EPS
Group revenue in FY19,
at £1,138.6m, was up 0.3%
and comprised Retail
revenue of £977.2m
and Autocentres
revenue of £161.4m.
This icon is used to indicate
content on the outputs of the
business model.
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
Group Financial Results
Group Revenue
Group Gross Profit
Underlying EBIT*
Underlying EBITDA*
Net Finance Costs before non-underlying
items
Underlying Profit Before Tax*
Profit Before Tax
Underlying Basic Earnings per Share*
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 FY19 accounting period represents
trading for the 52 weeks to 29 March 2019
(the “financial year”). The comparative
period FY18 represents trading for the 52
weeks to 30 March 2018 (the “prior year”).
FY19
£m
1,138.6
579.0
62.2
98.2
(3.4)
58.8
51.0
24.5p
FY18
£m
1,135.1
570.2
74.6
109.5
(3.0)
71.6
67.1
29.6p
Change
0.3%
1.5%
-16.6%
-10.3%
13.3%
-17.9%
-24.0%
-17.2%
* Our Annual Report and Accounts includes Alternative Performance Measures (APMs) which we
believe provide readers with important additional information on the Group. A glossary of terms and
reconciliation to IFRS amounts is included on page 166.
Loraine Woodhouse
Chief Financial Officer
44
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Group revenue in FY19, at £1,138.6m, was
up 0.3% and comprised Retail revenue
of £977.2m and Autocentres revenue of
£161.4m. This compared to FY18 Group
revenue of £1,135.1m, which comprised
Retail revenue of £977.2m and Autocentres
revenue of £157.9m. Group gross profit
at £579.0m (FY18: £570.2m) represented
50.9% of Group revenue (FY18: 50.2%),
reflecting an increase in the Retail gross
margin of 60 basis points (“bps”) to 48.0%
and an increase in the Autocentres gross
margin of 50 bps to 68.0%.
Total operating expenses before non-
underlying items, increased to £516.8m
(FY18: £495.6m) of which Retail comprised
£410.5m (FY18: £391.0m), Autocentres
£104.2m (FY18: £102.5m) and unallocated
costs £2.1m (FY18: £2.1m). Total operating
expenses increased to £524.6m (FY18
£500.4m). 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 decreased 10.3%
to £98.2m (FY18: £109.5m), whilst net
finance costs before non-underlying items
were £3.4m (FY18: £3.0m).
Underlying Profit Before Tax for the year
was down 17.9% at £58.8m (FY18: £71.6m).
Net non-underlying items of £7.8m in the
year (FY18: £4.5m) related predominantly
to organisational restructure and strategy
review costs. After non-underlying items,
Group Profit Before Tax was £51.0m (FY18:
£67.1m).
Retail
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-underlying items
EBIT after non-underlying items
Underlying EBITDA*
FY19
£m
977.2
469.3
48.0%
(410.5)
58.8
(8.7)
50.1
87.1
FY18
£m
977.2
463.6
47.4%
(391.0)
72.6
(4.8)
67.8
99.0
Change
–
1.2%
5.0%
-19.0%
-26.1%
-12.0%
* Our Annual Report and Accounts includes Alternative Performance Measures (APMs) which we believe provide readers with important additional information
on the Group. A glossary of terms and reconciliation to IFRS amounts is included on page 166.
45
Strategic Report halfords.annualreport2019.com 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 0.8%. Non-LFL
revenue in the year included 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
FY19
LFL (%)
-0.4%
-1.1%
-0.6%
+1.7%
+2.6%
FY19
Total sales
mix (%)
60.4
31.0
18.0
11.4
39.6
FY18
Total sales
mix (%)
61.0
31.6
18.2
11.2
39.0
Gross profit for the Retail business at £469.3m (FY18: £463.6m) represented 48.0% of sales, 60bps up on the prior year (FY18: 47.4%).
This improvement reflected several factors including a positive FX tailwind, stock loss improvements and a continued focus on buying
efficiencies. These were partially offset by the softer motoring sales growth in the year.
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
FY19
full-year
$
$1.32
$0.03
FY18
full-year
$
$1.29
$(0.18)
Retail operating costs increased by 5.0% to £410.5m. The full-year cost increase comprised of the following: 1) inflationary impacts and 2)
strategic investment for the future growth and sustainability of the business. These costs were partially offset by a reduction in incentive
payments year-on-year.
Autocentres
Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT*
Non-underlying items
EBIT after non-underlying items
Underlying EBITDA*
FY19
£m
161.4
109.7
68.0%
(104.2)
5.5
0.9
6.4
11.1
FY18
£m
157.9
106.6
67.5%
(102.5)
4.1
–
4.1
10.5
Change
2.2%
2.9%
1.7%
34.1%
100%
56.1%
5.7%
* Our Annual Report and Accounts includes Alternative Performance Measures (APMs) which we believe provide readers with important additional information
on the Group. A glossary of terms and reconciliation to IFRS amounts is included on page 166.
Autocentres generated total revenues of £161.4m (FY18: £157.9m), an increase of 2.2% on the prior year with a LFL* increase of 2.6%.
The sales performance reflected growth in tyres, MOT and servicing sales. Gross profit at £109.7m (FY18: £106.6m) represented a gross
margin of 68.0%; an increase of 50 bps on the prior year.
Autocentres’ Underlying EBITDA of £11.1m (FY18: £10.5m) was 5.7% higher than FY18, and Underlying EBIT was £1.4m (34.1%) higher than
FY18 at £5.5m (FY18: £4.1m).
46
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Portfolio Management
The Retail store portfolio at 29 March 2019
comprised 477 stores (end of FY18: 480).
The following table outlines the changes in
the Retail store portfolio over the year:
Relocations
Leases re-negotiated
Rightsized
Openings
Closed
Number
2
19
0
3
7
The focus in year was on re-laying stores
to enhance the space allocated to growing
categories rather than on refreshing the
Retail store environment.
Two Autocentres were opened in the
year and one was closed, taking the total
number of Autocentre locations to 317
as at 29 March 2019 (end of FY18: 316).
8 Autocentres were refreshed in the year
(FY18: 6).
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-Underlying items
The following table outlines the components
of the non-underlying items recognised in
the year:
Organisational restructure costs
Group-wide strategic review
One-off royalty income
Acquisition and investment related fees
Operating lease obligation
Net non-underlying operating costs
Acquisition related interest (credit)/charge
Net non-underlying items
In the current and prior year, separate and
unrelated organisational restructuring
activities were undertaken. These
comprised:
• redundancy costs of £1.5m relating to
roles which will not be replaced; and
• £5.3m of asset write-offs, principally
resulting from the strategic decision to
re-platform the Retail and Autocentres
websites.
Costs in the prior period comprised:
• redundancy costs of £0.7m relating to
roles which will not be replaced;
• £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 decision to
close the marketplace offer on Halfords.com.
Costs of £2.4m were incurred in the current
period in relation to the costs of preparing
the new Group strategy, which comprised of
the following:
• £2.0m of external consultant costs; and
• £0.4m warehouse and distribution costs
in order to align our network with the new
strategy.
A one-off royalty income of £1.6m was
received in the current period in relation to
the use of a software licence.
Explanations of the remaining non-
underlying items are included in Note 5 to
the financial statements later in this report.
FY19
£m
6.8
2.4
(1.6)
0.2
–
7.8
–
7.8
FY18
£m
4.3
–
–
0.2
(0.3)
4.8
(0.3)
4.5
Finance Expense
The net finance expense (before non-
underlying items) for the year was £3.4m
(FY18: £3.0m). The interest costs on bank
borrowings have increased since the
previous year, reflecting an increase in
the Bank of England base rate.
Taxation
The taxation charge on profit for the
financial year was £9.1m (FY18: £12.4m),
including a £1.4m credit (FY18: £0.8m credit)
in respect of non-underlying items. The
effective tax rate of 17.8% (FY18: 18.5%)
differs from the UK corporation tax rate
(19%) as a result of the effects of non-
deductible depreciation charged on capital
expenditure, the impact of accounting for
employee share options and adjustments
in respect of prior years.
Earnings Per Share (“EPS”)
Underlying Basic EPS was 24.5 pence and
after non-underlying items 21.2 pence
(FY18: 29.6 pence, 27.8 pence after non-
underlying items), a 17.2% and 23.7%
decrease on the prior year. Basic weighted-
average shares in issue during the year were
197.1m (FY18: 197.0m).
47
Strategic Report halfords.annualreport2019.com Chief Financial Officer’s Report
Dividend
The Board has proposed a final dividend of
12.39 pence per share (FY18: 12.03 pence),
taking the full-year ordinary dividend to
18.57 pence per share, an increase of 3%. If
approved, the final dividend will be paid on
30 August 2019 to shareholders on the register
at the close of business on 26 July 2019.
Capital Expenditure and
Investments
Capital investment in the year totalled
£31.0m (FY18: £37.3m) comprising £26.3m
in Retail and £4.7m in Autocentres.
Within Retail, £11.4m (FY18: £12.8m)
was invested in stores, including store
relocations and re-organisation, and
the opening of three Cycle Republic
stores. Additional investments in Retail
infrastructure included a £10.5m investment
in IT systems, including development of
the till hardware and a software upgrade.
The balance of £4.4m was invested in
warehousing and logistics upgrades and
Tredz & Wheelies.
The £4.7m (FY18: £7.0m) capital expenditure
in Autocentres principally related to the
replacement of garage equipment and
fixtures and fittings, the development of new
till hardware and software and the growth of
Halfords Mobile Expert.
On a cash basis, total capital expenditure in
the year was £29.4m (FY18: £37.0m).
The investment held in Tyres On The Drive
of £8.1m was derecognised during the year
and accounted through the Statement of
Other Comprehensive Income.
Inventories
Group inventory held as at the year-end was
£185.4m (FY18: £195.5m). Retail inventory
decreased to £184.0m (FY18: £194.1m),
reflecting working capital efficiencies.
Autocentres’ inventory was £1.4m (FY18:
£1.4m). 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 was £88.5m
(FY18: £95.4m). After taxation, capital
expenditure and net finance costs, Free
Cash Flow of £42.7m (FY18: £41.5m) was
generated in the year. Group Net Debt was
£81.8m (FY18: £87.8m), with the Underlying
EBITDA ratio at 0.8:1.
48
Brexit and impact of movements
in foreign currency exchange
rates
At the date of finalising this report there
is considerable uncertainty as to how and
even whether, the UK will exit from the EU.
There is corresponding uncertainty around
the impact on Halfords.
1. Impact on exchange rates. The Group
buys a significant proportion of its goods
in US dollars; between $200m and $300m
a year. As previously guided, the majority
of our US dollar sourcing is for cycling
products.
2. Prolonged uncertainty over exit terms
and continued weakness in Sterling could
lead to a slowdown in the UK economy
and, consequently, a further weakening
of consumer confidence, impacting
trading conditions for the Group. Working
groups have been held throughout the
year to identify, assess and implement
mitigations for the risks of a hard Brexit.
However, Halfords has strong positions
in fragmented motoring and cycling
markets, and a service-led offer that
differentiates us from our competitors,
both physical and online.
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Principal Risks and Uncertainties
The Board considers the assessment of
risk assessment and the identification of
mitigating actions and internal control to be
fundamental to achieving Halfords’ strategic
corporate objectives. In the Annual Report
and 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 of the 2019 Annual Report and
Accounts. These include:
• Business Strategy
−
Capability and capacity to effect
significant levels of business change
−
−
Stakeholder support and confidence in
strategy
Sustainable business model
• Product, Service Quality and Brand
−
−
−
Reputation
Brand appeal and market share
Service Quality
Critical physical infrastructure failure
(including supply chain disruption)
• Information Technology Systems and
Infrastructure
−
−
Cyber and data security
IT Infrastructure failure
• People
−
Skills shortage
−
Staff engagement / culture
• Economic, Environmental and Political
−
Change in Government policy or
regulation
−
Brexit
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.
Loraine Woodhouse
Chief Financial Officer
21 May 2019
49
Strategic Report halfords.annualreport2019.com
Our Principal Risks and Uncertainties
Board and Audit Committee
Overall oversight of risk management and internal control framework
• Full annual review of effectiveness of risk management and internal control systems, Corporate Risk Register, and risk appetite
undertaken by Audit Committee with assessment delivered to Board for approval
• Update on changes to risk and internal control environment presented by Internal Audit to Audit Committee at each meeting
Whistleblowing process
Regular KPI reporting
Regular management
presentation to Board
and Audit Committee
Internal Audit
Reports
Corporate Risk
Register
Shops, Workshops, DCs and
Customer Facing Businesses
First Line of Assurance
Operating within agreed policies
and procedures e.g.:
• Delegated authorities (‘How
We Do Business’)
• Quality Standards
• Retail guidelines (‘Retail
Basics’)
• Health and Safety policies
• Colleague handbooks
Corporate Functions
Internal Audit
Second Line of Assurance
• Identify developments in
risk and internal control
environment
• Develop and implement
strategy, policies and
procedures to manage risk
Regular
oversight
Performance
monitoring
Internal Audits
Risk and
internal control
analysis
Third Line of Assurance
• Independently review quality
of key internal controls and
management assessment of
risk
• Challenge management to
drive up quality
• Maintain Corporate Risk
Register
Internal Audits
Risk and internal control analysis
Risk Management Framework
Halfords has a risk management process
to protect the interests of key stakeholders
and safeguard the delivery of our strategic
objectives. Risk is a necessary part of
business that can present upside as well as
downside potential. It is the responsibility of
management to minimise adverse exposure
to the Halfords Group and our stakeholders.
The Board recognises that the nature and
scope of risks can change and so regularly
reviews them as well as the systems and
processes for mitigation.
Risk Oversight and Governance
The Board has overall responsibility for the
management of risk and the identification of
Principal Risks that may affect the Group’s
strategic objectives. During the year the
Executive Team, supported by management,
reviewed all Principal Risks in detail and
provided oversight of how all the Group’s
key risks are managed. In doing so, it also
considered and set its appetite for risk.
In addition to functional risk registers, a
Corporate Risk Register is maintained
that ensures a ‘top down’ and ‘bottom
up’ assessment of risks. A review of
risk is a standing agenda item at each
Audit Committee to allow time for the
consideration of changes to the corporate
risk register.
The Audit Committee, delegated by the
Board, is responsible for the review of
the effectiveness of the internal control
framework. The Audit Committee review
presentations on topics in relation to key
risk areas such as GDPR, cyber security
and recently Inventory management. Please
see page 90 for details of Audit Committee
activities during the year.
Principal Risks
The Board carried out an assessment of
the Group’s principal risks at the end of the
financial year, following a comprehensive
strategic review of the business. Principal
and emerging risks are monitored and
changes to the risk environment discussed
by the Board throughout the year. Our
principal risks are described on the following
pages, along with a summary of our
mitigation activities. The Principal Risks are
not in a priority order but have been set out
against a Principal Risk theme, with arrows
denoting the movement from the prior year.
50
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
51
Strategic Report Our Principal Risks and Uncertainties
Risk Title
Risk Description
Current Mitigation
Economic, Environmental and Political
Focus in 2019
Priorities in 2020
Brexit
Changes to consumer
confidence, the cost
of doing business or
the way in which we
run our operation as
a result of Brexit results
in materially lower
profits or organisational
strain.
We constantly measure consumer confidence which can
be impacted by many things, including Brexit. In 2018, we
launched a new business strategy designed to vitalise
our position in the market as a services business (see
strategy).
Following the announcement of an extension to 31 October
2019 for approval of a withdrawal agreement, the prospect
of a hard Brexit has abated although departure from the EU
without a free trade deal remains a possibility.
• Securing Authorised Economic
Operator Status reducing
exposure to border delays
• Progression of the Corporate
Strategy to strengthen our
appeal to consumers
• Continued monitoring and flex
in readiness for change
We have a Brexit steering committee that evaluates the
risk factors to the business in support of the Group’s post-
Brexit readiness, actions already taken include:
−
authorised Economic Operator (“AEO”) status secured in
full, allowing lower friction customs procedures;
−
−
−
−
−
CCG (“Comprehensive Customs Guarantee”) granted
in conjunction with AEO allowing deferral of all VAT and
Duty payments with a lower guarantee level;
an ongoing 18-month hedging policy;
buffer stocks maintained within Halfords and with
Vendors to mitigate border delays;
lead times extended for European vendors;
support provided to our EU workers based in the UK.
In the period to October, we will continue to work on our
readiness and have identified areas of focus. We anticipate
cost inflation from border transactions and duty and this
will affect all importers and exporters. Vendor negotiations
or terms changes are likely to be required post a hard
Brexit and we will be estimating the sort of costs our
suppliers will face to allow us to engage in constructive
negotiations.
Our Republic of Ireland stores will become an export and
therefore we are designing a process to allow continued
replenishment and returns to these stores.
Change in
Government
policy or
regulation
A change in
Government policy
may significantly
increase our cost of
business or reduce
customer demand
During the year, in recognition of the significance of
the regulatory framework to the Group, a compliance
department was formed with a new role of Head of
Compliance. The function is responsible for verifying
that business activities are compliant with licensed and
regulatory obligations.
An assessment of vulnerabilities as part of a refresh
of the corporate risk register and horizon scanning
across several business areas was undertaken during
the year. Visibility of emerging risks will continue to
improve as responsibilities are clearly defined through
the development of functional risk registers. Brexit, as
monitored by the Group’s Brexit steering committee, is
summarised above.
• New Compliance department
created
• Horizon scanning undertaken
in a number of business areas
• Brexit risk consolidated and
managed by ‘Brexit Steering
Group’
• Consolidate the output of
the horizon scanning work to
understand the impact on each
aspect of the business
• Create a cross-functional Risk
Committee
• Deep dives into specific areas
as part of risk update
Risk movement
Risk increasing
Risk decreasing
No risk movement
52
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019
Risk Title
Risk Description
Current Mitigation
Business Strategy
Capability and
capacity to
effect change
If we do not have
sufficient capacity and
capability (in terms of
our people, processes
and systems)
to successfully
implement the
changes necessary
across the business,
we will not realise the
expected benefits of
our strategy and the
business will not be
sustainable.
Strategic priorities have been clearly defined following an
in-depth strategic review supported by comprehensive
customer, colleague, market and competitor research and
with powerful insights from our single customer view.
A Transformation Board has been formed to institute
governance into the change programme necessary for
the delivery of the strategy. The Board ensures there is
a robust approval process for each project, allocates
resource and monitors progress. Project Managers are
in place within the business to whom projects can be
assigned and this has been supplemented by specialist
resource to boost capability. In effecting change, Halfords
is requiring all contributing colleagues to observe the
principles of Responsible, Accountable, Consulted and
Informed (“RACI”).
Stakeholder
support and
confidence in
strategy
If we fail to secure
and maintain our
stakeholders’
(investors, suppliers,
colleagues) support
for our strategy, they
may lose confidence
in the business
and withdraw their
resources.
The Board holds regular meetings with shareholders
and their representatives. Recent discussions have
focussed on our strategic ambitions and understanding
expectations to enable us to form the best plan.
The new strategy for the business was launched to
Colleagues through the annual team conference which
was streamed live to those who were unable to attend.
All colleagues were able to contribute to a Q&A session.
The Senior Management Team communicate directly
to Support Centre colleagues via a weekly huddle, all
colleagues receive a weekly blog from the CEO and a
monthly newsletter.
An annual conference is held with our suppliers where we
inform them of our strategic plans as key partners and
listen to their insights and observations to enhance our
working relationship.
Focus in 2019
Priorities in 2020
• Clear strategic priorities
laid down
• Specialist resource brought in
to boost existing capability
• Robust business case template
developed and implemented
• Focus on Free Cash Flow to
maintain sufficient capital for
investment
• IT restructure to build in
new capability plus senior,
experienced Delivery Manager
• Annual strategic plan ‘refresh’
to involve review of progress
to date
• Capital allocation model to
be developed
• Conferences relaying strategy
to our colleagues and suppliers
• Continued engagement with
all our stakeholders through
regular updates
Sustainable
business model
Changes in the UK
economy (including
consumer confidence
and the value of the £)
could materially impact
our revenue and / or
costs, and therefore
the profitability of the
business.
Unless we can reduce
our exposure to these
economic variables
(e.g. our Forex
exposure and fixed
cost base) we will not
create a sustainable
business model.
A number of strategic initiatives are underway to reduce
our exposure to changes in the UK economy that adversely
impact ‘business as usual’ and the delivery of our strategy:
• Supply chain review in
progress
• Working capital reduction via
• procurement savings programme in place for direct and
stock/creditors
indirect costs;
• supply chain efficiencies under review with
opportunities for strategic sourcing alliances;
• developing opportunities to lower warehouse and
distribution costs;
• working capital reduction programme targeted at stock
holding and aligning trade creditor terms;
• a formal hedging programme has been extended to
reduce foreign exchange risk;
•
initiatives to drive revenue by extending our service
offering to our existing customer base through financial
services products and B2B; and
• continued evaluation of the impact of the UK’s departure
from the European Union and the impact on trade tariffs.
• Active monitoring of tariff
situation, especially in a no-
deal world
• Strategic initiatives designed
to secure revenue from
existing customer base (e.g.
Financial Services, Services,
B2B)
• Strategic sourcing tie-ups
(Norauto etc)
• Strategic sourcing strategy
(post-Brexit) to understand,
end-to-end, the optimum
sourcing location for each
product category
• Review supply chain strategy
– i.e. sourcing ‘whole bike’ vs.
components
• Implement our revised retail
operating model
53
Strategic Report halfords.annualreport2019.com Our Principal Risks and Uncertainties
Focus in 2019
Priorities in 2020
• Improved induction and
performance development
opportunities for colleagues
• Creating a pathway for young
talent to join our business
Risk Title
Risk Description
Current Mitigation
People
Skills shortage We may be unable
to recruit, retain and
develop enough
people to have the
different mix of skills
that we need at all
levels across the
business, in the near
and longer term.
Our strategy requires us to attract and retain colleagues
who can inspire and support our customers and
encourage them to build a lifetime relationship with the
brand. Through our in-house resourcing team we have
developed a recruitment website which highlights the
importance of the Halfords behaviours and details the
skills and experience required of our future colleagues.
There are clear and detailed recruitment processes in
place which are reviewed regularly to respond to changes
in the business. We train our managers in recruitment best
practice and support them by providing up-to-date and
engaging recruitment collateral to enable local attraction.
In the last year, we have updated our induction programme
for large parts of the business and given prominence to
our development offer.
In our stores, our Gears training programme provides our
colleagues with structured training taking them through
their first 18 – 24 months. By linking the development
of skills to qualifications and reward, we use our training
programme to enhance skill, reinforce our behaviours,
keep colleagues engaged and reach a competitive hourly
rate of pay. The quality of the Gears Training programme
has led to us receiving a Princess Royal Training Award and
an Ofsted Inspection outcome of ‘Good’ in FY19. Gears
is in continual review with our in-house team of learning
designers working with our commercial and operations
teams to develop the programme to meet the dynamic
needs of the business. This year, our in-house team
developed and launched our first gamified e-learning
module which was a popular and effective tool for training
knowledge and behavioural change.
In our Autocentres, training is a fundamental part of
our business and a great attraction tool for applicants.
We support the training of colleagues ranging from our
Apprentices right through to a Level 3 Technician. We
provide in-house Hybrid and MOT tester courses ensuring
that we can service the full car parc.
Conscious of the future talent requirements for our
business, and especially the desire to increase the
proportion of female colleagues, we are visiting 50 schools
in FY20 to engage and inspire emerging talent for the
future. We will create an ongoing relationship with the
students we meet through an interactive digital platform
and our digital mentors.
Risk movement
Risk increasing
Risk decreasing
No risk movement
54
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Focus in 2019
Priorities in 2020
• Responsive action taken
to address observations
of colleagues from our
engagement survey
• Continued development of the
business tools available to our
colleagues, to improve their
experience in the workplace
Risk Title
Risk Description
Current Mitigation
Staff
engagement/
culture
Our employment
model may not be
sufficiently attractive
to recruit and retain the
talent that we need
Colleague engagement is vital to our success as a
business. As such, it is a measure in our Executive bonus
scheme and we set targets for improved engagement right
across the organisation. We run an annual engagement
survey, administered and analysed by a third party, which
provides us with reports at team level. We create an
environment which encourages colleagues to feed back to
us about how we can make Halfords an even better place
to work and this is clearly successful as last year we had
a survey response rate of 94%. Our engagement index of
79% demonstrates that the vast majority of our colleagues
enjoy working at Halfords.
Following the distribution of reports across the business,
every team produces an engagement action plan which
includes actions that they can take locally to improve
colleague engagement. Key themes are also pulled out
at a Company level in order to inform improvements for
the year ahead. This could include changes to reward,
learning and development, tools and equipment,
leadership development right through to physical changes
to buildings or our IT provisions. Managers who achieve
significant improvements to colleague engagement
receive recognition and for those managers who receive
poor engagement results a development plan is put in
place to support them to improve this.
Our Retail business enters the Sunday Times Best
Companies Survey and in 2019 we achieved 15th place
in the Best 25 Big Companies to Work For category.
Information Technology Systems and Infrastructure
Cyber and data
security
If we fail to sufficiently
detect, monitor or
respond to cyber-
attacks against our
systems they may
result in disruption of
service; compromise of
sensitive data; financial
loss; reputational
damage.
If we fail to adequately
protect customer
(and others’) data, we
may breach GDPR
legislation.
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.
In addition to ongoing Company-wide training and
awareness, SIEM (“Security Information and Event
Management”) and IDS (“Intrusion Detection Software”)
tools have been introduced in-part across the Group’s
technology estate. Further deployment of these tools
(along with the introduction of Intrusion Prevention
Software) will continue once the decision regarding
outsourcing elements of the IT function has been
confirmed and established.
The Audit Committee is briefed by senior IT management
on the business’ IT security framework and continues to
closely monitor this area.
• System enhancements to
improve our resilience to
cyber-attacks
• Awareness training delivered
to all colleagues on Information
security and cyber security
threats
• Maintaining our training and
awareness programme
• Increasing our sophistication
through new system
developments
55
Strategic Report halfords.annualreport2019.com Our Principal Risks and Uncertainties
Risk Title
Risk Description
Current Mitigation
IT infrastructure
failure
Failure in our IT
system(s) may cause
significant disruption
to, or prevention of,
normal business-as-
usual activities
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 several 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 are increasingly hosting more of our data in the
cloud and rely on cloud-based security services from
Microsoft and other third parties to protect that data.
Focus in 2019
Priorities in 2020
• Recovery processes verified
and desktop testing performed
quarterly
• Continued progression
towards cloud-based security
services
• Testing of our continuity plan
Risk movement
Risk increasing
Risk decreasing
No risk movement
56
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Risk Title
Risk Description
Current Mitigation
Product and Service Quality and Brand Reputation
Focus in 2019
Priorities in 2020
Brands appeal
and market
share
If we continue to lose
brand relevance we will
be unable to maintain
and grow our customer
base and build market
share.
We have an acute understanding of the factors which
can influence its currency, and we focus constantly on
protection, enhancement and penetration.
• Reaching new audiences
through our partnerships in the
community
• Investment in our store
formats
• Development of a new
customer experience strategy
• A new digital platform offering
seamless access to the
brand’s services and products
• Introducing a loyalty
programme for the benefit of
our customers
Our strategy – To Inspire and Support a Lifetime of
motoring and cycling – is the way in which we articulate
our brand values and we do so in ways which attract,
engage and retain customers.
To differentiate ourselves in a competitive retail market,
our super-specialist sub-brand proposes a customer
experience that benefits from a unique and convenient
approach to service in both our Retail and Autocentre
businesses.
To create and maintain top-of-mind awareness, we
strategically partner with organisations that possess
credibility and gravitas, whilst simultaneously enabling
reach and relevance.
In the online space, we partner with Google to build and
maintain a sophisticated understanding of our current
and future audiences in order to better reflect their digital
needs and behaviours.
At the same time, we drive quality content through our
social media channels which focuses less on direct
response activity in favour of a more inspirational and
motivational approach.
Both of these maximise our cost-effective reach and
inform our future targeted digital activity.
In the offline space, we have this year partnered with ITV
and Channel 4.
Going forward, our ITV collaboration – continuing to
sponsor three-times daily weather forecast bulletins – will
deliver high-volume, engaged and relevant audiences.
We also partner with New Global Media; sponsoring
national radio traffic and travel broadcasts.
In the community too, our brand is strong and present.
Halfords has been the official cycling retail partner of
Bikeability, the Government-backed UK-wide cycle training
programme, which promotes accessibility of cycling and
safety training for young children and families.
We are aligned with Netmums, the UK’s biggest parenting
website, which endorses our brand and our products, and
which benefits from reciprocal support and advice on
getting children into the saddle.
Finally, across our physical stores and Autocentres estate,
we deliver a connected, omni-channel customer journey
and experience designed to improve accessibility and
customer engagement.
To underpin and intensify that approach in FY20, an
integrated Group website will be launched that will provide
an easy route to the consumption all of our services and
products in a single location; driving brand awareness and
encouraging cross-shop.
The development of a customer loyalty scheme in FY20
will also both enhance and extend the reach and power of
our brand going forward.
57
Strategic Report halfords.annualreport2019.com Our Principal Risks and Uncertainties
Focus in 2019
Priorities in 2020
• New strategy identifying
service led super-specialism
as a key component
• Continued development of our
colleagues and our estate to
provide high levels of customer
service
Risk Title
Risk Description
Current Mitigation
Service quality
The service we provide
to customers may fail
to meet regulatory /
safety requirements
resulting in harm to
customer and /
or legal / financial
penalty.
All our colleagues are provided with dedicated training
and adhere to established quality control and safety
procedures with compliance audits by management.
We also have a dedicated compliance team monitoring
our Autocentre operations.
We provide centralised training for our Retail colleagues
through our Gears 1 & 2 programme to ensure they are
consistently knowledgeable about our products and
able to deliver a quality service to our customers and
colleagues also complete an annual assessment of their
understanding of our quality procedures. We have four
equipped training academies where in 2018 we delivered
1,800 days of training for Autocentre technicians. The
technician grading assessment is linked to quality of
workmanship as well as skills and qualifications.
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.
In 2018, a new till system was introduced to our Retail
stores empowering colleagues to move more freely
around store and improve their interaction with customers
using mobile tablets. In our Autocentres we introduced
industry-leading parts ordering and stock control and a
new eDiary mechanism to optimise labour availability.
We continue to invest in our estate, and this is enabling
us to enhance our service offering to customers by
evolving the layout of our stores in addition to further
developments in IT Infrastructure, training and online
functionality.
Critical physical
infrastructure
failure
(including
supply chain
disruption)
Severe damage or
failure of physical
infrastructure may
disrupt our supply
chain and / or business
as usual activities and
prevent the fulfilment
of customer orders.
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.
• Close cooperation to convey
adjustments to our business
model following the launch of
our new strategy
• Continued development of
relationships with current and
potential new suppliers
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.
Risk movement
Risk increasing
Risk decreasing
No risk movement
58
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
59
Strategic Report D
Support our customers
through an integrated,
unique and more
convenient services offer
Read more on our Strategy on pages 24 to 27
D
Our Governance
Our Governance Board of Directors
Keith Williams N R
Chairman
Date Appointed
24 July 2018 as Chairman and Chair of the Nomination Committee.
Background
Keith is currently a Non-Executive Director and Deputy Chairman of John Lewis,
a Non-Executive Director of Aviva Plc, and Deputy Chair of Royal Mail Plc. Keith will take
up the appointment as Chair of Royal Mail Plc on 22 May 2019 and will step down as a
Non-Executive Director of Aviva Plc on 23 May 2019. Keith is also the independent Chair
of the Government supported Rail Review. Keith is a qualified Chartered Accountant.
Keith was formerly Chief Executive Officer and then Executive Chairman of British
Airways.
Key Strengths
Keith brings extensive leadership and PLC board experience. He has a proven record
in retail and deep experience in relevant areas such as customer service and digital.
Graham Stapleton C
Chief Executive Officer
Date Appointed
15 January 2018
Background
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.
Key Strengths
Graham brings extensive PLC board skills and experience.
Loraine Woodhouse
Chief Financial Officer
Date Appointed
1 November 2018
Background
Prior to joining Halfords, Loraine spent five years in senior finance roles within the John
Lewis Partnership. In 2014 Loraine was appointed Acting Group Finance Director and
then, subsequently, Finance Director of Waitrose.
Prior to that, Loraine was Chief Financial Officer of Hobbs, Finance Director of Capital
Shopping Centres Limited (now Intu plc) and Finance Director of Costa Coffee Limited.
Loraine’s early career included finance and investor relations roles at Kingfisher Plc.
Key Strengths
Loraine has extensive experience across all finance disciplines and has worked within
many different sectors, latterly focusing specifically on consumer service businesses.
Committee Membership
A
C
N
R
Audit Committee
Corporate Social Responsibility Committee
Nomination Committee
Remuneration Committee
62
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 David Adams A N R
Senior Independent Director
Date Appointed
1 March 2011 as Non-Executive Director; and 1 March 2014 as Senior Independent Director.
Background
David currently holds Non-Executive Director roles at Thinksmart Ltd and Debenhams Group
Holdings Ltd and chairs the Audit Committee at Thinksmart. In addition, David is Chairman of
Park Cameras Limited and is a Trustee of Walk the Walk, a breast cancer charity.
Previously, David has held a number of Non-Executive roles including Conviviality Plc
(Chairman), Debenhams Plc (Non-Executive Director and Chair of the Audit Committee),
Fever Tree Drinks Plc (Non-Executive Director and Chair of the Audit Committee), Elegant
Hotels Plc (Non-Executive Director and Chair of the Remuneration Committee) and Hornby
Plc (Non-Executive Director and Chair of the Audit Committee).
David’s executive career included almost ten years as Finance Director and Deputy Chief
Executive of House of Fraser Plc prior to its sale in 2006.
Key Strengths
David has had a long career in the retail and consumer goods industries and brings deep and
relevant experience to his role.
Helen Jones A C N R
Independent Non-Executive Director
Date Appointed
1 March 2014 as Non-Executive Director; and 7 December 2015 as Chair of the Corporate
Social Responsibility Committee.
Background
Helen is a Non-Executive Director and member of the Remuneration and Audit Committees
of Fuller, Smith & Turner Plc, a member of the Supervisory Board of Directors of Ben and
Jerry’s, and a member of the Supervisory Board and the Audit Committee for Vapiano SE.
Helen was the CEO of the Zizzi Restaurants group and was also responsible for successfully
launching the Ben & Jerry’s brand in the UK and Europe. Helen previously held a senior
executive role at Caffé Nero.
Key Strengths
Helen brings valuable and relevant operations, marketing and branding experience in
consumer-focused businesses.
Jill Caseberry A N R
Independent Non-Executive Director
Date Appointed
1 March 2019 as Non-Executive Director and the Chair of the Remuneration Committee.
Background
Jill is currently a Non-Executive Director, Remuneration Committee Chairman and member
of the Audit and Nomination Committees of Northgate Plc and Bellway Plc, a Non-Executive
Director and Remuneration Committee member of C&C Plc, and a Non-Executive Director
and member of the Remuneration, Audit and Nomination Committees of St Austell Brewery.
During her executive career Jill gained extensive sales, marketing and general management
experience across a number of blue chip companies including Mars, PepsiCo and Premier
Foods. She also founded a soft drink company and established a sales and marketing
consultancy.
Key Strengths
Jill brings extensive leadership experience from senior sales and marketing roles in
consumer goods businesses.
63
halfords.annualreport2019.comOur 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 29 March 2019.
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 to issue or purchase 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
Greenhouse gas emissions
Going concern
Important events since year-end
Independent Auditor
Internal control and risk management
Nomination Committee Report
Political donations
Powers of the Directors
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 20 to the Group Financial Statements
Chief Executive’s Statement
Chief Financial Officer’s Review
Strategic Report: Corporate Social Responsibility
Directors’ Report
Directors’ Report
Independent Auditor’s Report
Corporate Governance Report
Nomination Committee Report
Directors’ Report
Directors’ Report
Page
69
66
68
69
90
68
66
70
69
38
67
34
38
68
69
62
66
66
94
69
151
08
44
41
68
69
112
84
86
68
66
64
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Topic
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
Viability statement
Voting rights
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
Directors’ Report
Directors’ Report
Page
66
66
68
67
155
67
163
70
14
68
67
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
99 to 108
66
65
halfords.annualreport2019.comOur Governance Directors’ Report
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 29 March 2019 will retire and
offer themselves for re-election at the 2019
Annual General Meeting (“AGM”), with the
exception of Loraine Woodhouse, who was
appointed on 1 November 2018, and Jill
Caseberry who was appointed on 1 March
2019. Instead they will stand for election for
the first time at the 2019 AGM.
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. Alternatively,
a Director may be appointed 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 act
as an additional Director, provided that the
individual retires at the next Annual General
Meeting and if they are to continue, they
offer themselves for election. A Director
may be removed by the Company in
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 2018 Annual General Meeting, held
on 24 July 2018, will expire on the date of
the 2019 Annual General Meeting. Since the
date of the 2018 Annual General Meeting,
the Directors have not exercised any of
their powers to issue, or purchase, ordinary
shares in the share capital of the Company.
Directors’ Interests
The Directors’ interests in, and options over,
ordinary shares in the Company are shown
in the Annual Remuneration Report on pages
99 to 108.
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.
The Directors are also aware of their duties
under Section 172 of the Companies Act
2006 and so in making their decisions
they consider the long-term impact on the
business as well as taking into consideration
the interests of stakeholders such as
employees, suppliers, customers and the
wider communities in which we operate.
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 also have the
benefit of third-party indemnity provisions,
as defined by section 236 of the Companies
Act 2006, pursuant to the Company’s
Articles of Association.
Principal Activities
The principal activities of the Group are: the
retailing of motoring and cycling 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 120. The profit before tax was
£51.0m (2018: £67.1m) and the profit after
tax amounted to £41.9m (2018: £54.7m).
The Board proposes that a final dividend
of 12.39 pence per ordinary share be paid
on Friday 30 August 2019 to shareholders
whose names are on the register of
members at the close of business on Friday
26 July 2019. This payment, together with
the interim dividend of 6.18 pence per
ordinary share paid on 18 January 2019,
makes a total for the year of 18.57 pence
per ordinary share. The total final dividend
payable to shareholders for the year is
estimated to be £24.4m.
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 28
to 30 are appropriate measures to assess
the delivery of the Group’s strategy.
Directors
The following were Directors of the Company
during the period ended 29 March 2019 and
at the date of this Annual Report:
• Keith Williams (appointed 24 July 2018)
• Graham Stapleton
• Loraine Woodhouse (appointed
1 November 2018)
• David Adams
• Helen Jones
• Jill Caseberry (appointed 1 March 2019)
• Dennis Millard (resigned 24 July 2018)
• Jonny Mason (resigned 31 July 2018)
• Claudia Arney (resigned 1 March 2019)
66
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Colleagues
Employment Policies
The Group encourages diversity and
equality, and as an equal opportunities
employer, is committed to providing
equal opportunities for all colleagues and
applicants during recruitment and selection,
training and career development and
promotion.
This commitment to equality of opportunity
applies regardless of anyone’s physical
ability, sexual orientation or gender identity,
pregnancy and maternity, race, religious
beliefs, age, nationality or ethnic origin.
This is underpinned by our Group’s policies
which ensure full and fair consideration to
employment applications from people from
diverse backgrounds including those 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 appropriate retraining as
necessary.
Further details of our Diversity Policy are
included in the Nomination Committee
Report on page 87.
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.
Colleague Engagement
One of the Group’s key strengths is engaged
colleagues with great training.
Engagement with, and feedback from, our
colleagues across the business is vital to
the Group. The Group has an established
framework of colleague communications
providing regular information on business
performance and other important and
relevant matters. This includes a weekly
blog from the Chief Executive Officer,
team meetings and “huddles”, a monthly
magazine, and a programme of regular
conferences. 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.
One of the core principles of the 2018 UK
Corporate Governance Code (the “Code”)
(which was published in July 2018) is to place
greater emphasis on colleague engagement
by ensuring that the interests of employees
are properly represented at Board Meetings.
Even though the Company does not have
to report on its compliance with these
particular requirements of the Code until its
FY20 Annual Report we are working towards
complying with these new obligations so
that the “Employee Voice” will be taken into
account at future Board meetings. More
information on this is set out in the CSR
Report on page 36.
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 to continually improve
operational performance. To achieve this
we deliver a range of structured training and
development programmes, across the Group,
in our Retail, Autocentres, Performance Cycling,
Boardman and Cycle Republic businesses.
We regard the training and development of
young people as being particularly important
for our business and also for the communities
in which we operate. For these reasons we
continue to invest heavily in our apprenticeship
programme. Further information on colleague
training and development can be found on
page 34 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 promote from within.
Whistleblowing
The Group’s Whistleblowing Policy and
Procedure (the “Whistleblowing Policy”)
ensures that arrangements are in place to
enable colleagues to raise concerns about
possible improprieties on a confidential
basis without fear of recrimination. 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 is
reviewed annually and communicated to all
colleagues around the Group.
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 21 on
page 155. All ordinary shares, including those
acquired through Company share schemes
and plans, rank equally with no special rights.
All members who hold ordinary shares are
entitled to attend, vote 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,
and every duly appointed proxy shall have
one vote for every share held, and on a
poll, every member present in person or by
proxy shall have one vote for every ordinary
share held. The Company is not aware of any
arrangements that may restrict the transfer
of shares or voting rights.
Significant Shareholders
As at 30 April 2019, this being the latest practicable date, the Company has been notified
under the Disclosure Guidance and Transparency Rules (DTR5) of the following notifiable
interests representing 3% or more of the Company’s issued share capital.
Manager
Jupiter Asset Management Limited
J O Hambro Capital Management
Evenlode Investment Management Ltd
Fidelity International Limited
Dimensional Fund Advisors
Rathbones
Schroders Plc
Norges Bank Investment Management
Wellington Management Company
BlackRock Inc
The Vanguard Group Inc
Aberforth Partners LLP
Holding
20,606,270
12,760,613
10,355,618
10,295,742
9,673,676
8,500,753
8,395,437
7,480,022
7,468,017
7,335,440
6,079,343
5,993,942
% of Issued
Shares
10.35
6.41
5.20
5.17
4.86
4.27
4.22
3.76
3.75
3.68
3.05
3.01
67
halfords.annualreport2019.comOur Governance Directors’ Report
these provisions as a result of the breadth
of its business activities, however, the Board
has no intention of using this shareholder
authority.
Going Concern
The Group has a £200m revolving credit
facility, ending in September 2022 following
the exercise of a one-year extension option
during the financial year. At the year end,
the Group had undrawn borrowing facilities
of £118m (2018: £116m). 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 severe but 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.
Credit Facilities, Change of
Control and Share Schemes
The Company’s revolving credit facilities
referred to above 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 plans are
provided in Note 22 on pages 155 to 157.
Viability Statement
In accordance with provision C.2.2 of the
2016 UK Corporate Governance Code, the
Directors have assessed the viability of the
Company over a three-year period to 1 April
2022. 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.
Authority to Purchase Shares
At the 2018 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 2018, such
authority expiring at the conclusion of the
Annual General Meeting to be held in 2019 or,
if earlier, on 30 September 2019.
Transactions with Related Parties
During the period, the Company did not
enter into any material transactions with
any related parties.
Articles of Association
In accordance with the Companies Act
2006, the Articles of Association may only
be amended by a special resolution of
the Company’s shareholders in a general
meeting.
Political Donations
The Group made no political donations and
incurred no political expenditure during the
year (FY18: 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
68
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 The Board has a reasonable expectation
that the Company will be able to continue in
operation and meet its liabilities as they fall
due at least until 1 April 2022. 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.
of trading based on international
standards including the International
Labour Organisation (“ILO”) conventions
and recommendations. Moreover, the
Code reflects the Group’s opposition to
the exploitation of workers in all forms, its
support for fair and reasonable pay and
rewards, the requirement for health and
safety standards etc.
Additionally, the Group’s Terms of Business
require suppliers to comply with all
requirements under the Modern Slavery Act
2015. Thereafter, Halfords operates robust
due diligence processes which include,
where relevant, onsite inspections and
audits of the factories, warehouses and tied
accommodation operated by its suppliers.
The Group also provides comprehensive
training to appropriate colleagues which
ensures their understanding of all issues
relating to modern slavery and human
trafficking.
As a result of the above activity, during
FY19, no concerns were raised regarding
any of the Group’s suppliers, and therefore
Halfords continues to be assured that no
organisation within its supply chain has
breached its legal or contractual obligations.
More details of key risks, mitigations and
assessment processes are set out on pages
50 to 58.
The Group’s Board of Directors reviews its
Modern Slavery Statement on an annual basis.
It was last approved on 5 September 2018.
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 29 March 2019 for
the Group was 60 days (2018: 66 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.
Modern Slavery Statement
In order to support its estate of Retail stores
and garages, the Group sources products
from a large number of suppliers both within
the UK and overseas. In particular, the
international suppliers – managed largely by
the Halfords Global Sourcing (“HGS”) team
based in Hong Kong, Taiwan and Shanghai
– are bound contractually by the Group’s
policies on modern slavery and human
trafficking. These include, for example, the
Group’s Ethical Trading Statement which
states that:
• suppliers are required to sign a
compliance declaration, confirming that
they have not been investigated for,
or convicted of, any offence under the
Modern Slavery Act 2015 or any other
equivalent law;
• Halfords reserves the right to conduct
risk assessments in respect of its
suppliers, and implement the Group’s
Code of Conduct where necessary. This
is particularly pertinent to those suppliers
managed by the HGS team, given that the
Code of Conduct encompasses principles
Auditor
The Company’s current Auditor is KPMG
LLP. However, following a recent re-tender
of the Audit, BDO LLP were successful and
so will provide audit services to the Group
going forward. This was explained in an RNS
announcement on 6 February 2019 and a
resolution proposing the appointment of
BDO LLP will be set out in the Notice of the
2019 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 and approval of the Directors’
Report confirms that:
i. so far as the Directors are aware, there is
no relevant audit information of which the
Company’s Auditor is unaware; and
ii. the Directors have taken all reasonable
steps to ascertain any relevant audit
information and to ensure that the
Company’s Auditor is aware of such
information.
Important Events Since Year End
There have been no significant events since
the year end.
Annual General Meeting (“AGM”)
The AGM will be held at the Hilton Garden
Inn, 1 Brunswick Square, Brindleyplace,
Birmingham, B1 2HW on Wednesday 31 July
2019. 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
21 May 2019
69
halfords.annualreport2019.comOur Governance Corporate Governance Report
Statement of Compliance
The Board confirms that during the year
ended 29 March 2019, and as at the date of
this report, the Company has complied fully,
and without exception, with the provisions of
the UK Corporate Governance Code 2016 (the
“Code”), and that it 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 Department for Business, Energy
and Industrial Strategy (“BEIS”) Directors’
Remuneration Reporting regulations and
narrative reporting requirements.
Keith Williams
Chairman
My role is to lead the Board,
ensure it operates effectively
and contains the right
balance of skills, diversity
and experience.
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.
Keith Williams
Chairman
21 May 2019
70
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Section
Leadership
Effectiveness
Accountability
Remuneration
Relations with Shareholders
Description
Further Information
The Company is headed by an
effective Board, with a clear division of
responsibilities.
The Chairman is responsible for leading
and running an effective Board.
The Board regularly evaluates the balance
of skills, experience, independence and
knowledge of Directors. All new Directors
receive a tailored induction programme.
A rigorous evaluation of the performance
and effectiveness of the Board, the
Committees and the individual Directors
is undertaken annually.
The Board is responsible for determining
the nature and extent of the Principal
Risks facing the business. The Board also
oversees the management responses
that are taken to reduce and mitigate,
in achieving its strategic objectives.
Effective risk management is critical to
achieving our strategy.
Having a formal and transparent policy
for developing executive remuneration
is crucial. The Remuneration Policy aims
to attract, retain and motivate by linking
reward to performance.
The Board regularly meets with
shareholders, and an active dialogue is
encouraged.
Learn more about the Board’s division
of responsibilities on page 74.
Learn more about the Board’s
effectiveness on pages 82 and 83.
Learn more about our approach to risk
management on page 84.
Learn more about our Remuneration
Policy on pages 97 and 98.
Learn more about our shareholder
engagement on page 85.
71
halfords.annualreport2019.comOur Governance Corporate Governance Report
Board Composition
As at the date of this report, the Board of
Directors comprised six members, namely
the Non-Executive Chairman, three other
Non-Executive Directors and two Executive
Directors. The composition of the Board
is set out on page 66 and the biographies
of each Director, including any other
business commitments, are available on
pages 62 to 63. The Board believes that it
has an appropriate balance of Executive
and independent Non-Executive Directors
having regard to the size and nature of the
business. The Board also believes it has an
appropriate balance of skills and experience,
Further details are available on page 80.
Chairman 1
Executive Directors 2
Non-Executive Directors 3
72
Board changes
On 24 July 2018, Keith Williams joined
Halfords as Chairman. Keith succeeded
Dennis Millard who stepped down from the
Board following a tenure of nine years.
On 1 November 2018, Halfords welcomed
Loraine Woodhouse to the business
following the resignation of Jonny Mason.
Jonny tendered his resignation as Chief
Financial Officer on 27 March 2018 to take
up the position of Group Finance Director
for Dixons Carphone plc. Jonny left Halfords
on 31 July 2018, and in the period between
him leaving the Company and Loraine
Woodhouse joining, Katrina Jamieson,
Business Transformation Director, acted as
Interim Chief Financial Officer.
On 27 February 2019, Halfords announced
the appointment of Jill Caseberry as
Non-Executive Director and Chair of the
Remuneration Committee with effect from
1 March 2019. Jill succeeded Claudia Arney
who stepped down from the Board on
1 March 2019.
Board Independence
The Non-Executive Directors bring wide
and varied experience to the Board and its
Committees. The Company recognises the
importance of its Non-Executive Directors
remaining independent. This is in accordance
with the Code which recommends that, at
least half of the Board of Directors, excluding
the Chairman should comprise Non-Executive
Directors, who are determined by the Board to
be independent in character and judgement
and who are free from relationships or
circumstances which may affect or could
appear to affect the Non-Executive Director’s
judgement. Following a rigorous review,
the Board considers David Adams, Helen
Jones and Jill Caseberry to be independent
in character and judgement and, therefore,
that Halfords is compliant with the Code,
with at least half of the Board, excluding the
Chairman, deemed to be independent. The
Chairman, Keith Williams was considered
independent upon his appointment.
Re-election
In compliance with the Code and the
Company’s Articles of Association, the
majority of the Directors on the Board as
at 21 May 2019, will seek re-election at the
2019 Annual General Meeting (“AGM”), these
being, Keith Williams, David Adams, Helen
Jones and Graham Stapleton. Jill Caseberry
and Loraine Woodhouse will be elected for
the first time at the 2019 AGM.
Board Responsibilities
The Board is responsible for the long-term
success of the Company and 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
20 to 21.
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Director Tenure and Board Succession
Succession planning for the Board continues to be ongoing and is considered in detail
during the annual evaluation of the Board performance. Given the appointment of the new
Chairman, the Chief Financial Officer and the new Chair of the Remuneration Committee, it
has been determined that the Chairman will review the composition, skills and experience of
the Board and agree the priorities for the coming year.
Keith Williams
David Adams
Jill Caseberry
Helen Jones
Graham Stapleton
Loraine Woodhouse
9mths
8yrs 2mths
2mths
5yrs 2mths
1yrs 4mths
0
1
0
2
l
i
r
p
A
1
1
1
0
2
l
i
r
p
A
1
2
1
0
2
l
i
r
p
A
1
3
1
0
2
l
i
r
p
A
1
4
1
0
2
l
i
r
p
A
1
5
1
0
2
l
i
r
p
A
1
6
1
0
2
l
i
r
p
A
1
6mths
7
1
0
2
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i
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p
A
1
8
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1
Matters specifically reserved for the
Board include: strategy and management;
corporate structure and capital; investor
relations; audit, financial reporting and
controls; nominations to the Board;
executive remuneration and certain material
contracts.
A formal schedule of matters reserved for
the Board is in place and regularly reviewed.
To discharge these responsibilities
effectively, the Board has a system of
delegated authorities, which is described on
page 74. 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
Executive Team and the wider business.
This is available at www.halfordscompany.com/governance/ matters-reserved-
for-the-board
73
Division of Responsibilities
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 effective
leadership, operation and governance
of the Board and its Committees. He
ensures effective communication with
shareholders, facilitates the contribution of
the Non-Executive Directors and ensures
constructive relations between Executive
and Non-Executive Directors.
The Chief Executive Officer is responsible
for the management of the Group’s business
and for implementing the Group’s strategy.
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.
halfords.annualreport2019.comOur Governance
Corporate Governance Report
Shareholders
The Chairman – Key Responsibilities
• manages and provides leadership to the Board;
• ensures effective communication with shareholders and other
stakeholders;
• builds an effective and complementary Board of Directors;
• acts as an advisor to the Chief Executive Officer;
• sets the agenda, style and tone of Board discussions;
• meets with the Non-Executive Directors without Executive
• facilitates and encourages active engagement in meetings,
promoting effective relationships and open communication;
Directors being present; and
• ensures constructive relations between Executive Directors
and Non-Executive Directors.
The Halfords Board – Key Responsibilities
The Board is the principal decision-making forum for the Group, setting the strategic direction and also ensuring that the Group
manages risk effectively. The Board is accountable to shareholders for the financial and operational performance of the Group.
The Board ensures the workforce policies and practices are consistent with the Company’s “Behaviours”.
See page 73 for examples of the Matters Reserved for the Board. A complete list of these matters is available on the Company’s website
www.halfordscompany.com/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’s 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; and
financial plan;
• delivers the annual budget and plan and executes the agreed
Group strategy and other objectives;
•
identifies and executes new business opportunities and
potential acquisitions or disposals; and
• manages the Group’s risks in line with the Board approved
risk profile.
•
is available to other Directors and Shareholders in order to
address concerns that cannot be raised through the normal
channels.
Non-Executive Directors
Company Secretary
Key Responsibilities:
• works closely with the Chairman, Group Chief Executive
Officer and Board Committee Chairs 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; and
• provides advice on Board matters, legal and regulatory
issues, corporate governance, Listing Rules compliance and
best practice.
Key Responsibilities:
• evaluate and appraise the performance of Executive
Directors and Senior Management against agreed targets;
• participate in the development of the Group’s strategy;
• 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 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; and
• formulate Executive Director remuneration and succession
planning.
74
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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 76. In addition,
a Corporate Social Responsibility (“CSR”)
Committee was established in December
2015, comprising Directors and Senior
Management and chaired by a Non-Executive
Director. Each Committee has its Terms of
Reference approved and regularly reviewed
by the Board.
This is available at
www.halfordscompany.com/
governance
On the following pages each Committee
Chair reports how the Committee they chair,
discharged its responsibilities in FY19 and the
material matters that were considered.
Following a Committee meeting, the relevant
Committee Chair provides a report to
the Board. Whilst not entitled to attend,
other Directors, professional advisors
and members of the Executive Team and
Senior Management attend when invited to
do so. The external Auditor attends Audit
Committee meetings by invitation. No
person is present at Nomination Committee
or Remuneration Committee meetings
during discussions pertinent to them. The
Company Secretary acts as the secretary to
the principle Committees.
Matters which require Board approval
between scheduled Board meetings can
be approved by a Board Committee, which
consists of a minimum of two Directors. The
final wording of market announcements is
approved prior to release by a Disclosure
Committee which is made up of a minimum
of two Directors. There were four Board
Committee meetings and six Disclosure
Committee meetings during the period.
At executive level 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 of these
executive committees 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.
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Nomination Committee
Audit Committee
Remuneration Committee
Key Objectives:
To ensure that the Board has the
balanced 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 Board candidates.
More information on Diversity
in the Group can be found on
page 81.
Read more within the
Nomination Committee Report
on pages 86 to 87.
Key Objectives:
To provide effective governance
over the Group’s financial reporting
processes. This includes the internal
audit function and external Auditor. The
Committee maintains oversight of the
Group’s systems of internal controls
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, and their 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 on compliance with legal
requirements, whistleblowing,
accounting standards and the Listing
Rules.
Read more within the Audit
Committee Report on pages
90 to 93.
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;
• approving senior executive
remuneration and oversight of
remuneration matters generally;
• recommending the design of the
Company’s 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 Chief
Executive Officer; and
• maintaining an active dialogue
with institutional investors and
Shareholder representatives.
Read more within the
Remuneration Committee
Report on pages 94 to 108.
Chair:
Keith Williams
Members:
David Adams
Jill Caseberry
Helen Jones
Chair:
David Adams
Members:
Jill Caseberry
Helen Jones
Chair:
Jill Caseberry
Members:
Keith Williams
David Adams
Helen Jones
The Nomination, Audit and Remuneration committees’ full Terms of Reference are available on the Company’s website at
www.halfordscompany.com/governance/committees-terms-of-reference or on request from the Company Secretary.
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Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019
How the Board operates
The Board and its Committees have a scheduled forward programme of meetings. This ensures that sufficient time is allocated to each
relevant discussion and activity and the Board’s time is used effectively.
The table below shows the attendance of Directors at the Board and Committee meetings held during the year. In addition to those scheduled
meetings, unscheduled Board and Committee meetings were convened throughout the year as and when the need arose. Meetings were
convened to discuss and approve the appointments of Keith Williams as Chairman, Jill Caseberry as a Non-Executive Director, and Loraine
Woodhouse as Chief Financial Officer, together with Loraine’s associated remuneration package. Furthermore, three additional Board calls were
held during the period to discuss the Forex hedging arrangements, Merger and Acquisition activity and to approve the appointment of the new
external Auditor. These additional meetings were all quorate, and all Directors received the relevant papers and provided the required approval.
During the year the Board also held three Strategy meetings to discuss the Company’s strategic review.
Board Member
Executive Directors
Graham Stapleton
Loraine Woodhouse
(Appointed: 1 Nov 18)
Jonny Mason
(Resigned: 31 Jul 18)
Non-Executive Directors
Keith Williams
(Appointed: 24 Jul 18)
David Adams
Jill Caseberry
(Appointed: 1 Mar 19)
Helen Jones
Dennis Millard
(Resigned: 24 Jul 18)
Claudia Arney
(Resigned: 1 Mar 19)
Board
Scheduled: 8
Audit
Committee
Scheduled: 3
Remuneration
Committee
Scheduled: 4
Nomination
Committee
Scheduled: 2
CSR
Committee
Scheduled: 2
8/8
4/4
3/3
6/6
8/8
1/1
8/8
3/3
7/7
N/A
N/A
N/A
N/A
3/3
1/1
3/3
N/A
2/2
N/A
N/A
N/A
3/3
4/4
1/1
4/4
2/2
3/3
N/A
N/A
N/A
2/2
2/2
1/1
2/2
0/0
1/1
2/2
N/A
N/A
N/A
N/A
N/A
2/2
N/A
N/A
Other members of the Executive 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 Executive Team and
other colleagues deliver presentations to the Board on proposed initiatives and progress on projects.
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Summary of Board Activity in FY19
Topic
Strategy
Key activities and discussions in 2018/19
• Reviewed and approved Group Strategy, its budget
Key priorities in 2019/20
• Focus on the delivery of the Capital Market Day
and plan; and
objectives.
Financial and Risk
Management
• Approved presentations to the City.
• Reviewed monthly business reviews and trading
performance;
• Ensure delivery of the FY20 budget, taking account
of uncertain economic conditions;
• Reviewed and approved FY19 budget and forecast
• Simplify Board reporting; and
and FY20 outline plan and budget;
• Transition to the new external Auditor.
• Reviewed and approved dividend recommendations
and dividend policy;
• Reviewed and approved debt decision and hedging
proposal;
• Reviewed and approved prelim, interim and trading
updates; and
• Considered the update on the external audit tender from
the Audit Committee.
Governance
• Reviewed and approved Group policies and the Group
• Ensure adherence to new Corporate Governance Code
risk register;
developments;
Shareholder and
Stakeholder
Relations
• Reviewed and approved Directors’ Conflicts of Interest
• Ensure Brexit implications are understood and
register; and
monitored; and
• Considered updates on the Group’s GDPR readiness.
• Reviewed prelim, interim and trading update
• Review the management team to ensure talent pipeline.
• Conduct investor perception study, and implement any
approaches and announcements;
recommended changes;
• Reviewed monthly investor relations reports;
• Ensure relationships are built between the new
• Reviewed and approved Annual General Meeting
management team and Shareholders; and
notice and form of proxy;
• Ensure the CSR team is developed.
• Regularly reviewed draft sections of the FY18 Annual
Report;
• Reviewed Shareholder body reports; and
• Discussed the Group’s Corporate Social Responsibility
Strategy.
• Reviewed and approved the Bikeability partnership;
• Approved large contract renewals;
• Approved TV sponsorship with ITV;
Commercial
Matters
• Oversee progress of plans which support improvements
in retail and support plans for services development;
• Implement website development;
• Reviewed Customer Service and NPS presentation
• Develop organisational culture to implement plans; and
and mystery shopping trial;
• Deliver improvements in product and services
• Reviewed stock and customer experience updates,
We Fit Service and Cycling improvement plans;
• Reviewed regular updates from Halfords Autocentres
Managing Director, and the Director of Performance
Cycling; and
consistency.
Board Matters
• Received regular Brexit updates.
• Reviewed the outcome of the external Board evaluation;
and
• Approved the appointment of the new Non-Executive
Director and Chief Financial Officer appointed during
the year.
• Ensure succession plans are in place;
• Undertake full appraisal of Board performance; and
• Ensure the Board provides the support for the new
management team.
78
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Board in Action
Store Visits
Audit Tender
In July, Helen Jones, Non-Executive Director, spent the day with
the Chief Executive Officer, Graham Stapleton, visiting stores and
Autocentres in the Reading area. It was a good opportunity to review
the new merchandising plans and marketing materials, as well as to
understand from colleagues which of the promotional offers were
gaining the most traction. For Autocentres the new PACE system
was starting to be fully operationalised.
It was decided at the Audit Committee that Halfords would look to
tender the provision of audit services to the Group. David Adams, as
Chair of the Audit Committee, met with the Head of Group Financial
Reporting to set the parameters for the process, this included
having a short-list of suitably qualified audit firms, and making the
appointment in time for the successful firm to be in place to shadow
KPMG through the FY19 year-end process.
Helen said, “I always value time with our colleagues in store. We
learn so much about what’s working well and what needs our
attention. It’s also important to witness the Halfords experience
for our customer and it’s gratifying to see our expert colleagues
in action. Their knowledge is all important and it’s clear that our
customers really appreciate the quality of our service when
delivered well.”
It was imperative that the firms tendering had sufficient access to
information, key people within the finance function, members of the
Audit Committee, the Board and the senior management team to
allow them to get a full perspective on the business.
Tender documents were issued in November 2018, following which
proposals were received and reviewed. The audit firms delivered
their final presentations in December 2018. The Halfords team
who received the presentations included the Chair of the Audit
Committee, the Chief Executive Officer and the Chief Financial
Officer. In February 2019, the Board approved the recommendation
that BDO be appointed, which will be formally approved by
shareholders at the AGM on 31 July 2019. BDO has worked
closely with the Halfords Finance team and KPMG through the
FY19 year-end.
Opening of new Cycle Republic store in Bold Street, Liverpool
In November 2018, Helen Jones, Non-Executive Director, joined
the Managing Director of Cycle Republic and Tredz Bikes, Peter
Kimberley, at the opening of the new Cycle Republic store in Bold
Street, Liverpool. A queue of customers had formed bright and early
along with the local press, eagerly awaiting the start of the official
proceedings.
Following the ‘ribbon cutting’, the doors opened to reveal an
impressively presented store. Colleagues immediately engaged with
customers and Helen and Peter took the opportunity to review the
layout and ranges on display. They chatted with the store manager,
area manager and technicians.
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Concerns
The Chairman seeks to resolve any concerns raised by the Board, whether these arise 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
Strategy
6
Banking
3
Cross-functional
5
Corporate
5
Governance
6
Finance
5
M & A
3
Supply Chain
5
Digital
4
Brand building
6
Retail
6
Business development
6
Customer service
5
Marketing
5
80
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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 Director
exemplifies and personifies the Board’s
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. Additionally, it
considers the 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 half
of the Board is female, which exceeds the
recommended target as published by the
Hampton-Alexander Review (“Improving
Gender Balance in FTSE Leadership”) in
November 2017. The charts demonstrate
the gender split at Board level, within Senior
Management and across the workforce as
a whole.
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.
Key Facts
Board Level
A
B
50% 50%
A
Men
B
Women
Senior Management
A
B
62.5% 37.5%
A
Men
B
Women
All Colleagues
A
B
77% 23%
A
Men
B
Women
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Effectiveness
Directors’ Induction
New Directors receive a comprehensive and
tailored induction programme on joining the
Board. The induction programme facilitates
their understanding of the Group and the
key drivers of the business’s performance.
Keith Williams, Loraine Woodhouse and
Jill Caseberry each received a full and
personally-tailored induction programme
following their appointments in July
2018, November 2018 and March 2019
respectively.
Directors’ Development and
Training
All Directors have opportunity
for ongoing development and support via:
• a programme of visits to the Support
Centre, Distribution Centres, Retail stores,
Autocentres and Performance Cycling
stores;
• 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
A formal and rigorous Board effectiveness review is conducted on an annual basis. This
includes an assessment of the effectiveness of the Board, its Committees and individual
Directors.
In FY19, an internal review was carried out and the process was completed as follows:
• Identify and agree
questions with the
Chairman and the Senior
Independent Director.
• Circulate the review to all
• Receive and collate
Directors.
responses in a report
to the Chairman and
the Senior Independent
Director;
• Identify areas for action;
and
• Present the report to the
Board.
Induction Process
Understand the Business
• Governance induction programme
covering external governance matters
(e.g. Listing Rules and Directors’
Duties) and internal governance
matters (e.g. Board and Committees
and policies);
• Induction material, such as Board
and Committee papers, Committees’
Terms of Reference, Investor
Presentations etc; and
• Meeting with external relevant
advisors (e.g. Jill Caseberry met with
the Remuneration consultants).
Meet the Management Teams
• One-to-one meetings with the
Directors, the Executive Team and
Senior Management from key areas of
the business.
Visit the Business
• Visit the Group’s stores, Autocentres
and other operational and distribution
sites.
82
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 The findings identified by the FY19 review are as follows:
FY19 findings
Newly established Board
There have been significant changes
during the period starting with the
appointment of Keith Williams the
new Chair, followed in October by
Loraine Woodhouse joining as the
new Chief Financial Officer and in
March by Jill Caseberry as Chair of
the Remuneration Committee. Given
these new appointments, the Directors
felt that it was too early to evaluate
the Board’s performance as a whole
and therefore their responses focused
instead on the need take the correct
steps to ensure that the Board is fully
integrated with the business and so
becomes as effective as possible
during the coming year. Achieving
this is regarded as being of particular
importance in relation to the delivery
of the new Strategy.
Delivery of the strategy
The new Strategy is intended to be
transformational so that the business
is in the best possible place to thrive
in future years. The Board recognises
that the Group has to differentiate
itself from purely online retailers and
therefore the continued growth of
the services business is of particular
importance. The Board is fully aware
that the way the Strategy is the
executed will be crucial and so will
ensure that all investment choices will
be rigorously assessed.
Response to regulatory changes
The Board has identified that their
ongoing training will be particularly
important this year. This is especially
so given the significant changes in the
regulatory landscape for strategically
important new areas (such as the
provision of financial services to
customers) and also in regard to
the impact of the new UK Corporate
Governance Code. The Board intends
that regular updates and training will
be provided to it throughout the year.
Progress on FY18 evaluation (external review)
In FY18 an external review was carried out by Lintstock, the findings were reported in the 2018 Annual Report. Details of progress made on
these areas are set out below:
FY18
Outcomes
Progress made
in FY19
Supporting new Board
members
Keith Williams‘ main priority
in his first year as Chairman,
together with the Board
should be to support
Graham Stapleton as Chief
Executive Officer.
Keith and the Non-Executive
Directors have assisted
Graham throughout the
period, which has been his
first as the Chief Executive
Officer of a FTSE Listed
PLC. In particular, Keith and
the Board have supported
him in undertaking a
thorough review of all
areas of the business and
then using this review to
identify transformational
opportunities. This review
involved an assessment
of the Group’s current
organisational structure as
well as the researching of
new markets and different
trading activities, which
will provide growth going
forward.
Strategy review
Supporting the new Chief
Executive Officer, Graham
Stapleton, with the strategic
review.
Understanding the
business
Understanding the business,
markets and stakeholders.
Board composition and
succession planning
Completing recruitment
and addressing talent and
succession.
As part of the preparations
for the launch of the new
Strategy, a comprehensive
‘discovery phase’ was
undertaken. This involved a
detailed review of all parts of
the business and included in
depth analysis of markets in
which the Group operates.
This enabled the business to
fully understand:
•
•
•
its strengths,
its market differentiators;
and
its opportunities for future
growth.
During the period, Keith
and the Non-Executive
Directors have supported
Graham, in setting the new
Strategy (and supporting
business plan) for the next
three years. The previous
strategy ‘Moving Up a Gear’
was a three-year programme
introduced by Graham’s
predecessor which ended
in October 2018. This was
replaced by the new strategy
which aims to ‘Inspire
and Support a lifetime of
Motoring and Cycling’. The
new Strategy was presented
to analysts and investors at
a Capital Markets Day held
in London on 27 September
2018.
The period has seen
significant changes in both
the Board of Directors and
the executive leadership
team. This started with
the appointment of the
new Chairman which
took effect immediately
following last year’s AGM
and then continued with the
appointments of Loraine
Woodhouse who joined in
October as Chief Financial
Officer and Jill Caseberry
who became Chair of the
Remuneration Committee
in March 2019. In addition,
the Chief Executive Officer
has made some significant
changes to the executive
management team.
Investment into identifying
and then recruiting, the best
available talent to deliver the
new Strategy will continue
during FY20.
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Directors and their
Other Interests
Details of the Directors’ service contracts,
and emoluments, as well as the interests of
the Directors and their immediate families
in the share capital of the Company and
options to subscribe for Company shares,
are shown in the Directors’ Remuneration
Report on pages 94 to 108.
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.
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.
Risk Management and
Internal Control
The Board is responsible for the Group’s risk
management processes and the system of
internal control. 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 considers its appetite
in relation to the Group’s risks, determining
whether the risks and mitigating actions
are appropriate to the level of risk. During
the year the Board conducted a review of
significant risks. The Group’s principal risks
and uncertainties, and mitigating actions are
detailed in the Strategic Report on pages 50
to 58.
The risk management and internal
control system is designed to manage,
rather than eliminate, the risk of failing to
achieve business objectives and provides
reasonable, not absolute assurance against
material misstatement or loss. The Board
has established a continuous process
for identifying, evaluating and managing
risks faced by the Group and assessing
the effectiveness of related controls to
ensure an acceptable risk/reward profile.
The accuracy and completeness of the
Corporate Risk Register is regularly
reviewed by Senior Management supported
by Internal Audit.
The Audit Committee approves and
monitors delivery of the Internal Audit Plan
for the year which is risk-based and includes
assurance of core control processes. The
Head of Internal Audit provides an update at
each Audit Committee meeting, reporting on
any key control weaknesses identified and
progress made against mitigating actions.
The Audit Committee held three scheduled
meetings in the year and provided the Board
with updates on the effectiveness of internal
controls.
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. The Board has neither
identified nor been advised of any failings
or weaknesses that it has determined to be
material or significant.
The management of risk and review of the
internal control environment is a continual
process supported by all colleagues. The
Board supports the development of risk
maturity and a strong control culture and
will continue to improve the quality of risk
reporting.
84
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Shareholder Engagement
Key Themes Discussed with Shareholders in FY19
Investor Relations Programme
• The new strategy “To inspire and support a lifetime of
motoring and cycling”
• The dynamics of the motoring and cycling markets, including
both current and future market and sector trends
• The impact of foreign exchange volatility due to Brexit
• Gross and operating margin performance
• Medium-term financial targets, with particular focus on,
increasing free cash flow over the period FY19 to FY21
compared to three years ago, and growing the ordinary
dividend every year
• Board and management changes and succession planning
• Capital allocation priorities, in particular, maintaining a
prudent balance sheet and investment for growth.
The Chairman is responsible for ensuring that appropriate
channels of communication are established between Directors
and shareholders and that 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 communicate its strategy in the most effective way. The
Group engages through regular communications, the Annual
General Meeting and other investor relations activity (such as
the investor perception study).
The Group has a comprehensive investor relations (“IR”)
programme through which the Chief Executive Officer, Chief
Financial Officer and the Head of Investor Relations 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 as follows:
• 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 easily accessible
Annual Report and Accounts, which provides a complete and
transparent picture;
• the corporate website – provides investors with timely
information on the Group’s performance as well as details of
corporate social responsibility activities;
• management roadshows – allow key investors access to
management. These are usually attended by the Chief
Executive Officer, the Chief Financial Officer and the Head of
Investor Relations;
• 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 so
that the strategy and performance of the Company can be
explained; and,
• responding promptly – the Group is committed to responding
to any investor related queries within a short time frame.
IR calendar for FY19
May
2019
July
2019
Sept
2019
Nov
2019
Jan
2020
• FY19 Prelim Results
• UK Management
Roadshow
• Annual General Meeting
• FY20 20 week Trading
Update
• FY20 Interim Results
• UK Management
Roadshow
• FY20 Q3 Trading
Statement
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
Chairs of the Remuneration, Nomination,
Audit and Corporate Social Responsibility
Committees will be present at the Annual
General Meeting 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
21 May 2019
85
halfords.annualreport2019.comOur Governance Nomination Committee Report
2018/19 Key Achievements
• Identifying and appointing Loraine
Woodhouse as a new Chief Financial
Officer; and
• Identifying and appointing
Jill Caseberry as a new Non-
Executive Director and Chair of the
Remuneration Committee
Areas of Focus in 2019/20
• to assist the management team in
developing its relationship with the
Board and business; and
• appraisal of the Board’s own
performance through independent
assessment.
Nomination Committee
meetings held
2
Committee Composition
During the year, the Committee comprised:
• reviewed the composition of the Board
and its succession plan;
• carried out an annual review of the
Committee’s Terms of Reference;
• recommended re-election of the Board at
the forthcoming Annual General Meeting;
and
• reviewed the results of the Board
performance evaluation process.
Board Appointments
As detailed in the FY18 Annual Report,
I was appointed Chairman of the Company
with effect from 24 July 2018. The search
for a Chief Financial Officer was concluded
in July 2018 with the announcement
confirming the appointment of Loraine
Woodhouse with effect from
1 November 2018. Loraine replaced Jonny
Mason who resigned on 31 July 2018,
following the announcement on 27 March
2018. Odgers Berndston were appointed as
advisors to the Committee in the search for
these external candidates. The Committee
also considered and appointed Katrina
Jamieson as Interim Chief Financial Officer
with effect from July 2018 until Loraine
Woodhouse joined the Company
in November 2018.
Keith Williams
(Chair – appointed 24 July 2018)
David Adams
Helen Jones
Jill Caseberry (appointed 1 March 2019)
Dennis Millard (Chair – resigned 24 July 2018)
Claudia Arney (resigned 1 March 2019)
Two scheduled Committee meetings were
held during the year, and were attended
by all members. In addition, a further
three unscheduled meetings were held to
approve the Terms of Reference for the
appointments of Keith Williams as Chairman,
Loraine Woodhouse as Chief Financial
Officer and Jill Caseberry as a Non-
Executive Director. After each Committee
meeting, I, and prior to my appointment,
my predecessor Dennis Millard, reported
to the Board on the key issues that we
had discussed. A number of informal
discussions, particularly relating to the
appointment of the new Board members,
were also held with the Committee members
throughout the year when the need arose.
Activities During the Year
During the year, the Committee’s main focus
was on the search for a new Chief Financial
Officer and a new Non-Executive Director
and Chair of the Remuneration Committee.
During the year, the Committee also:
• considered the Terms of Reference
regarding the appointments and roles
of the new Chief Financial Officer and the
new Non-Executive Director and Chair of
the Remuneration Committee;
Keith Williams
Chair of the Nomination Committee
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.
Chair’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 on
potential candidates to join 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 Financial Officer, Loraine
Woodhouse; the new Non-Executive
Director, Jill Caseberry, who is also the
Chair of the Remuneration Committee; and
my appointment as Chairman.
Keith Williams
Chair of the Nomination Committee
86
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Looking Ahead
The Committee will continue to assess the
Board and Executive Management Team
composition and how they both may be
enhanced.
Board appointment process
• Identify and appoint external
search consultancy; and
• Identify and approach
suitable candidates.
Keith Williams
Chair of the Nomination Committee
21 May 2019
The Terms of Reference for the
Committees are available at www.
halfordscompany.com/governance
• Interview suitable candidates;
• Make a formal offer; and
• Consider the requirements
of the Terms of Reference in
relation to the appointment.
• Announce appointment; and
• Commence induction
programme
On 1 March 2019, Claudia Arney’s term
of appointment came to an end and she
stepped down from the Board on that day.
The search for a Non-Executive Director
and Chair of the Remuneration Committee
was concluded in February 2019 with the
announcement of the appointment of Jill
Caseberry with effect from 1 March 2019.
Odgers Berndston were appointed as
advisors to the Committee in the search
for external candidates.
In both instances, the process was led by
myself, as Chairman, together with the
Committee. Odgers Berndston do not have
any other connection with the Company.
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.
The Board has not considered it necessary to
set a formal target for including diversity on
the Board because half of our Board is female
and we are in excess of the recommended
target published by the November 2017
Hampton-Alexander Review. Our 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 Executive 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 81.
87
halfords.annualreport2019.comOur Governance Corporate Social Responsibility
Committee Report
2018/19 Key Achievements
• Signing of the Armed Forces
Covenant
• Roll out of our support of Bikeability
(the successor to the Cycling
Proficiency Scheme), in partnership
with the DfT
• Continued fund-raising with NSPCC
• Development of a new CSR Strategy
Areas of Focus 2019/20
• Reviewing our base position across
our key strategic pillars
• Defining our objectives and approach
• Resetting our ambition and targets
for 2019 and beyond
• Evolving our CSR committee to
include internal sustainability
advocates
Further information on corporate social
responsibility in the Group, including
environmental details on emissions, can be
found on pages 32 to 42 of the Strategic
Report.
Future CSR Strategy
We are currently undergoing a full review
of our CSR activity in order to reset our
direction of travel and ambitions for
2019 and beyond. After spending time
understanding our base performance we’ll
develop, relaunch and commit to a new CSR
Strategy in order to adapt to be sustainable
for the long-term.
In addition to refining our base plan, we
have been working hard to develop a ‘north
star’ to help guide our future thinking and
sustainability objectives. This ‘north star’
will act as a platform and framework to
help shape all future activity to ensure we
have focus in creating shared value for the
business, society and the environment.
Helen Jones
Chair of the CSR Committee
21 May 2019
The Terms of Reference for the
Committees are available at
www.halfordscompany.com/
governance
CSR Committee
meetings held
2
Committee Composition
and Meetings
The Committee consisted of:
Helen Jones (Chair)
Graham Stapleton
Clare Moore (appointed 1 November 2018)
Andy Randall
Jonathan Crookall (resigned 1 November
2018)
Ian Carter (resigned 12 February 2019)
There were two Committee meetings
held during the year and after each one,
I reported to the Board on the key issues
that we covered. I held informal discussions
between Committee members and business
leaders throughout the year as the need
arose and have worked closely with these
leaders and our appointed agency to
support the development of the new CSR
Strategy.
Activities undertaken
During the year the Committee:
• ensured short and long-term objectives
for the Company’s CSR activities are in
place;
• ensured key metrics are reported on;
• ensured all related policies are regularly
reviewed and updated;
• carried out our annual review of the CSR
policy as part of our Strategy work;
• carried out our annual review of the
Committee’s Terms of Reference; and
• reviewed proposed changes in
forthcoming CSR-related regulations and
governance.
Helen Jones
Chair of the CSR Committee
We constantly look to
ensure that our Corporate
Responsibility Strategy is
aligned to our Company goals
and values.
Chair’s Letter
In the last year we have delivered on our
Corporate Social Responsibility (“CSR”)
initiatives.
We have four CSR pillars which we
focus on:
• Colleagues;
• Community:
• Environmental Management; and
• Responsible Trading.
We constantly look to ensure that our
Corporate Social Responsibility Strategy is
aligned to our Company goals and values.
With a new Company Strategy (launched
at the Capital Markets Day last year), we
have invested appropriate resource in
developing a new CSR Strategy, to be
launched in the second half of next year to
ensure this alignment continues.
Helen Jones
Chair of the CSR Committee
88
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 halfords.annualreport2019.com
89
Our Governance Audit Committee Report
2018/19 Key Achievements
• Considered and recommended to the
Board the appointment of the new
external Auditor in succession to KPMG
• Reviewed the year-end and half-year
Chief Financial Officer’s reports
• Reviewed the external Auditor’s year-
end and half-year reports
• Approved the non-audit fee policy
• Reviewed the statement of external
Auditor’s independence
• Reviewed the Internal Audit full-year
report
• Reviewed and approved the Internal
Audit Charter
• Reviewed the Internal Audit progress
reports including regular updates on
the Company’s risk management and
internal control systems
• Reviewed and recommended the
Preliminary and Interim results
announcements to the Board for
approval
• Reviewed the anti-bribery and
corruption risk assessment and
reviewed and approved the Anti-
Bribery and Corruption Policy
• Reviewed and approved the
Committee’s Terms of Reference
• Reviewed the update on a new
Accounting Standard
• Reviewed and approved the external
Auditor’s annual strategy and fees
• Reviewed and approved the
Whistleblowing Policy
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
external Auditor. There have been three such
meetings in the period ended 29 March 2019
and nothing of note was reported.
Audit Committee
meetings held
3
Committee Composition
During the year the Committee consisted of:
David Adams (Chair)
Helen Jones
Jill Caseberry (appointed 1 March 2019)
Claudia Arney (resigned 1 March 2019)
Three scheduled Committee meetings were
held during the year and were attended
by all relevant members at the time of the
meeting. In addition, a further unscheduled
meeting was held to discuss the audit tender
process. After each Committee meeting
the Audit Committee Chair, reported to the
Board on the key issues discussed.
Membership and Remit of the
Audit Committee
Membership
All the members of the Audit Committee are
independent Non-Executive Directors. David
Adams is considered by the Board to have
recent and relevant financial experience
to chair the Committee, having been
the Deputy Chief Executive and Finance
Director of House of Fraser Plc, and over
the last few years has chaired six listed
companies’ Audit Committees, including
one currently. 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.
David Adams
Chair of the Audit Committee
The Audit Committee has
continued its work of reviewing
the effectiveness of Halfords’
corporate governance
framework with emphasis
on the quality of financial
reporting, internal control and
risk management.
Chair’s Letter
I am pleased to present the report of the
Audit Committee for the financial year
ended 29 March 2019.
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 the external
Auditor, internal auditors and executive
management. The latter regularly present
management briefings to the Committee,
explaining in detail how selected key areas
of business risk are managed.
This report explains in detail how the
Committee undertook its duties.
David Adams
Chair of the Audit Committee
90
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 market behaviour) and therefore, there is
a risk that the business may not meet the
growth projections necessary to support
the carrying value of the intangible asset
(see Note 10 on page 143 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. It
was concluded that no impairment is
required. The Committee concluded that it
is satisfied with the accounting treatment
of impairment of goodwill.
Remit
The Audit Committee’s responsibilities
include:
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.
The Terms of Reference for the
Committees are available at
www.halfordscompany.com/
investors/governance
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 120 to 125. 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
• making recommendations to the Board on
the appointment of the external Auditor,
including on effectiveness, independence,
non-audit work undertaken (against a
formal policy) and remuneration;
• reviewing the accounting principles,
policies and practices adopted
throughout the period;
• reviewing and approving external financial
reporting for adoption by the Board;
• assisting the Board in achieving its
obligations under the UK Corporate
Governance Code in areas of risk
management and internal control,
focusing particularly on compliance with
legal requirements, accounting standards
and the Listing Rules;
• reviewing the 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,
including 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 and tax strategy,
supplier rebates and contributions, cyber
security and global sourcing;
• approving the Group’s Tax Policy and
published tax strategy; and
• approving the Group’s Treasury Policy,
including foreign currency and interest
rate exposure.
91
halfords.annualreport2019.comOur Governance Audit Committee Report
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 external 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 external Auditor is
involved in the proposal and how objectivity
and independence has, and is seen to be,
safeguarded.
In addition, the fees for any proposal for
non-audit services will not exceed 70% of
the three-year average statutory audit fees
when taken into consideration with total fees
for non-audit services already committed in
the financial year.
Consent is required from the Audit
Committee Chair on behalf of the Audit
Committee before the external 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 139 to the Financial Statements.
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 last year with
Michael Froom becoming Halfords’ audit
partner.
During FY19, the Committee decided to
hold a competitive audit tender process for
rotation of the audit firm in respect of FY20.
The tender process was overseen by the
Audit Committee and the management of the
process was delegated to the Chair of the
Committee and the Chief Financial Officer.
The Company announced, on 6 February
2019 that BDO LLP had been successful in
the audit tender process and will therefore
be appointed, subject to approval by
shareholders at the AGM in July 2019, as
its new external Auditor with effect from the
year commencing 30 March 2019. BDO LLP
have therefore been shadowing KPMG during
the FY19 year end audit process and have
attended Committee meetings prior to their
appointment. The Committee would like to
record its thanks to KPMG and its partners
and staff for its many years of service to the
shareholders of Halfords.
The Committee is satisfied that BDO LLP is
independent and is best placed to conduct
the Company’s audit for FY20 and therefore
recommends that BDO LLP be appointed as
the Company’s Auditor.
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 the Ethical
Standards for Auditors.
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 13
on page 146 of the Financial Statements).
Management have fully reviewed the
inventory provision in the current year
and believe the level of provisioning is
appropriate. 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
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 2019, 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.
92
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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 its colleagues,
suppliers and any associated parties acting
on its 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 50 to 58.
David Adams
Chair of the Audit Committee
21 May 2019
Role and Effectiveness of
Internal Audit
The Company has a dedicated in-house
Internal Audit team, with recourse to external
specialists where necessary. An annual
programme of audits that addresses the
effectiveness of the control environment is
based on an assessment of the risks to the
business. The Audit Committee reviews the
annual audit programme for coverage and
may revise according to changing business
circumstances and requirements. The Audit
Committee also ensures that there are
sufficient resources to undertake the audit
programme.
The 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.
Internal Audit reports to the Chief
Financial Officer but has a direct line of
communication to the Audit Committee
Chair. 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
(the “Policy”) 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 Policy 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.
93
halfords.annualreport2019.comOur Governance Remuneration Committee Report
Jill Caseberry
Chair of the Remuneration Committee
The Committee has
carefully considered recent
developments in corporate
governance, particularly the
publication of the new UK
Corporate Governance
Code and agreed changes
in a number of areas to
reflect best practice.
Chair’s Letter
Dear Shareholder
On behalf of the Remuneration Committee,
I am pleased to present the Remuneration
Report for the financial period ended
29 March 2019.
Claudia Arney stepped down from the
Board on 1 March 2019 having served nine
years on the board as an independent Non-
Executive Director. I replaced Claudia as
Chair of the Remuneration Committee from
this date and I would like to thank her for
both her contribution to the Remuneration
Committee over the years and her support
during the handover.
The Report consists of three sections:
• Annual Statement – A summary of the
key messages on pay for FY19, and our
approach for FY20;
• 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. A copy of our full
Policy is available on our website; and
• Annual Directors’ Remuneration Report
– This summarises the remuneration
outcomes for FY19 and explains how we
intend to apply the Remuneration Policy
in FY20.
Jill Caseberry
Chair of the Remuneration Committee
94
Key Areas for 2018/19
• Reviewing the new UK Corporate
Governance Code and other
developments in shareholder
guidance and considering the
Company’s response
• Determining remuneration packages
for joining and departing executive
directors
• Setting performance targets for
2019/20 bonus and PSP awards
which are appropriately stretching in
the context of the business’ evolving
strategy and business circumstances
vision for Halfords which focused on
investing in our offering to create an even
more specialist, unique and differentiated
shopping experience for customers, to fully
leverage the combined strength of the Retail
services and Autocentres businesses and
to harness the power of data to build lifelong
relationships with customers. Further details
of this strategy are set out on pages 24 to 25.
In light of the ongoing review and development
of our strategy, the PSP award for 2018 was
delayed until October to ensure that the
performance measures and targets fully
aligned with our ongoing strategy. At the
September Capital Markets Day, Graham set
out the Group’s ambition to deliver improved
Free Cash Flow through a combination of:
(i) improved operating cash flows as a result
of our customer strategy; (ii) a disciplined
approach to capital expenditure; and (iii)
improvements in working capital though
a focus on stock and creditors. Given this
strategic focus, it was announced at the Capital
Markets Day that the Committee determined
that it was important that Free Cash Flow
was included as a performance measure for
the 2018 PSP in respect of 25% of the award
to support management in achieving these
objectives. The performance targets for 2018
PSP awards are set out on page 102.
Remuneration for FY20
The CEO’s salary was reviewed and increased
by 2% to £545,700 with effect from 1 October
2018. This increase is in line with the increases
awarded across the wider workforce. Loraine
Woodhouse joined the Board on 1 November
2018 in the role of CFO. Her salary was set at
£350,000 per annum.
Remuneration
Commitee meetings
held
4
FY19 Business Context
Despite a challenging UK consumer
environment the group delivered like-for-like
sales growth of +1.1%. Underlying Profit
Before Tax of £58.8m was disappointing
down £12.8m, this was primarily driven by a
lower motoring mix year-on-year due to mild
winter temperatures, weakened consumer
confidence in the run up to Christmas, retail
cost inflation and investment in strategic
projects. Cash generation remains strong, and
despite unseasonal weather and Brexit related
challenges, the Group reduced stock holding
through effective inventory management.
Services-related sales represent 24% of the
overall Group sales, this is an improvement
year-on-year and supports our credentials as
a service-led retailer.
Remuneration Outcomes for FY19
Annual bonuses for FY19 were based 80%
on Group PBT performance and 20% on
Strategic KPIs. Any payment under the
strategic element of the bonus is subject to
the threshold PBT target being met. Group
PBT targets were not met and therefore no
bonuses were paid in respect of FY19.
The current Executive Directors were not in
the business when PSP awards were granted
in 2016. Other Senior Executives within the
business, however, received awards based
75% on EBITDA performance and 25% on
revenue growth performance. Performance
targets were not met and therefore no
portion of these award shall vest.
Remuneration Policy
Implementation
2018 PSP awards
In September 2018 the Chief Executive
Officer, Graham Stapleton, set out a new
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 appropriate. If a situation arises where the
Committee could exercise its discretion it will
only do so in compliance with the principles
set out in the Code.
Remuneration Review
During 2019/20, the Committee will be
undertaking a thorough review of our
Remuneration Policy in advance of submitting
a new Policy to shareholders at the AGM in
2020 in accordance with the DRR reporting
regulations. The focus of this review will
be on ensuring that our remuneration
arrangements remain appropriate in the
context of our evolving strategy and business
circumstances and the approach taken for
the wider workforce. As part of this review
we will also consider our approach to post-
employment shareholding guidelines.
Executive Director Changes
During the year, Jonny Mason left the Board
and Loraine Woodhouse joined in the role
of CFO. 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.
Loraine Woodhouse
Loraine Woodhouse joined the Board on
1 November 2018. Her remuneration
arrangements are in line with our
Remuneration Policy.
In April 2019, Loraine was made a payment
of £7,909 to reflect the pro-rated bonus she
forfeited on leaving her previous employer
Waitrose. This amount was of equivalent value
to the payment she would have received in her
previous role, taking into account performance
achieved. This amount was paid at a similar
time to the forfeited payment.
Leaving Arrangements for Jonny Mason
In March 2018, it was announced that Jonny
Mason had resigned from his role as CFO
and he left the business on 31 July 2018. As
set out in last year’s report, Jonny received
the cash element of his FY18 bonus. On
cessation of employment, Jonny forfeited
the deferred element of his FY18 annual
bonus, together with all other unvested
Deferred Bonus Plan, Performance Share
Plan, and Sharesave awards.
Concluding Remarks
I hope that you find the Report clear,
transparent and informative. The Committee
has sought to promote a remuneration
environment that strongly aligns the
commercial direction of the Group with the
interests of shareholders, whilst reflecting
best practice developments and market
trends. I look forward to your support at the
Company’s Annual General Meeting.
Jill Caseberry
Chair of the Remuneration Committee
21 May 2019
The maximum annual bonus opportunity
remains at 150% of base salary. Annual
bonuses continue to be based 80% on Group
PBT performance and 20% on strategic
objectives. For 2019/20 the strategic
measures for the annual bonus will be based
on NPS, employee engagement, Group
services-related revenue and Operating Cash
Flow. Given the broadening of the strategic
focus set out at the Capital Markets Day and
the strategic importance of delivering strong
cash flow the Committee considered that
these metrics are appropriate.
The maximum PSP awards will continue
to be 200% of base salary. Performance
measures will be the same as for 2018
awards – 50% based on EPS growth, 25%
based on revenue growth and 25% based
on free cash flow. Performance targets
have been set to be challenging but realistic
taking into account expected performance
over the next three years. Targets are set out
on page 107.
The Committee carefully considered whether
it would be appropriate to reduce the level
of PSP awards for FY20 in light of the share
price which has fallen by around 25% since
the FY19 awards were granted. However,
given the increase in the stretch of the
targets for FY20 awards and the fact that
management are relatively new in role, the
Committee considered that it was appropriate
to maintain the current award level to ensure
that management are fully incentivised to
drive performance and deliver value for
shareholders over the next three years.
Changes to Reflect the Code
During the year the Committee has been
carefully considering recent developments
in corporate governance, particularly
the publication of the new UK Corporate
Governance Code.
In response to the new Code, the Committee
has determined that for any new Executive
Directors appointed to the Board from
1 April 2019, the pension opportunity will be
reduced from 15% of salary to 3% of base
salary, in line with the policy for the majority
of the workforce.
Taking into account shareholder guidance
we have expanded our malus and clawback
provisions to reflect a broader range of
circumstances including a material failure
of risk management, corporate failure and
serious reputational damage. We have also
taken steps to ensure that the Committee
has the ability to exercise discretion if
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Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019
Directors’ Remuneration Policy
Summary Report
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.
Implementation in FY19
Graham Stapleton – £545,700,
increased by 2% in line with the
increases awarded across the
wider workforce with effect from
1 October 2018.
Loraine Woodhouse – £350,000
(appointed 1 November 2019)
Implementation in FY20
No change.
Salaries will next be reviewed with
effect from 1 October 2019 and it is
expected that any increase will be in
line with the increase received for the
wider workforce.
Executive Directors received benefits
including life assurance, private health
insurance and a company car or
equivalent allowance, to the following
total values:
Graham Stapleton – £20,869 p.a.
Loraine Woodhouse – £4,667 p.a.
All Executive Directors received
cash allowances of 15% of salary.
Based on performance against
Group PBT targets (80%) and key
strategic objectives (20%) (NPS,
employee engagement, service-
related sales growth and digital
sales). Any payment under the
strategic element of the bonus is
subject to the threshold PBT target
being met.
Group PBT targets were not met
and therefore, despite strong
progress against some of the
strategic objectives, no bonuses
were paid.
No changes proposed.
Executive Directors will receive cash
allowances of 15% of salary.
For any new Executive Directors
appointed to the Board from 1 April
2019 the pension opportunity will be
limited to 3% of base salary in line
with the policy for the majority of the
workforce.
Executive Directors will have a
maximum opportunity of 150% of
base salary.
80% will be based on Group PBT,
20% on key strategic objectives.
For 2019/20 the strategic measures
for the annual bonus will be based
on NPS, employee engagement,
Group services-related revenue
and Operating Cash Flow. Given
the broadening of the strategic
focus set out at the Capital Markets
Day and the strategic importance
of delivering strong cash flow, the
Committee considered that these
metrics are appropriate.
Targets have not been disclosed
at the current time as they are
considered to be commercially
sensitive. The Committee intends
to disclose targets in next year’s
Directors’ Remuneration Report.
One-third of any bonus earned will be
deferred into shares for three years.
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halfords.annualreport2019.comOur Governance Directors’ Remuneration Policy
Summary Report
Elements
Performance
Share Plan
Objective
Align interests with
those of shareholders
by incentivising
individuals to deliver
the strategy, create a
sustainable business
and maximise
shareholder returns.
Key features
Maximum opportunity
of 200% of salary.
Three-year
performance period.
Two-year holding
period after vesting.
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 FY19
No Executive Director had
outstanding 2016 PSP awards so
there were no vesting events in
respect of FY19.
Graham Stapleton was granted 2018
PSP awards over 200% of salary.
Shortly following her appointment in
November 2018, Loraine Woodhouse
was granted a 2018 PSP award over
200% of salary.
Vesting dependent on performance
against underlying EPS growth (50%)
and revenue growth (25%) targets,
and Free Cash Flow (25%) with a
net debt to EBITDA ratio underpin.
Targets are disclosed on page 102.
Shares vesting are subject to a two-
year holding period.
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 FY20
Executive Directors will have a
maximum opportunity of 200% of
salary for FY20.
No changes to performance
measures.
The Committee carefully considered
whether it would be appropriate to
reduce the level of PSP awards for
FY20 in light of the share price which
has fallen by around 25% since the
FY19 awards were granted. However,
given the increase in the stretch of
the targets for FY20 awards and the
fact that management are relatively
new in the role, the Committee
considered that it was appropriate
to maintain the current award level
to ensure that management are fully
incentivised to drive performance
and deliver value for shareholders
over the next three years.
No change.
We will consider our approach to
post-employment shareholding
guidelines as part of the wider
review of Remuneration Policy being
undertaken during 2019/20.
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Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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
Independent Auditor’s Report on pages 112 to
119, as specified by the UK Listing Authority
and the Regulations.
Committee Composition
During the year the Committee consisted of:
Jill Caseberry (Chair – appointed 1 March 2019)
Keith Williams (appointed 24 July 2018)
David Adams
Helen Jones
Dennis Millard (resigned 24 July 2018)
Claudia Arney (Chair – resigned 1 March 2019)
Four scheduled Committee meetings
were held during the year, and were
attended by all relevant members at the
time of the meeting. In addition a further
four unscheduled meetings were held to
approve; the executive bonus targets for
FY19 following the announcement of the
new strategy; the exit arrangements of
the Chief Financial Officer Jonny Mason;
the remuneration arrangements for the
appointment of Loraine Woodhouse as
Chief Financial Officer; and discussed and
approved remuneration arrangements
for the Executive Management Team
below the Board. After each Committee
meeting the Remuneration Committee
Chair, reported to the Board on the key
issues that we had discussed. A number of
informal discussions were also held with the
Committee members throughout the year
when the need arose.
Activities during the Year
During the year, the Committee has:
• discussed and approved the performance
conditions for the FY18 PSP awards in
light of the new Strategy, and approved
the introduction of the third performance
condition “Free Cash Flow” to the FY18
PSP award;
• approved FY18 grants under the PSP, the
RSP (to senior managers below the Board)
and the Sharesave Scheme;
• discussed and approved the departing
Chief Financial Officer’s remuneration
arrangements on leaving;
• discussed and recommended, to the
Halfords Group plc Board, the terms of the
remuneration package for the new Chief
Financial Officer;
• discussed and approved remuneration
arrangements for the Executive
Management Team below the Board;
• reviewed the financial and strategic FY19
bonus metrics and targets;
• considered and approved the amendment
of the NPS target for FY19 to reflect the
different methodology adopted by the
NPS provider;
• reviewed and approved the amended
share plan rules across all share plans to
ensure compliance with the General Data
Protection Regulations (“GDPR”);
• reviewed the mechanics and assets of
the Employee Benefit Trust and hedging
arrangements;
• considered and reviewed the executive pay
review with effect from 1 October 2018;
• considered the approach to implementing
remuneration policy for FY20;
• reviewed remuneration arrangements for
the wider workforce and took these into
account when considering executive pay;
• reviewed the changes to the UK
Corporate Governance Code and other
developments in shareholder guidance
and considered the Company’s response
to these changes;
• reviewed the Committee’s Terms
of Reference in light of the new UK
Corporate Governance Code; and
• reviewed and approved the Directors’
• reviewed and approved the appointment
Advisors and Other Attendees
During the year, the Committee has been
supported by Clare Moore, Group People
Director and her predecessor Jonathan
Crookall, together with Tim O’Gorman,
Company Secretary (who acts as secretary
to the Committee). 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, share option
evaluations and other remuneration matters.
Deloitte also provided unrelated advice
on tax, accounting standards and internal
reorganisation during the year. Total fees
paid to Deloitte in respect of remuneration
advice were £9,750, 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
team does 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 £4,030.
Willis Towers Watson also provide insurance
broking services and employee benefits
services to the Group.
of remuneration advisors.
Remuneration Report in the FY18 Annual
Report and Accounts;
• discussed and approved executive FY18
bonus payments;
• discussed and reviewed attainment
against the performance conditions for
the Performance Share Plan (“PSP”),
the Restricted Share Plan (“RSP”) and
Company Share Option Scheme (“CSOS”)
due to vest during the period;
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halfords.annualreport2019.comOur Governance Annual Remuneration Report
Shareholder Dialogue
The voting outcome from the 2017 Annual General Meeting reflected very strong individual and institutional shareholder support for our
Directors’ Remuneration Policy (the “Policy”). We consulted extensively with shareholders prior to introducing the new Policy. Furthermore
the voting outcome from the 2018 AGM showed strong support for our FY18 Directors’ Remuneration Report.
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. During 2019/20 the Committee will be undertaking a thorough review of our Remuneration Policy in advance
of submitting a new Policy to shareholders at the AGM in 2020 in accordance with the DRR reporting regulations. The focus of this review will be
on ensuring that our remuneration arrangements remain appropriate in the context of our evolving strategy and business circumstances and the
approach taken for the wider workforce. We intend to consult with our largest shareholders regarding this review in due course.
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 to 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 Directors’ Remuneration Policy, and the votes cast at the 2018
AGM in respect of the previous year’s Directors’ Remuneration Report.
FY18 Directors’ Remuneration Report (2018 AGM)*
FY17 Directors’ Remuneration Policy (2017 AGM)†
* 1.89m votes (1.13% of votes) were withheld in relation to this resolution.
† 457,000 votes (0.27% of votes) were withheld in relation to this resolution.
% of votes
For
97.53%
99.04%
% of votes
Against
2.47%
0.96%
How the Remuneration Policy was Implemented in FY19 – Executive Directors
Single remuneration figure (audited)
2018/19
Graham Stapleton
Loraine Woodhouse
Jonny Mason3
2017/18
Graham Stapleton4
Jonny Mason6
Jill McDonald9
Base Salary
(£)
540,329
145,833
121,367
Bonus
(£)
–
–
–
115,917
399,752
247,095
115,8025
176,9717
–
Benefits
(£)
20,869
4,667
5,763
15,908
18,348
10,026
Pension
(£)
80,919
21,875
18,205
17,387
59,479
38,250
PSP1
(£)
–
–
–
Other
(£)
—
7,9092
—
Total
“Single
Figure” (£)
642,117
180,284
145,335
–
–8
–
1,553,3374
–
–
1,818,351
654,550
295,371
1. Neither Graham Stapleton nor Loraine Woodhouse held Performance Share Plan awards which vested in the year. The table below shows the history of PSP
award vesting over the last five years. PSP awards granted to other senior management in 2016 did not vest as the performance conditions were not met.
2. A payment of £7,909 was made to Loraine in April 2019 to replace her pro-rated bonus from her previous employer Waitrose, equivalent to the amount she
would have received based on performance.
3. Jonny Mason announced his resignation as Chief Financial Officer on 27 March 2018 and left the business on 31 July 2018.
4. Upon joining on 15 January 2018, Graham was entitled to buy-out awards to compensate him for remuneration forfeited when leaving his previous employer,
Dixons Carphone plc. These awards were structured on a like-for-like basis with awards forfeited. Awards were structured as follows: (1) In compensation for
the 2018 annual bonus he forfeited on leaving Dixons Carphone plc Graham received a cash payment of £269,026 in July 2018. (2) In compensation for share
incentive awards forfeited on leaving Dixons Carphone plc, he received an award of 185,872 shares. For the purpose of the single figure these have been
valued based on the average mid-market closing share prices on each of the last five trading days prior to the date of the announcement of his appointment
of £3.1672, giving a value of £588,694. These shares will vest in January 2021, subject to him not having resigned before that date. This matches the release
profile of the forfeited award. (3) Graham also received an award of £695,617 in July 2018 (the first £100,000 of which was satisfied by the issue and allotment
of shares and the balance as cash). This award was to compensate him for the loss of a cash entitlement under the 2013 Carphone Warehouse scheme. This
payment is subject to clawback provisions, should he resign before July 2021.
5. Graham Stapleton’s bonus for FY18 was prorated from the date of joining on 15 January 2018 to 30 March 2018. One third of this bonus was deferred into
shares under the Deferred Bonus Plan. These shares will vest in May 2021. The cash portion was paid on 31 May 2018.
6. Jonny Mason was interim Chief Executive Officer from September 2017 until Graham Stapleton joined in January 2018. Jonny’s salary increased from
£364,140 to £500,000 p.a. to which bonus and pension were applied for that period.
7. Jonny Mason announced his resignation as Chief Financial Officer on 27 March 2018, and was therefore only eligible to receive the cash element (two thirds)
of his FY18 annual bonus for the year ended 30 March 2018.
8. Jonny Mason was granted a PSP award in 2015. The performance conditions attached to this award were not met and therefore this award lapsed.
9. Jill McDonald left the business in September 2017. She was not entitled to receive a bonus for FY18.
PSP Vestings (% of maximum)
FY15
15%
FY16
102.5%
FY17
0%
FY18
0%
FY19
0%
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Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 FY19 Annual Bonus
The annual bonuses for FY19 for the Executive Directors were based as follows:
Chief Executive Officer
Chief Financial Officer
Graham Stapleton
Loraine Woodhouse
80% PBT and 20% delivery of key strategic initiatives
80% PBT and 20% delivery of key strategic initiatives
The PBT targets and performance against these is set out below:
PBT performance
Threshold
(15%
payable)
£69m
Target (50%
payable)
£73m
Maximum
(100%
payable)
£80m
PBT
performance
for FY19
£58.8m
% of
maximum
bonus
achieved
0%
The tables below set out the key strategic initiatives which made up the remainder of the annual bonuses for the Chief Executive Officer and
the Chief Financial Officer, along with performance and resulting outturn 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 2019
Growth in total service-related sales
including product (Retail)
Total digital sales orders through website
or app.
1. The NPS score for Retail was 62.9% and the NPS score for Autocentres was 65.5%.
FY19
outturn
–1
79%
106.1m
Threshold
70%
Maximum
73%
% achieved
(out of 5%)
0%
81%
115.7m
83%
120m
0%
0%
229.1m
228.9m
243.7m
16.1%
Group PBT targets were not met. Any payment under the strategic element of the bonus is subject to the threshold PBT target being met.
Given that threshold PBT target was not met Executive Directors will not receive a bonus in respect of FY19.
Chief Executive Officer for FY18
For FY18, 50% of the CEO’s bonus was based on personal performance objectives. Following the publication of our FY18 Annual Report we
published additional information regarding performance against these objectives on our website. This information is also replicated here for
transparency.
Disclosure of the PBT target range under the FY18 Annual Bonus
2017/18 PBT
Threshold
£66.1m
Target
£73.5m
Maximum
£80.8m
PBT
Outcome
£71.6m
Outcome
as a %
maximum
40.1%
Disclosure of FY18 Annual Bonus Non-Financial targets for Chief Executive Officer (“CEO”)
50% of the CEO bonus was based on performance against non-financial objectives. The Committee determined this element of the bonus
at the year-end based on a consideration of the CEO’s progress against tangible objectives set for him at the time of his appointment. Some
of the achievements which were taken into account during this assessment and given the CEO’s limited time in role are considered broadly
reasonable and are as follows:
• Develop and formalise a new strategic review process;
• Finalise the new financial budget to be in place by year-end; and
• Review and put forward to the Board proposals for strengthening the Executive Team.
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halfords.annualreport2019.comOur Governance Annual Remuneration Report
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.
Buy-out Arrangements for Loraine Woodhouse
In April 2019, Loraine was made a payment of £7,909 to reflect the pro-rated bonus she forfeited on leaving her previous employer, Waitrose.
This amount was of equivalent value to the payment she would have received in her previous role taking into account performance achieved.
This amount was paid at a similar time to the forfeited payment.
Leaving Arrangements for Jonny Mason
Jonny Mason resigned from his role as Chief Financial Officer (“CFO”) to take up a position of Group Finance Director at Dixons Carphone
plc. Jonny left the business on 31 July 2018. Jonny received the cash portion of his bonus for FY18 as he remained in employment on the
payment date. All annual bonus deferred share awards and awards under the PSP were forfeited upon him leaving. Jonny’s awards under the
SAYE scheme also lapsed. He did not receive any payment in relation to loss of office.
Share Awards Granted During the Year (Audited)
Performance Share Plan
During the period the following awards were granted to the Executive Directors under the Performance Share Plan (“PSP”) as follows:
Graham
Stapleton
Loraine
Woodhouse3
Date
of award
5 October 2018
9 November 2018
Type
of award
Nil cost option
(0p exercise price)
Nil cost option
(0p exercise price)
Maximum
face
value of
award2
£1,069,998
Number
of shares1
334,688
Threshold
vesting (% of
target award)
Performance
period
25% 31 March 2018 to 2 April 2021
227,346
£699,998
25% 31 March 2018 to 2 April 2021
1. These awards were based on 200% of salary.
2. Based on the average mid-market price on three preceding days of the awards of £3.197 on 5 October 2018 for Graham Stapleton’s award and £3.079 on
9 November 2018 for Loraine Woodhouse’s award.
3. Loraine Woodhouse was appointed on 1 November 2018 and became eligible to receive a PSP award following her appointment, as set out in the
announcement made by the Company on 13 July 2018.
Performance Conditions
In light of the ongoing review and development of our strategy, the PSP award for 2018 was delayed until October to ensure that the
performance measures and targets fully aligned with our ongoing strategy. At the September Capital Markets Day, Graham set out the Group’s
ambition to deliver improved free cash flow through a combination of: (i) improved operating cash flows as a result of our customer strategy;
(ii) a disciplined approach to capital expenditure; and (iii) improvements in working capital through a focus on stock and creditors. Given this
strategic focus, it was announced at the Capital Markets Day that the Committee determined that it was important that Free Cash Flow was
included as a performance measure for the 2018 PSP in respect of 25% of the award to support management in achieving these objectives.
The performance conditions and targets for PSP awards granted during FY19 are as follows:
Award
(200% of salary)
100% vesting
Straight-line vesting
25% vesting
0% vesting
Group Revenue Growth –
CAGR (25% of the award)
8.0%
Between 3.5% and 8.0%
3.5%
Below 3.5%
Underlying EPS Growth –
CAGR
(50% of the award)
6.0%
Free Cash Flow (aggregate
FY19 to FY21) (25% of the
award)
£165m
Between 1.5% and 6.0% Between £125m and £165m
£125m
Below £125m
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 2021. The shares that vest will be subject to a two-year holding period.
102
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Graham
Stapleton
Award date
24 January
20181
5 October
2018
Loraine
9 November
Woodhouse4
2018
Jonny Mason5 12 November
2015
11 August
2016
Deferred Bonus Plan
Awards granted during the year:
Graham Stapleton
Mid-market
price on date
of award
£3.376
Awarded
during the
period
11,433
Max value
of award
£38,598
Award date
31 May 2018
Vesting
30 May 2021–31 May 2022
On 31 May 2018, one-third of Graham Stapleton’s FY18 bonus was deferred into shares for a period of three years. These were awarded in
the form of nil cost options. Vesting is subject to continued employment only.
Outstanding Share Awards (Audited)
Performance Share Plan (“PSP”)
The following summarises outstanding awards under the PSP:
Grant
price2
(£)
Awards
held 30
March
2018
3.5173 304,207
Awarded
during
the
period
–
Dividend
reinvest-
ment3
19,408
Forfeited
during
the
period
–
Lapsed
during
the
period
–
3.1970
– 334,688
8,589
3.079
– 227,346
5,834
–
–
–
–
Exercised
during
the
period
Awards
held 29
March
2019
Perform-
ance
Holding
period
period to
years to
– 323,615 3 April 2020 50% to 3 April
– 343,277 2 April 2021
2021, 50% to
3 April 2022
2 April 2023
– 233,180 2 April 2021
2 April 2023
4.2987 140,586
3.565 167,010
–
–
–
–
– 140,5866
– 167,0107
– 234,4227
–
–
–
–
–
–
–
–
–
–
–
13 September
3.0977 234,422
2017
1. FY18 awards are subject 25% to Group Revenue Growth targets (25% vesting for 3.5% p.a. growth, 100% vesting for 7% p.a. growth) and 75% subject to
underlying EPS growth (25% vesting for 1.5% p.a. growth, 100% vesting for 6% p.a. growth). In addition, any vesting of the PSP will be subject to an underpin
whereby the net debt to EBITDA ratio remains below 1.5 times on average for the three years of the plan.
2. The grant price is calculated by taking the mid-market average across the three preceding days prior to the grant date.
3.
Interim and final dividends have been reinvested in shares at prices between £2.408082 and £3.23525.
4. Loraine Woodhouse was appointed on 1 November 2018.
5. Jonny Mason left the business on 31 July 2018, to take up a role as Group Finance Director at Dixons Carphone plc.
6. The 2015 PSP Award did not meet its performance conditions and the award lapsed on 16 May 2018.
7. Jonny Mason’s PSP awards granted in 2016 and 2017 were forfeited upon him leaving on 31 July 2018.
Deferred Bonus Plan (“DPB”)
Award date
Graham
Stapleton 31 May 2018
Jonny
Mason3
30 June 2017
Awards
held
30 March
2018
Awarded
during
the
period
Grant
price1
(£)
Dividend
reinvest-
ment2
Forfeited
during
the
period
Lapsed
during
the
period
Exercised
during
the
period
Awards
held
29 March
2019
3.3760
–
11,433
729
–
3.420
18,032
–
–
18,032
–
–
–
–
Vesting
31 May 2021–
31 May 2022
12,162
–
–
1. The grant price is calculated by using the mid-market quotation on the date of grant.
2.
Interim and final dividends have been reinvested in shares at prices between £2.408082 and £3.23525.
3. Jonny Mason left the business on 31 July 2018, to take up a role as Group Finance Director at Dixons Carphone plc, and his DBP award was forfeited on this date.
103
halfords.annualreport2019.comOur Governance Annual Remuneration Report
Save As You Earn (“SAYE”)
Grant
price1
(£)
Awards
held
30 March
2018
Awarded
during the
period
Forfeited
during the
period
Lapsed
during the
period
Exercised
during the
period
Awards
held
29 March
2019
Exercisable
date
Award date
Jonny
Mason2
30 December 2015
2.979
6,042
–
6,042
–
–
–
–
1. The grant price is calculated by using the mid-market average across the three preceding days prior to the grant date.
2. Jonny Mason left the business on 31 July 2018, to take up a role as Group Finance Director at Dixons Carphone plc, and his SAYE award was forfeited on this date.
CEO Pay Compared to Performance
The following graph shows the TSR performance of the
Company since April 2009, against the FTSE All-Share
General Retailers Index (which was chosen because it
represents a broad equity market index of which the
Company is a constituent).
The following table summarises the CEO single figure
for the past ten 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.
350
250
250
200
150
100
50
0
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Halfords Group
FTSE All-Share General Retailers
Source: Thompson Research
CEO Single Figure
(£000)
Annual Bonus
(% of maximum)
PSP Vesting
(% of maximum)
Graham Stapleton1
Jonny Mason2
Jill McDonald3
Matt Davies4
David Wild5
Graham Stapleton1
Jonny Mason2
Jill McDonald3
Matt Davies4
David Wild5
Graham Stapleton1
Jonny Mason2
Jill McDonald3
Matt Davies4
David Wild5
FY10
–
–
–
–
1,134
–
–
–
–
80%
–
–
–
–
–
FY11
–
–
–
–
531
–
–
–
–
–
–
–
–
–
–
FY12
–
–
–
–
617
–
–
–
–
0%
–
–
–
–
99%
FY13
–
–
–
499
198
–
–
–
FY14
–
–
–
1,372
–
–
–
–
50% 97.5%
–
–
–
–
–
–
–
–
–
–
–
–
FY15
–
–
–
645
–
–
–
–
–
–
–
–
–
–
–
FY16
–
–
851
54
–
–
–
23.5%
–
–
–
–
–
–
–
FY17
–
–
741
–
–
–
–
–
–
–
–
–
–
–
–
FY18
1,818
236
295
–
–
70%
42.3%
–
–
–
–
–
–
–
–
FY19
642
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
104
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Shareholding Guidelines
The Committee believes that it is important that Executive Directors’ interests are aligned with those of the 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 2019
Current value (based on share price on 29 March 2019)
Current % of salary
Graham
Stapleton
200%
28,748
£66,695
12.2%
Loraine
Woodhouse
200%
22,395
£51,956
14.8%
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 29 March 2019 and 21 May 2019.
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, none of the Halfords’ Executive Directors held any non-executive roles.
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 FY19 – Non-Executive Directors
Non-Executive Director single figure comparison (audited)
Director
Keith Williams1
David Adams
Jill Caseberry3
Helen Jones4
Dennis Millard5
Claudia Arney6
Role
Chairman
Senior Independent Director and
Audit Committee Chair
Remuneration Committee Chair
CSR Committee Chair
Chairman
Remuneration Committee Chair
Board fees
(£)
192,400
52,000
52,000
52,000
192,400
52,000
Senior
Independent
Director fee
(£)
–
10,000
Committee
Chair fees
(£)
–
10,000
Total “Single
Figure” 2019
(£)
132,404
72,0002
Total “Single
Figure” 2018
(£)
–
70,000
–
–
–
–
10,000
5,000
–
10,000
5,0862
57,0002
64,7582
56,9142
–
55,000
185,000
60,000
1. Keith Williams was appointed on 24 July 2018. His fee for the role of Chairman is £192,400.
2. Due to a payroll error, a portion of fees which related to FY19 were actually paid in FY20. This amount is: £2,000 for David Adams; £164 for Jill Caseberry;
£2,000 for Helen Jones; £2,427 for Dennis Millard and £1,836 for Claudia Arney.
3. Jill Caseberry was appointed on 1 March 2019.
4. To ensure compliance with the 2018 Corporate Governance Code, in March 2019 the Company appointed Helen Jones as the Workplace Voice
Representative and the fee for this additional role was set at £5,000.
5. Dennis stepped down as Chairman on 24 July 2018.
6. Claudia Arney stepped down as a Non-Executive Director on 1 March 2019.
105
halfords.annualreport2019.comOur Governance Annual Remuneration Report
Non-Executive Director Shareholding
Director
Keith Williams
David Adams
Jill Caseberry
Helen Jones
Dennis Millard (stepped down 24 July 2018)1
Claudia Arney (stepped down 1 March 2019)1
2019
80,000
8,157
–
3,000
70,000
21,052
2018
n/a
7,675
n/a
3,000
70,000
21,052
1. The number of shares is based on their date of departure from the Board as noted.
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 19 March 2019 and 21 May 2019.
Non-Executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.
How the Remuneration Policy will be Implemented for FY20 – Executive Directors
Salary
The CEO’s salary was reviewed and increased by 2% with effect from 1 October 2018. This increase was in line with the wider workforce.
The CFO’s salary was set on her appointment on 1 November 2018. 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 2019.
Annual Bonus
The annual bonus opportunity for 2019/20 will be as follows:
Chief Executive Officer and Chief Financial Officer
£545,700
£350,000
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. 50% of maximum
bonus can be achieved for on-target performance. The Committee reviews the goals included in the strategic objectives portion of the
bonus to ensure that they remain appropriate. For 2019/20 the strategic measures for the annual bonus will be based on NPS, employee
engagement, Group services-related revenue and operational cash flow. Given broadening of the strategic focus set out at the Capital
Markets Day and the importance of the focus on cash flow, the Committee considered that these metrics are appropriate. Targets have not
been disclosed at the current time as they are considered to be commercially sensitive. The Committee intends to disclose targets in next
year’s Directors’ Remuneration Report.
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.
106
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Performance Share Plan (“PSP”)
Executive Directors will be granted a PSP of 200% of base salary in respect of FY20. Awards are subject 50% to Underlying EPS
growth, 25% to Group Revenue Growth and 25% aggregate Free Cash Flow. The Committee has set targets which are considered to be
appropriately stretching in the context of the business’ evolving strategy and business circumstances. The vesting of FY20 PSP awards are
subject to the following targets:
Award (200% of
salary)
100% vesting
Straight-line vesting
25% vesting
0% vesting
Group Revenue Growth
CAGR (25% of the award)
6%
Between 3.5% and 6%
3.5%
Below 3.5%
Underlying EPS Growth
CAGR (50% of the award)
10%
Free Cash Flow
(aggregate FY20 to FY22)
(25% of the award)
£165m
Between 5% and 10% Between £125m and £165m
£125m
Below £125m
5%
Below 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.
The Committee carefully considered whether it would be appropriate to reduce the level of PSP awards for FY20 in light of the share price which
has fallen by around 25% since the FY19 awards were granted. However, given the increase in the stretch of the targets for FY20 awards and
the fact that management are relatively new in role, the Committee considered that it was appropriate to maintain the current award level to
ensure that management are fully incentivised to drive performance and deliver value for shareholders over the next three years.
How the Remuneration Policy will be Implemented for FY20 – 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.
To ensure compliance with the 2018 Corporate Governance Code, in March 2019 the Company appointed Helen Jones as the Workplace
Voice Representative and the fee for this additional role has been set at £5,000.
The fees of the Non-Executive Directors were reviewed in March 2018 and increased by 4% with effect from 1 April 2018. The next fee
review is due in March 2020.
Current fees for Non-Executive Directors are as follows:
Chairman
Base fee
Additional fees
Senior Independent Director
Committee Chair (Audit and Remuneration)
Employee Voice Representative
Committee Chair (CSR)
FY20
£192,400
£52,000
FY19
£192,400
£52,000
£10,000
£10,000
£5,000
£5,000
£10,000
£10,000
–
£5,000
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halfords.annualreport2019.comOur Governance Annual Remuneration Report
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
FY18 to FY19
2%
3.83%1
% change in bonus paid
FY18 to FY19
– 3
73%2
% change in benefits
FY18 to FY19
No change
No change
1. The budget across the business was 3% with additional increases for the National Living Wage.
2. Based on all colleagues who were paid a bonus during FY18 and FY19, in relation to FY17 and FY18 respectively.
3. The CEO did not receive a bonus in FY18 (in respect of FY17) as this was prior to his appointment. He received a bonus of 70% of maximum in FY19 (in
respect of FY18).
In line with the regulations we will be disclosing the CEO pay ratio in the FY20 Annual Report.
Gender Pay Gap Report
Details of the Group’s Gender Pay Gap Report for 5 April 2018 are available at www.halfordscompany.com/corporate-responsibility/
colleagues/gender-pay-gap/.
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)
Payments to employees:
Wages and salaries
Executive Directors1
Dividend paid to Shareholders and share buybacks
1. Based on the single figure calculation, not all of which is included within wages and salary costs.
2019
£98.2m
£58.8m
£217.8m
£1.0m
£35.9m
2018
£109.5m
£71.6m
£210.5m
£2.8m
£34.8m
108
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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.
Keith Williams
Chairman
21 May 2019
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.
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.
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.
109
halfords.annualreport2019.comOur Governance Enable a lifetime
of motoring and
cycling
Read more on our Strategy on pages 24 to 27
Financial Statements
Financial Statements 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 52 weeks ended 29 March 2019 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 120 to 164.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 29 March 2019 and
of the Group’s profit for the 52 weeks then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
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 10 financial
years ended 29 March 2019. 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
Event driven
Parent company
£2.7m (2018: £3.2m)
4.7% (2018: 4.7%) of normalised profit
before tax
100% (2018: 100%) of group profit before tax
Carrying amount of
Autocentres Goodwill
Provision for Retail
division inventory
New: Brexit (The impact of uncertainties
due to the UK exiting the European
Union on our audit)
New: Going concern
Recoverability of parent
company’s debtor balance
vs 2018
112
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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.
The impact of uncertainties due to
the UK exiting the European Union
on our audit
Refer to page 52 (Our Principal Risks
and Uncertainties), page 10 (Chief
Executive’s Statement) and page 48
(Chief Financial Officer’s Report).
The risk
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates, in particular as
described in the key audit matters relating to
the carrying value of Autocentres car servicing
goodwill, provision for retail division inventory,
and related disclosures and the appropriateness
of the going concern basis of preparation of the
financial statements (see below). All of these
depend on assessments of the future economic
environment and the group’s future prospects
and performance.
In addition, we are required to consider the other
information presented in the Annual Report
including the principal risks disclosure and the
viability statement and to consider the directors’
statement 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. Brexit is one of the most
significant economic events for the UK and at
the date of this report its effects are subject to
unprecedented levels of uncertainty
of outcomes, with the full range of possible
effects unknown.
Our response
Our procedures included:
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising from Brexit in planning and
performing our audits. Our procedures included:
Our Brexit knowledge: We considered the
directors’ assessment of Brexit-related sources
of risk for the group’s business and financial
resources compared with our own understanding
of the risks. We considered the directors’ plans
to take action to mitigate the risks;
Sensitivity analysis: When addressing carrying
value of Autocentres car servicing goodwill,
carrying value of retail division inventory,
going concern and other areas that depend
on forecasts, we compared the directors’
analysis to our assessment of the full range of
reasonably possible scenarios resulting from
Brexit uncertainty and, where forecast cash
flows are required to be discounted, considered
adjustments to discount rates for the level of
remaining uncertainty; and
Assessing transparency: As well as assessing
individual disclosures as part of our procedures
on the carrying value of Autocentres car
servicing goodwill and the provision for retail
division inventory and going concern, we
considered all of the Brexit related disclosures
together, including those in the Strategic report,
comparing the overall picture against our
understanding of the risks.
Our result
As reported under the carrying value of
Autocentres car servicing goodwill, the provision
for retail division inventory, and going concern,
we found the resulting estimates and related
disclosures and disclosures in relation to going
concern to be acceptable. However, no audit
should be expected to predict unknowable
factors or all possible future implications for
a company and this is particularly the case in
relation to Brexit.
113
halfords.annualreport2019.comFinancial Statements Independent Auditor’s Report to the
Members of Halfords Group plc only
2. Key audit matters: our assessment of risks of material misstatement (continued)
Carrying amount of Autocentres Car
Servicing Goodwill
(£69.7 million; FY18: £69.7 million)
Refer to page 91 (Audit Committee
Report), page 126 (accounting policy)
and page 143 (financial disclosures).
The risk
Forecast-based estimate
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, changes to government regulation or
changes to the frequency with which customers
replace their car 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.
Provision for Retail division
inventory
(£19.6 million; FY18: £20.4 million)
Refer to page 92 (Audit Committee
Report), page 130 (accounting policy)
and page 146 (financial disclosures).
Subjective estimate:
Inventories are carried at the lower of cost and
net realisable value. The estimated net realisable
value of inventory and associated provisions
are subjective due to the inherent uncertainty in
predicting consumer demand.
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.
Our response
Our procedures included:
Benchmarking assumptions: Comparing the
Group’s assumptions, in particular those relating
to forecasts, long term growth rates and discount
rates, to externally derived data and budgeted
growth rate to industry forecasts. Assessing the
historical forecasting accuracy
of the business’s cash flows;
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 to identify areas to focus our procedures on;
Comparing valuations: Comparing the sum of the
discounted cash flows for all the Group’s CGUs 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 (2018: acceptable)
Our procedures included:
Assessing methodology: Assessing the
adequacy of the Group’s inventory provision
methodology based on our knowledge of the
industry and factors specific to the Group.
Assessing assumptions: Assessing and
challenging the Directors’ assumptions behind
the changes to the provision calculation against
our own knowledge of the industry and factors
specific to the Group;
The Group further overlays specific provisions
to account for other matters not captured in the
model, such as known stock losses and faulty
goods.
Tests of detail: Testing the key inputs to the
provisioning model, including challenge of
lifecycle status of individual items and inventory
costing;
There is a risk that the Group’s assessment of
the level of these provisions is insufficient or
inaccurate.
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
We consider the provision for retail division
inventory to be acceptable (2018: acceptable).
114
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 2. Key audit matters: our assessment of risks of material misstatement (continued)
Going Concern
Refer to page 126 (accounting policy)
for group and page 161 (accounting
policy) for the parent company.
Recoverability of parent’s debt due
from group entities
(£494.4million; FY18: £485.8 million)
Refer to page 163 (financial
disclosures).
The risk
Disclosure quality
The financial statements explain how the Board
has formed a judgement that it is appropriate to
adopt the going concern basis of preparation for
the group and parent company.
That judgement is based on an evaluation of the
inherent risks to the Group’s and Company’s
business model and how those risks might affect
the Group’s and Company’s financial resources
or ability to continue operations over a period of
at least a year from the date of approval of the
financial statements.
The risks most likely to adversely affect the
Group’s and Company’s available financial
resources over this period were the impact
of Brexit on the Group’s and Company’s cost
relating to foreign exchange and the impact of
consumer confidence on profitability.
The risk for our audit was whether or not those
risks were such that they amounted to a material
uncertainty that may have cast significant doubt
about the ability to continue as a going concern.
Had they been such, then that fact would have
been required to have been disclosed.
Low risk, high value
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.
Our response
Our procedures included:
Test of details: Evaluated whether the cash flow
forecast assumptions are realistic and achievable
and consistent with the external and/or internal
environment and other matters identified in the
audit;
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: We considered sensitivities
over the level of available financial resources
indicated by the Group’s financial forecasts
taking account of reasonably possible (but not
unrealistic) adverse effects that could arise from
these risks individually and collectively;
Assessing transparency: Assessing the
reasonableness of the going concern
disclosures.
Our result
We found the going concern disclosure without
any material uncertainty to be acceptable (2018:
acceptable).
Our procedures included:
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, if 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 results
We found the parent company’s assessment of
the recoverability of the group debtor balance to
be acceptable (2018: acceptable).
115
halfords.annualreport2019.comFinancial Statements Independent Auditor’s Report to the
Members of Halfords Group plc only
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 £2.7 million (FY18: £3.2 million), determined with reference to
a benchmark of Group profit before tax normalised to exclude
one off strategy review expenses (see note 5), of £2.4 million
and asset write-off costs relating to the re-platform of the Retail
and Autocentres websites (see note 5), of £5.3 million, of which
it represents 4.7% (FY18: with reference to a benchmark of
Group profit before tax normalised to exclude one off Directors’
remuneration, of which it represented 4.7%).
Materiality for the parent company financial statements as a
whole was set at £2.4 million (FY18: £ 2.8 million), determined
with reference to a benchmark of total assets, of which it
represents 0.6% (FY18: 0.6%).
We reported to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £0.135
million (FY18: £0.16 million), in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Of the Group’s 4 (FY18: 4) components, we subjected 4 (FY18:
4) to full scope audits for group purposes. All components are
located in the UK.
The components within the scope of our work accounted for
the percentages illustrated opposite.
The Group team approved the component materialities, which
ranged from £0.4 million to £2.4 million (FY18: £0.5 million to
£2.9 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
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as they
have concluded that the Company’s and the Group’s financial
position means that this is realistic. They have also concluded
that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going
concern for at least a year from the date of approval of the
financial statements (the “going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is not
a guarantee that the Group and the Company will continue in
operation.
Normalised profit before
tax*
£58.7m (FY18: £68.1m)
Profit before tax
Group materiality
Group Materiality
£2.7m (2018: £3.2m)
£2.7m
Whole financial
statements materiality
(2018: £3.2m)
£2.4m
Range of materiality at
4 components (£0.4m-£2.4m)
(2018: £0.5m to £2.9m)
£0.135m
Misstatements reported
to the Audit Committee
(2018: £0.16m)
* FY19 profit before tax was normalised to exclude
one-off strategy review expenses (see note 5),
of £2.4 million and asset write-off costs relating
to the re-platform of the Retail and Autocentres
websites (see note 5), of £5.3 million.
Group revenue
FY18
FY19
100%
100%
Group profit before tax
FY18
FY19
100%
100%
Group total assets
FY18
FY19
100%
100%
116
Full scope for Group audit purposes FY18
Full scope for Group audit purposes FY19
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 We identified going concern as a key audit matter (see section 2 of
this report). Based on this work, 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 109 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
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
68 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
• the related statement under Listing Rules set out on page 109 is
being managed and mitigated; and
materially inconsistent with our audit knowledge
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
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.
• 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.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit. As
we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgments
that were reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee as to the
Group’s and Company’s longer-term viability.
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 not identified material misstatements in the strategic
• we have identified material inconsistencies between the
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.
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.
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 nothing to report in these respects.
117
halfords.annualreport2019.comFinancial Statements Independent Auditor’s Report to the
Members of Halfords Group plc only
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.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 109,
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 general commercial and sector experience through discussion
with the Directors and other management (as required by auditing
standards), and from inspection of the group’s regulatory and
legal correspondence and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations. We communicated identified laws
and regulations throughout our team and remained alert to any
indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation and taxation legislation and we assessed the
extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation or the loss of
the group’s licence to operate. We identified the following areas
as those most likely to have such an effect: health and safety,
GDPR, anti-bribery and employment law. Auditing standards
limit the required audit procedures to identify non-compliance
with these laws and regulations to enquiry of the directors
and other management and inspection of regulatory and legal
correspondence, if any. These limited procedures did not identify
actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned
and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and
regulations (irregularities) is from the events and transactions
reflected in the financial statements, the less likely the inherently
limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-
detection of irregularities, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
controls. We are not responsible for preventing non-compliance
and cannot be expected to detect non-compliance with all laws and
regulations.
118
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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
21 May 2019
119
halfords.annualreport2019.comFinancial 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 29 March 2019
52 weeks to 30 March 2018
Before
non-
underlying
items
£m
1,138.6
(559.6)
579.0
(516.8)
Non-
underlying
items
(Note 5)
£m
–
–
–
(7.8)
62.2
(3.4)
–
(3.4)
58.8
(10.5)
(7.8)
–
–
–
(7.8)
1.4
Before
non-
underlying
items
£m
1,135.1
(564.9)
570.2
(495.6)
Non-
underlying
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
Total
£m
1,138.6
(559.6)
579.0
(524.6)
54.4
(3.4)
–
(3.4)
51.0
(9.1)
Total
£m
1,135.1
(564.9)
570.2
(500.4)
69.8
(2.8)
0.1
(2.7)
67.1
(12.4)
48.3
(6.4)
41.9
58.4
(3.7)
54.7
24.5p
24.2p
21.2p
21.0p
29.6p
29.4p
27.8p
27.5p
All results relate to continuing operations of the Group.
The notes on pages 137 to 158 are an integral part of these consolidated financial statements.
120
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Consolidated Statement
of Comprehensive Income
Profit for the period
Other comprehensive income
Cash flow hedges:
Fair value changes in the period
Transfers to net profit:
Cost of sales
Change in fair value of investment
52 weeks to
29 March
2019
£m
41.9
52 weeks to
30 March
2018
£m
54.7
Notes
7.4
(11.0)
–
(8.1)
–
(0.7)
41.2
1.3
–
0.2
(9.5)
45.2
Income tax on other comprehensive income
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period attributable to equity shareholders
7
All items within the Consolidated Statement of Comprehensive Income are classified as items that are or may be recycled to the income
statement.
The notes on pages 137 to 158 are an integral part of these consolidated financial statements.
121
halfords.annualreport2019.comFinancial 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
Trade and other payables
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
29 March
2019
£m
30 March
2018
£m
Notes
10
11
12
13
14
20
15
16
20
17
18
16
17
19
18
21
21
21
21
387.4
97.3
–
484.7
185.4
59.1
3.2
9.8
257.5
742.2
(18.5)
(1.4)
(176.4)
(3.3)
(15.1)
(214.7)
42.8
(73.1)
(28.1)
(0.1)
(5.2)
(106.5)
(321.2)
421.0
2.0
151.0
(10.0)
1.9
276.1
421.0
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
The notes on pages 137 to 158 are an integral part of these consolidated financial statements.
The financial statements on pages 120 to 158 were approved by the Board of Directors on 21 May 2019 and were signed on its behalf by:
Loraine Woodhouse
Chief Financial Officer
Company Number: 04457314
122
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Consolidated Statement
of Changes in Shareholders’ Equity
Attributable to the equity holders of the Company
Other reserves
Share
capital
£m
2.0
Share
premium
account
£m
151.0
Investment
in own
shares
£m
(9.5)
Capital
redemption
reserve
£m
0.3
Hedging
reserve
£m
0.3
Retained
earnings
£m
263.4
Total
equity
£m
407.5
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 losses 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
Impact of adoption of IFRS 15
Adjusted balance at 30 March 2018
Total comprehensive income for the
period
Profit for the period
Other comprehensive income
Cash flow hedges:
Fair value changes in the period
Change in fair value of investment
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 losses and costs
of hedging transferred to the cost of
inventory
Transactions with owners
Own shares acquired
Share options exercised
Share-based payment transactions
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Balance at 29 March 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
–
2.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
151.0
–
151.0
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
–
–
–
151.0
–
–
–
–
–
–
–
–
0.1
–
–
–
0.1
(9.4)
–
(9.4)
–
–
–
–
–
–
–
(1.0)
0.4
–
–
–
(0.6)
(10.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
The notes on pages 137 to 158 are an integral part of these consolidated financial statements.
–
54.7
54.7
(11.0)
–
(11.0)
1.3
1.7
0.2
(7.8)
(7.8)
4.3
–
–
–
–
–
(3.2)
–
(3.2)
–
(1.7)
–
(1.7)
1.3
–
0.2
(9.5)
53.0
45.2
–
–
(0.4)
–
(34.8)
(35.2)
281.2
(3.3)
277.9
4.3
0.1
(0.4)
–
(34.8)
(35.1)
421.9
(3.3)
418.6
–
41.9
41.9
7.4
–
–
7.4
7.4
(2.6)
–
–
–
–
–
–
1.6
–
(8.1)
–
(8.1)
7.4
(8.1)
–
(0.7)
33.8
41.2
–
–
–
0.3
–
(35.9)
(35.6)
276.1
(2.6)
(1.0)
0.4
0.3
–
(35.9)
(36.2)
421.0
123
halfords.annualreport2019.comFinancial Statements Consolidated Statement of Cash Flows
Cash flows from operating activities
Profit after tax for the period, before non-underlying items
Non-underlying 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 and intangibles
Equity-settled share-based payment transactions
Exchange movement
Income tax expense
Decrease/(increase) in inventories
(Increase)/decrease in trade and other receivables
(Decrease) in trade and other payables
Increase/(decrease) in provisions
Finance income received
Finance costs paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary, 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 share options and purchase of own shares
Proceeds from loans, net of transaction costs
Repayment of borrowings
Payment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and bank overdrafts
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
Notes
48.3
(6.4)
41.9
23.0
13.0
3.4
5.5
0.3
(0.3)
9.1
11.9
(3.1)
(19.2)
2.7
–
(3.1)
(12.7)
72.4
–
(0.5)
(11.0)
(18.4)
(29.9)
(0.6)
1,138.7
(1,159.0)
(0.6)
(35.9)
(57.4)
(14.9)
7.5
(7.4)
11
10
6
3
8
I.
I.
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
Cash and cash equivalents at the period end consist of £9.8m (2018: £27.0m) of liquid assets and £17.2m (2018: £19.5m) of bank overdrafts.
The notes on pages 137 to 158 are an integral part of these consolidated financial statements.
124
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019
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
30 March
2018
£m
7.5
(83.7)
(76.2)
(1.3)
(10.3)
(11.6)
(87.8)
Other
non-cash
changes
£m
–
(0.4)
(0.4)
(0.6)
1.0
0.4
–
At
29 March
2019
£m
(7.4)
(63.8)
(71.2)
(1.3)
(9.3)
(10.6)
(81.8)
Cash flow
£m
(14.9)
20.3
5.4
0.6
–
0.6
6.0
Non-cash changes include finance costs in relation to the amortisation of capitalised debt issue costs of £0.6m (2018: £0.5m) and changes
in classification between amounts due within and after one year.
Cash and cash equivalents at the period end consist of £9.8m (2018: £27.0m) of liquid assets and £17.2m (2018: £19.5m) of bank overdrafts.
125
halfords.annualreport2019.comFinancial 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 29 March 2019 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 68, 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 29 March 2019, whilst the comparative period covered the 52 weeks to 30 March 2018.
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 29 March 2019 are detailed in Note 4 to the Company balance sheet on page 159.
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 – policy applicable from 31 March 2018
The Group recognises revenue when it has satisfied its performance obligations to external customers and the customer has obtained
control of the goods or services being transferred.
The revenue recognised is measured at the transaction price received and is recognised net of value added tax, discounts, and commission
charged and received from third parties for providing credit to customers.
The Group operations comprise the retailing of automotive, leisure and cycling products and car servicing and repair operations. The table
below summarises the revenue recognition policies for different categories of products and services offered by the Group.
126
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 For the vast majority of revenue streams, there is a low level of judgement applied in determining the transaction price or the timing of
transfer of control.
Products and services
Automotive, leisure and cycling
products, car servicing and repair
operations
Service and repair plans
Product warranties
Nature, timing and satisfaction of performance obligations and significant payment terms
The majority (both value and volume) of the Group’s sales are for standalone products and services
made direct to customers at standard prices either in-store or online. In these cases all performance
obligations are satisfied, and revenue recognised, when the product or service is transferred to the
customer. The customer pays in full at the same point in time.
The Group offers various service and repair plans to customers. The Group recognises revenue on
these on a straight-line basis over the period of the plan. The performance obligation of the Group,
being the level of service and repair offered with the plan, will be the period of the plan and therefore
revenue should be recognised over this period. The product is paid for on commencement of the
plan, and unrecognised income is held within trade and other payables.
Certain products, principally motoring, have a warranty period attached which is built in to the price
of the product rather than being sold separately as an incremental purchase. The warranty element
has been identified as a separate performance obligation to the sale of the product, and given it is
not sold separately, a transaction price has been allocated for the warranty element based on the
expected cost approach.
This element of revenue is recognised on a straight-line basis over the period of the plan. The
performance obligation of the Group, being the rectification of faults on products sold, will be the
period over which the customer can exercise their rights under the warranty and therefore revenue
should be recognised over this period. The full price of the product is paid for on commencement of
the warranty, and unrecognised income is held within trade and other payables.
Returns – policy applicable from 31 March 2018
A provision for estimated returns is made based on the value of goods sold during the year which are expected to be returned and refunded
after the year end based on past experience.
The sales value of the expected returns is recognised within provisions, with the cost value of goods expected to be returned recognised as
a current asset within inventories.
Gift Cards – policy applicable from 31 March 2018
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-underlying Items
Non-underlying items are those items that are unusual because of their size, nature or incidence. The Group’s management considers that
these items should be separately identified within their relevant income statement category to enable a full understanding of the Group’s
results.
Earnings Per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit
or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the
period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and
the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary
shares, which comprise share options granted to employees.
The Group has also chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying items. A reconciliation
of this alternative measure to the statutory measure required by IFRS is given in Note 9.
127
halfords.annualreport2019.comFinancial Statements Accounting Policies
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.
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.
128
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Dividends
Final dividends are recognised in the Group’s financial statements in the period in which the dividends are approved by shareholders. Interim
equity dividends are recognised in the period they are paid.
Intangible Assets
i) Goodwill
Goodwill is initially recognised as an asset at cost and is reviewed for impairment at least annually. Goodwill is subsequently measured at
cost less any accumulated impairment losses. An impairment charge is recognised in profit or loss for any amount by which the carrying
value of goodwill exceeds its recoverable amount.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the
synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired.
For acquisitions prior to 3 April 2010 costs directly attributable to business combinations formed part of the consideration payable when
calculating goodwill. Adjustments to contingent consideration, and therefore the consideration payable and goodwill, are made at each
reporting date until the consideration is finally determined.
Acquisitions after this date fall under the provisions of ‘Revised IFRS 3 Business Combinations (2009)’. For these acquisitions transaction
costs, other than share and debt issue costs, will be expensed as incurred and subsequent adjustments to the fair value of consideration
payable will be recognised in profit or loss.
ii) Computer Software
Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will generate economic
benefits beyond one year are recognised as intangible assets. These intangible assets are stated at cost less accumulated amortisation
and impairment losses. Software is amortised over three to five years, depending on the estimated useful economic life.
iii) Acquired Intangible Assets
Intangible assets that are acquired as a result of a business combination are recorded at fair value at the acquisition date, provided they are
identifiable and capable of reliable measurement.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill,
from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic
benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:
• Brand names and trademarks – 2 years, in respect of Autocentres, and 10 years in respect of cBoardman;
• Supplier relationships – 5 to 15 years;
• Customer relationships – 5 to 15 years; and
• Favourable leases – over the term of the lease.
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
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.
129
halfords.annualreport2019.comFinancial Statements Accounting Policies
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.
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 estimates and judgements can be seen in Note 18.
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 into the provision amount to take account of this sensitivity.
Provision is also made for onerous contracts in loss-making stores and Autocentres which management do not expect to become profitable.
A rent review provision is recognised when there is expected to be additional obligations as a result of 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.
130
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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.
On initial recognition, a financial asset is measured at: amortised cost; FVOCI – equity instrument; or FVTPL. A financial liability is measured
at either amortised costs or FVTPL.
ii) Classification and Subsequent Measurement
Financial assets
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.
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 20). 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
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
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
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).
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halfords.annualreport2019.comFinancial Statements Accounting Policies
Financial assets: Subsequent measurement and gains and losses
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 20 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.
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 remeasuring the derivative instrument is recognised in OCI and accumulated in the hedging
reserve. Any element of the remeasurement of the derivative instrument that does not meet the criteria for an effective hedge is recognised
immediately in the Group Income Statement within finance income or costs.
When 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.
132
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 vi) Impairment
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. There is limited exposure to ECLs due to the business model.
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.
Estimates and Judgements
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from the estimates.
The judgements and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial
statements are detailed below:
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 estimates 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.
A sensitivity analysis has been carried out on the carrying value of inventory. A 10% change in provisions applied to clearance stock would
impact the net realisable value of inventories by £0.8m. A 10% change in the current selling price of products would impact the net realisable
value of inventories by £0.9m.
Impairment of Assets within Retail and Autocentres
Goodwill and other assets are subject to impairment reviews based on whether current or future events and circumstances suggest that
their recoverable value may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows,
which includes management assumptions and estimates of future performance. Details of the assumptions used in the impairment review
of goodwill and other assets are explained in Note 10.
The carrying amount of these assets and liabilities can be seen in the notes to the financial statements on pages 137 to 158. Sensitivity
analysis on the key assumption in the value-in-use calculations has been undertaken, which found that there is more than adequate amount
of headroom before an impairment could be triggered. A +1% change in discount rate and -1% in terminal growth rate would not cause an
impairment risk. An impairment reduction would only be triggered if a 25% reduction in cash flow occured within Autocentres, which is not
expected to be a reasonable scenario.
133
halfords.annualreport2019.comFinancial Statements Accounting Policies
Adoption of New and Revised Standards
The following standards and interpretations are applicable to the Group and were adopted in the current period as they were mandatory for
the year ended 29 March 2019 but either had no material impact on the result or net assets of the Group or were not applicable.
• IFRIC 22 ‘Foreign Currency Translations and Advance Consideration’
• IFRC 2 ‘Share-based payment’ – amendment relating to classification and measurement of share-based payment transactions.
• Annual improvements to IFRS 2014 – 2016 Cycle (amendments to IFRS 1 and IAS 28).
• IFRS 40 ‘Investment property’ – amendment relating to transfers of investment property.
The Group has adopted IFRS 15 ‘Revenue from contracts with customers’ with a date of initial application of 31 March 2018. IFRS 15
supersedes IAS 11 ‘Construction contracts’, IAS 18 ‘Revenue’ and related interpretations. The new standard establishes a five-step model to
account for revenue, which is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer.
Accordingly, the Group has updated its accounting policy for revenue recognition as detailed on page 126.
The Group has adopted IFRS 15 using the cumulative effect method of adoption, with no restatement of comparatives and brought forward
adjustments being made through retained earnings at the date of initial application, 31 March 2018.
A description of principal activities from which the Group generates its revenue, and disaggregation of revenue categorised by the
reportable segments, is shown in Note 1.
The majority of the Group’s sales are for standalone products made direct to customers at standard prices either in-store or online, so the
majority of revenue streams are unaffected by the new standard. A summary of changes is shown below:
(a) Principal versus Agent Considerations
In the vast majority of cases, the Group was considered the principal in sales transactions under IFRS 15 and therefore recognised the
full value of the sale within revenue, rather than netting off the costs in revenue, in line with the previous treatment under IAS 18. However,
under IFRS 15 certain revenue streams within the Group were reclassified to reflect the nature of the control of the goods before they are
transferred to customers and therefore showing revenue net of costs, resulting in decreased revenue and cost of sales of £1.5m in the 52
weeks to 29 March 2019 with £nil impact on profit.
(b) Commission for Provision of Credit Finance by Third Parties
The Group incurs commission costs and receives commission income from third parties for providing credit finance to customers.
Previously these have been shown within cost of sales. Following a review of the classification of these commissions upon implementation
of IFRS 15 this has been reclassified to show revenue net of commission costs incurred and commission income received. This has resulted
in decreased revenue and cost of sales of £2.5m in the 52 weeks to 29 March 2019 with £nil impact on profit.
(c) Sales Return Provision
Under IAS 18 the Group held a sales return provision on the statement of financial position to provide for expected levels of product returns
at stock margin, which was based on past experience. IFRS 15 requires a presentational change where the amount of revenue relating to
expected returns is recognised on the statement of financial position within provisions, with a corresponding adjustment to revenue, and the
cost value of goods expected to be returned is recognised within inventories, with a corresponding adjustment to cost of sales. The revenue
recognition policy on returns has been updated to illustrate this new classification. The net adjustment on adoption is a £1.7m increase to
the value of inventories and provisions. During the period there was £0.1m increase in the value of the right to recover returned goods and a
£0.1m increase in the sales return provision, with a corresponding £0.1m decrease to cost of sales and revenue with a £nil impact on profit.
(d) Product Warranties
Revenue recognition under IFRS 15 requires identification of separate performance obligations, a change to the previous approach under
IAS 18. The main impact on adoption was in respect of the timing of revenue recognition of product warranties, principally for certain
motoring products. Under IFRS 15, the warranty element of a product is considered a separate performance obligation, and so under the
new standard a portion of the sale price is allocated to providing a warranty. This is recorded as a liability on the statement of financial
position and released to revenue over the period of the warranty. The net adjustment on adoption is a £3.3m increase to liabilities, classified
within trade and other payables, with the corresponding adjustment through retained earnings. There was a £0.1m charge to the income
statement during the period. The split between current and non-current trade and other payables is shown in the summary table below.
A summary of the impact on the Group income statement for the 52 weeks to 29 March 2019 is shown below:
For the 52 weeks to 29 March 2019
Revenue
Cost of sales
Profit for the period attributable to equity shareholders
134
Adjustment
as
described
above
(a), (b), (c), (d)
(a), (b), (c)
Balance pre
adjustments
£m
1,142.8
(563.7)
42.0
IFRS 15
adjustments
£m
(4.2)
4.1
(0.1)
As
reported
£m
1,138.6
(559.6)
41.9
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 A summary of the impact on the Group statement of financial position as at 29 March 2019 is shown below. The impact on retained earnings
comprises a brought forward adjustment on adoption of IFRS 15 of £3.3m, relating to product warranties, and the £0.1m net impact on the
Group income statement during the period, as shown above:
As at 29 March 2019
Current assets
Inventories
Current liabilities
Trade and other payables
Provisions
Non-current liabilities
Trade and other payables
Net assets
Retained earnings
Adjustment
as
described
above
Balance pre
adjustments
£m
IFRS 15
adjustments
£m
As
reported
£m
(c)
(d)
(c)
(d)
(d)
183.6
(174.9)
(13.3)
(26.2)
424.4
279.5
1.8
(1.5)
(1.8)
(1.9)
(3.4)
(3.4)
185.4
(176.4)
(15.1)
(28.1)
421.0
276.1
There was no impact on the Group statement of cash flows for the 52 weeks to 29 March 2019.
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, except for IFRS 16 as described below.
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’
• Annual improvements to IFRS 2015 – 2017 Cycle (amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23).
• IAS 28 ‘Investment in associates’ – amendments relating to long-term interest in associates and joint ventures.
• IFRS 9 ‘Financial Instruments’ – amendments relating to classification of particular prepayable financial assets.
• IAS 19 ‘Employee benefits’ – amendments relating to plan amendment, curtailment or settlement.
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.
• Amendments to References to the Conceptual Framework in IFRS Standards.
• IFRS 3 ‘Business Combinations’ – amendments to certain appendices.
• Definition of Material – amendments to IAS 1 and IAS 8.
The Group will adopt the requirements of IFRS 16 “Leases” for the first time for the financial year commencing 30 March 2019. The adoption
of the standard will have a material impact on the Group’s primary financial statements, including impacts on operating profit, profit before
tax, total assets and total liabilities.
Lessee accounting
On adoption of IFRS 16, the Group will recognise a new right-of-use asset and corresponding lease liability for each operating lease in which
the Group is a lessee on its statement of financial position.
The nature of expenses related to these leases in the income statement 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 over the life of each lease.
135
halfords.annualreport2019.comFinancial Statements Accounting Policies
The discount rates applied have been based on the incremental borrowing rate where the implicit rate in the lease is not readily available. The
lease term comprises the non-cancellable lease term, in addition to optional periods when the Group is reasonably certain to exercise an
option to extend or not to terminate a lease.
Transition
The Group has elected to apply the modified retrospective approach for its portfolio of leases. As a result, the lease liability will be calculated
as the present value of future lease payments from the date of transition. For the majority of leases, the asset will be calculated from the
lease commencement date, with the cumulative effect of adopting IFRS 16 being recognised as an adjustment to the opening balance of
retained earnings at 30 March 2019, with no restatement of comparative information.
Impact of the new standard
The full impact on the Income Statement for the year ending 3 April 2020 is highly sensitive due to a number of judgements, including the
treatment of properties where the current lease term has either already expired or is due to expire in the year ending 3 April 2020, but where
the Group remains in negotiation with the landlord for potential renewal. Whilst it is likely that a new lease will be entered into in this scenario,
it is subject to uncertainty as to the timing and details of such transactions and therefore it is not possible to predict the impact at this time.
In order to estimate the impact on the Group’s opening Statement of Financial Position for the year ending 3 April 2020, the lease portfolio at
transition date has been used, which would result in an adjustment for right-of-use assets in the region of £400m, with corresponding lease
liabilities in the region of £450m.
Net profit before tax for the year ending 3 April 2020 would move by a low digit £m figure as the pre-IFRS 16 rental charge is replaced by
depreciation and interest. As previously stated, this is calculated based on the lease portfolio as at the transition date of 30 March 2019 and
does not factor in the aforementioned expired leases.
On a cash flow basis, the impact of transition to IFRS 16 will be £nil and the adoption of the standard will have no impact on the way the
Group runs its business.
136
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Notes to the Financial Statements
1. Operating Segments
The Group has two reportable segments, Retail and Car Servicing, which are the Group’s strategic business units. Car Servicing became a
reporting segment of the Group as a result of the acquisition of Nationwide Autocentres on 17 February 2010. The strategic business units
offer different products and services, and are managed separately because they require different operational, technological and marketing
strategies.
The operations of the Retail reporting segment comprise the retailing of automotive, leisure and cycling products through retail stores. The
operations of the Car Servicing reporting segment comprise car servicing and repair performed from Autocentres.
The Chief Operating Decision Maker is the Executive Directors. Internal management reports for each of the segments are reviewed by
the Executive Directors on a monthly basis. Key measures used to evaluate performance are Revenue and Operating Profit. Management
believes that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation
decisions.
The following summary describes the operations in each of the Group’s reportable segments. Performance is measured based on segment
operating profit, as included in the management reports that are reviewed by the Executive Directors. These internal reports are prepared in
accordance with IFRS accounting policies consistent with these Group Financial Statements.
All material operations of the reportable segments are carried out in the UK and all material non-current assets are located in the UK. The
Group’s revenue is driven by the consolidation of individual small value transactions and, as a result, Group revenue is not reliant on a major
customer or group of customers. All revenue is from external customers.
Income statement
Revenue
Segment result before non-underlying items
Non-underlying items
Segment result
Unallocated expenses1
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
Products and services transferred at a point in time
Products and services transferred over time
Revenue
Income statement
Revenue
Segment result before non-underlying items
Non-underlying items
Segment result
Unallocated expenses1
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
Products and services transferred at a point in time
Products and services transferred over time
Revenue
Retail
£m
977.2
58.8
(8.7)
50.1
Car
Servicing
£m
161.4
5.5
0.9
6.4
932.2
45.0
977.2
Retail
£m
977.2
72.6
(4.8)
67.8
116.6
44.8
161.4
Car
Servicing
£m
157.9
4.1
–
4.1
932.4
44.8
977.2
133.1
24.8
157.9
52 weeks to
29 March
2019
Total
£m
1,138.6
64.3
(7.8)
56.5
(2.1)
54.4
–
(3.4)
51.0
(9.1)
41.9
1,048.8
89.8
1,138.6
52 weeks to
30 March
2018
Total
£m
1,135.1
76.7
(4.8)
71.9
(2.1)
69.8
0.1
(2.8)
67.1
(12.4)
54.7
1,065.5
69.6
1,135.1
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 (2018: £2.1m).
137
halfords.annualreport2019.comFinancial 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
29 March
2019
Total
£m
31.0
23.0
10.9
52 weeks to
30 March
2018
Total
£m
37.3
24.0
8.8
Car
Servicing
£m
4.7
4.4
1.2
Car
Servicing
£m
7.0
5.9
0.5
Retail
£m
26.3
18.6
9.7
Retail
£m
30.3
18.1
8.3
There have been no significant transactions between segments in the 52 weeks ended 29 March 2019 (2018: £nil).
2. Operating Expenses
For the period
Selling and distribution costs
Administrative expenses, before non-underlying items
Non-underlying 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 and intangibles
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
138
52 weeks to
29 March
2019
£m
424.3
424.3
92.5
7.8
100.3
524.6
52 weeks to
30 March
2018
£m
410.0
410.0
85.6
4.8
90.4
500.4
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
3.8
93.1
(3.1)
(1.3)
5.5
13.0
22.0
1.0
0.1
239.4
554.2
2.8
92.1
(3.6)
(2.1)
4.1
10.9
23.0
1.0
0.2
231.4
555.9
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 3. Operating Profit continued
The total fees payable by the Group to KPMG LLP and their associates during the period was £0.4m (2018: £0.2m), in respect of the services
detailed below:
For the period
Fees payable for the audit of the Company’s accounts
Fees payable to KPMG LLP and their associates in respect of:
The audit of the Company’s subsidiary undertakings, pursuant to legislation
Audit-related assurance services
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 22)
Contributions to defined contribution plans (Note 24)
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
29 March
2019
£’000
34.0
52 weeks to
30 March
2018
£’000
30.0
334.9
53.0
421.9
171.0
15.0
216.0
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
217.8
15.9
0.3
5.4
239.4
210.5
15.0
0.4
5.5
231.4
Number
Number
9,538
579
1,031
11,148
9,678
564
944
11,186
52 weeks to
29 March
2019
£m
4.0
0.6
0.7
0.4
0.4
6.1
52 weeks to
30 March
2018
£m
3.9
0.1
0.6
0.3
0.1
5.0
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 99 to 108 which form part of
these financial statements.
139
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
5. Non-underlying Items
For the period
Non-underlying operating expenses:
Organisational restructure costs (a)
Group-wide strategic review (b)
One-off royalty income (c)
Acquisition and investment-related fees (d)
Autocentres operational review (e)
Operating lease obligation (f)
Non-underlying operating expenditure
Acquisition-related interest charge (g)
Non-underlying items before tax
Tax on non-underlying items (h)
Non-underlying items after tax
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
6.8
2.4
(1.6)
0.2
–
–
7.8
–
7.8
(1.4)
6.4
4.3
–
–
0.2
0.6
(0.3)
4.8
(0.3)
4.5
(0.8)
3.7
a. In the current and prior period separate and unrelated organisational restructuring activities were undertaken.
Current period costs comprised:
• Redundancy costs of £1.5m relating to roles which will not be replaced; and
• £5.3m of asset write-offs, principally resulting from the strategic decision to re-platform the Retail and Autocentres websites.
Costs in the prior period comprised:
• Redundancy costs of £0.7m relating to roles which will not be replaced;
• £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 £2.4m were incurred in the period in relation to the costs of preparing the new Group strategy, which comprised of the following:
• £2.0m of external consultant costs; and
• £0.4m warehouse and distribution costs in order to align our network with the new strategy.
c. A one-off royalty income of £1.6m was received in the current period in relation to the use of a software licence.
d. £0.2m of costs were incurred in the current period in relation to the investment in Tyres On The Drive and costs relating to a potential
acquisition which did not progress. In the prior period £0.2m of costs were incurred relating to the investment in Tyres On The Drive.
e. Prior period costs of £0.6m were incurred in relation to the review of the operating model of the Autocentres business.
f. The operating lease obligation in the prior period related to a provision release of £0.3m from amounts originally provided for the Group’s
guarantor obligations arising from historically held lease guarantees.
g. There was a £0.3m credit in FY18 from the release of the remaining portion of interest charge due on the contingent consideration for
Tredz, which was paid in May 2017.
h. The tax credit of £1.4m represents a tax rate of 18.0% applied to non-underlying items. The prior period represents a tax credit at 19.0%
applied to non-underlying items.
140
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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
Finance income
Net finance costs
7. Taxation
For the period
Current taxation
UK corporation tax charge for the period
Adjustment in respect of prior periods
Deferred taxation
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Total tax charge for the period
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% (2018: 19%)
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
29 March
2019
£m
52 weeks to
30 March
2018
£m
(1.6)
(0.4)
(0.6)
–
(0.8)
(3.4)
–
–
(3.4)
(1.3)
(0.5)
(0.5)
0.3
(0.8)
(2.8)
0.1
0.1
(2.7)
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
11.5
0.2
11.7
(1.4)
(1.2)
(2.6)
9.1
12.5
(2.2)
10.3
0.8
1.3
2.1
12.4
52 weeks to
29 March
2019
£m
51.0
9.7
52 weeks to
30 March
2018
£m
67.1
12.7
0.5
0.1
(1.0)
(0.2)
–
9.1
0.7
0.3
(0.9)
(0.3)
(0.1)
12.4
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 29 March 2019 has been calculated based on the rate of 17% substantively enacted at the balance sheet date.
The effective tax rate of 17.8% (2018: 18.5%) is lower than the UK corporation tax rate principally due to the non-deductibility of
depreciation charged on capital expenditure, non-deductible amortisation of intangible assets and adjustment in respect of prior periods.
The tax charge for the period was £9.1m (2018: £12.4m), including a £1.4m credit (2018: £0.8m credit) in respect of tax on non-underlying
items.
141
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
7. Taxation continued
An income tax credit of £nil (2018: £0.2m 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.
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 £172m (2018: £168m) with the main taxes including
corporation tax of £12.7m (2018: £16.1m), net VAT of £72.2m (2018: £67.2m), employment taxes of £48.2m (2018: £47.3m) and business
rates of £39.8m (2018: £37.5m).
8. Dividends
For the period
Equity – ordinary shares
Final for the 52 weeks to 30 March 2018 – paid 12.03p per share (2018: 11.68p)
Interim for the 52 weeks to 29 March 2019 – paid 6.18p per share (2018: 6.0p)
52 weeks to
29 March
2019
£m
52 weeks to
30 March
2018
£m
23.7
12.2
35.9
23.0
11.8
34.8
In addition, the Directors are proposing a final dividend in respect of the financial period ended 29 March 2019 of 12.39p per share (2018:
12.03p per share), which will absorb an estimated £24.4m (2018: £23.7m) of shareholders’ funds. It will be paid on 30 August 2019 to
shareholders who are on the register of members on 26 July 2019.
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 29 March 2019.
The Group has also chosen to present an alternative earnings per share measure, underlying earnings per share, with profit adjusted for
non-underlying items because it better reflects the Group’s underlying performance. This measure is defined on page 166.
52 weeks to
29 March
2019
Number of
shares
m
199.1
(2.0)
197.1
2.1
199.2
52 weeks to
29 March
2019
£m
41.9
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
7.8
–
(1.4)
48.3
4.8
(0.3)
(0.8)
58.4
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-underlying items (see Note 5):
Operating expenses
Finance costs
Tax on non-underlying items
Underlying earnings before non-underlying items
142
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 9. Earnings Per Share continued
Earnings per share is calculated as follows:
For the period
Basic earnings per ordinary share
Diluted earnings per ordinary share
Basic underlying earnings per ordinary share
Diluted underlying earnings per ordinary share
52 weeks to
29 March
2019
21.2p
21.0p
52 weeks to
30 March
2018
27.8p
27.5p
24.5p
24.2p
29.6p
29.4p
10. Intangible Assets
Cost
At 31 March 2017
Reclassification to Tangibles
Additions
Disposals
At 30 March 2018
Additions
Disposals
At 29 March 2019
Amortisation
At 31 March 2017
Reclassification to Tangibles
Charge for the period
Disposals
At 30 March 2018
Charge for the period
Disposals
At 29 March 2019
Net book value at 29 March 2019
Net book value at 30 March 2018
Brand
names and
trademarks
£m
Customer
relationships
£m
Supplier
relationships
£m
Favourable
leases
£m
Computer
software
£m
Goodwill
£m
9.8
–
–
–
9.8
–
–
9.8
2.2
–
0.7
–
2.9
0.7
–
3.6
6.2
6.9
14.9
–
–
–
14.9
–
–
14.9
9.9
–
0.7
–
10.6
0.7
–
11.3
3.6
4.3
7.8
–
–
–
7.8
–
–
7.8
0.4
–
0.5
–
0.9
0.5
–
1.4
6.4
6.9
2.3
–
–
–
2.3
–
–
2.3
0.6
–
0.1
–
0.7
0.1
–
0.8
1.5
1.6
55.8
(4.4)
18.0
(4.5)
64.9
11.0
(8.3)
67.6
26.4
(0.4)
9.3
(1.6)
33.7
11.0
(3.8)
40.9
26.7
31.2
364.7
–
–
–
364.7
–
–
364.7
21.7
–
–
–
21.7
–
–
21.7
343.0
343.0
Total
£m
455.3
(4.4)
18.0
(4.5)
464.4
11.0
(8.3)
467.1
61.2
(0.4)
11.3
(1.6)
70.5
13.0
(3.8)
79.7
387.4
393.9
No intangible assets are held as security for external borrowings.
Product rights of £0.2m, which are fully amortised, have been included within brand names and trademarks.
Goodwill of £253.1m 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.
143
halfords.annualreport2019.comFinancial Statements
Notes to the Financial Statements
10. Intangible Assets continued
The value-in-use of the goodwill held at 29 March 2019 and 30 March 2018 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 below, 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.
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
Retail
Car Servicing
Notes
1
2
2019
10.6%
0.0%
2018
9.5%
0.0%
2019
10.8%
1.0%
2018
9.5%
1.0%
Notes:
1. Pre-tax discount rate applied to the cash flow projections.
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 91, 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.
11. Property, Plant and Equipment
Cost
At 31 March 2017
Reclassification from intangibles
Additions
Disposals
At 30 March 2018
Transfer between classes
Additions
Disposals
At 29 March 2019
Depreciation and impairment
At 31 March 2017
Reclassification from intangibles
Depreciation and impairment for the period
Disposals
At 30 March 2018
Depreciation and impairment for the period
Disposals
At 29 March 2019
Net book value at 29 March 2019
Net book value at 30 March 2018
144
Fixtures,
fittings
and
equipment
£m
Payments on
account and
assets in
course of
construction
£m
Land and
buildings
£m
77.3
–
3.6
(0.8)
80.1
–
2.3
(2.0)
80.4
42.3
–
5.7
(0.7)
47.3
4.7
(1.1)
50.9
29.5
32.8
215.1
4.4
13.9
(4.2)
229.2
2.0
17.7
(8.6)
240.3
147.5
0.4
17.9
(3.1)
162.7
18.3
(8.5)
172.5
67.8
66.5
0.2
–
1.8
–
2.0
(2.0)
–
–
–
–
–
–
–
–
–
–
–
–
2.0
Total
£m
292.6
4.4
19.3
(5.0)
311.3
–
20.0
(10.6)
320.7
189.8
0.4
23.6
(3.8)
210.0
23.0
(9.6)
223.4
97.3
101.3
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 11. Property, Plant and Equipment continued
No fixed assets are held as security for external borrowings.
Included in the above are assets held under finance leases as follows:
As at 29 March 2019
Cost
Additions
Accumulated depreciation
Net book value
As at 30 March 2018
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
2019
£m
2.5
5.9
5.7
14.1
Interest
2019
£m
0.6
2.0
0.7
3.3
Principle
2019
£m
1.9
3.9
5.0
10.8
Less than one year
Between one and five years
More than five years
12. Investments
Equity Investments – at FVOCI
Investment in Tyres On The Drive
Land and
buildings1
£m
Fixtures,
fittings, and
equipment
£m
12.7
–
(7.6)
5.1
12.7
–
(7.1)
5.6
Minimum
lease
payments
2018
£m
2.0
6.9
6.8
15.7
Total
£m
16.2
–
(9.0)
7.2
15.7
0.6
(8.1)
8.2
3.5
–
(1.4)
2.1
3.0
0.6
(1.0)
2.6
Interest
2018
£m
0.7
2.3
1.1
4.1
Principle
2018
£m
1.3
4.6
5.7
11.6
Non-current
2019
£m
–
–
2018
£m
8.1
8.1
In February 2019 Tyres On The Drive went into administration. Tyres on the Drive sold its entire trade and assets to Victor Holdings Limited
(or its subsidiaries). This has left the business with no value. In the previous year, an £8.1m investment was held in Tyres On The Drive,
consisting of £4.1m cash consideration in FY17, £3.5m invested in FY18 and a further £0.5m invested during the current year. The equity
held represented a stake of c.5%.
During the current year, the investment has been derecognised which has resulted in a debit to OCI as a result of the irrevocable election
taken on transition to IFRS 9 in the prior year to account as FVOCI.
145
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
13. Inventories
Finished goods for resale
2019
£m
185.4
2018
£m
195.5
Finished goods inventories include £20.0m (2018: £21.5m) 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 £8.4m was recognised as an expense in respect of the write-down of inventories (2018: £9.0m) to net realisable value.
No inventories are held as security for external borrowings.
Goods bought for resale recognised as a cost of sale amounted to £554.2m (2018: £555.9m).
Following the adoption of IFRS 15, inventories at 29 March 2019 include a right to recover returned goods amounting to £1.8m. These are
measured by reference to the former carrying amount of the sold inventories.
14. Trade and Other Receivables
Falling due within one year:
Trade receivables
Other receivables
Prepayments and accrued income
2019
£m
11.6
15.1
32.4
59.1
2018
£m
10.2
17.9
27.9
56.0
Information about the Group’s exposure to credit and market risks and impairment losses for trade and other receivables is included in Note 20.
15. Cash and Cash Equivalents
Cash at bank and in hand
2019
£m
9.8
2018
£m
27.0
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.
146
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 16. Borrowings
Current
Unsecured bank overdraft
Finance lease liabilities
Non-current
Unsecured bank loan and other borrowings1
Finance lease liabilities
2019
£m
17.2
1.3
18.5
63.8
9.3
73.1
2018
£m
19.5
1.3
20.8
83.7
10.3
94.0
1. The above borrowings are stated net of unamortised issue costs of £1.2m (2018: £1.3m).
The Group’s borrowing facility was extended in the current year, after exercising the option to extend the facility for a further year. The costs
incurred to extend the facility were £0.3m. It is a five-year £200m revolving credit facility which began on 4 September 2017 and now expires
on 3 September 2022. 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.
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 one year
Expiring between one and two years
Expiring between two and five years
2019
£m
20.0
–
65.0
85.0
2018
£m
20.0
–
85.0
105.0
The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £85.0m
(2018: £105.0m) relates to the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.
17. 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
Accruals and other deferred income
2019
£m
95.2
25.3
13.0
5.2
37.7
176.4
26.2
1.9
28.1
2018
£m
109.3
15.2
18.1
5.1
39.3
187.0
31.2
–
31.2
Following the adoption of IFRS 15, trade and other payables at 29 March 2019 includes £3.4m of deferred income in relation to product
warranties; of which £1.5m is in current liabilities and £1.9m is in non-current liabilities.
147
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
18. Provisions
At 30 March 2018
Charged during the period
Adjustment on adoption of IFRS 15
Utilised during the period
Released during the period
At 29 March 2019
Analysed as:
Current liabilities
Non-current liabilities
Property
related
£m
9.7
4.1
–
(0.9)
(1.4)
11.5
6.3
5.2
Other
trading
£m
6.1
6.7
1.7
(5.7)
–
8.8
8.8
–
Total
£m
15.8
10.8
1.7
(6.6)
(1.4)
20.3
15.1
5.2
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, a provision for the costs associated with the closure of stores where necessary,
an employer/product liability provision and provision for unused gift vouchers in issue.
19. 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 31 March 2017
Credit/(charge) to the income statement
Credit to other comprehensive income
Charge to equity
At 30 March 2018
Credit/(charge) to the income statement
Credit to other comprehensive income
Credit to equity
At 29 March 2019
Property-
related
items
£m
5.0
(1.4)
–
–
3.6
(0.3)
–
–
3.3
Short-term
timing
differences
£m
(4.5)
(1.9)
0.2
(0.3)
(6.5)
5.6
–
–
(0.9)
Share-based
payments
£m
1.2
0.3
–
0.3
1.8
(1.4)
–
–
0.4
Intangible
assets
£m
(2.5)
0.9
–
–
(1.6)
(1.3)
–
–
(2.9)
Total
£m
(0.8)
(2.1)
0.2
–
(2.7)
2.6
–
–
(0.1)
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
29 March
2019
3.7
(3.8)
(0.1)
52 weeks to
30 March
2018
5.4
(8.1)
(2.7)
Deferred tax assets
Deferred tax liabilities
148
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 20. 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 16.
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.
29 March 2019
Financial assets measured at fair value
Forward exchange contracts
used for hedging
Equity investments
Note
12
Financial assets not measured at fair value
14
Trade and other receivables*
15
Cash and cash equivalents
Financial liabilities measured at fair value
Forward exchange contracts
used for hedging
Financial liabilities not measured at fair value
Borrowings
16
Current tax liabilities
Finance lease liabilities
Trade and other payables**
16
17
Fair value
– hedging
instruments
£m
Mandatorily
at FVTPL
– others
£m
Carrying amount
FVOCI
– equity
instruments
£m
Amortised
cost
£m
Other
financial
liabilities
£m
Total
carrying
amount
£m
3.2
–
3.2
–
–
–
(1.4)
(1.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26.7
9.8
36.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(81.0)
(1.3)
(10.6)
(95.2)
(188.1)
3.2
–
3.2
26.7
9.8
36.5
(1.4)
(1.4)
(81.0)
(1.3)
(10.6)
(95.2)
(188.1)
* Prepayments and accrued income of £32.4m are not included as a financial asset.
** Other taxation and social security payables of £25.3m, deferred income of £31.4m, accruals of £39.6m and other payables of £13.0m are not included as a
financial liability.
149
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
20. Financial Instruments and Related Disclosures continued
Carrying amount
30 March 2018
Financial assets measured at fair value
Forward exchange contracts
used for hedging
Equity investments
Note
12
Financial assets not measured at fair value
Trade and other receivables*
Cash and cash equivalents
14
15
Financial liabilities measured at fair value
Forward exchange contracts
used for hedging
Financial liabilities not measured at fair value
Borrowings
16
Current tax liabilities
Finance lease liabilities
Trade and other payables**
16
17
Fair value
– hedging
instruments
£m
Mandatorily
at FVTPL
– others
£m
FVOCI
– equity
instruments
£m
Amortised
cost
£m
Other
financial
liabilities
£m
Total carrying
amount
£m
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.
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.
150
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 20. Financial Instruments and Related Disclosures continued
Fair Value Hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
• Level 1: quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
All financial instruments carried at fair value have been measured by a Level 2 valuation method.
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 £39.7m (2018: £55.4m).
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
29 March
2019
0.1
–
0.1
52 weeks to
30 March
2018
0.5
–
0.5
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.
151
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
20. Financial Instruments and Related Disclosures continued
Cash and cash equivalents
The Group held cash and cash equivalents of £9.8m at 29 March 2019 (2018: £27.0m). 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 (2018: £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 29 March 2019, 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 29 March 2019, 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
85.6
1.3267
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
Maturity
6–12
months
45.3
1.3243
Maturity
6–12
months
46.8
1.3647
More than
one year
21.8
1.3519
More than
one year
27.0
1.3891
152
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 20. 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 29 March 2019
Inventory purchases
At 30 March 2018
Inventory purchases
Change in value used
for calculating hedge
ineffectiveness
£m
20.0
20.1
Balances remaining in the
cash flow hedge reserve from
hedging relationships for
which hedge accounting is no
longer applied
£m
–
–
Cash flow
hedge reserve
£m
1.8
(5.1)
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as
follows:
Cash and cash equivalents
Trade and other payables
29 March 2019
30 March 2018
USD
£m
–
(9.6)
(9.6)
Other
£m
0.5
(0.4)
0.1
USD
£m
0.2
(23.8)
(23.6)
Other
£m
0.5
(0.9)
(0.4)
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
2019
Increase/
(decrease) in
equity
£m
17.3
(14.2)
2018
Increase/
(decrease) in
equity
£m
15.3
(12.5)
A strengthening/weakening of sterling, as indicated, against the USD at 29 March 2019 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 £0.7m (2018: £0.6m).
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 statement of financial position.
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 2019 (2018: 0.8:1).
153
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
20. 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 biannually 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 11. All trade and other payables are due within one year.
The contractual maturity of bank borrowings, including estimated interest payments and excluding the impact of netting agreements is
shown below:
Due less than one year
Expiring between one and two years
Expiring between two and five years
Expiring after five years
Contractual cash flows
Carrying amount
29 March
2019
Bank
borrowings
£m
1.2
1.2
65.0
–
67.4
63.8
30 March
2018
Bank
borrowings
£m
1.1
1.3
85.0
–
87.4
83.7
The following table provides an analysis of the anticipated contractual cash flows for the Group’s forward currency contracts. Cash flows
receivable in foreign currencies are translated using spot rates as at 29 March 2019 (30 March 2018).
Due less than one year
Due between one and two years
Contractual cash flows
Fair value
2019
Receivables
£m
133.2
22.6
155.8
3.2
2019
Payables
£m
(130.9)
(21.7)
(152.6)
(1.4)
2018
Receivables
£m
133.6
20.7
154.3
0.3
2018
Payables
£m
(138.4)
(20.7)
(159.1)
(5.4)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
154
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 21. Capital and Reserves
Ordinary shares of 1p each:
Allotted, called up and fully paid
2019
Number of
shares
199,116,632
2019
£000
1,991
2018
Number of
shares
199,116,632
2018
£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 (2018: £151.0m).
In total the Company received proceeds of £0.4m (2018: £0.1m) from the exercise of share options. During the year the Company purchased
£1.0m (2018: nil) of its own shares.
Investment in Own Shares
At 29 March 2019 the Company held in Trust 2,134,139 (2018: 2,060,363) of its own shares with a nominal value of £21,341 (2018: £20,604).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value
of these shares at 29 March 2019 was £5.1m (2018: £6.7m). In the current period nil (2018: nil) were repurchased and transferred into the
Trust, with 254,689 (2018: 37,500) 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.
22. 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 £0.3m (2018: £0.4m).
1. Halfords Company Share Option Scheme
The CSOS was introduced in June 2004 and the Company has made annual grants up to and including 2016. 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 ten 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 the 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.
2. Management Share Plan (‘MSP’)
In the prior 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 ten 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.
155
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
22. Share-based Payments continued
3. Halfords Sharesave Scheme (“SAYE”)
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. The shares awarded under the Performance Share Plan (“PSP”) in 2016 and 2017
earned final dividends of 12.03p per share and were reinvested in shares at a cost of £3.23 per share. Shares awarded in 2016, 2017 and
2018 under the PSP earned interim dividends of 6.18p per share and were reinvested in shares at a cost of £2.41 per share.
The previous PSP performance criteria was weighted 25% towards Group revenue growth targets and 75% towards Group EPS growth
targets. From the 2018 award onwards the PSP performance criteria is weighted 50% towards Group EPS growth, 25% towards Group
revenue growth and 25% towards Group Free Cash Flow. 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
throughout the three-year performance period.
a net debt to EBITDA ratio no greater than 1.5
5
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.
5. Restricted Share Plan – Senior Management Plan (‘RSP-SMP’)
In the prior 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 to 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 29 March 2019
CSOS
MSP
SAYE
PSP
RSP-SMP
Number
(‘000)
4,198
–
WAEP
(£)
3.64
–
Number
(‘000)
358
371
WAEP
(£)
–
2.69
Number
(‘000)
3,078
851
WAEP
(£)
2.76
2.78
Number
(‘000)
2,086
1,288
WAEP
(£)
–
–
Number
(‘000)
561
–
WAEP
(£)
–
–
Outstanding at start of year
Granted
Shares representing dividends
reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year
–
(228)
(59)
(1,548)
2,363
–
–
3.34
3.07
3.73
3.63
–
(8)
–
(8)
713
–
Exercise price range (£)
Weighted average remaining
contractual life (years)
3.07–5.43
6.3
156
–
2.78
–
2.78
2.73
–
9.0
–
(689)
(40)
(204)
2,996
–
–
2.75
2.84
3.57
2.71
98
(837)
(8)
(365)
2,262
–
2.50–4.25
–
(90)
(148)
–
323
57
–
–
–
–
–
–
–
–
–
–
–
–
1.6
1.8
0.2
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 22. Share-based Payments continued
For the period ended 30 March 2018
CSOS
MSP
SAYE
PSP
RSP-SMP
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)
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
(£)
–
–
–
(750)
(5)
(1,030)
4,198
118
–
4.05
3.07
4.66
3.64
2.20–5.43
–
(2)
–
–
358
–
–
–
–
–
–
–
–
(636)
(33)
(44)
3,078
–
–
2.84
2.64
2.63
2.76
77
(541)
–
(266)
2,086
–
2.50-4.25
—
(30)
–
–
561
–
–
–
–
–
–
–
–
–
–
–
–
–
7.3
9.4
2.0
1.8
0.8
The following table gives the assumptions applied to the options granted in the respective periods shown:
52 weeks to 29 March 2019
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 (£)
CSOS
–
–
–
–
–
–
–
–
–
MSP
3.20
–
29.86%
10
3
–
5.77%
33%
2.69
SAYE
3.21
2.78
PSP
3.19/3.08/2.32
–
29.03% 29.60%/29.14%/31.18%
3
2.5/2.4/2.0
–
–
0%/0%/32%
3.19/3.08/2.32
3
3.5
0.99%
5.59%
44%
0.55
SAYE
3.33
2.77
PSP
3.19/3.58
–
52 weeks to 30 March 2018
MSP
3.26
–
28.99%
10
3
–
5.37%
33%
2.78
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%
0.6
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.
157
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
23. Commitments
Capital expenditure: Contracted but not provided
2019
£m
0.6
2018
£m
0.7
At 29 March 2019, 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
2019
£m
85.4
269.3
158.5
513.2
Other
assets
2019
£m
2.7
3.2
–
5.9
Restated
Land and
buildings
2018
£m
85.3
281.2
183.4
549.9
Other
assets
2018
£m
2.2
3.3
–
5.5
The Group leases a number of stores and warehouses under operating leases of varying length for which incentives/premiums are received/
paid under the relevant lease agreements. Land and buildings have been considered separately for lease classification. The operating lease
commitments are shown before total future minimum receipts of sublet income, which totalled £5.1m (2018: £5.7m).
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.
24. 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 £5.4m (2018: £5.5m).
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.
25. Contingent Liabilities
The Group’s banking arrangements include the facility for the bank to provide a number of guarantees in respect of liabilities owed by the
Group during the course of its trading. In the event of any amount being immediately payable under the guarantee, the bank has the right to
recover the sum in full from the Group. The total amount of guarantees in place at 29 March 2019 amounted to £4.0m (2018: £3.6m).
The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.
26. 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 159 to 164.
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 99 to 108. Key management compensation is disclosed
in Note 4.
Directors of the Company control 0.07% of the ordinary shares of the Company.
27. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
158
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors: amounts falling due within one year
Cash and cash equivalents
Creditors: amounts falling due within one year
Net current assets
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
29 March
2019
£m
30 March
2018
£m
Notes
4
5
6
6
8
8
8
9
21.2
20.9
494.4
5.1
499.5
(227.3)
272.2
(63.8)
229.6
2.0
151.0
(10.0)
0.3
86.3
229.6
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
The notes on pages 162 to 164 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 161.
The financial statements on pages 159 to 164 were approved by the Board of Directors on 21 May 2019 and were signed on its behalf by:
Loraine Woodhouse
Chief Financial Officer
Company number: 04457314
159
halfords.annualreport2019.comFinancial Statements
Company Statement of
Changes in Shareholders’ Equity
At 31 March 2017
Profit for the period
Share options exercised
Share-based payments
Dividends paid
At 30 March 2018
Profit for the period
Share options exercised
Issue of new Share Options
Share-based payments
Dividends paid
At 29 March 2019
Share
capital
£m
2.0
–
–
–
–
2.0
–
–
–
–
–
2.0
Share
premium
£m
151.0
–
–
–
–
151.0
–
–
–
–
–
151.0
Investment
in own
shares
£m
(9.5)
–
0.1
–
–
(9.4)
–
0.4
(1.0)
–
–
(10.0)
Capital
redemption
£m
0.3
–
–
–
–
0.3
–
–
–
–
–
0.3
Retained
earnings
£m
147.0
4.2
–
0.4
(34.8)
116.8
5.1
–
–
0.3
(35.9)
86.3
Total
£m
290.8
4.2
0.1
0.4
(34.8)
260.7
5.1
0.4
(1.0)
0.3
(35.9)
229.6
160
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 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 29 March 2019, whilst the comparative period covered the 52 weeks to 30 March
2018. 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 financial statements of Halfords Group plc are prepared on a going concern basis for the reasons set out in the Directors’
Report on page 68, and under the historical cost convention.
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100). The Company financial
statements have been prepared in accordance with 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 IFRSs have been applied, with
amendments where necessary in order to comply with Companies Act 2006. During the year IFRS 9 and IFRS 15 were adopted in line with
Group policy.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-
based payments, financial instruments, 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.
161
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
1. Profit and Loss Account
The Company made a profit before dividends paid for the period of £5.4m (52 week period to 30 March 2018: £4.6m). 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 99 to 108 which forms part of the audited information.
4. Investments
Shares in Group undertaking
Cost
As at 30 March 2018
Additions – share-based payments
At 29 March 2019
£m
20.9
0.3
21.2
The investments represent shares in the following subsidiary undertakings as at 29 March 2019 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
%
Principal
Activities
100 Intermediate holding company
In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.
162
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 4. Investments continued
The related undertakings of the Company at 29 March 2019 are as follows:
Principal activity
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*
Tredz Limited*
Wheelies Direct Limited*
Performance Cycling 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*
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
Intermediate holding company
Non-trading
Dormant
Retailing of cycles and cycle accessories
Non-trading
E-Commerce
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
* 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
2019
£m
494.4
494.4
2018
£m
485.8
485.8
Amounts owed by Group undertakings are subject to interest. At 29 March 2019 the amounts bear interest at a rate of 1.92% (2018: 1.75%).
163
halfords.annualreport2019.comFinancial Statements Notes to the Financial Statements
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)
2019
£m
19.2
207.2
0.9
227.3
63.8
63.8
2019
£m
19.2
63.8
83.0
2018
£m
19.7
148.7
0.6
169.0
83.7
83.7
2018
£m
19.7
83.7
103.4
The above borrowings are stated net of unamortised issue costs of £1.2m (2018: £1.3m).
Details of the Company’s borrowing facilities are in Note 16 to the Group’s financial statements.
8. Equity Share Capital
Ordinary shares of 1p each:
Allotted, called up and fully paid
2019
Number of
shares
199,116,632
2019
£000
1,991
2018
Number of
shares
199,116,632
2018
£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 (2018: £151.0m).
In total the Company received proceeds of £0.4m (2018: £0.1m) from the exercise of share options. During the year the Company purchased
£1.0m (2018: nil) of its own shares.
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 were set up in the prior year. Further information regarding these schemes can be found in Note 22 to the Group’s financial statements.
Investment in Own Shares
At 29 March 2019 the Company held in Trust 2,134,139 (2018: 2,060,363) of its own shares with a nominal value of £21,341 (2018: £20,604).
The Trust has waived any entitlement to the receipt of dividends in respect of its holding of the Company’s ordinary shares. The market value
of these shares at 29 March 2019 was £5.1m (2018: £6.7m). In the current period nil (2018: nil) were repurchased and transferred into the
Trust, with 254,689 (2018: 37,500) reissued on exercise of share options.
9. Reserves
The Company settled dividends of £35.9m (2018: £34.8m) 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 29 March 2019 amounted to £4.0m (2018: £3.6m).
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.
164
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Five Year Record
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit before non-underlying items
Non-underlying operating expenses
Operating profit
Net finance costs
Underlying Profit Before Tax**
Non-underlying operating expenses
Non-underlying finance costs
Profit before tax
Taxation
Taxation on non-underlying items
Profit attributable to equity shareholders
Basic earnings per share
Basic underlying earnings per share**
Weighted average number of shares
52 weeks to
27 March
2015
(pro forma)*
£m
1,004.9
(469.8)
535.1
(450.5)
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
52 weeks to
1 April
2016
(audited)
£m
1,021.5
(478.4)
543.1
(458.6)
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
52 weeks to
31 March
2017
(audited)
£m
1,095.0
(536.4)
558.6
(481.5)
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
52 weeks to
30 March
2018
(audited)
£m
1,135.1
(564.9)
570.2
(495.6)
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
52 weeks to
29 March
2019
(audited)
£m
1,138.6
(559.6)
579.0
(516.8)
62.2
(7.8)
54.4
(3.4)
58.8
(7.8)
–
51.0
(10.5)
1.4
41.9
21.2p
24.5p
197.1m
* 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 166.
165
halfords.annualreport2019.comShareholder Information Glossary of Alternative Performance Measures
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 EBIT
Depreciation & amortisation
Underlying EBITDA
Non-underlying operating expenses
EBITDA
Share-based payment transactions
Loss on disposal of property,
plant & equipment & intangibles
Working capital movements
Provisions movement & other
Adjusted Operating Cash Flow
FY19
£m
62.2
36.0
98.2
(7.8)
90.4
0.3
5.5
(10.4)
2.7
88.5
FY18
£m
74.6
34.9
109.5
(4.8)
104.7
0.4
4.1
(12.6)
(1.2)
95.4
8. Free Cash Flow is defined as Adjusted Operating Cash Flow
(as defined above) less capital expenditure, net finance costs,
taxation, exchange movement and arrangement fees on loans; as
reconciled below.
Adjusted Operating Cash Flow
Capital expenditure
Net finance costs
Taxation
Exchange movement
Arrangement fees on loans
Free Cash Flow
FY19
£m
88.5
(29.4)
(3.1)
(12.7)
(0.3)
(0.3)
42.7
FY18
£m
95.4
(37.0)
(1.9)
(16.1)
1.9
(0.8)
41.5
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
120. 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-
underlying items, as shown in the Group Income Statement on
page 120. Underlying EBITDA further removes depreciation and
amortisation.
3. Underlying Profit Before Tax is profit before income tax and non-
underlying items as shown in the Group Income Statement on
page 120.
4. Underlying Earnings Per Share is profit after income tax before
non-underlying items as shown in the Group Income Statement,
as shown on page 120, 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 on page 122; as
reconciled below:
Cash and cash equivalents
Borrowings – current
Borrowings – non-current
Net Debt
FY19
£m
9.8
(18.5)
(73.1)
(81.8)
FY18
£m
27.0
(20.8)
(94.0)
(87.8)
6. Net Debt to Underlying EBITDA ratio is represented by the ratio of
Net Debt to Underlying EBITDA (both of which are defined above).
166
Halfords Group plc Annual Report and Accounts for the period ended 29 March 2019 Company Information
Financial Calendar
Friday 26 July 2019
Final Dividend Record Date
Wednesday 31 July 2019
Annual General Meeting
Friday 30 August 2019
Final Dividend Payment Date
Wednesday 4 September 2019
20 Week Trading Update
Thursday 7 November 2019
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
Auditor
KPMG LLP
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
Joint Brokers
Investec plc
30 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
Designed and published by Jones and Palmer
167
halfords.annualreport2019.comShareholder Information Corporate and IR website
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Online Annual Report 2019
halfords.annualreport2019.com
Commercial Website
www.halfords.com