Halfords Group Annual Report 2020

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FY2020 Annual Report · Halfords Group

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Halfords Group plc
Annual Report and Accounts
for the period ended 3 April 2020

Stock code: HFD

TO INSPIRE
AND SUPPORT A
LIFETIME OF MOTORING
AND CYCLING

Halfords is the UK’s leading
provider of motoring and cycling
products and services.

OUR PURPOSE

To Inspire and Support a Lifetime of motoring and cycling.

OUR VISION

The super-specialists in motoring and cycling,
trusted by the nation.

Read more on our purpose
and vision on pages 20 to 21.

OUR STRATEGY

Inspire

Support

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

Read more on our strategy
on pages 32 to 39.

Our Integrated Report

This is our sixth integrated report and is
designed to provide a concise overview of
how we generate value for all Shareholders.

By following an integrated reporting model,
we aim to show how our competitive
advantage is sustainable in the short,
medium, and long-term.

Whilst this report focuses on value
generation for our shareholders, it also
demonstrates how we interact with all
of our stakeholders.

Online Annual Report
Read our Annual Report online, including a
link to the full Remuneration Policy

halfords.annualreport2020.com

Corporate Website
Catch up with our latest news and
learn more about Halfords on our
corporate website

www.halfordscompany.com

What’s in this Report
Overview

A Year of Focus and Momentum
Group Highlights
Investment Case
Group at a Glance
Chairman’s Statement
Chief Executive’s Statement

Strategic Report

Our Purpose, Values, Strategy
and Culture
Our Marketplace
How We Create Value
Our Strategy
Our Key Performance Indicators
Our ESG Strategy
s172(1) Statement
Chief Financial Officer’s Report
Our Principal Risks and Uncertainties
Viability Statement

Our Governance

Board of Directors
Directors’ Report
Corporate Governance Report
Nomination Committee Report
ESG Committee Report
Audit Committee Report
Remuneration Committee Report
– Directors’ Remuneration Policy
– Directors’ 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

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06
08
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12
14

20
22
28
32
40
44
59
60
66
79

82
84
90
112
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116
120
122
132
141

144
150

151

152

153

154

155
156
168
190

191
192
193

198

199
200

A Year of Focus and Momentum

We are fulfilling our vision
to be super-specialists . . .

retail

. . . and building a
sustainable future . . .

Mobile Expert

. . . by responding to the
nation’s needs . . .

. . . always caring about our
customers’ lives on the move.

halfords.annualreport2020.com

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We are fulfilling
our vision to be
super-specialists . . .

Halfords is the
nation’s go-to retailer
and services provider
for motorists and
cyclists
We are a household-name retailer with over
125 years of heritage and market-leading
awareness of our brand. Over 20 million
customers visit us each year.

We have nationwide coverage, offering
customers a unique and differentiated
omnichannel experience across motoring
and cycling products and services.

Read more on our marketplace
on pages 22 to 27.

Inspire

We are increasing our range of
unique and innovative products,
furthering our progress towards
our vision to be super-specialists
in motoring and cycling.

Support

We are supporting our customers
through a unique and more
convenient services offer.

Lifetime

Our move to super-specialism
will drive customer loyalty and
retention.

retail

Mobile Expert

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

. . . by responding
to the nation’s
needs . . .

Evolving into a
services-focused
business
There is a clear rationale to further accelerate
our service-led strategy. The UK’s motoring
service market is highly-fragmented with no
clear market leader. Combined with our unique
and advantaged business model, we have
a significant opportunity to accelerate the
growth of our Services business.

Our services proposition has been further
enhanced by the acquisitions of McConechy’s
Tyre Service and Tyres on the Drive, which
bring scale, convenience and capability to the
Halfords Group.

Read more in our marketplace
on pages 22 to 27.

Read more on our strategy
on pages 32 to 38.

Inspire

Our investment in colleagues
and technology will give us
a competitive advantage
in a fragmented market of
independent operators.

Support

Expanding our physical footprint
in garages and mobile vans will
provide even more convenience
to the customer.

Lifetime

We will grow our business via the
acquisition of new customers,
harnessing the scale of the Group.

Mobile Expert

halfords.annualreport2020.com

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. . . and building
a sustainable
future . . .

Acting responsibly for
a sustainable future
Sustainability is a well-established, but
growing area, in the retail sector, with
consumers increasingly mindful of ‘green’
living, reduction of plastic consumption and
ethical recycling.

We have a unique opportunity to support
sustainability efforts by helping to build an
‘electric nation’, through the provision of
E-mobility bikes and scooters and the service
and maintenance of E-bikes, E-scooters and
electric vehicles.

Read more on our ESG
strategy on pages 44 to 58.

Inspire

We are championing the shift
to electric mobility by inspiring
our customers and communities
to make better environmental
choices.

Support

We will help put the consumer
in control, through products,
services and solutions. We will
support them on their road to an
electric future.

Lifetime

We aim to make our business
carbon neutral by 2050 by
engaging our colleagues to
help us deliver on our Lifetime
ambition.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

. . . always caring
about our customers’
lives on the move.

Our colleagues are
the driving force
behind our success
Our colleagues are at the heart of our business
and have passion, dedication and a ‘can do’
attitude, making them the foundation of our
long-term sustainable success.

Read more on our culture
on pages 94 and 95.

Read more on our S172
statement on page 59.

Inspire

We strive to ensure all colleagues
enjoy their work and have
opportunities to consistently
inspire our customers through
their ‘super-specialist’ expertise.

Support

We motivate and encourage all
colleagues to be responsive and
support our customers with their
motoring and cycling needs.

Lifetime

We continue to invest in our
colleagues and ensure they
are fully engaged to drive our
long-term sustainable growth
ambitions.

halfords.annualreport2020.com

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Group Highlights

EVOLVING
INTO A
CONSUMER
AND B2B
SERVICES-
FOCUSED
BUSINESS

The opportunity in services,
specifically motoring, coupled with
our growing scale and capability
in this space, supports our plan to
accelerate investment in this area.
We will evolve into a consumer and
B2B services-focused business,
with a greater emphasis on
motoring, generating higher and
more sustainable financial returns.

STRATEGIC HIGHLIGHTS

ACQUISITIONS

Tyres on the Drive
In November 2019, we announced the
purchase of the trade and assets of the
mobile tyre fitting company “Tyres on the
Drive”. This acquisition bolsters our fleet
of mobile vans, taking us up to 75 by the
end of the year, and gives us ownership
of best-in-class software to operate the
business.

McConechy’s Tyre Service
In November 2019, we also announced the
acquisition of McConechy’s Tyre Service
Limited, one of the UK’s leading garage
chains, operating from 57 sites with 330
skilled colleagues and close to 100 vans
providing 24-hour service for commercial
customers. The acquisition helped us to
establish strong coverage in Scotland
and the North of England and accelerates
our plan to reach 550 garages in the
medium-term.

Read more in our strategy on
pages 32 to 38.

Accelerating our Strategy
At our Capital Markets Day in September
2018, we laid out our customer strategy
“To Inspire and Support a Lifetime of
motoring and cycling”. The strategy
emphasised the importance of product
differentiation, the value of unique and
convenient services and the need to
build long-term relationships with our
customers. Consistent with our strategic
direction, we are confident that this is
the right time to accelerate the growth of
our motoring services business, which
will enhance our differentiated position
in the market and provide a less capital-
intensive source of profitable growth. We
believe our plan enables the business to
evolve into a consumer and B2B services-
focused business, with a greater emphasis
on motoring, generating higher and more
sustainable financial returns.

Web replatform
The launch of our new Group web platform
in February 2020 was a significant
achievement, transforming the digital
experience and, for the first time, allowing
customers to access an integrated
service offer across retail stores, garages
and mobile vans through one website.
Encouragingly, the website held up well
in the face of very significant increases in
traffic driven by the COVID-19 lockdown,
as customers transitioned to digital order
channels in a very short space of time.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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FINANCIAL

OPERATIONAL

Revenue (£m)1

Underlying Profit Before Tax (£m)1,2

+0.3%20

£1,142.4m

£1,138.6m

£1,135.1m

£1,095.0m

£1,021.5m

-4.9%20

£55.9m

£58.8m

£71.6m

£75.4m

£81.5m

Profit Before Tax (£m)1,2

Dividend Per Ordinary Share (p)

-55.5%

£22.7m

-66.7%

6.18p

£51.0m

£67.1m

£71.4m

£79.8m

18.57p

18.0p

17.5p

17.0p

Underlying Basic EPS (p)1,2

Basic EPS (p)1,2

-0.8%20

24.3p

-51.4%20

10.3p

21.2p

27.8p

28.7p

32.5p

24.5p

29.6p

30.3p

33.2p

1 These numbers are calculated on a 52-week basis
2 These numbers are calculated on a pre-IFRS 16 basis

Read more in the Chief Financial
Officer’s report on pages 60 to 65.

75%

Group revenue
matched to
customers

26%

Total Group
sales which are
service-related

82%

of halfords.
com online
orders click
and collected
in-store

15%

Total Group
sales from B2B
channels

halfords.annualreport2020.com

Investment Case

FIVE REASONS TO INVEST

1
Market-leading business

We are the UK’s largest retailer of motoring and cycling
products and services, allowing us to drive benefits in
procurement, innovation and customer offering. In car
servicing, the market is highly fragmented with no clear
leader – with 2% share we have significant opportunity
for growth.

2
Value-creating opportunities

Our strategy will see us develop into areas with good long-
term growth prospects such as motoring services, B2B and
electric mobility. We also have opportunities to significantly
improve return on invested capital.

3
Building a service-focused
business

4
Strong balance sheet
and cash generative

In the medium-term, half of our business will be in Services
– which are essential in their nature – meaning we are a more
resilient business with higher customer retention, a lower
risk profile and stronger and more sustainable returns on
capital.

The Group has always maintained a strong balance sheet
and benefits from a cash generative business model, with
good Free Cash Flow enabling investment in our plan.

5
Dividend returns

Until the COVID-19 pandemic we have consistently paid a
dividend, supported by strong levels of Free Cash Flow. In
normal times, we remain committed to returning cash to
shareholders through an ordinary dividend.

08
08

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020
Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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Our Strengths

Post-COVID-19 Benefits

Our strategy and investment case remain valid, but we believe
COVID-19 is likely to lead to some further long-term benefits.

Unique and differentiated
products and services

Increase in cycling
and motoring journeys

We offer a wide range of unique and differentiated products,
with exclusive ranges and customer-led innovative products.
Much of our Services proposition is also unique, including, for
example, on-demand fitting.

Continued avoidance of public transport will result in a larger
number of consumers resorting to individual journeys by
bike, car or scooter. The ongoing benefit of higher levels of
ownership are accelerated by lockdown, particularly bikes.

Unique, technology-driven
proposition in our physical estate

An ageing
UK car parc

We utilise market-leading and unique proprietary technology in
our stores, garages and mobile vans, enabling our colleagues
to deliver a best-in-class proposition.

A recessionary environment will lead to consumers holding on to
cars for longer. Combining this with an aversion to public transport,
demand for car servicing for cars over three years old will increase.

Convenient services proposition
delivered in c.900 locations

Opportunity to accelerate
reduction of property debt

We are the only business in the UK able to offer Motoring
Services in a retail store, a garage, at home or at work, providing
customers with unparalleled choice and convenience.

Growth in online, Click & Collect, and home and work delivery
will accelerate reshaping of our store portfolio, reducing our
expensive retail estate.

Omnichannel customer
proposition

Healthy living and
climate change

Our business has a strong omnichannel customer proposition
with high levels of Click & Collect driving footfall into stores,
giving us a unique advantage over online competitors.

An increased focus on healthy living and a greater conviction to
tackle climate change will drive higher demand in bikes and electric
modes of transport. Fears of travel abroad and lower discretionary
spend will mean a rise in staycations.

Super-specialist expertise that
cannot be replicated

Further consolidation of our
competitor set

As a super-specialist, we have unmatched product and
services expertise across both motoring and cycling, creating
a significant barrier to entry for our generalist competitors,
both on and offline.

With the financial challenges many businesses have been
confronted with as a result of COVID-19, it is possible that
there will be further consolidation of our competitor set.

halfords.annualreport2020.com
halfords.annualreport2020.com

09
09

Group at a Glance

As a Group we are stronger and more efficient together.

Cycling

OUR PORTFOLIO

e t a il C y c ling 27%

Perfo
C
yclin
g

GROUP
REVENUE

c
e
s
2
6
%

otoring 42%

Motorin g

Motoring

Retail Cycling: 10%

Autocentres
Mobile Expert: 64%

Retail Motoring 26%

446Retail stores

371Garages

75Mobile Expert Vans

Services

Products

26Performance Cycling Stores

As of 3 April 2020

Cycling

Our strong heritage and brand mean that
Halfords is a destination for consumers
who need assistance with their vehicles.
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 WeFit and WeCheck
propositions. As part of the response to
COVID-19, Halfords played an important role
in keeping the UK moving, continuing to
offer essential products and services to
the public so that key workers could
continue to support the nation.

Through our Autocentres garages and
mobile expert vans, Halfords offers great
value and convenience for customers
requiring car servicing, repairs and MOTs.
The strength of our brand and the scale of
our estate enables us to invest in the most
up-to-date equipment and technology.

Through our acquisitions of Tyres on the
Drive and McConechy’s Tyre Service,
we have accelerated the growth of our
Autocentres business, expanding our fleet
of Mobile Expert vans and the number of
garages we operate in, bringing us closer
to our target of 1,000 service locations in
the UK.

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 clear market leader,
with strong brand awareness in bicycles,
scooters, parts, accessories and clothing.

Having announced the closure of Cycle
Republic during the year, we now serve
the needs of all cyclists, from mainstream
to commuter to enthusiast, through our
Halfords and Tredz brands. Tredz is an
online-focused business, with high brand
equity and a lower-cost operating model,
serving the performance cycling market.

The majority of bikes and scooters sold
by Halfords are own-brand. These brands
include Apollo, Carrera and Boardman.
However, we support our ranges with
other selected third-party brands, such as
Specialized, Giant, Cannondale, Cube, Scott,
Haibike, Brompton, G-tech and Xiaomi.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020
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halfords.annualreport2020.com

I would like to start my second Chairman’s
statement by recognising the efforts
of all Halfords’ colleagues in support of
the Group’s response to the devastating
impacts of COVID-19. Our Senior
Management team acted swiftly and
decisively in adapting the Group’s operating
model to provide the UK public with
essential products and services, whilst
implementing important measures to keep
both colleagues and customers safe.

Our colleagues are the lifeblood of
Halfords and I would like to thank them all
sincerely for their dedication throughout
the year and particularly during the last few
months. There are numerous examples of
our colleagues going above and beyond
to serve our customers, most notably in
supporting key workers to keep the UK
moving during this unprecedented health
crisis. I am proud that we have offered
our expertise to the nation’s healthcare
and emergency service workers, having
served over 50,000 frontline workers
since the crisis began. In recognition of
our colleagues’ efforts, we have created a
Frontline Colleague Support Fund of
£2.3m, to reward them for their extraordinary
commitment to Halfords and its customers
during this difficult period.

Section 172 Statement
I would like to draw your attention to our
section 172 statement on page 59. I further
expand on this in the Corporate Governance
section of this report, in which I explain
the frameworks and practices we have

Chairman’s Statement

Keith Williams
Chairman

AGAINST A
CHALLENGING
MARKET BACKDROP,
HALFORDS
PERFORMED
STRONGLY IN
FY20 AND MADE
SIGNIFICANT
PROGRESS ON THE
DELIVERY OF ITS
STRATEGIC PLAN.

2019/2020 HIGHLIGHTS

£55.9m

Underlying Profit Before Tax

£54.6m

Free Cash Flow

£73.2m

Closing Net Debt

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020implemented to ensure high standards
of governance, values and behaviours,
consistently applied across the Group.
The statement includes details of key
strategic decisions made by the Board
during FY20 and an explanation of how
different stakeholder groups have been
considered. The COVID-19 pandemic has
accelerated the need for fast and effective
decision-making that is balanced across
all our stakeholders, including colleagues,
customers, shareholders and suppliers.

FY20 Performance and Dividend
For the financial year ended on 3 April
2020, COVID-19 only impacted the final
few weeks of the reporting period. In a
year dominated by political uncertainty,
low levels of consumer confidence and
another very mild winter, Halfords Group
turned in a resilient and highly credible
performance. Sales growth of +0.3%, with
the mid-year acquisitions of McConechy’s
and Tyres on the Drive contributing strongly,
was complemented by gross margin
improvements, tight cost control and a
further reduction in working capital.

Underlying Profit Before Tax, on a pre-IFRS
16 and 52-week basis, was £55.9m, only
marginally lower than last year despite the
challenging retail environment and the
impact of COVID-19. Excluding the impact
of COVID-19 and mid-year acquisitions,
underlying profit was in line with the
prior year. In part due to another strong
performance on working capital, Net Debt
reduced by £8.6m in the year, ending
at £73.2m. Further details are available in the
Chief Financial Officer’s Report on page 60.

Considering the uncertainty driven by the
potential future impact of COVID-19, the
Board has taken a series of measures to
preserve cash, including the suspension of
the dividend. The final dividend payment is
therefore nil, meaning the full-year ordinary
dividend is 6.18 pence.

An Acceleration of Our Strategy
In November 2019, we announced our
intention to accelerate a key part of the
Strategy. As we explained then, we believe
this is the right time to accelerate the
growth of our motoring services business,
enhancing our differentiated position in
a fragmented market and providing the
Group with a less capital-intensive source of
profitable growth. As a result, Halfords will
evolve into a consumer and B2B services-
focused business, with a greater emphasis
on motoring, generating higher and more
sustainable financial returns.

The Year Ahead
Last year I spoke about the uncertainty
of Brexit and the challenging economic
backdrop. These remain but have now
been overtaken by the unprecedented
event of COVID-19. It is very difficult to
know with any degree of certainty how the
near-term future will look, but whatever the
environment, Halfords Group remains in a
strong position to weather the storm. We
have the right strategy in place for the long-
term and an experienced leadership team
to deliver it, supported by thousands of
dedicated colleagues. I have no doubt that
the future of Halfords is in safe hands.

Keith Williams
Chairman

6 July 2020

In a year dominated by political
uncertainty, low levels of consumer
confidence and another very mild
winter, Halfords Group turned
in a resilient and highly credible
performance.

This accelerated strategy remains
fundamentally unchanged post-COVID-19
but we will adjust some aspects of the
plan and the way we execute it. Capital
expenditure will be lower in the short
term, so we will defer the capital-intensive
aspects of the plan until we have the
confidence to increase investment. We will,
however, accelerate other aspects, such as
our investment in Digital and reducing the
property cost of our Retail estate. Our long-
term strategy remains the right direction
for Halfords and the way we have traded
through COVID-19 only underlines our
confidence that we are on the right path.

halfords.annualreport2020.comOverviewStrategic ReportOur GovernanceFinancial StatementsShareholder InformationOperational Review
To aid comparability, all numbers shown
are before adopting IFRS 16, before non-
underlying items and on a 52-week basis,
unless otherwise stated.

Retail
Over the full-year, Retail revenue of £950.6m
was -2.3% below last year on a LFL basis.
Week 52 of FY20 was materially impacted by
COVID-19 and, as such, sales up to week 51
were better at -1.8% LFL.

Motoring
Our market share continued to grow in core
motoring categories against a backdrop of
low consumer confidence and mild winter
weather. Overall LFL sales declined -5.3%
for the full-year and -4.4% up to week 51.
We performed well in the more resilient and
less discretionary categories such as 3Bs
(bulbs, blades and batteries), which grew
+2.4%, Child Safety products, which grew
+9.1% as we gained share from weaker
competitors, and Car Security, which
was up +14%. As in Cycling, we continue
to innovate, successfully introducing a
‘weCheck’ services offer into the proposition
on a free and paid-for basis.

Cycling
Cycling performed strongly in H2, resulting
in +2.3% LFL growth for the year and three
successive quarters of growth. Sales of
E-bikes, which were up +45% year-on-year

Chief Executive’s Statement

Graham Stapleton
Chief Executive Officer

THIS HAS BEEN
ANOTHER YEAR OF
GOOD PROGRESS
AGAINST THE
BACKDROP OF A
RETAIL MARKET THAT
WAS CHALLENGING
EVEN BEFORE THE
EMERGENCE OF THE
COVID-19 PANDEMIC..

2019/2020 HIGHLIGHTS

26%Total Group sales which are

service-related

15%Total Group sales from B2B channels

17%Growth of 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 199.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Growth in services is a critical part
of our strategy and our ability to
provide these from approximately
900 fixed and mobile locations
across the UK provides customers
with a convenience unmatched by
any other UK business.

and accounted for nearly 20% of adult bikes,
benefited from improved merchandising in
stores and high customer demand. Adult
Mechanical and Kids bikes also grew over
the full-year. Our own-brand and exclusive
ranges of electric bikes, mechanical bikes
and scooters offer our customers unrivalled
levels of choice and value and we continue
to bring new and innovative products to the
market. We are well positioned to serve the
increasing demand for these products and,
as the largest national provider of cycling
services, we are also ready to support
customers beyond their first purchase.

Retail Gross Margin
Retail gross margin increased by 20bps
with strong progress across both Motoring
and Cycling. In line with our strategy to
improve Cycling profitability, gross margins
increased +117bps versus last year, driven
by significant improvements in adult bikes.
In Motoring, gross margin was up +138bps
year-on-year, helping to offset the adverse
mix impact of lower Motoring sales. Our
strong margin performance was driven by

several factors, including buying efficiencies
and better focussed promotions.

Retail Operating Costs
Retail operating costs were well managed
and declined -1.5% year-on-year, before
the impact of IFRS 16. This was the result
of a sharp focus on operational efficiency
and improved procurement discipline, the
benefits of which more than offset important
strategic investments and ongoing
inflationary pressures such as national
minimum wage increases.

Autocentres
Full-year Autocentres revenue was £191.8m,
growing 18.8% year-on-year and +1.4% on
a LFL basis. Autocentres was also subject
to a material COVID-19 impact with sales
up to week 51 stronger, at +2.2% LFL. The
acquisitions of McConechy’s and Tyres on
the Drive during H2 provide a significant
opportunity in the medium-term as we
successfully integrate these businesses
into the Group. The underlying business,
excluding the acquisitions, increased EBIT

by over 40% to £7.8m, the third consecutive
year of strong profit growth. This reflects
the development of an enhanced operating
model which also led to a significant
improvement in customer service scores.

Group Services
Group Services revenue, which comprises
fitting and repair services and the associated
product, grew +8.9%, representing 26% of
Group sales in FY20. We continued to expand
our range of services, adding weCheck and
new cycle care services in Retail, trialling
on-demand fitting in Autocentres, and
expanding our Mobile Expert vans from 3 to
75. Growth in Services is a critical part of our
strategy and our ability to provide these from
approximately 900 fixed and mobile locations
across the UK provides customers with a
convenience unmatched by any other UK
business.

Online
Group online sales had another very strong
year, with revenue growth of +17%, now
accounting for 24% of Group sales in FY20.

halfords.annualreport2020.comOverviewStrategic ReportOur GovernanceFinancial StatementsShareholder InformationChief Executive’s Statement

Growth was strong before and after the
launch of our new Group web platform in
February 2020, which provides customers
with a vastly improved digital experience
and, for the first time, gives them access to
an integrated services offer across mobile,
stores and garages through one website.
The new web platform coped well with an
unprecedented shift to online ordering
during the COVID-19 lockdown, when
physical store operations were severely
curtailed. The importance of our store
network, colleague expertise and services
proposition continued to be evidenced by
the strength of Click & Collect, with over
80% of orders placed on www.halfords.com
picked up in stores.

B2B
Group B2B sales grew 25% year-on-year
and represented 15% of Group sales in
FY20. In the past year we have focussed
on developing deeper relationships with
key strategic partners to support growth

within our key markets. This has been
supported by investment in our technology
infrastructure to streamline key customer
and client processes. We have also
broadened our proposition range to expand
our B2B offering within motoring services.

Progress on Strategy in FY20
To Inspire and Support a Lifetime of
motoring and cycling

In November 2019 we announced an
acceleration of our strategy ‘To Inspire and
Support a Lifetime of motoring and cycling’.
We made significant progress against our
strategic objectives in FY20, which laid
strong foundations to support our response
to COVID-19 and positioned us well for FY21
and beyond. Notable highlights include:

•

Our Group web platform launched as
planned in Q4, transforming the digital
customer experience and consolidating
our broad services offer in one website.

• We exited Cycle Republic and the

Boardman Performance Centre,
enabling us to focus investment on our
higher-returning mainstream offer in
Halfords and our performance cycling
proposition in Tredz.

Continued development of our Halfords
Mobile Expert proposition, delivering
best-in-class customer service
reflected by strong Trustpilot scores.
The acquisition of Tyres on the Drive
increased our mobile hub footprint
from 1 to 7 and our van footprint from
3 to 75, providing a strong platform for
future growth.

Acceleration of our growth in
Autocentres through the acquisition
of McConechy’s Tyre Service Limited.
Through this we acquired one of the
UK’s leading garage chains with 57
sites and 100 vans, establishing strong
coverage in Scotland and the North of
England.

Completed the upgrade of PACE,
our digital operating platform, in all
Autocentres garages. PACE enables a
tablet to be put in the hands of every
technician, providing customers with
the assurance of quality and enabling
our garages to optimise resource
allocation and labour efficiency.

Delivered significant cost savings
through supply chain efficiencies, Retail
productivity programmes, property
savings and improved procurement
practices, and reduced Working Capital
by £11m on average throughout FY20.

Strategic buying alliance agreed
with Mobivia, a leading player in the
European motoring products and
services market. The relationship, in its
early stages, is progressing well.

•

FY21 Strategy Focus
In November 2019 we announced an
acceleration of our strategy, emphasising
the importance of growing our motoring
services and B2B businesses. The strategy
remains absolutely the right direction for
Halfords but, given the unprecedented
impact of the COVID-19 pandemic, we are
moderating our near-term plan. COVID-19
has materially changed the retail outlook for
the coming months and has overshadowed
Brexit as the emerging risk. We have
therefore adjusted our short-term focus
to reducing cost and working capital,
ensuring our colleagues are engaged
in the success of the business and, of
particular importance, adapting quickly
to new customer trends. We will continue
to transform the business and develop

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020We made significant progress
against our strategic objectives
in FY20, which laid strong
foundations to support our
response to COVID-19 and
positioned us well for FY21.

•

campaigns and working capital
reductions.

Developing our Halfords-branded
customer proposition by continuing
to transform our Group web platform
and digital customer experience. In
addition, we will invest in expanding
our Services business, leveraging our
financial services offer and growing our
B2B channels.

Swiftly integrating the acquisitions of
McConechy’s and Tyres on the Drive,
using our best-in-class technology
across the Services offer.

Continuing to develop PACE, our digital
operating platform in Autocentres, with
a view to transferring best practice to
services delivery in Retail and mobile
vans.

Expanding our Mobile Expert vans
to under-served parts of the UK,
increasing our original target of 100
vans to a revised target of 120 vans by
the end of FY21.

•

Upweighting investment in the
engagement and development of our
colleagues, ensuring they are strongly
engaged in our transformation journey.

In FY21, we will be more focussed on
delivering the most important initiatives that
provide the quickest and most attractive
returns, whilst building the underlying
strength of the business for FY22 and
beyond. As a consequence, we are planning
for lower capital expenditure in FY21,
which we now expect to be in the range of
£20-30m. As trading conditions improve,
however, we will seek to continue our
transformation journey at pace, in line with
the current strategy but adjusted for a new
post-COVID-19 world.

Graham Stapleton
Chief Executive Officer

6 July 2020

our customer strategy in FY21, but we
will put greater emphasis on responding
to emerging trends and laying solid
foundations for FY22. Our areas of focus in
FY21 are:

•

A stronger emphasis on reducing the
operating costs of the Group, including
but not limited to:
−

the closure of up to 10% of the
Group’s physical estate, having
already exited 22 Cycle Republic
stores and 5 Halfords stores and
garages so far this year

targeted rent reductions reflecting
the current market dynamics

a review of all GNFR contracts
and the tendering of several key
agreements

revisiting the costs of our logistics
network

−

•

Continuing to grow the profitability
and returns of our core categories,
particularly Cycling, through buying
efficiencies, more targeted promotional

halfords.annualreport2020.comOverviewStrategic ReportOur GovernanceFinancial StatementsShareholder Information

Strategic
Report

20
22
28
32
40
44
59
60
66
79

Our Purpose, Values,
Strategy and Culture

The successful implementation of our strategy is critical to the delivery of the Group’s purpose and is underpinned
by the values and behaviours that shape our culture and the way that we conduct our business.

OUR PURPOSE
To Inspire and Support
a Lifetime of motoring
and cycling

OUR VISION

The super-specialist in motoring and cycling,
trusted by the nation

OUR MISSION

1. Make motoring easier, safer and more enjoyable for everyone.

2. Get more people cycling, more frequently.

Inspire

Support

Lifetime

Our Strategic Priorities

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

Culture
A team inspired and motivated to drive towards delivering our Goals, Mission, Vision and Purpose who live and breathe
our brand values and represent the very best of what we offer as a business to our customers.

Being a Purpose-Driven Organisation
The Board recognises the importance of its
role in ensuring the culture of the organisation
is aligned to its purpose, business strategy and
ambition to become a market-leading services
business. In support of this, a full cultural review
was completed this year.

Defining Our Culture
We are reliant on the culture of our business
and the engagement of our colleagues, in
addition to their skills, to achieve our ambition.
It was therefore essential that we engaged
with colleagues from all areas of the business
to complete this review, which builds on our
long-standing cultural strengths and unites

all parts of our business to deliver a joined-up
experience for our customers. Over 1,300 of
our colleagues supported the development
of our colleague values and associated
behaviours, through a combination of both
face-to-face workshops and questionnaires.

What This Means for Halfords
In embracing our new values, our colleagues
will work together and use their skills and
expertise to deliver an excellent and efficient,
joined-up customer experience - wherever they
shop across the Group.

Due to the COVID-19 pandemic we took the
decision to delay the roll-out until the first
half of FY21 to ensure that it will have the full
attention of our colleagues across the Group,
this was led by senior leaders who had training
sessions which commenced prior to the onset
of the pandemic. We look forward to sharing
our colleague values with you following our
internal roll-out.

Shareholders will benefit from our ability to
deliver our financial commitments through the
generation of additional profitable sales and a
reduction in costs.

Read more about how the Board monitors
our culture on pages 94 and 95.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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halfords.annualreport2020.com

Our Marketplace

Our Motoring and Cycling products segments remain core but we have a greater market
opportunity in growing our existing services business. We will evolve into a consumer and
B2B services-focused business, with a greater emphasis on motoring.

THE MARKET OPPORTUNITY

The UK car servicing market is highly fragmented with no clear market leader – with just 2% market share we have significant opportunity
for growth and an ambition to become the UK’s largest independent provider of automotive service, maintenance and repairs.

Our motoring and cycling products and services

Services

Products

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Our Strategic Focus

Autocentres

Retail Motoring
Services

Cycling
Products

B2B

Performance
Cycling
Products

Motoring
Products

ROIC

Retail Cycling
Services

Our highest value-creating opportunities
are in motoring services, which are delivered
through Retail stores, Autocentres garages
and Mobile Expert vans. In Retail, the vast
majority of our service-related sales are
in motoring, which provide good returns
on invested capital and significant market
opportunity, especially when services are
sold with motoring products.

Autocentres has a good return on invested
capital (“ROIC”), through low capital intensity
and an improving profit margin. We only have
2% market share of a highly fragmented
market where there is no clear market leader
in the UK and Ireland. This presents an
interesting and very real opportunity.

Cycling products and services, despite
offering lower returns than motoring, will
remain a key part of Halfords’ future. Our
cycling offer is now even more important
as we help the UK public respond to the
challenges of COVID-19.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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Retail Macro-Customer Trends

DIY to DIFM
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.

Ominchannel Shopping
Modern consumers expect a
seamless shopping experience
across all channels and touchpoints.
Our mission is to provide a best-in-
class digital-led customer journey,
that leverages all our digital and
physical assets. Our locations are an
important differentiator from online
competitors, providing a convenient
Click & Collect proposition and the
delivery of services and expertise by
our in-store colleagues.

Sustainability
The requirement for sustainable
practices is now impacting all
retailers in the UK, with consumers
increasingly expecting proactive
policies on climate change, clean
air, reduction of plastic waste and
ethical recycling. The impact that
we are having on the world and the
footprint we are leaving behind is set
to shape markets in the future.

Link to Strategy 2

Link to Strategy

Link to Strategy 3

Move from Owning to Using
Economic, political and health crises
have reduced consumer willingness
to purchase ‘big ticket’ items.
Particularly apparent among younger
people, there is an increasing trend
towards short and long-term renting
rather than owning, evidenced by
the increase in PCP schemes, car-
sharing initiatives and bike rental.

Experiences over Product
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.

Convenience
Consumers’ lifestyles are getting
busier, free time is becoming more
valuable, and consumers expect
retailers to fit around their routines.
Our customers want their car or bike
fixed as quickly as possible, at a time
and place that suits them.

Link to Strategy 1

Link to Strategy 2

Less Brand Loyalty
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
Personalisation is an important 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.

Link to Strategy 3

Link to Strategy 1

New Post-COVID-19 Trends

Healthy Living and Exercise
During the COVID-19 lockdown,
maintaining a healthy lifestyle was
encouraged via healthy eating and
daily exercise, in particular walking,
running and cycling outside, along
with home workouts. UK consumers
are likely to continue this trend,
continuing to put their health first.

Social Distancing
Whilst the presence of COVID-19
continues, the public will likely carry
on avoiding busy places such as
restaurants, pubs and forms of
public transport. As the UK’s largest
provider of cycling and motoring
products and services, Halfords is
well placed to help the UK public
move around in the most safe, clean
and economical way possible.

Link to Strategy 1

Inspire

Support

Lifetime

halfords.annualreport2020.com

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 selling all of our
product ranges. 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

£3.5bn
Market
size

20–25%
Our
share

Forecasted
market growth

Key Facts

£9bn
Market
size

2%
Our
share

Forecasted
market growth

Our Approach

Car Parts, Accessories, Consumables and
Technology
Our strong heritage and brand mean that Halfords is a destination
for consumers who want inspiration and support with their
vehicles. 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. Whilst some of the traditional motoring product
markets are in decline, there is opportunity for innovative, unique
and differentiated products to be brought to market. Halfords is
also seeing an increase in service-related sales as more people
are preferring to have an expert fit or install products as opposed
to performing it themselves.

Key

Autocentres

Retail Motoring Services

Car Servicing and Aftercare
The automotive servicing market is large and highly fragmented
with no clear leader, and with only 2% share, there is significant
opportunity for Halfords to grow. Increasing car complexity,
accelerated by the transition to electric, is expected to drive
growth in this market. Our goal is to operate from 1,000 service
locations in the UK and ROI, whether a Retail store, a garage or a
mobile van. This will enable us to deliver customers the services
they want at a location convenient to them.

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 this fragmented market
dominated by 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, with
the majority of our centres now capable of servicing hybrid and
electric vehicles.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Motoring Market – Competitor Landscape

CAR PARTS, ACCESSORIES,
CONSUMABLES AND TECHNOLOGY

CAR SERVICING AND
AFTERCARE

•

Limited number of specialists but a highly diverse and
competitive set of retailers (e.g. Amazon) selling generalist
product ranges

•

Limited retail bricks and mortar competition

• Technological advancements limit scope for effective delivery

by small independent garages

• Car dealerships expanding into used car servicing

• Some evidence of sales aggregation (e.g. My Car Needs A…) and

• Wholesalers and generalists moving into specialist retail

mobile services entrants

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 heritage of over 125 years 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 exclusive product ranges and
our colleague expertise. Significantly, we have an established and
growing ability to provide services on demand in-store.

How is Halfords Group different?
Halfords has a unique ability to offer automotive services from a
variety of locations – our retail stores, garages and mobile vans. In
our accelerated strategy, we announced an ambition to increase
our services footprint to over 1,000 locations in the medium-term,
including 550 garages, 200 vans and our existing Retail stores. 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, garage and mobile
van estate enables us to invest in the most up-to-date equipment
and technology with the majority of centres now equipped to deal
with electric and hybrid vehicle servicing. Our Halfords Mobile
Expert vans deliver elements of car fitting and 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.

The scale of these disruptive changes means 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, increasing
the demand for a ‘do it for me’ offering. It will also be difficult for
small, independent garages to invest in the technology and training
required to service and repair cars, giving an advantage to a well-
invested national chain such as Halfords.

LONG-TERM MARKET TRENDS

As UK motorists become more engaged with issues affecting their
impact on the environment, they are seeking ways of mitigating their
carbon footprint. The COVID-19 pandemic is forcing motorists to
avoid public transport due to health concerns, but this means there
will inevitably be an increase in the number of cars on the road -
something that many are keen to avoid. Despite the Government
putting emphasis on commuting by walking and cycling this is
not going to be possible for many people, meaning a car will be
the only option for those wishing to avoid public transport. This is
likely to lead to higher car usage in the medium-term, potentially
increasing the size of the car parc and the requirement for servicing,
maintenance and repairs.

Electric vehicles continue to rise in popularity with registrations up
144% for 2019, however they still only represent 1.6% of the total
car parc. The country is gearing up for electrification, with more
charging points being installed nationwide, however the small share
of the car parc shows there is a long way to go before we reach the
50–70% share targeted by the Government in the next 10 years.

Long-term trends show that 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. The long-term expectation
will be that all devices will offer an integrated ‘always-on’ flow of
information.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur 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
Overall

Key Facts

£2bn
Market
size

Performance
Cycling

Key Facts

20–25%
Our market
share

Forecasted
market growth

£700m
Market
size

6%
Our market
share

Forecasted
market growth

Our Approach

Cycling
As the market-leading retailer in mainstream cycling, we are well
positioned to serve the needs of the consumer. We will do this
by continuing to bring unique and innovative products to market,
whilst also providing great value and convenience to customers.
As an example, Halfords was the first major stockist of E-scooters
and is leading the market with product range and nationwide
service capabilities.

As the UK’s leading cycling retailer, we are well positioned to serve
the mainstream market, encouraging more people to cycle for
leisure, exercise or commuting.

Key

Cycling Products

Retail Cycling Services

Performance Cycling
As the cycling market continues to grow, we know the importance
of keeping pace with the 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.

As people start to return to work from the COVID-19 lockdown,
we expect there to be a significant rise in the number of people
choosing to commute via bicycle. Cycle-to-Work schemes will
be important and Halfords, as the market leader, is able to help
consumers get to work in a healthy and sustainable way, whether
that’s on a mechanical bike, E-bike or E-scooter.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Cycling Market – Competitor Landscape

MAINSTREAM CYCLING

PERFORMANCE CYCLING

• Predominantly generalist competitors with own-label bikes

• Predominantly branded bikes

•

Limited online penetration in mainstream bikes

• Traditional specialists and independents struggling

• Physical service locations are important

• Big brands starting to go direct to customers

• Cycle-to-Work continues to be an important driver

• Online pure-play continuing to grow and consolidate

• Major sports retailers starting to diversify into cycling

• Physical service locations are important

e.g. JD Sports, Go Outdoors

• 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. In total, approximately 80% of our bikes are own-
brand, covering both children and adults at a wide range of price
points. Our stores are conveniently located, and our online platform
provides support and information to help customers choose the
products and services they want. Our bike build proposition is
leading the market with free 6-week checks and bike care plans to
make sure our customers continue to stay safe whilst enjoying the
great outdoors.

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 the market leader in the UK’s Cycle-to-
Work scheme, supporting sales and introducing new customers to
our brand.

How is Halfords Group different?
Through Tredz, 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 and provided many with
bikes and exercise equipment during the COVID-19 pandemic.
Cycle-to-Work vouchers can also be redeemed through Tredz which
contributes significantly to the ongoing success of that partnership.
Tredz has a strong online presence which differentiates it from the
independent cycle shop community and helps the brand to stay
relevant and competitive in a challenging market environment.

LONG-TERM MARKET TRENDS

A likely impact of the COVID-19 pandemic is a significant increase
in demand for bikes and scooters, as the public explore clean and
cheap alternatives to public transport and look for ways to stay
healthy. The Government’s £2bn package to put cycling and walking
at the heart of transport policy will provide significant investment in
infrastructure and subsidies to encourage people to cycle.

E-bikes and E-scooters are continuing to grow in popularity, which
will only be boosted by the response to the COVID-19 pandemic.
The Government has supported this through an expansion of the
Cycle-to-Work scheme, as well as infrastructure investment. Though
still a relatively small proportion of the bicycle population, if the
trends continue to mirror those experienced in countries such as
Germany and the Netherlands, we would expect E-bike sales to
double from the current level of approximately 10% of all bikes sold,

to 20% within the next few years. The Government is recognising
the growth and increasing popularity of E-bikes and has raised
the limit on Cycle-to-Work accordingly, from the previous £1,000
to an employer-set limit, meaning that employees are now able to
purchase the more expensive E-bikes.

Finally, existing participants in the cycling market are willing to spend
more on their cycles and accessories. As a result, we expect higher
spend per person to complement volume growth, via demand for
more expensive E-bikes, 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.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportHow We Create Value

Effective utilisation of our resources and relationships is 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.

Fulfilling our vision
to be the super-
specialists in
motoring and
cycling, trusted
by the nation.

Our resources
and relationships

Our unique
strengths

• Unique and

differentiated
products and
services

• Convenient services

proposition
delivered in c.900
locations

• Strong omnichannel

capabilities

• Unique, technology-
driven proposition
in our physical
estate

• Super-specialist
expertise as a
key differentiator

Read more on Halfords unique
strengths on page 9.

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.

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 nation’s go-to retailer for
motorists and cyclists. We have a range
of exclusive and highly regarded brands
including Apollo, Carrera and Boardman
in Cycling, as well as our Halfords
Advanced ranges in Motoring.

Infrastructure/Assets
Our physical estate of Retail stores,
Autocentres garages and Mobile
Expert vans, combined with a best-
in-class web platform and an efficient
distribution network, provide customers
with a convenient omnichannel offer.

Financial
With a strong balance sheet and strong
cash generation, we have continued
to invest in appropriate systems,
capabilities and people to help support
and grow our business for the long-
term.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

Delivering market-leading specialist propositions

Services

Products

H A L FORDS GROUP

M O T O R ING SERVICES

Mobile Expert

Retail
Motoring
Services

Autocentres

Retail Cycling
Services

Cycling
Products

Performance
Cycling Products

Motoring Products

Products
Products are at the core of our business and have been
for over 125 years, defining us as the UK’s leading
provider of motoring and cycling products. Whether
in one of our physical locations or online, customers
are able to find any part or product they want for their
motoring or cycling needs from electric bike to socket
set, power washer to bicycle helmet. Our colleagues
are the real experts and can always suggest suitable
products for every situation a customer may be in.

Services
Our services proposition is the perfect complement to
our strong product business; helping to keep the UK
moving whilst delivering unrivalled customer service.

Operating from approximately 900 locations – Halfords
has a unique ability to offer services for our customers’
cars or bicycles in a way and at a location which is
convenient to the customer. Whether a customer wants
their bike serviced, a new wiper blade fitted, a new set of
tyres fitted or a full car service we are able to help them
find the ideal solution to fit their busy lifestyle.

halfords.annualreport2020.com

Our integrated approach to sustainability keeps economic, social and environmental considerations in mind, as well as the
material issues of our stakeholder groups to inform our model and operations.

Outputs

Our long-term value creation

Customers
Access to a market-leading shopping experience,
both online and in stores, helping meet all of their
motoring and cycling needs in a way convenient to
them, with access to technical and expert advice
through our colleagues.

Colleagues
Developing, rewarding and retaining our c.10,400
colleagues so that they are engaged and driving our
long-term sustainable growth ambitions.

Read more about the Training and
Development on pages 55 and 87.

Shareholders
Generating returns to our shareholders through
effective management of our financial resources.

Read the Chief Financial Officer’s
report on pages 60 to 65.

Community
Building positive relationships with suppliers,
customers and the communities around us.

Read more on our ESG strategy
on pages 44 to 58.

Environmental
Ensuring the resources our business utilise have a
positive impact on the environment, both today and
in the future.

Read more on our ESG strategy
on pages 44 to 58.

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halfords.annualreport2020.com

Open the flap to see
our business model

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

In September 2018, we set out our strategic mission ‘To Inspire and Support a Lifetime of
motoring and cycling’ and this mission remains unchanged. We have made good progress
against our strategic pillars, as outlined through this section, however, given the unique and
growing parts of our business, coupled with the opportunities and strengthening tailwinds in
the market, we now see a clear rationale to further accelerate our service-led Strategy.

The opportunity in services, specifically motoring, coupled with our growing scale and
capability in this space, supports our plan to accelerate investment in this area. We will
evolve into a consumer and B2B services-focused business, with a greater emphasis on
motoring, generating higher and more sustainable financial returns.

OUR STRATEGY

Inspire

Support

Lifetime
3

Our Strategy

Accelerating
Our Strategy

Firstly, we plan to significantly grow our
Autocentre business. We know that our
Autocentre garages are often not conveniently
located. In many parts of the country, the time
taken for a customer to drive to their nearest
Halfords Autocentre is well over 30 minutes.
Our insight shows that customers require a
drive time of less than 20 minutes if they are
to utilise Autocentre services. To reduce this
drive time, we need more garages in more
convenient locations for our customers. Via
the acquisition of McConechy’s Tyre Service,
we have already made good progress with
this part of our plan, increasing the size of our
site footprint by about 20%. Looking into the
future we believe there is the potential for 550
Autocentres across the UK and Ireland, which
will bring our drive time in line with customers’
expectations.

Our Mobile Expert vans have proven that
there is sufficient customer demand for
mobile services delivered at a location
convenient to them. Encouraged by the
results of our trial, we plan to grow to 200 vans
over the next 3–5 years, giving us national
coverage and providing most UK consumers
with access to Halfords Mobile Expert
services. Our acquisition of Tyres on the Drive,
a mobile tyre-fitting business, has significantly
accelerated the roll-out of our Mobile Expert
proposition giving us access to both a large
number of vans and best-in-class software to
drive growth of our mobile services business.

In addition to this, we will increase
investment in the provision of WeFit and
WeCheck services in our Retail stores, for
example the fitting of wiper blades and
headlight bulbs. This will be enabled by a
best-in-class customer contact strategy
and the redeployment of labour in store to
provide more WeFit trained colleagues to
better service customer needs.

COVID-19
Whilst the outbreak of COVID-19 has had
a significant impact on the retail industry,
it does not affect our long-term strategic
direction. This firmly remains the right
direction for our business and recent events
have highlighted the importance of the
acceleration of our plan, as laid out above.

We are clear that our service-led Strategy is the right one for
Halfords. Our unique position, growing services business and
the positive macro-customer trends, give us confidence that
this is the right time to accelerate investment, leveraging our
trusted household brand to become a clear market leader in
motoring services.

Graham Stapleton
Chief Executive Officer

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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Inspire

Inspire our customers through a differentiated,
super-specialist shopping experience

• 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

Support our customers through an integrated, unique
and more convenient services offer

Support

• Offer convenience through 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 in Retail stores and hybrid and electric vehicle
servicing in our garages with the most fully trained technicians outside the dealer network

•

Increase awareness of Halfords services by leveraging the Halfords brand

Enable a Lifetime of motoring and cycling

Lifetime

• 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 Group Single Customer View and increasing the investment in customer
data management

halfords.annualreport2020.com

Our Strategy

Inspire

Inspire our customers through a differentiated,
super-specialist shopping experience.

OBJECTIVES

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

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

• Working with suppliers to jointly create,

and bring to market, innovative products
which are exclusive to Halfords

•

Focusing on personalisation by
leveraging our Group-wide Single
Customer View

Improving store layout, ensuring it is
easy for customers to find the products
and services they need

PROGRESS MADE

•

Fully integrated Group web platform,
delivering best-in-class customer
experience

• Optimisation of cycling space in all

Retail stores

•

Exit of Cycle Republic, focusing
investment on Tredz to serve the
Performance Cycling market

PRIORITIES FOR THE YEAR

• Materially upweight our Group

web platform and digital customer
experience, to create an even more
differentiated and specialist proposition

Case Study

NEW WEB PLATFORM
In February, we launched our new
Group web platform, transforming the
digital experience and, for the first
time, allowing customers to access
an integrated services offer across
Retail stores, garages and mobile vans
through one website.

Our first transaction on the new website
was a customer booking an MOT. This
perfectly highlights one of the key
strengths of this new platform – the
heightened awareness and customer
acquisition into Halfords Autocentres.
We are already seeing an increase
in customers shopping across the
previously separate divisions of our
business and expect this to continue

to improve awareness of our business,
with customers exploring all that the
Group has to offer.

The COVID-19 lockdown significantly
accelerated the shift to online ordering.
The new website coped well with
the rapid and significant increase in
traffic and provided customers with an
engaging, user-friendly and convenient
channel at a critical time.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020O
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halfords.annualreport2020.com

Our Strategy

Support

Support our customers through an integrated,
unique and more convenient services offer.

OBJECTIVES

Integrated
We will have a unified services identity
across the Group through:

• One seamless website, combining

Halfords Retail and Halfords Autocentres

• WeFit services available on demand

in garages

•

Integrating the Services booking
experience to include nearest available
location and timeslot

PROGRESS MADE

• Acquisition of McConechy’s Tyre

Service

• Acquisition of Tyres on the Drive

• Driving growth and profitability of

Halfords Mobile Expert business with
higher customer satisfaction scores

• Building relevance, awareness and value
through our new WeCheck services

• On-demand WeFit trial in Autocentres
continues to deliver promising results

PRIORITIES FOR THE YEAR

•

Expand our Motoring Services
proposition

• Swiftly completing the integration of
McConechy’s and Tyres on the Drive,
utilising our best-in-class technology
across our Services offer

• Significantly scale up the number of

Mobile Expert vans, growing the size of
our fleet to 120 by the end of the year

Unique
• Offering customers access to our
products and services via a unique
combination of retail stores, garages
and mobile vans complemented by a
strong online proposition

Convenient
• Combining our physical estate with

a consistent mobile services offer
and increased availability

•

Full roll-out and expansion of Halfords
Mobile Expert to give most of the
UK population access to our mobile
services

Future roll-out of garages to reduce
average drive time from 30 minutes
to 20 minutes

Case Study

MCCONECHY’S TYRE
SERVICE LIMITED
In November 2019, Halfords Group
announced the acquisition of
McConechy’s Tyre Service Limited, one
of the largest independently owned chain
of garages in the UK with 57 sites and a
fleet of 100 mobile vans. With over 330
skilled colleagues providing in-garage
services alongside a 24-hour breakdown
service for commercial customers, 10
million customers can reach a branch
within a 25-minute drive time.

The acquisition is highly
complementary to the Halfords
strategy, supporting the growth of our
services proposition in Scotland and
the North of England, an area in which
we were under-represented.

The immediate priority post-acquisition
was to establish continuity for
customers and colleagues, which

proved successful. We recognised
the significant opportunity for both
businesses to learn from each other;
bringing the experience and expertise
that McConechy’s colleagues have
acquired in over 60 years of trading
into the Halfords Group, whilst ensuring
the unique strengths of Halfords,
such as our market leading in-garage
technology systems, are rolled out to
the McConechy’s garages.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Case Study

GROWTH OF HALFORDS
MOBILE EXPERT
Halfords Mobile Expert has continued to deliver best-in-class
customer service, receiving excellent feedback. We have
accelerated the roll-out of our mobile proposition through
the acquisition of Tyres on the Drive, which we announced in
November 2019. The acquisition increased our mobile ‘hub’
footprint from 1 to 7 and the number of vans from 8 to 75,
giving us access to 80% of the UK households.

One of the great benefits that Tyres on the Drive brings is
its proprietary scheduling system, providing Halfords with a
strong platform for future growth. Tyres on the Drive has been
perfecting this technology over a number of years, enabling
their systems to operate in a highly efficient manner whilst
maintaining the high standard of customer service.

Our mobile proposition was particularly important during the
COVID-19 lockdown, as customers sought to stay at home
where possible, and we expect this to continue in the future.

Case Study

ENHANCING OUR
IN-GARAGE DIGITAL
OPERATING PLATFORM
‘PACE’ is our proprietary garage digital operating platform that
enhances both the customer and colleague experience. We
initially rolled out this bespoke software to all of our Autocentres
in the previous financial year, with the focus being on front-of-
house job management and standardising parts ordering. We
have continued to optimise the system and launched ‘PACE 2’
during the year, which now means colleagues can:

•

ensure a consistent and compliant approach to servicing
vehicles;

upload images and videos throughout the process,
which can be shared with the customer to build trust and
transparency throughout the process;

see their daily workload move from 30+ sheets of paper
to one single digital device, cutting down workload and
saving time; and

analyse labour requirements in garages, ensuring
technicians are correctly placed to manage workflow,
efficiency is optimised and training needs are identified.

This system gives us a significant advantage over our
competitors. The market is highly fragmented and there is no
clear market leader, with many customers citing that trust is
essential when they choose where to have their car serviced.
The feedback we have received is that PACE has already
inspired confidence in our colleagues and helped to build trust
between the Halfords brand and our customers.

Throughout the financial year we completed successful trials
of this system and have subsequently rolled it out to our entire
garage estate, meaning colleagues and customers across the
nation are benefiting from this technology.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Strategy

Lifetime

Enable a lifetime of motoring and cycling

OBJECTIVES

Customer-led Action Culture
We have started to drive meaningful action
from our insight which has been used to:

Loyalty and Retention
We will more actively drive customer loyalty
and retention by:

• Define future range decisions

• Change the labour operating model to

better reflect customer needs

• Obtain a greater understanding of

customer pain points and moments that
matter

• Provide a Group-wide Financial Services

offer

PROGRESS MADE

• Accelerated investment in our financial
services offer giving us double-digit
sales growth year-on-year and access to
a new customer demographic.

PRIORITIES FOR THE YEAR

• Double the number of customers

shopping across the Group, fully utilising
the new Group web platform and our
single customer view and CRM systems.

• Supercharging our CRM programme,
providing compelling reasons for
customers to return to our brand

• Building cross-Group loyalty

programmes to optimise lifetime value
and advocacy

Case Study

FINANCIAL SERVICES
Over the past year we have been
working hard to expand and improve
our financial services offering, with
significant growth coming through
this channel. We have provided
our customers with more ways to
spread the cost of their purchases,
in our Retail stores, our Autocentres
garages and online. Our proposition
in Autocentres, where customers can
receive unexpected repair bills, is
largely unmatched by our competitors.
As a result, our value perception and
customer satisfaction scores have
increased, showing that we are offering
a solution customers want and see
value in.

Our financial services proposition
has attracted new customers to the
Group, in particular younger and female
customers. These are all demographics
that we under-index in.

The COVID-19 pandemic is likely to
drive an economic contraction, leaving
many consumers with lower levels of
disposable income. In this environment,
a strong financial services offer is
critical, giving customers options on
spreading the cost over a longer time
period. The work we have done during
the year, and continue to do, will put us
in a strong position

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020O
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Our Key Performance Indicators

To ensure a meaningful comparison, we have shown certain KPIs on a 52-week basis and pre-IFRS 16. Please refer to the footnotes where
appropriate.

Commitment
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.

Performance
Underlying profit before tax
declined -4.9% year on year
driven by the Retail business
which saw sales decline
as a result of mild winter
temperatures and falling
consumer confidence as
Brexit uncertainty continued.

Underlying earnings
per share were 24.3p, a
decrease of -0.8%.

Shareholder KPIs
KPI
Underlying
profit before
tax1

Definition
Profit before income
tax and non-underlying
items as shown in
the Group Income
Statement.

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
earnings per
share (“EPS”)1

Underlying
EBIT and
Underlying
EBITDA1

Underlying EBIT results
from operating activities
before non-underlying
items. Underlying
EBITDA further removes
Depreciation and
Amortisation.

The Board considers that
these measurements of
profitability are a viable
alternative to underlying
profit and uses these
measures to incentivise
Management.

Underlying EBIT declined
-5.6% year-on-year per
explanation above. EBITDA
declined -3.0%.

Historic Performance

£55.9m

£58.8m

£75.4m

24.3p

24.5p

29.6p

£95.3m

£98.2m

£109.5m

The above numbers represent
Underlying EBITDA

Dividend per
Ordinary Share1

Dividends returned to
shareholders divided by
the number of shares
in issue.

Free Cash Flow2 Adjusted Operating

Cash Flow less capital
expenditure, net
finance costs, taxation,
exchange movement
and arrangement fees
on loans.

Net Debt to
Underlying
EBITDA ratio2

Represented by the
ratio of Net Debt to
Underlying EBITDA.

Given the impact of
COVID-19 we have
suspended the dividend until
visibility of the near-term
outlook improves. In normal
times we remain committed
to paying a dividend.

Our medium-term target is
to grow Free Cash Flow over
the current three-year period
(FY20 – FY22) compared
with the previous three years
(FY17 – FY19).

In line with previous
guidance, there will be a
nil final dividend for the
financial year ended 3 April
2020 meaning the full-year
dividend is 6.18 pence.

The Group generated a
Free Cash Flow of £54.6m,
+27.9% above last year.

, 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 FY20,
having remained broadly
static since 2017.

6.18p

18.57p

18.03p

£54.6m

£42.7m

£41.5m

0.8

Like-for-like
sales1

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.

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.

Group like-for-like sales
declined -1.8% with Retail
declining -2.3% and
Autocentres in growth
up +1.4%. Within Retail,
Motoring declined -5.3%
due to mild winter conditions
in H2 whereas Cycling grew
+2.3%, seeing both a strong
start and end to FY20.

Halfords Group
Retail
Motoring
Cycling
Autocentres

FY20 LFL
sales
movement
-1.8%
-2.3%
-5.3%
2.3%
1.4%

1 Numbers presented are on a 52-week basis and pre-IFRS 16.
2 Numbers presented are on a 53-week basis and pre-IFRS 16.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020i

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Overview

Historic Performance
FY20:

+8.9%
FY19:

+1.6%

Delayed

79%

81%

2020 2019 2018

Retail
62.4 62.9 63.7
Autocentres 69.0 65.5 65.0

Our Key Performance Indicators

Operational KPIs
KPI
Service-
related Group
sales growth1

Group
Colleague
Engagement

Definition
Service-related Group
sales is the income
derived from the fitting
or repair services
themselves along with
the associated product
sold within the same
transaction.
The proportion of
Group colleagues who
respond positively to the
questions in the Colleague
Engagement Survey.

Commitment
To grow service-related Group
sales faster than total Group
sales growth.

Performance
Service-related Group
sales continued to grow
faster than overall Group
sales, with a growth of
+8.9% on last year and
now accounting for over
26% of total Group sales.

We aim to improve Colleague
Engagement across the Group
with specific focus on required
areas identified by colleagues.

Due to COVID-19, the
decision was made to
delay the Colleague
Engagement Survey.

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.

NPS in Retail finished
FY20 at 62.4 which was
a decline of -0.5 since
FY19. Autocentres,
however, saw an
improvement of 3.5 to
69.0.

1. Numbers presented are on a 52-week basis and pre-IFRS 16.

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Our ESG Strategy

Following wide-ranging consultation
with colleagues, consumers and other
stakeholders, we have evolved our
Corporate Social Responsibility strategy
into a more broadly based approach
which encompasses all aspects of our
environmental, social and governance
(“ESG”) commitments.

Our Approach to Sustainability
Our new ESG strategy has three pillars.
Firstly, we will inspire people to make
climate-smart transport decisions and
do all we can to help the nation transition
to electric mobility; secondly, we will
support customers by giving them a

greater sense of control over their mobility
through the evolution of products,
services and solutions; thirdly, in line with
our commitment to support customers
through a lifetime of motoring and cycling,
we will set an example by making a lifetime
commitment of our own – to make our
business carbon neutral by 2050.

We are committed to introducing a more
structured approach to measuring and
reporting key metrics, including recycling,
waste reduction and Greenhouse Gas
(“GHG”) emissions. By FY21 we plan to
have added Scope 3 to our existing Scope
1 and Scope 2 GHG reporting, and to

have introduced targets for reductions in
GHGs mapped against the UN Sustainable
Development Goals.

Our Scope 3 reporting will incorporate
emissions from our purchased goods,
services and capital goods. In setting
targets for further emissions reductions
we will use a methodology consistent with
the Science Based Target Initiative (SBTi),
a collaboration between CDP, the United
Nations Global Compact, World Resources
Initiative, WWF and We Mean Business
Coalition.

Our ESG Strategy

Inspire

Support

Lifetime

Championing the shift
to electric smart travel
through education,
engagement and
community support

Help put the consumer
in control, through
products, services
and solutions

Walk the walk:
make our business
carbon neutral by 2050

Halfords’ mission is to realise a sustainable future by championing all forms of electric transport and supporting colleagues
and consumers in making smarter transport choices

Our Objective

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Inspire

Championing the shift
to electric smart travel
through education,
engagement and
community support

Objectives
We believe that smart, independent transportation (electric, hybrid, cycling, E-scooters,
E-bikes) is vital to our wellbeing and the environment. We also know that people
need help and advice along this journey. We are therefore on a mission to support a
sustainable future by championing all forms of electric transport and supporting our
customers as they make their transportation choices.

Measures
Our success will be measured by:

• Consumer understanding of our electric vehicles maintenance, repair and services

proposition
−

Aim: to establish a baseline measure and set targets for improvement

• Our contribution to lobbying campaigns designed to accelerate the transition to

electric vehicles (EVs)
−

Aim: in FY21, to contribute to the legalisation of E-scooters on UK roads

Support

Help put the consumer
in control, through
products, services
and solutions

Objectives
We are evolving our offer to help people navigate their way through a more complex
transport landscape. We are committed to giving customers the confidence they need to
switch to greener forms of transport, to supporting them once they have done so, and to
helping people stay safe on the road, whatever form of personal transport they choose.

Measures
• The number of colleagues accredited to IMI Hybrid Electric Vehicle Level 2 and the
number of colleagues trained to advise customers on E-bike and E-scooter sales
−

Aim: to be the first organisation in the UK to have national coverage of accredited
technicians and to have the largest number of colleagues trained to advise
customers about electric mobility in the UK in FY21 and each year thereafter

• The breadth of our range of E-bikes and E-scooters across models and price points
and the take up of service plans designed to support long-term usage of green
transport solutions.
−

Aim: to have the broadest range of models and price points in FY21 and each
year thereafter

Objectives
We recognise that this is a longer term target and therefore over the next year we are
looking to implement graduated carbon-reduction targets, with the first milestone set
at 2025, leading towards Halfords becoming carbon neutral by 2050. We will announce
these Science Based Targets in due course during FY21.

Lifetime

Walk the walk:
make our business
carbon neutral by 2050

More information on our ESG Strategy can be found on the following pages:

Inspire on pages 46 to 48.

Support on pages 49 to 51.

Lifetime on pages 52 to 58.

halfords.annualreport2020.com

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45

halfords.annualreport2020.com

Our ESG Strategy

Inspire

Championing the shift to electric smart
travel through education, engagement
and community support

Looking Back at FY20
Introduction
The electric car market is growing rapidly,
with almost 300,000 models on UK roads at
the end of April 2020. Registrations of EVs
during the first three months of 2020 were
up 120% compared with the same period in
2019 while pure-EVs were up 205%.

More than 72,700 electric cars were sold
in 2019, beating 2018’s total of 59,700.
Average market share also rose to 3.2% of
total registrations, and in March 2020, 7.3%
of new vehicle registrations were EVs.

It is against this backdrop that Halfords is
evolving its offer to ensure that we are well
positioned to help consumers as they make
the switch to electric.

During FY20 we:

• Trained 308 technicians in electric

vehicles or E-bike servicing, bringing
the total to 759.

• Saw a 45% increase in sales of electric
cycling products and a 372% increase
in E-bike servicing.

• Saw an 82.5% increase in sales

of our E-mobility category which
includes electric bikes, scooters and
hoverboards.

• Saw a significant expansion of E-bikes in

the Cycle-to-Work scheme

Our contribution to the transition to an all-
electric vehicle fleet has four components
– training and services, colleague
engagement, education, and campaigning:

Training and Services
The number of EV and hybrid services in our
garages now represents 0.5 per cent of all
vehicle services, while E-bike services grew
372% and now account for 5% of all cycle
services.

One hundred colleagues gained the IMI’s
Hybrid Electric Vehicle Level 2 accreditation
in FY20 with another 50 achieving Level 3.
A further 200 are scheduled to follow the
same path in FY21. One hundred and fifty-
eight colleagues received E-bike servicing
training in FY20, bringing the total to 439.

The total number of colleagues across the
business trained to service EVs or E-bikes
now stands at 759.

We will accelerate our investment in training
and upskilling so that colleagues can give
customers the advice and information
they need to make informed choices
and provide the maintenance and repair
services required for the UK’s evolving mix

The transition to smart, independent
transportation is a vital component
of the UK’s plan to meet its climate
commitments. Halfords has a key role
to play by:

investing in education and community
engagement programmes to help
consumers make climate-smart
choices;

ii. evolving our product and services
offer to make the switch to electric
vehicles easier for consumers; and

iii. supporting new forms of electric
mobility such as E-scooters and
E-bikes.

Concerns about electric mobility
such as price, range and charging
infrastructure are starting to
subside but, even so, the transition
to electric has only just begun.
Everyone in the Electric Vehicle
(“EV”) value chain has a role to play
in helping consumers to make the
switch and to supporting them once
they have done so.

Helen Jones
Chair, ESG Committee

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020of mechanical, petrol, diesel hybrid and all-
electric vehicles.

Colleague Engagement
On our journey to develop Halfords’ ESG
Strategy, we discovered through listening
groups and surveys that our colleagues
passionately believe in having an active ESG
programme. In fact, we found that 87% said
having an active CSR or ESG programme was
important, 86% believed Halfords should
develop products to help everyone embrace
electric vehicles, 78% thought Halfords
should be advising and guiding consumers
on the choices available when going electric
and 65% wanted Halfords to lobby the
Government to support great infrastructure.
In order for Halfords’ colleagues to fully
engage and invest in the development
of the ESG Strategy, we appointed four
colleague volunteer representatives to the
ESG Committee, as voted for by the wider
Halfords Group. Throughout the year, the
colleague representatives attended ESG
Committee meetings and made a highly
important contribution to the strategy’s
direction of travel.

Education
Whilst sales of EVs are starting to take off, we
are still in the early stages of the transition
away from petrol and diesel vehicles.
Research shows that consumers continue
to have concerns about range and charging
infrastructure, though there are signs that
these barriers are starting to lift as models
with real-world ranges of 200–300 miles
come on to the market and hundreds of new
charging points are installed each week.

Price is also a barrier, with many electric
vehicles retailing at a premium to their
nearest petrol/diesel equivalents. However,
there is growing awareness that a more
meaningful consideration is the total cost
of ownership i.e. including finance, fuel, tax
and incentives, depreciation, maintenance,
servicing and repair.

As the UK’s largest provider of motoring
products and services, Halfords has an
important role to play in helping people
understand the costs associated with EV
ownership - including the savings that can
be achieved by using Halfords garages and
stores - and in reassuring them about the
scale of the maintenance, repair and service
infrastructure that is in place to keep their
electric vehicles on the road and safe to drive.

E-bikes and E-scooters are relatively new
technologies to the market, so during FY20,
we adopted the role of consumer champion
to support consumers’ knowledge and
understanding of them. We conducted
consumer research which uncovered and
highlighted some of the myths around E-bikes.
This research formed the basis of a report on
E-bikes, on which we ran a publicity campaign
to develop people’s knowledge of the benefits
of E-bikes. Separately, we conducted research
into public opinion around E-scooters and the
law. Using these results we have been able
to highlight public support for E-scooters
and lobby the Government for the law to be
changed.

We will continue to invest in consumer
research to understand how we can best
help people to make the switch to electric
vehicles – including E-bikes and E-scooters
– and then develop education campaigns
to provide the necessary information, tools,
resources and inspiration. This may involve
collaborations with other organisations in
the EV value chain.

Campaigning
The future of urban mobility has been on
the political agenda for many years, but the
COVID-19 crisis has dramatically increased
the need to find new forms of clean, safe
and affordable transport, especially for
commuting.

One of the key debates in recent months
has been the role of E-scooters – stand-up
scooters powered by an electric motor.
E-scooters are legal on roads in many
European countries, including Germany,
France, Austria and Switzerland, but not
in the UK.

The Department for Transport has
announced a consultation on micromobility,
including how E-scooters could be legalised
as a new form of environmentally friendly
transport on the UK’s streets. Halfords is
contributing to this consultation, together
with a parallel inquiry into E-scooter
safety launched by the Transport Select
Committee.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur ESG Strategy

Case Study

THE ELECTRIC
TECHNICIAN
Garry Mantle, Centre Manager at
Halfords Autocentre, Wellingborough,
began training on electric and hybrid
cars two years ago and now puts his
skills into practice on up to six vehicles
a week. He explained that the training
is split into three stages and it takes
a few days to complete each stage.
Any Halfords Autocentre colleague
can access training through the hub
or by being nominated by their garage
manager.

Garry said: “The hybrid and electric
training allows my team to work on
vehicles they ordinarily would not get
the chance to work on. Very few of our
competitors have mechanics skilled
in this area so we are seeing more and
more premium vehicles, such as Teslas,
in our Autocentres.”

Trials of E-scooter rental schemes began
in selected UK towns and cities in June
2020. These have been brought forward
by one year as part of the response to the
challenges created by COVID-19.

We will continue to press the case for the
legalisation of E-scooters, liaising with
Ministers and officials in Westminster,
and with MPs and local authorities in the
trial areas. In FY20, we contributed to an
All-Party Parliamentary Group (“APPG”)
debate on micromobility and we discussed
the matter with Rachel Maclean, MP for
Redditch.

We will also work to raise awareness of the
eligibility of E-bikes in the Government’s
Cycle-to-Work scheme among employers
and their employees. We expect take-up
of the Cycle-to-Work scheme to expand
significantly in the wake of COVID-19 and
we will seek to build on our position as the
UK’s leading Cycle-to-Work retailer.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Support

Help put the consumer in control, through
products, services and solutions

We are helping people stay safe on the road
by i) expanding access to car and bicycle
safety checks, ii) offering a truly national
products and services network, iii) expanding
access to maintenance, servicing and repair
services by offering highly competitive
prices, iv) investing in our mobile services
– Halfords Mobile Expert and Tyres on the
Drive – to make staying safe on the road more
convenient than ever, and v) broadening our
E-mobility offer both in terms of our product
range and our servicing offer.

As the growth of electric mobility has
accelerated, we have been working hard to
keep pace to ensure that the majority of our
customers have access to the EV products
and services they need. We are the largest
provider of E-bike servicing in the UK, and
almost half our E-bike customers opt to buy
a dedicated E-bike service plan purchase,
which includes both unlimited puncture
repair and specialist E-bike servicing twice
a year. We also offer a dedicated E-scooter
care plan, which provides puncture
prevention treatment, unlimited brake
adjustments and free inner tube fitting.

Our flexible finance offer makes E-bikes
and E-scooters accessible to all. They allow
customers to spread the cost, with one in
five customers purchasing in this way.

Last year, the Government changed the
Cycle-to-Work guidelines, allowing bikes

over £1,000 to be accessed through the
scheme. This has enabled more Cycle-to-
Work customers to purchase E-bikes, as it
allows them to not only spread the cost of
their E-bikes but do so in a tax efficient way.
In FY20 E-bikes made up 11% of all bikes
sold through the Halfords Cycle-to-Work
scheme, a nearly 4% increase year on year.

Supporting Customers Through
Colleague Training
Better trained colleagues give better advice
and help customers make better choices.
That is why we strive to give all of our
colleagues an equal opportunity to build
a rewarding career as a ‘super-specialist’
within an inspiring and diverse team.

‘Gears’ – our development programme in
which Retail colleagues progress through
a structured series of e-learning, technical
workshops, one-on-one coaching and shop
floor experience modules – continues to
go from strength to strength. It motivates
colleagues to respond to the evolving needs
of our customers, and encourages them
to develop their skill-sets. Colleagues are
rewarded for their achievements through
career progression and increased pay awards.

Similarly, Tredz has a range of colleague
training and development programmes
that are aimed at helping colleagues at all
levels to develop their skills, knowledge and
management techniques.

Looking Back at FY20
The personal transport landscape is
evolving quickly. Vehicles are becoming
more complex – due in part to the transition
to EVs – while mobility options are
expanding thanks to the growth of electric
vehicles, E-bikes and micromobility
solutions. Fragmenting social structures
are making domestic lives more complex,
while working lives are becoming more
flexible as employers evolve their policies
and practices. In the short to medium-
term, the COVID-19 pandemic will
have a profound impact on commuting.
Anticipated changes, such as the growth
in working from home, the introduction of
staggered shift patterns, and an increase in
driving and cycling to the workplace, may
endure into the long-term.

In this fast-changing transport
landscape, consumers need more
support and guidance than ever
before to help them stay mobile
and to do so in a way which is
safe, sustainable, convenient, and
affordable.

Helen Jones
Chair, ESG Committee

Introduction
Our mission is to support people through
a lifetime of motoring and cycling. We are
evolving our offer to guide customers
as they embrace new technologies and
navigate their way through a more complex
transport landscape.

We are committed to giving customers the
confidence they need to switch to greener
forms of transport, safe in the knowledge
that there is a reliable maintenance, repair
and servicing infrastructure there to
support them.

We are also equipping our colleagues with
the expertise they need to advise people
who are hesitant about the practicalities
and costs associated with making more
sustainable transport choices.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur ESG Strategy

In FY20 all new eligible starters in our shops
were enrolled onto our Retail Level 2 Gears
in-house Apprenticeship Programme.
During the year, we reviewed the best way
for apprenticeship training to be provided,
and following this review, we have chosen
to partner with Instep UK. This means
that if a colleague wishes to complete an
apprenticeship qualification, they are still
able to do so.

•

Our ‘Gears in Retail’ qualification programme
continues to be a crucial part of our
colleagues’ development, and allows them
to achieve qualifications that are recognised
throughout the industry.

All new colleagues complete Gear 1 within
the first three months of their employment.
Gear 2 then leads to an expert level of
specialist knowledge in either Auto and
Leisure or Cycling.

If nominated to do so, colleagues can then
move to Gear 3 which elevates them to
‘technician’ status in either Auto or Cycling
and allows them to undertake more complex
fits and repairs.

During the year we continued to deliver
additional ‘Customer First’ training to all of
our store management, customer service
and Support Centre colleagues.

We also continued to train colleagues on
new products and services, for example
E-bikes and E-scooters.

Halfords Autocentres continues to run a
variety of training courses in conjunction with
the Institute of Motor Industry (“IMI”). These
include the IMI DVSA MOT tester accreditation,
and the IMI Hybrid Electric Vehicle Level 2 and
Level 3 accreditations. Autocentres also has
one of the largest light vehicle maintenance
apprenticeship schemes in the UK.

For colleagues who have been with Halfords
for longer, we run our ‘Aspire’ series of
leadership programmes to help them
develop their management skills.

Aspire is a guided learning suite that gives
colleagues the opportunity to further their
careers and become leaders.

In addition, our ‘Aspire to Assistant’ and
‘Aspire to Store Manager’ programmes
are mapped to Level 3 and Level 4
apprenticeship programmes, which means
that our colleagues achieve a formal
qualification as part of their programme.

This all means that the majority of store
manager vacancies continue to be filled
internally.

During FY20:

•

108 colleagues achieved the IMI’s DVSA
MOT tester accreditation

84 colleagues achieved IMI Level 3
accreditation.

215 colleagues achieved Level 3
Refrigerant Handling (air conditioning
qualification).

134 colleagues gained the IMI’s Hybrid
Electric Vehicle Level 2 accreditation
and 55 gained Level 3 accreditation.

152 new apprenticeships commenced
and 56 colleagues completed
management apprenticeships. Of
these, 69% of the ‘Aspire to Assistant’
apprentices and 57% of the ‘Aspire to
Store Manager’ apprentices achieved a
distinction in their final assessment.

Product and Service
Development
During FY20, we introduced a number of
new products and services designed to help
people make more sustainable transport
choices and to expand access to services
which keep people safe.

We have evolved our E-bike and E-scooter
offer, providing consumers with a wider
range of models and price points so that
more people can make positive lifestyle
changes.

In FY20, sales of E-bikes grew 45% and now
represent 21% of all cycle sales. E-bikes
typically have a range of 30-50 miles in
commuter traffic conditions and provide the
rider with varying degrees of assistance,
depending on the mode selected.

During the COVID-19 lockdown, interest
in cycling increased dramatically. Millions
of people turned to cycling for exercise
and to enjoy the outdoors. As people
gradually return to the workplace – but try
to avoid public transport – the expectation
is that a growing proportion of commuter
journeys will be completed by bicycle.
However, mechanical bikes are not suitable
for everyone or for every journey. E-bikes
have a role to play, providing solutions for
journeys that would otherwise be made by
car or by public transport.

Halfords currently offers 31 E-bike models,
ranging in price from £599 to £2,999. We
have also introduced new E-bike specific
products in FY20 such as E-bike cycle
carriers, which are strengthened to support
the additional weight of an electric bike for
transportation by car. We will continue to
evolve our E-bike offer, providing customers
with a wider range of products and price
points so that more people can access the
category and make lifestyle changes which
are better for them, our cities and the planet.

At the time of writing, privately owned
E-scooters are not permitted on roads
or pavements in the UK. In the wake of

COVID-19, the E-scooter rental trials
originally planned for 2021 have been
brought forward to summer 2020 with a
view to fast-tracking legislation. If the UK
were to follow the lead of several European
countries and permit the use of E-scooters
on roads, we anticipate a significant increase
in interest in the category.

We currently offer nine E-scooter models,
ranging in price from £199 to £729. As with
E-bikes, we will evolve our offer in order to
expand access to the category and broaden
the range of clean energy transport choices
available to the public.

Last year we expanded our fleet of Halfords
Mobile Expert and Tyres on the Drive and
McConechy’s vehicles to improve access
to repair and maintenance services. The
value of these mobile services has been
demonstrated through the COVID-19
pandemic with high demand from customers
who rely on their vehicles but who were
reluctant or unable to visit us in person.

Safe and Sustainable Travel
During the COVID-19 lockdown, the
number of journeys made by car dropped
significantly, but the journeys that people
did make were vital. They got doctors and
nurses to work, volunteers to the pharmacy
and parents to the supermarket.

When lockdown was announced on
23 March, Halfords was classed as an
essential retailer by the Government and
was permitted to remain open. The business
devised and implemented a new operating
model within 48 hours, allowing 600 stores
and garages to continue to serve the public.

The operating model – known as Dark Store
1.0 – was designed to keep colleagues and
customers safe whilst continuing to provide
essential motoring and cycling services to
the public. Customers were not permitted
to enter stores. A queuing system was
implemented which allowed colleagues
to serve customers from the front of the
store in a safe and socially distanced
way. Throughout the lockdown period we
continued to sell motoring essentials and
provide fitting services. We also continued
to sell, service and repair bikes.

Measures in Halfords Autocentres and
McConechy’s included limiting customers to
one at a time in reception and asking them
not to wait whilst the work was completed.
Throughout lockdown Halfords Autocentres
and McConechy’s continued to provide
servicing and repairs, not only for personal
cars but also for emergency services
vehicles. During FY20, we had contracts with
49 emergency services to provide servicing,
repair and tyre services for ambulances,
police cars and border control vehicles.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020In late March we announced that our car
health check, which normally costs £15,
would be free for NHS and other emergency
service workers as part of our Here for
the Heroes programme, designed to keep
essential workers on the road.

The 30-minute check covers lights, wipers,
battery, windscreen, tyre depth and inflation,
oil, screen wash, and coolant level. We also
offered emergency workers a free Bronze
bike service (worth £30). The service
includes adjusting and aligning gears,
lubricating the drivetrain and adjusting and
aligning brakes. Emergency workers were
also offered 10% off new tyres as part of the
programme.

During the first ten weeks of lockdown
(covering the end of FY20 and the beginning
of FY21) 11,625 emergency workers took
advantage of these offers, with a further
18,189 taking advantage of discounts using
the Blue Light Card during the same period.
We also donated E-scooters to the NHS
Nightingale hospital in Birmingham to help
construction workers complete the fit-out
and donated numerous bikes to individual
doctors and nurses whose bicycles had
been stolen or vandalised.

Our research shows there are more
than seven million neglected adult bikes
languishing in sheds and garages. With
bicycles set to play a crucial role in helping
the nation return to the workplace we intend
to enable as many people as possible to use
bicycles for some or all of their commute.

During the COVID-19 pandemic (covering
the end of FY20 and beginning of FY21),

we promoted the free bike ‘M’ check via a
campaign called Get Back On A Bike. The
32-point check assesses the condition
of the frame, saddle, handlebar, wheels,
tyres, brake system, and the drivetrain,
including gears, levers, and chain, and we
saw a fivefold increase in the number of
checks performed in the first week after the
campaign launched.

We are the leading retail participant in the
Government’s Cycle-to-Work scheme.
The scheme allows workers to use salary
sacrifice to make savings of up to 47% on
the cost of cycling. In FY20 we released
54,765 vouchers to people to buy bikes and
accessories as part of the scheme.

All of these initiatives serve to underline the
role Halfords plays in keeping the nation
moving. During FY20, we carried out:

•

312,026 car services

638,314 MOTs

2.97 million fitting services (such as for
bulbs, blades and batteries)

11,000 bicycle services

125,000 bicycle repairs

Community Support
We intend to step up our efforts to campaign
for safe and sustainable travel.

The Government has committed £2bn to
increase cycling and walking capacity across
the UK. At the time of writing, details of the
programme have not been published, but
we will participate fully and seek to make
constructive contributions, whether that be
through the introduction of new products, the

Case Study

SUPPORTING
EMPLOYERS AND
THEIR PEOPLE
In addition to serving consumers
direct through our stores, garages
and website, we work with employers
to help them get their colleagues to
and from work safely and affordably.

We are the leading retail participant
in the Cycle-to-Work scheme –
which enables employees to make
savings of up to 47% on the cost of
a new bike and safety accessories
– and we help employers offer
subsidised bikes and manage
workplace bike fleets.

We are looking at developing
a CarSave scheme to enable
employees to spread the cost of car
maintenance and so we are working
with employers to help facilitate this
so that their employees can stay
mobile and safe, whilst avoiding
the cost of running company cars.
For businesses which do operate
company-owned vehicles we offer
a convenient and easy-to-use fleet
service.

development of new services or making policy
proposals.

We are contributing to two consultations on
the legalisation of E-scooters on roads, one
called by the Department for Transport, the
other by the Transport Select Committee.

We believe that E-scooters can play an
important role in solving the commuting
challenges the country faces as people
gradually return to the workplace. We are
also reaching out to the local authorities
where E-scooter rental trials are taking place
in June to explore ways in which we may be
able to provide support.

We plan to ramp up our efforts to promote
E-bikes which we believe provide an
important additional option for commuters,
especially those facing longer or more
arduous journeys.

We believe employers should be doing more
to take advantage of the Cycle-to-Work
scheme and we intend to become a more
vocal advocate for the scheme.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur ESG Strategy

Lifetime

Walk the walk:
make our business carbon neutral by 2050

Looking back at FY20
In FY20, we committed to make our
business carbon neutral by 2050. To help
achieve this goal we will introduce a more
structured approach to measuring and
reporting key metrics including recycling,
waste reduction and GHG emissions. By
FY21 we plan to have added Scope 3 to
our existing Scope 1 and 2 GHG reporting,
and to have introduced Science Based
Targets for reductions mapped against
the UN Sustainable Development Goals.

We recognise we have a duty to
minimise the impact of our activities
on the environment. We have made
progress in recent years but the
time has come to set a clear and
achievable target to achieve net
zero, and I am delighted we have
now formally adopted that target.

Helen Jones
Chair, ESG Committee

Introduction
Halfords has a role to play in helping the
nation transition to a more sustainable
future. We are determined to do all we can
to help people make greener transport
choices, offering the products and services
they need to make the leap to electric. But
we are equally determined to do that in a
way which minimises waste and reduces
the amount of energy we use across the
business. In FY20, we made two important
commitments. The first was to adopt
formally the target of making our business
carbon neutral by 2050, and the second was
to adopt a series of Science Based Targets,
creating a route map towards that goal.

GHGs
The total Scope 1 and 2 quantity of energy
consumed across the Group in FY20 was:

•

Electricity: 52,712,652 kWh (-4,229,494
kWh versus FY19)

• Gas: 63,902,230 kWh (+14,135,195 kWh

versus FY19)

• Total 116,614,882 (+9,905,701 kWh

versus FY19)

The Scope 1 and 2 tCO2E (see table
headings below) for FY20 was:

•

Electricity: 10,321 (-3,248 versus FY19)

• Gas: 11,749 (+2,594 versus FY19)

• Company Cars on business: 1868

(-33.28 versus FY19)

• Total 27,090 (-85.28 versus FY19, note
FY20 figure includes McConechy’s for
which gas consumption is not available
for FY19)

Global Greenhouse Gas Emissions

2019 tCO2E

2020 tCO2E

Retail (inc Cycle Republic) Directly Purchased Electricity
Autocentres Directly Purchased Electricity
McConechy’s Directly Purchased Electricity
Halfords Group Directly Purchased Electricity

Total Electricity

Autocentres Combustion of Gas
Tredz and Wheelies Directly Purchased Gas
McConechy's Combustion of Gas
Halfords Group Combustion of Gas

Total Combustion of Gas
Cars on Company Business
Overall totals
Company's Chosen Intensity Measurement:
tCO2E per £1m Group Revenue

275
2,275
-
13,569
16,119
1,842
6
-
7,307
9,155
1,901
27,175

255
2,131
766
10,321
13,473
4,217
7
94
7,431
11,749
1,868
27,090

23.87

23.45

Reducing Carbon Footprint
We are committed to making the business carbon neutral by 2050 and we will be
incorporating Scope 3 emissions into our reporting by FY21, adopting Science Based
Targets for emissions reductions.

In FY20 we continued to roll-out energy-saving LED lighting across our estate. During the
year, 199 locations benefited from LED lighting, resulting in a 6.37m kWh reduction in energy
consumption, the equivalent of 1,629 tonnes reduction in annual CO2 emissions.

We have been working closely with our logistics partner, Wincanton, to reduce total mileage
by maximising the utilisation of trailers and improving scheduling efficiencies. In FY20 we
achieved a reduction in CO2 emissions from logistics of 922 tonnes.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020
Over the past 12 months, Halfords has
invested in a number of energy saving
measures across the estate, these being:

•

172 stores fitted with new LED lighting
and BMS control system;

a further 27 stores were completed in
February 2020, taking the total to 199;

capital expenditure for a further 40
stores has been approved and will
commence once the current restrictions
have been eased; and

invested in AMR for all sites with a gas
supply, meaning all sites now have
access to half hourly data for both gas
and electricity.

For the coming financial year, Halfords
plans to recommence the second phase
of the LED and BMS control roll-out to the
remaining 40 stores. Should budget permit,
it is planned that a third phase of LED and
BMS will be rolled out.

Gas
Electricity
Transport
Total

2019-20

CO2et % of total

11,748
13,473
442
25,664

45.78%
52.50%
1.72%

Scope Breakdown CO2et
Scope 1
Scope 2
Scope 3

Electricity
Brand

Cycle Republic
Halfords
Halfords
Autocentres
McConechy’s
Total

Gas
Brand

Halfords
Halfords
Autocentres
McConechy’s
Tredz and Wheelies
Total

Total kWh

998,900
40,380,410

8,335,409
2,997,934
52,712,652

Total kWh

40,419,189

22,935,962
509,293
37,787
63,902,230

11,748
13,473
442

CO2et

255
10,321

2,131
766
13,473

CO2et

7,431

4,217
94
7
11,748

Transport
Brand

CO2 (kg)

CO2et

351,871
16,733
69,068
4,064
441,736

352
17
69
4
442

Retail Air
Retail Rail
HAC Air
HAC Rail
Total

46%

Gas
52%

Electricity
2%

Transport

Science Based Targets
Our Scope 3 reporting will incorporate
emissions from our purchased goods
and services and capital goods. In setting
targets for further emissions-reduction,
we will use a methodology consistent with
the Science Based Target Initiative (SBTi),
a collaboration between CDP, the United
Nations Global Compact, World Resources
Initiative, WWF and We Mean Business
Coalition.

EV Fleet Transition
We believe that smart, independent
transportation is vital to our wellbeing
and the environment and we are on a
mission to support a sustainable future by
championing all forms of electric transport
and supporting our customers as they make
their transportation choices.

As well as training technicians in electric
vehicle and E-bike servicing and broadening
our range of E-bikes and E-scooters, we
are also committed to transitioning our own
fleet of vehicles to electric. Currently, a little
over 3% of our fleet is electric or hybrid.

Recycling and Waste
Management
In January, we initiated a new recycling
initiative across our stores, with colour-
coded waste collection for general waste,
dry mixed recycling and clear plastic. In
addition, Bikehut colleagues started to use
empty bike boxes for cardboard collection.

This new approach to waste management
is part of the One Way system which
standardises operational processes across
all stores, driving consistency and efficiency.
Previously, colleagues were collectively
spending 163,000 hours handling waste
each year.

We initiated a soft plastic recycling initiative
in FY20 and began an audit of plastics
suppliers. Achievements in the year include
blister packaging removed from our CO2
bike pump and spare cable ties removed
from hand pump packaging.

We also stepped up our efforts to recycle
rubber in FY20, including collecting
3,122,924 kg of old tyres for recycling
into new products. A programme to find a

solution for recycling old wiper blades was
initiated in FY20. We dispose of over one
million blades each year.

We recycle 100% of used car batteries when
we fit new ones for our customers. In FY20
we collected and recycled 4,562kg of used
domestic batteries in our UK stores.

Our bike recycling scheme goes from
strength to strength and last year about
62,000 bikes went to our charity partners
ReCycle and Cycle for Good.

During the 2019 calendar year, Halfords
Autocentres achieved 100 per cent
recycling rates for a wide variety of
products, including tyres, oil filters, bulk
oil, and battery boxes. By diverting 943.4te
of product from landfill (77%) Halfords
Autocentres achieved carbon savings
of 5,607,908 kg, equivalent to 5,802
trees (calculated by AWS and agents and
endorsed by Carbon Footprint Ltd).

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur ESG Strategy

Case Study

CYCLE-FOR-GOOD
David Namuthe, 25, works at Mother
Teresa Children’s Centre as an
Extended Schools Worker. David’s wife
Prisca, 22, has to work in a café abroad
in South Africa because finding work in
Malawi is almost impossible. They have
two young boys, Brian is five years old
and goes to Mulunguzi primary school
in Chilomoni. His brother Luckson is
three years old and is at a nursery
school. With his wife away, David must
take the children to school each day.
School and work start at 7:30am and
finish at 4:30pm and with a one hour
walk each way it is a long day. David had
a bicycle but the children did not.

David decided that now Brian was five
he could ride a bike to school. David
paid for the bike by doing laybuy. This
means each month a portion of his
salary was put aside by Beebikes so
that he could pay in affordable small
instalments.

Brian absolutely loves his bike as he
does not have many toys. He enjoys
riding to school and likes playing
with his friends at the weekends. It is
wonderful to be able to share his bike
as not many of his friends have one.

David and Brian can now enjoy going
for a cycle ride together and can go
shopping at Blantyre market. It is much
better than going on a minibus and they
can save the minibus fare which really
helps the family finances.

With a big smile David said ‘Please
thank the Halfords people in the UK for
donating their bicycles so our families
can enjoy cycling’.

LIFETIME

OUR BIKE RECYCLING
SCHEME GOES
FROM STRENGTH TO
STRENGTH AND LAST
YEAR ABOUT 62,000
BIKES WENT TO OUR
CHARITY PARTNERS
RE-CYCLE AND
CYCLE-FOR-GOOD

KEY FACTS

3,122,924 kg

of old tyres collected and recycled

100%

of used batteries recycled

4,562 kg

of used domestic batteries
collected and recycled

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020OUR PEOPLE

DEVELOPING,
REWARDING AND
RETAINING OUR
COLLEAGUES,
ENSURING THEY ARE
FULLY ENGAGED TO
DRIVE OUR LONG-
TERM SUSTAINABLE
GROWTH AMBITIONS

KEY FACTS

c.10,400

colleagues

624

colleagues graduated to
management roles

UK National
Call Centre

Awards finalists

The key to achieving this is training, and we
continue to make substantial investments
in this area. Our technical and leadership
development programmes are central to our
success in this area, and we have a range of
initiatives in place in order to promote and
increase the diversity of our employee base.

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. 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, further details can be
found on page 113.

Should a colleague become disabled,
efforts are made to ensure their continued
employment with the Group, with retraining
provided if necessary.

Always Talking
Excellent colleague communication
continues to be a key area of focus.

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.

A Great Place to Work
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 colleague 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 93%. 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 Big Companies survey and in 2020 we
placed in Best 25 Big Companies to Work For
Category.

As in previous years, our commitment to
providing best-in-class training and ensuring
the health and well-being of our colleagues
is demonstrated by a range of achievements
and awards. Furthermore, our efforts to
drive improvements to our gender pay gap
have continued to deliver tangible results.

• Our in-house training and development
academies clocked up 1,409 days of
upskilling to 6,175 colleagues.

• Our gender pay gap is well below the

national average, with our mean hourly rate
for women being 2.29% less than men.

• Silver Level employer in the MOD’s

Employer Recognition Scheme, and also
nominated for The Sun’s Military Awards.

Finding, Supporting and
Developing Great People
throughout their Halfords Journey
Our aim is to be an inclusive employer
of choice, and we strive to give all of our
colleagues an equal opportunity to build
a rewarding career as a ‘super-specialist’
within an inspiring and diverse team.

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One of the core principles of the 2018 UK
Corporate Governance Code was to place
greater emphasis on colleague engagement
by ensuring that the interests of employees
are properly represented at Board meetings.
In this context the duties of Helen Jones,
Non-Executive Director, have been extended
to incorporate Board accountability for
‘Colleague Voice’. A network of colleague
champions has been established to support
colleague engagement and a total of 111
listening groups took place during the year,
with Helen personally attending sessions in
every area of the business.

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.
Through our efforts across the training and
recruitment process, the overall number
of women has increased as a percentage
of the total workforce this year, from 27%
to 29%. The percentage of women on the
Board remains at 50% while in the Senior
Management Team it has decreased from
37.5% to 30%.

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, further details can be found in the
Audit Committee Report on page 119.

Modern Slavery
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; further information on
our policy and due diligence processes can be
found in the Directors’ Report on page 88.

DIVERSITY

Male/Female Ratio

29%

Male

Female

71%

Male/Female Ratio on Board

50%

Male

Female

Male/Female Ratio on
Senior Management Team

70%

30%

Male

Female

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020OUR COMMUNITY

DURING THE YEAR,
WE SUPPORTED
A RANGE OF
COMMUNITY
INITIATIVES.

Armed Forces Covenant
We continue to 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,
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 Silver Level employer in
the MOD’s Employer Recognition Scheme,
and were also nominated for The Sun’s
Military Awards, which are known as the
Millies. Halfords Digital Product Owner
Charlotte Kertrestel joined the Royal Naval
Reserve three years ago, in her own words
she “joined to seek a new challenge, and to
really push myself beyond the normal 9-5”.
During her time as a Reservist, Charlotte has
learned a huge range of new skills, received
some of the world’s best leadership and
management training from Dartmouth
Naval Training College and the Royal Navy
Leadership Academy, and she’s been
awarded a Level 6 certificate in Leadership
by the Chartered Management Institute.

Above all, she says being a Reservist
has given her the confidence to dive into
any new situation, however far out of her
comfort zone it is. It has given her practical
experience in giving presentations,
coaching, and decision-making, and she
says it has ‘definitely changed who I am as
a person today’. Charlotte was attracted to
a career at Halfords because she always
wanted to work for a big company, and
Halfords is one of the most well-known

brands in the UK. She explained: “I have
learned so much from the experienced
colleagues that work for Halfords and
Halfords Autocentres”, “And it’s great to
work for a company which promotes fun and
is supportive of my Reservist activities that I
do outside of normal office hours.”

HMP Drake Hall
The Halfords Academy at HMP Drake Hall
was launched just over two years ago with
the support of the then Under-Secretary of
State for Justice, Phillip Lee. The Halfords
Academy offers participants the opportunity
to train as cycle mechanics, creating the
prospect of steady employment and a
chance to put their past firmly behind them.

The programme is tailored for each
participant with an added focus on
mechanics, customer services or retail.
Since launch, the Halfords Academy has
been a great success and is currently
training twelve female offenders. Twenty
graduates have joined the business in a
variety of roles following their release.
Fully supported by Halfords colleagues,
participants are subject to the same high
standards of training as colleagues at
Halfords shops – the training programme
is thorough, designed to challenge
participants and raise aspirations.

The programme provides offenders with
the opportunity to be trained and work on
cycles that require being reconditioned.
The majority of the bikes are then donated
to primary schools in disadvantaged areas
to help children access cycling through the
Halfords school bike donation scheme.

Krizevac Project
During FY20 Halfords donated 40,000
children’s bicycles to the Krizevac Project. Each
bike supports vital charity projects in Malawi.
Following a three-month journey, the bikes
are unloaded and are donated to Beebikes,
Krizevac’s bike workshop in Chilomoni, Malawi
which employs eight people.

The bikes are fixed so they are like new and
are then sold with all proceeds helping to
fund the vital work carried out by Mother
Teresa Children’s Centre, which provides
support for 175 children modelled on the
UK’s SureStart programme.

Re-Cycle
Halfords has worked with the Re-Cycle
charity since 2013. Re-Cycle reconditions
bikes and then sends them to Africa for a
second life. Since we began our partnership
we have donated more than 50,000 bikes,
including 12,356 bikes between March 2019
and March 2020.

When the bikes are received at Re-Cycle
they are assessed for quality and suitability
to send to Africa. They are then sent to
Re-Cycle’s Africa Partners and ‘prepped’ by
an amazing team of volunteers. Re-Cycle
has a zero-waste policy and any parts or
components that cannot be repurposed or
reused are recycled. From March 2019 to
March 2020 Re-Cycle sent 22 containers
to South Africa, Zambia, Ghana and The
Gambia with about 60% of the bikes
donated via the Halfords network.

Bikeability
We continued our partnership with the
Bikeability Trust, the national charity for
cycle training which supports over 400,000
primary school children every year with
access to safe cycle training programmes.
During the year, we launched our Pedal in
the Park events in Manchester, Birmingham
and Bristol which have engaged over 16,000
members of the public.

In schools, we run bike workshops and have
also conducted workshops with 50 schools
to raise awareness of technician and Retail
career opportunities.

We are proud of what we have delivered
during our partnership with the Bikeability
Trust, enabling 25,000 more school-age
children to receive cycle training. The
contract came to a natural end in 2019, and
we continue to support families and young
people to cycle more.

Pledge to Pedal
Last summer, Halfords announced its
ambition to inspire one million cyclists with
the launch of its Pledge to Pedal campaign.
The campaign saw 16,000 entrants and
3.4 million rides take place over four
weeks. Halfords also launched a mass
participation programme with three Pedal in
the Park events held across the summer at
Manchester, Birmingham and Bristol. Each
of the Pedal in the Park events included a
cycling course, an electric bikes cycle track
where participants could ride an E-bike and
a mini mountain bike course for little ones.

Redditch Food Bank
Colleagues at the Support Centre collected
an amazing 393kg of items for the local
Redditch food bank in the run-up to
Christmas 2019. A donation of almost
£2,760 also went to the Trussell Trust, which
runs a national network of food banks.

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RESPONSIBLE TRADING

BUILDING AND
MAINTAINING
THE HIGHEST
STANDARDS
AMONGST OUR
SUPPLIERS

We have statements about Modern
Slavery in our Standard Conditions
of Purchase and require all suppliers
to self-declare that they comply.

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 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
ESG issues.

No instances of unacceptable conduct have
been reported.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020s172(1) Statement

As is referenced by our Chairman in his statement on page 12, this
section describes how the Directors have had regard to the matters
set out in section 172(1)(a) to (f) Companies Act 2016 (the “Act”), in
exercising their duty to promote the success of the Company for the
benefit of its members as a whole.

In July 2019, the UK Corporate Governance Code, reinforced the
importance of section 172 of the Act, which requires Directors
to have regard (amongst other matters) to the interests of wider
stakeholders, as well as:

•

the likely long-term consequences of any decision they make;

the interests of the Group’s employees or colleagues;

the need to foster the Group’s business relationships with
suppliers, customers and others;

the impact of the Group’s operations on the community and the
environment;

the desirability of the Group maintaining a reputation for high
standards of business conduct; and

the need to act fairly, as between members of the company.

Our Stakeholders
Engagement with all our stakeholders is an important aspect of
our business, and we provide examples of our efforts in this regard
throughout this Annual Report and Accounts as follows:

Colleagues

Our colleagues are at the heart of our business, and are
the driving force behind our success. We provide a working
environment where our colleagues are able to realise their
potential.

Read more on pages 44 to 58 and 107.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportChief Financial Officer’s Report

Reportable Segments
Halfords Group operates through two
reportable business segments:

• Retail, operating in both the UK and

Republic of Ireland; and

• Autocentres, operating solely in the UK.

All references to Retail represent the
consolidation of the Halfords (“Halfords Retail”)
and Cycle Republic businesses, Boardman
Bikes Limited and Boardman International
Limited (together, “Boardman Bikes”), and
Performance Cycling Limited (together, “Tredz
and Wheelies”) trading entities. All references
to Group represent the consolidation of the
Retail and Autocentres segments.

The “FY20” accounting period represents
trading for the 53 weeks to 3 April
2020 (“the financial year”). To ensure a
meaningful comparison with the prior year,
all commentary unless otherwise stated is
for the 52-week period ending 27 March
2020 and is before non-underlying items.
The impact of week 53 is described in detail
below, explaining that due to the exceptional
circumstances of COVID-19 the Group made
an operating loss in this period. Most of our
commentary on profit and cost measures is
before the impact of IFRS16, which is stated
where relevant. The impact of IFRS16 is shown
in the table below and further details of this
impact are provided later within this report.
The comparative period “FY19” represents
trading for the 52 weeks to 29 March 2019
(“the prior year”).

Loraine Woodhouse
Chief Financial Officer

Group Financial Results

Group Revenue
Group Gross Profit
Underlying EBIT pre-IFRS 16*
Underlying EBITDA pre-IFRS 16*
Net Finance Costs
Underlying Profit Before Tax
pre-IFRS 16*
Net Non-Underlying Items
Impact of Adopting IFRS 16
Profit Before Tax
Underlying Basic Earnings per
Share pre-IFRS 16*

FY20
(53 weeks)
£m
1,155.1
589.7
55.4
92.6
(2.8)

FY20
(52 weeks)
£m
1,142.4
584.0
58.7
95.3
(2.8)

FY19
(52 weeks)
£m
1,138.6
579.0
62.2
98.2
(3.4)

52.6
(32.1)
(1.1)
19.4

55.9
(32.1)
(1.1)
22.7

58.8
(7.8)
–
51.0

52-week
change
+0.3%
+0.9%
-5.6%
-3.0%
-17.6%

-4.9%
+311.5%
–
-55.5%

22.9p

24.3p

24.5p

-0.8%

* This report 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 shown on page 199.

WE HAVE MADE
GOOD PROGRESS
IN A TOUGH
RETAIL MARKET BY
IMPROVING GROSS
MARGINS, STRONG
COST MANAGEMENT
AND A FURTHER
REDUCTION IN
WORKING CAPITAL
LEVELS.

2019/2020 HIGHLIGHTS

+0.3%

Total Sales Growth

27bps

Gross Margin % Improvement

£10.6m

Average Working Capital Reduction

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020The financial year of FY20 was somewhat
overshadowed by the ongoing turbulence
caused by Brexit and Halfords undoubtedly
felt the impact of subdued consumer
confidence throughout the year. The
concluding period of the financial year
also saw a new and emerging threat –
the COVID-19 pandemic. The impact in
the closing two weeks of the year was
significant with two full days of trading lost
in week 52, followed by an almost complete
lockdown of the UK. Yet despite seeing
impacts on Group revenues from both,
Halfords clearly demonstrated its resilience
in delivering underlying Group PBT, pre-IFRS
16, of £55.9m. In fact, if it were not for the
lost trading in week 52 and the dilutive
impact of acquisitions, underlying PBT
would have been in line with last year. The
business worked hard to mitigate some of
the top line revenue impacts through gross
profit improvements and tight cost control,
whilst continuing to deliver on longer term
growth plans through the acquisitions
of Tyres on the Drive (“ToTD”) and
McConechy’s Tyre Service (“McConechy’s”)
in the second half. Alongside a strong P&L
result we also achieved targeted working
capital reductions through more efficient
stock management and improved creditor
days, enabling our longer term growth
strategy. That said, whilst the FY20 impact
was contained within the final two weeks of
trading, the pandemic is likely to materially
impact the trading environment in FY21,
amid significant uncertainty on the short-
term outlook.

Group revenue in FY20, at £1,142.4m, was
up 0.3% and comprised Retail revenues
of £950.6m and Autocentres revenue of
£191.8m. This compared to FY19 Group
revenue of £1,138.6m, which saw Retail
revenue of £977.2m and Autocentres

Retail

Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT pre-IFRS 16*
Non-underlying items

Impact of adopting IFRS 16
EBIT post-IFRS 16
Underlying EBITDA pre-IFRS 16*

revenue of £161.4m. Group gross profit at
£584.0m (FY19: £579.0m) represented 51.1%
of Group revenue (FY19: 50.9%), reflecting
an increase in the Retail gross margin of 20
basis points (“bps”) to 48.2% and decrease
in the Autocentres gross margin of 250 bps
to 65.5%. The overall Group gross profit %
was impacted by both mix of product and by
the acquisitions within Autocentres. Retail
saw strong improvements in gross margin %
compared to FY19, particularly the Cycling
segment, but benefits were somewhat
offset by both weaker winter product results
and the relative mix into Cycling. Within
Autocentres, the underlying business
performed well, improving gross profit % by
180 bps, but the overall impact was eroded
by the acquisitions, which were dilutive in
the near-term but offer a good longer term
opportunity.

Total operating costs before non-underlying
items and pre-IFRS 16 saw a modest
increase of 1.6% including mid-year
acquisitions. Excluding these acquisitions,
operating costs of the underlying businesses
declined -0.5% after a continued focus on
efficiency and better procurement practices.
We worked hard on process efficiency in
stores to mitigate National Minimum Wage
increases. Lease renewal negotiations saw an
average decrease of 15% and investments in
store infrastructure saw energy consumption
reduce by close to 20%. Cost and efficiency
remain a significant opportunity for the Group
and one which will see a greater focus as we
move through FY21. Total underlying costs,
pre-IFRS 16, increased to £525.3m (FY19:
£516.8m) of which Retail comprised £404.3m
(FY19: £410.5m), Autocentres £118.9m
(FY19: £104.2m) and unallocated costs
£2.1m (FY19: £2.1m). Unallocated costs
represent amortisation charges in respect of
intangible assets acquired through business

combinations, namely the acquisition of
Autocentres in February 2010, Boardman
Bikes in June 2014, and Tredz and Wheelies
in May 2016, which arise on consolidation
of the Group. Group Underlying EBITDA pre-
IFRS 16 decreased 3.0% to £95.3m (FY19:
£98.2m), whilst net finance costs pre-IFRS 16
were £2.8m (FY19: £3.4m).

Underlying Profit Before Tax pre-IFRS 16 for
the year was down 4.9% at £55.9m (FY19:
£58.8m). Non-underlying items of £32.1m in
the year (FY19: £7.8m) related predominantly
to the closure of Cycle Republic and
Boardman Performance Centre, as well as
costs related to organisational restructure
and strategic review. After non-underlying
items, Group Profit Before Tax was £23.8m
(FY19: £51.0m).

After non-underlying items and including
IFRS 16, Group Profit Before Tax was £22.7m
(FY19: £51.0m). The impact on the Group of
adopting IFRS 16 in the period was a £1.1m
net decrease to Group Profit Before Tax.
Further details on the impact of IFRS 16
is shown later in this report.

As noted earlier, FY20 was a 53-week year
and therefore saw an additional week of
trading included in the full year results.
In a normal operating environment, this
would typically result in additional profit,
but the UK lockdown announced on the
23 March due to COVID-19 resulted in an
estimated trading loss of -£3.3m during this
week. Although the Group was deemed an
essential retailer and continued to trade
throughout week 53, sales were materially
impacted and as such resulted in the loss.
At this early stage of the pandemic we
operated from a very limited number of
stores and garages with limited customer
interaction due to social distancing.

FY20
(53 weeks)
£m
961.0
462.8
48.2%
(410.8)
52.0
(29.5)

(1.2)
21.3
81.1

FY20
(52 weeks)
£m
950.6
458.4
48.2%
(404.3)
54.1
(29.5)

(1.2)
23.4
82.7

FY19
(52 weeks)
£m
977.2
469.3
48.0%
(410.5)
58.8
(8.7)

–
50.1
87.1

52-week
change
-2.7%
-2.3%
+20bps
-1.5%
-8.0%
+239.4%

–
-53.3%
-5.1%

* This report 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 shown on page 199.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportChief Financial Officer’s Report

Revenue for the Retail business of £950.6m reflected, on a constant-currency basis, a
like-for-like (“LFL”) sales decrease of -2.3%. Total revenue in the year declined -2.7% after
the impacts of closed stores are included. The Cycling performance was strong, with
like-for-like growth of +2.3% rebounding from a slow start to FY20. Motoring finished the
year with a like-for-like decline of -5.3%. A similar trend prevailed with results improving as
the year progressed, but it was Motoring that was significantly impacted by the pandemic
and lockdown from week 52. Conversely, Cycling demand was boosted by a more health
conscious consumer and the avoidance of public transport. The Retail Operational Review in
the Chief Executive’s Statement contains 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
Cycling
Total

FY20
LFL (%)
-5.3
+2.3
-2.3

FY20
Total sales
mix (%)
58.4
41.6
100.0

FY19
Total sales
mix (%)
60.4
39.6
100.0

Gross profit for the Retail business at £458.4m (FY19: £469.3m) represented 48.2% of
sales, 20bps up on the prior year (FY19: 48.0%). Underlying gross margin improved more
significantly than the headline number, which was diluted by a product mix, into lower Gross
Margin % cycling, and out of the motoring category alongside additional costs as we expand
sales through finance and B2B. The gross margin improvement reflected the significant
work carried out over the last 18 months on our sourcing strategy for both bikes and
motoring products, as well as our work to optimise promotional activity throughout the year.
Over the year, Cycling gross margins improved by 117bps and Motoring by 138bps
vs FY19.

The table below shows the average exchange rate reflected in cost of sales along with the
year-on-year movement:

Average USD: GBP rate reflected in cost of sales
Year-on-year movement in rate

FY20
full-year
$1.33
$0.01

FY19
full-year
$1.32
$0.03

Retail operating costs before non-underlying items and IFRS 16 were £404.3m (FY19:
£410.5m) a decline of 1.5% on FY19. The focus on operational efficiency and procurement
continued in FY20 and, as mentioned previously, helped to mitigate a challenging market.
Our stores saw modest increases in overall labour costs despite a 4% increase in the
National Minimum Wage, as we continued with our ‘We Operate 4 Less’ programme. Rent
costs also reduced as the market begins to reflect excess supply in the Retail rental market
and we continued to negotiate improved lease terms on renewals. These initiatives were
coupled with capital investments such as LED lighting, which significantly reduced energy
consumption across the estate.

Autocentres

Revenue
Gross Profit
Gross Margin
Operating Costs
Underlying EBIT pre-IFRS 16*
Non-underlying items
Impact of adopting IFRS 16
EBIT post-IFRS 16
Underlying EBITDA pre-IFRS 16*

FY20
(53 weeks)
£m
194.1
126.9
65.4%
(121.4)
5.5
(2.6)
0.1
3.0
11.5

FY20
(52 weeks)
£m
191.8
125.6
65.5%
(118.9)
6.7
(2.6)
0.1
4.2
12.6

FY19
(52 weeks)
£m
161.4
109.7
68.0%
(104.2)
5.5
0.9
–
6.4
11.1

52-week
change
+18.8%
+14.5%
-250bps
+14.1%
+21.8%
-388.9%
–
-34.4%
13.5%

Autocentres generated total revenues of
£191.8m (FY19: £161.4m), an increase of
18.8% on the prior year with a LFL increase
of 1.4%. Non-LFL revenue in the year
included benefits from the acquisitions
of both ToTD in October, 2019, and
McConechy’s in November 2019, alongside
existing Autocentres that have been open
less than 12 months.

Gross profit at £125.6m (FY19: £109.7m)
represented a gross margin of 65.5%; a
decrease of 250 bps on the prior year. As
stated earlier, the decrease in gross margin
% was solely a result of the acquisitions,
which will have a dilutive effect before
we migrate the product mix to servicing
and repair in the future. The underlying
business saw its Gross Profit % improve
significantly by +180bps, with the continued
development of our PACE Digital Operating
Platform aiding buying efficiency across
garages alongside a marginally lower mix
into tyres, which tend to be lower margin.
The benefits of later phases of PACE
also began to be felt in Q4 with the digital
operating platform improving resource
allocation to jobs.

Autocentres’ Underlying EBITDA before IFRS
16 of £12.6m (FY19: £11.1m) was 13.5% higher
than FY19. Underlying EBIT before IFRS 16
was £1.2m (21.8%) higher than FY19 at £6.7m
(FY19: £5.5m).

Portfolio Management
The total number of fixed stores or centres
within the Group stood at 844, with a further
75 mobile locations. The portfolio of fixed
locations as at 3 April 2020 comprised
472 stores (end of FY19: 477) and 371
Autocentres (end of FY19: 317). Mobile
locations grew by 67 vans, increasing
coverage of the most in-demand regions
within the UK.

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

Relocations
Leases re-
negotiated
Refreshed
Openings/
Acquisitions
Closed

Retail Centres Vans
–

20
–

–
4

8
14

57
4

–
–

67
–

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Within Retail, the focus in year continued to
be on re-laying stores to optimise the space
allocated to key growth categories, including
E-mobility. Four Retail stores closed on the
natural expiration of their leases as closure
was considered more profitable to the
Group when the anticipated sales transfer
to other channels and neighbouring stores
was considered. Although nearly all of our
Retail stores continue to trade profitably, the
number of lease expiries or breaks under
option increases significantly within the next
five years. Retail will see two-thirds of stores

experience optionality within five years,
allowing for a high degree of flexibility within
the estate.

Within Autocentres, one centre was opened
and 57 locations acquired in the year.
Four were closed, taking the total number
of Autocentre locations to 371 as at
3 April 2020 (end of FY19: 317). Fourteen
Autocentres were refreshed in the year
(FY19: 8).

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

Net Non-Underlying Items
The following table outlines the components of the non-underlying items recognised in the 53 weeks ended 3 April 2020:

Organisational restructure costs (a)
Group-wide strategic review (b)
One-off royalty income (c)
Acquisition and investment-related fees (d)
Provision for expected settlement of an ongoing legal case (e)
Closure costs (f)
Net non-underlying items pre-IFRS 16
Closure costs (f)
Impairment of right-of-use assets (g)
Net non-underlying items post-IFRS 16

In the current and prior period,
separate and unrelated organisational
restructuring activities were undertaken.

c. A one-off royalty income was received in
the prior period in relation to the use of a
software licence.

Current period costs comprised:

• Redundancy and transition costs of

£1.4m relating to roles which have
been outsourced or otherwise will
not be replaced (FY19: £1.5m); and

•

£1.4m of asset write-offs, principally
resulting from the strategic decision
to re-platform the Retail and
Autocentres websites (FY19: £5.3m)

In the current and prior periods,
costs were incurred in preparing and
implementing the new Group Strategy.

•

£0.4m of external consultant costs
(FY19: £2.0m); and

£0.6m of store labour costs,
point-of-sale equipment and other
associated costs in completing the
cycling space re-lay across the store
estate (FY19: £nil).

Prior period costs also included £0.4m
of warehouse and distribution costs in
order to align our network with the new
strategy.

In the current and prior periods,
costs were incurred in relation to the
investment in McConechy’s and ToTD.
ToTD acquisition costs comprise £1m
principally relating to the costs of dual
running Halfords Mobile Expert and ToTD,
as well as the write-off of the receivables
balance due from ToTD; and

•

£0.9m relating to professional fees
in respect of the acquisition of
McConechy’s

£0.2m of costs were incurred in
the prior period in relation to the
investment in ToTD and costs
relating to a potential acquisition
which did not progress.

e. During the year, a provision was

recognised for expected costs of
settling an ongoing court case, which
was then settled during the second half
of the period. In addition, a provision of
£0.6m has been recognised in relation
to the audit by HMRC relating to National
Minimum Wage.

f. Closure costs represent costs

associated with the proposed closure of
the operations of Cycle Republic and the
Boardman Performance Centre (“Cycle
Republic”) following a strategic review

FY20
£m
2.8
1.0
–
1.9
0.8
25.6
32.1
1.2
0.9
34.2

FY19
£m
6.8
2.4
(1.6)
0.2
–
–
7.8
–
–
7.8

of the Group’s cycling businesses.
This relates mostly to the impairment
of right-of-use assets, as well as the
impairment of intangible and tangible
assets.

In light of the ongoing COVID-19
pandemic, the Group has revised future
cash flow projections for stores and
garages. As a result, £0.9m incremental
impairment has been recognised in
relation to garages where the current
and anticipated future performance
does not support the carrying value of
the right-of-use asset and associated
tangible assets. This charge is directly
attributable incremental impairment due
to COVID-19 and relates primarily to the
right-of-use asset value.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportChief Financial Officer’s Report

Finance Expense
The net finance expense (before non-
underlying items and IFRS 16) for the 53
weeks ended 3 April 2020 was £2.8m (FY19:
£3.4m) reflecting lower average levels of net
debt throughout the year.

Taxation
The taxation charge on profit for the 53
weeks ended 3 April 2020 (before IFRS 16)
was £2.8m (FY19: £9.1m), including a £4.7m
credit (FY19: £1.4m credit) in respect of
non-underlying items. The effective tax rate
of 13.9% (FY19: 17.8%) differs from the
UK corporation tax rate (19%) principally
due to the impact of overseas tax rates,
adjustments in respect of prior periods now
closed with HMRC, and the impact of the
change in deferred tax recognised in the
Balance Sheet.

Earnings Per Share (“EPS”)
Underlying Basic EPS before IFRS 16 was
22.9 pence and after non-underlying items
8.9 pence (FY19: 24.5 pence and 21.2 pence
after non-underlying items), a 6.5% and
58.0% decrease on the prior year. Basic
weighted-average shares in issue during the
year were 197.0m (FY19: 197.1m).

Dividend
In light of the COVID-19 pandemic and the
likely impact on short-term profitability, the
Board has taken a series of measures to
preserve cash, one of which is a suspension
of the dividend. The final dividend payment

is therefore nil, taking the full year ordinary
dividend to 6.18 pence (FY19: 18.57p per
share).

The increase in inventory related to the
acquisition of McConechy’s which typically
hold low levels of tyres.

Capital Expenditure
Capital investment in the 53 weeks ended
3 April 2020 totalled £35.8m (FY19: £31.0m)
comprising £31.0m in Retail and £4.8m in
Autocentres. Within Retail, £15.9m (FY19:
£11.4m) was invested in stores, including
store relocations, space optimisation and
building a management system across
one third of the estate to reduce energy
consumption. Additional investments in
Retail infrastructure included a £9.7m
investment in IT systems, including
development of a new Group website.

The £4.8m (FY19: £4.7m) capital expenditure
in Autocentres principally related to the
replacement of garage equipment and
replacement of fixtures and fittings alongside
the development of PACE, our digital
operating platform.

Inventories
Group inventory held as at the year-end was
£173.0m (FY19: £173.7m). Retail inventory
decreased to £168.0m (FY19: £172.3m),
reflecting reduced stock levels and working
capital efficiencies.

Autocentres’ inventory was £5.0m (FY19:
£1.4m). The existing Autocentres business
model is such that only modest levels
of inventory are held, with most parts
being acquired on an as-needed basis.

Cashflow and Borrowings
Adjusted Operating Cash Flow was £109.9m
(FY19: £88.5m). After acquisitions, taxation,
capital expenditure and net finance costs,
Free Cash Flow of £54.6m (FY19: £42.7m)
was generated in the year. Group Net
Debt was £73.2m (FY19: £81.8m), with the
Underlying EBITDA ratio at 0.8:1. All these
numbers are pre-IFRS 16.

Adoption of IFRS 16 “Leases”
The Group has initially applied IFRS 16
“Leases” as at 30 March 2019. A right-of-
use asset and a lease liability is included on
the balance sheet, and depreciation and
interest has been charged to the income
statement instead of existing rental charges
and operating expenses.

Discount rates ranging between 0.76%
and 3.94% have been applied based on UK
Government Gilt rates of an appropriate
duration and adjusted by an indicative credit
premium.

The Group has adopted the modified
retrospective approach. Under this
approach, comparative information is
not restated and the cumulative effect of
applying IFRS 16 is recognised in retained
earnings at the date of initial application.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020physical and online. Much of our sales
are in needs-based categories that are
more resilient to macroeconomic cycles
and our discretionary categories, such
as cycling, camping and travel solutions,
could benefit from an increase in the
number of people choosing to stay at
home rather than holidaying abroad; a
trend that we observed in 2009.

Principal Risks and Uncertainties
The Board considers the 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 2020 Annual Report and
Accounts. These include:

• Business Strategy

−

Capability and capacity to effect
significant levels of business change

Stakeholder support and confidence
in strategy

Brands appeal and market share

Value Proposition

A summary of the impact on the Group
income statement and balance sheet for the
53 weeks ended 3 April 2020 is
as follows:

Impact on the
Consolidated
income statement:
Operating costs:
Rent
Depreciation
Foreign exchange and
impairment
Net impact on
Operating costs
Finance costs
(interest)
Net impact on
underlying Profit
Before Tax

Non-underlying costs
Net impact on Profit
Before Tax

FY20
£m

FY19
£m

–
–

–

85.8
(72.6)

(1.4)

11.8

(10.8)

1.0

(2.1)

(1.1)

The £11.8m net impact on Operating costs
is comprised of £10.9m for Retail and £0.9m
for Autocentres as shown above.

Impact on the
Consolidated
Statement of Financial
Position:
Right-of-use asset
Lease liability
Retained earnings

FY20
£m
349.9
(416.0)
25.1

FY19
£m
–
–
–

Brexit and Impact of Movements
in Foreign Currency Exchange
Rates
As we have previously explained, the
decision of the UK to leave the European
Union (“Brexit”) presents significant
uncertainties to the Group as a result of the
impact on the wider UK economy. We have
previously set out the main areas in which
we considered Brexit was likely to impact
the Group. We reaffirm and update our
assessment of these below:

•

Impact on exchange rates. The Group
buys a significant proportion of its
goods in US dollars; between $250m
and $300m a year. As previously guided,
the majority of our US dollar sourcing is
for cycling products.

• Prolonged uncertainty over exit terms
and continued weakness in Sterling
could lead to a slowdown in the UK
economy, and consequent loss of
consumer confidence, impacting
trading conditions for the Group.
However, Halfords has strong positions
in fragmented Motoring and Cycling
markets, and a service-led offer that
differentiates us from our competitors,

•

Financial
−

Brexit

• Operational

Sustainable business model

COVID-19

IT infrastructure failure

Skills shortage

Staff engagement / culture

Critical physical infrastructure failure
(including supply chain disruption)

• Compliance

Regulatory and compliance

Service Quality

Cyber and data security

−

Loraine Woodhouse
Chief Financial Officer
6 July 2020

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic Report

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, Garages, Distribution
Centres and Customer-Facing
Businesses

First Line of Assurance
Operating within agreed policies
and procedures, for example:

• 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, procedures
and controls to manage risk.

Internal
Audits

Risk and
internal
control
analysis

Regular
oversights

Performance
monitoring

Third Line of Assurance
•

Independently review quality
of key internal controls and
management assessment
of risk.

• Challenge management
to enhance control
environment.

• Maintain corporate risk

Internal Audits
Risk and internal control analysis

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Emerging Risks
The evolution of risk is actively considered
at Board level and across the senior
management team. The retail sector is
changing rapidly, and this requires us to
regularly monitor the velocity of change
as digital trends, and now COVID-19
implications, impact the market at pace. The
climate change agenda is a significant area
of emerging risk that we are seeking to gain
greater impact into. We conduct horizon
scanning with subject matter experts, who
contribute to the risk management process
with insight on key risk themes such as
economic, environmental, technological,
societal, and geopolitical.

Risk Appetite
The Board approved the risk appetite of the
business following a formal review led by the
Audit Committee. Risk appetite guidance
based on the categories of Strategy,
Financial, Compliance and Operational
articulates the Board’s willingness to
accept risk in pursuit of our strategic
objectives and informs the assessment of
our principal risks. By grouping our risks
into the four categories, the Board was able
to clearly identify that, although we have a
conservative view on risk, there is greater
appetite for strategic risk in contrast to a low
threshold for compliance risk.

Risk Management Framework
The Audit Committee and the senior
management team support the Board to
maintain a framework for risk management.
The purpose is to identify risk and
subsequently measure and control it, to
protect the interests of key stakeholders
and safeguard the delivery of our strategic
objectives.

Each principal risk has an Executive owner
and is contained within a corporate risk
register, which is subject to a ‘top-down’
review. Operational risk registers are
maintained to provide greater granularity,
a ‘bottom-up’ perspective and a further
means of identification for emerging
risk. The management of risk follows a
methodology for assessment to establish
the appropriate response in accordance
with our risk appetite.

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 senior management team reviewed
all principal risks in detail and provided
oversight of how all the Group’s key risks are
managed.

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 reviews
presentations on topics in relation to key risk
areas with recent focus on cyber security,
inventory management and regulatory insight
provided by the Compliance Committee.
Please see page 117 for details of Audit
Committee activities during the year.

Principal Risks
The Board carried out an assessment of
the Group’s principal risks during the year,
considering whether existing risks had
changed in severity and whether new risks
had materialised during the year.

This year we identified a new risk around our
‘Value proposition’ recognising that, as more
retail sales move online, the value of our
service proposition and commitment to be
a super specialist could be eroded by online
providers competing on price. We also
considered the risks associated with the
evolution of our digital offering, where earlier
this year we enhanced our online presence
with the launch of our integrated Group web
platform, bringing Retail and Autocentres
together for the first time. In recognition of
our continued investment in digital we have
made cyber security a standalone risk and
refined our regulatory and compliance risk
to include security of data.

The risks associated with Brexit remain
largely unchanged recognising that,
although we are now well into the transition
period, there is no sign yet that a deal has
been reached that will clarify our future
trading position with the EU.

COVID-19
The COVID-19 strain of the coronavirus
impacted the final weeks of our financial
year significantly, leading to a prolonged
lockdown across the UK and Ireland, with
movement restricted. Our colleagues,
customers and suppliers have experienced
disruption with significant personal and
operational challenges. The pandemic and
the social and macroeconomic impact it
wrought has created a risk event that is now
a significant factor in the future viability of
the Group, which has been considered in
detail as set out in the Viability Statement
on page 79. A new standalone risk for
COVID-19 has been included, outlining our
response to the uncertainties and potential
impact.

In the initial response phase to COVID-19,
our priority was to safeguard the health
and wellbeing of our colleagues and
customers, and to mitigate an anticipated
sharp decline in demand. The Government
identified Halfords as a provider of essential
products and services to the UK public,
and it was therefore important that we
responded swiftly to enable safe delivery
of our motoring and cycling proposition.
We quickly adapted our retail operations by
implementing a ‘dark store’ model, serving
customers from the store entrance, and
accelerated the enhancements of our Group
web platform, as customers switched to
online ordering. We moved into a resilience
phase early in the lockdown period following
extensive modelling of the financial impact
of COVID-19. It was necessary to impose
tighter control over liquidity, which informed
our decisions on a series of measures,
including the furloughing of colleagues
and negotiating payment terms with our
suppliers. Resilience will remain central to
our risk management focus throughout
2021; however, in readiness for the lifting of
lockdown restrictions, we are preparing for
the recovery phase and ultimately new ways
of working.

Where the impact of the pandemic has
exacerbated a principal risk, we have
incorporated a commentary on the
COVID-19 mitigation being taken.

Our principal risks are described on the
following pages, along with a summary of
our mitigation activities.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Risk Title
Strategy
Capability and
capacity to effect
significant levels
of business
change

Risk Description

Current Mitigation

Focus in 2020
Priorities in 2021

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 provides governance
over 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”).

• Accelerated growth in our

motoring services business.

• Specialist resource brought in
to boost existing capability.

• Robust business case

template and Capital
allocation model developed.

• New capability from IT

restructure.

• Annual strategic plan

‘refresh’ to involve review of
progress to date and pivot for
COVID-19 opportunities and
threats.

•

Focus on Free Cash Flow to
maintain sufficient capital for
investment.

COVID-19
In response to COVID-19 we have adapted the
short-term strategic plan to focus on those
activities that either respond to emerging
customer trends, such as the significant shift to
digital channels, or improve the long-term health
of the business, such as colleague engagement
and fixed cost reduction. This level of focus will
ensure we utilise our resources on the most
important programmes only in the year ahead,
with the objective of further strengthening the
business foundations before embarking on some
of the more transformative, and capital intensive,
aspects of the plan.
Progress against our strategic objectives
is shared with colleagues on a weekly and
monthly basis through team huddles and they
also receive a weekly blog from the CEO and
a monthly newsletter. Quarterly updates with
Q&A are given by our CEO, live streamed to all
distribution centres, stores and autocentres.

• Series of conferences relaying
strategy to our colleagues and
suppliers.

• Presentation of accelerated

services strategy to
investment community

• Colleagues and shareholders.

Throughout the year we engaged with our
suppliers, keeping them informed of our
strategic plans as key partners and listening to
their insights and observations to enhance our
working relationship.

• Revised internal

communications strategy.

• Replaced financial PR

advisors.

We maintain regular contact with key investors
via a series of written communications,
roadshows and regular one-to-one meetings.

COVID-19
The Board holds regular meetings with
shareholders and their representatives. Recent
discussions have focused on the impact of
COVID-19 on our strategic ambitions and the
opportunities and risks this creates for the Group
in the short and long-term.

•

Launch new ‘Investment Case’
to the analyst and investor
community.

• Communicate to all

stakeholders our ‘fast start’
FY21 investment plans and
guidance on the impact of
COVID-19.

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.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Risk Title
Brand appeal and
market share

Risk Description
If we continue to lose brand
relevance, we will be unable to
maintain and grow our customer
base and build market share.

Focus in 2020
Priorities in 2021
• A new digital web platform
offering seamless access
to the brands’ services and
products.

•

Enhancing our services
proposition and awareness
with a greater emphasis
on serving the growth in
electrification.

• Reaching new audiences
through our partnerships,
marketing activity and channel
optimisation.

• Development of our customer
strategy to adapt and optimise
the experience across all
touch points.

• Grow momentum in our Group
services offer and enhance
our convenience with
improvements to our delivery
proposition.

• As we emerge from lockdown,
continue our PR momentum
and social engagement,
building an industry voice as
a customer champion and
keeping the nation moving.

Current Mitigation
Our brand purpose is to “Inspire and Support a
Lifetime of motoring and cycling”. Our focus on
ensuring relevance is centred around having a
proposition that meets the needs and wants of
our customers and ensuring that they are aware
of our offer.

During the year we enabled greater awareness
of our Group proposition through the launch of
our newly integrated digital platform providing
customers with seamless access to all our
brands. Giving customers improved accessibility
to services that they may not previously have
known we provided was further supported by
the flexibility afforded by our financial services
offering through all channels.

As the pre-eminent voice of the cycling
and motor services sector, we have lobbied
Government on expediting E-scooter trials,
expansion of the Cycle-to-Work scheme and
more recently the COVID-19 related MOT
extension. We also take a lead on product
innovation, investing in new E-mobility and
providing servicing for hybrid vehicles, serving
the growth in electrification.

We have significantly improved our social
engagement this year, seen a greater mix of new
customers as well as more female customers
and a younger audience with our proposition
enhancements and marketing investments.

Our HME expansion has added strength to our
convenience credentials as has our emerging
built bikes to door initiative.

COVID-19
Status as an essential retailer is a responsibility
we have taken seriously and one which our
colleagues have embraced with pride. ‘Essential’
status has allowed us to promote awareness of
our services offering whilst serving the nation
and key workers during the crisis.

A £2 billion pound package provided by the
Government as part of its cycling and walking
investment strategy was announced in May. We
anticipate high demand for the ‘fix your bike’
voucher scheme, having experienced significant
growth in our cycle repair business over the
period.

Key:

Increase

Decrease

No change

New

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Focus in 2020
Priorities in 2021
• Additional services capacity

via the acquisition of
McConechy’s and Tyres on
the Drive.

•

Launched new service
offerings e.g. WeCheck.

• Developed our Financial

Services offering across the
Group.

• Grow Halfords Mobile Expert,

increasing to over 200 vans.

• Develop our digital offer

via the optimisation of the
new Group web platform
with a focus on improving
convenience to customers.

•

Enhancing solution selling
for key product categories
alongside momentum in
growing service-related sales.

Risk Title
Value Proposition
N

Risk Description
Customers are not persuaded
by our value proposition and
we lose market share to online
retailers and discounters. Purely
competing on price leads to a
diminution of financial returns.

Current Mitigation
To differentiate ourselves in a competitive retail
market our vision is to consolidate Halfords as
a super-specialist in motoring and cycling. Our
strategy emphasises the importance of creating
value for the customer by delivering services
alongside the sale of a product.

During the year we grew our UK services
footprint with the acquisition of McConechy’s,
based in Scotland and the North of England. The
UK market for motoring services is fragmented
with no clear market leader. With the average age
of UK cars increasing, we are well positioned to
become the UK’s leading independent provider
of MOT and servicing to motorists across the
country.

During the year we also acquired the assets
of Tyres on the Drive to significantly bolster
our mobile services offering, which provides
convenience and peace of mind to our
customers, demonstrated by strong customer
demand and high Trustpilot scores.

With our Klarna partnership offering financial
solutions across channels and for the Group, our
products and services are more accessible for
many customers.

COVID-19
Demand for our cycling range has been
unprecedented throughout lockdown, during
which time, as the UK’s leading cycle retailer, we
were able to demonstrate our role in enabling
more people to ride more often.

During the lockdown period there has been high
demand for home delivery fulfilment, particularly
bikes. We grew our bike to door initiative. We
also launched ‘Payment online’, providing full
online functionality and ease of purchase for
customers.

Key:

Increase

Decrease

No change

New

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Risk Title
Financial
Brexit

Risk Description

Current Mitigation

Focus in 2020
Priorities in 2021

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.

In January the UK withdrawal agreement from the
EU received Royal Assent, triggering a transition
period that is due to expire on 31 December
2020. Throughout the year preparations were
maintained for a no-deal scenario.

• Delivery against our corporate
strategy to strengthen our
appeal to consumers and
reduce our exposure to
currency risk.

•

Explore revised tariff and duty
regulations to identify new
sourcing opportunities.

• Stock build, where

appropriate, to mitigate short-
term supply issues.

• Ongoing monitoring of

negotiations 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 taken to date include:

• Authorised Economic Operator (“AEO”)

status secured in full, allowing lower friction
customs procedures;

• Comprehensive Customs Guarantee (“CCG”)
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 December, we will continue
to work on our readiness and have identified
areas of focus. Vendor negotiations are ongoing
and terms changes are likely to be required as
we move out of the transition period. We have
modelled the costs our suppliers are likely to
incur, enabling us to engage in constructive
negotiations.

Duty and other at the border costs related to
administrative burden and time delays will affect
all importers and exporters, resource and shift
changes have been adopted to minimise any
additional cost. Our Republic of Ireland stores
will become an export and we anticipate border
controls across the Irish Sea. To allow continued
replenishment and returns for all Irish stores we
have adapted our logistics processes.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Risk Title
Sustainable
business model

Risk Description
Changes in the UK economy
(including consumer confidence
and the value of the Pound) 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 foreign exhange
exposure) and improve our ability
to move quickly on fixed assets
and property costs, we will not
create a sustainable business
model.

Focus in 2020
Priorities in 2021
• Ongoing focus on building our

services business, leading to
a more resilient business and
one less exposed to foreign
exchange variation.

• Customer propositions

designed to secure revenue
from existing customer
base (e.g. Financial Services,
Motoring and Cycling
Services, B2B).

• Strategic sourcing tie-ups (e.g.

Mobivia).

• Strategic cost reduction
programmes targeting a
reduction in property cost,
supply chain and goods not
for resale spend.

• Planned improvements in

cycling profitability.

• Working capital reduction

via strategic stock reduction
programmes.

Current Mitigation
A number of strategic initiatives are well
advanced to reduce our exposure to changes in
the UK economy that adversely impact ‘business
as usual’ and the delivery of our Strategy:

• procurement savings programmes in place

for direct and 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 reducing 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.

COVID-19
The occurrence of the pandemic, has elevated
this risk and financial resilience has therefore,
become central to our decision-making and will
remain a key consideration into the foreseeable
future. Early in the crisis we were able to access
substantial liquidity by drawing down fully on our
overdraft and Revolving Credit Facility.

Recognition as an essential retailer has enabled
us to trade well through the lockdown period,
albeit at reduced levels. Postponing capital
commitments, reducing our variable cost base
and optimising our working capital position are
some of the measures we have taken as we
navigate through this period.

Key:

Increase

Decrease

No change

New

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Risk Description

Current Mitigation

Risk Title
Operational
COVID-19
N

The viability of the business is
at risk if we do not adapt our
operations to safeguard our
customers, colleagues and wider
community, as well as taking the
necessary steps to minimise cost
and preserve liquidity.

IT infrastructure
failure

Failure in our IT system(s) may
cause significant disruption
to, or prevention of, normal
business-as-usual activities.

In response to COVID-19, the Board took swift
and decisive action to mitigate the potential
impact, including a series of operational and
financial measures to safeguard the business.

As a provider of essential products and services
to the UK public, we have remained open during
the lockdown period. We were able to keep
open most of our Retail estate on a ‘dark-store’
basis, enabling us to serve customers safely
from the front of the store, whilst also ensuring
our colleagues could operate in safe working
conditions. As lockdown restrictions began
to lift, we enabled a ‘Retail Lite’ programme to
gradually start reopening stores to customers in
accordance with social distancing requirements.
We were able to open over 300 garages across
our Autocentres and McConechy’s brands, and
operate all 77 mobile vans, a services proposition
that was particularly popular during lockdown.

Proactive measures have been applied to
obtain greater oversight and control of liquidity
and cash management. We have negotiated
terms with our commercial partners, reduced
discretionary spend and paused capital
investment. We have accessed Government
support where available, such as the Job
Retention Scheme and business rate relief. We
have been in active dialogue with our existing
lending syndicate to provide additional flexibility
as required.

An economic contraction is likely, impacting
consumer confidence and discretionary income.
Our financial services proposition has performed
well and will be a valuable option for customers
seeking to spread their costs.
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 securely within data centres operated
by a specialist company and in specialist
cloud services operated by Microsoft. These
systems are supported by disaster recovery
arrangements, including comprehensive backup
and patching strategies. IT recovery processes
are tested regularly.

COVID-19
Our cloud-based systems enabled minimal
disruption as many of our colleagues transitioned
to home working. Support from our service
providers has ensured system stability for our
remote workers.

Focus in 2020
Priorities in 2021

• Continue to build operational
resilience by iterating the
retail and garage operating
environments to ensure
the ongoing safety of our
colleagues and customers.

• Target a gradual improvement

in sales volumes and
profitability by successfully
meeting the increased
demand generated by the
changing customer behaviour
coming out of lockdown –
notably the trend to more
cycling journeys and a
likelihood of more motorists
on the road.

• Target a series of ‘fast start’
programmes to aggressively
take cost out of the business.

• Continue to stress test

and reverse stress test our
business model to ensure
access to sufficient liquidity.

• Perform a ‘lessons learned’
review of our COVID-19
response and renew our
business continuity planning.

•

Introduction of new Group
website hosted through
Salesforce.

• Continue progression towards
a fully cloud-based hosting
structure.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Risk Title
Skills shortage We may be unable to recruit,

Risk Description

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.

Focus in 2020
Priorities in 2021
• Pathway development

enabling young talent to join
our business.

• Update recruitment collateral

in-line with our new values and
behaviours programme.

• Move more of our eLearning
training into video learning.

Current Mitigation
We have a strategy that relies on attracting and
retaining colleagues who can inspire and support
our customers and encourage them to build a
lifetime relationship with the brand.

Our in-house resourcing team have developed
a recruitment website which highlights the
importance of the Halfords behaviours and
details the skills and experience required of
our colleagues. There are clear and detailed
recruitment processes in place which are
reviewed regularly to respond to changes in the
business.

In our stores, our Gears training programme
provides our colleagues with structured training
taking them through their first 18–24 months. We
use our training programme to enhance skills,
reinforce our behaviours, keep colleagues engaged
and reach a competitive hourly rate of pay.

We also review our skills mix frequently to ensure
that all stores have the right skill levels to provide
the services needed to satisfy our customer
needs. The analysis from these exercises leads
us to target specific skills needed as a priority
to ensure we keep any skills gap minimal. Using
an experienced internal training team, we then
develop and deliver a targeted plan to increase
skill levels in any identified areas.

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. We apply a targeted
approach to further enhance skill levels for
centres as we do with stores, by mapping
against the optimal skills mix.

COVID-19
To support FY21 requirements we translated
some of our skills development material into
Virtual Classroom content, allowing us to train
colleagues whilst they remained in store.

Key:

Increase

Decrease

No change

New

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Risk Title
Colleague
engagement /
culture

Risk Description
Our employment model may not
be sufficiently attractive to recruit
and retain the talent that we need.

Focus in 2020
Priorities in 2021
• 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.

• Significant increase in the

number of listening groups
held across the business.

•

Launch of our new colleague
values and behaviours
framework.

Identification and
development of top talent to
strengthen succession.

Current Mitigation
Colleague engagement is vital to our success
as a business. Engagement is a metric in the
Executive bonus scheme and is monitored by
the Board, under the direction of Helen Jones,
the Non-Executive Director responsible for
Colleague Voice.

An annual engagement survey, administered
and analysed by a third party, 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 93%.
Our engagement index of 79% demonstrates
that the majority of our colleagues enjoy working
at Halfords.

The feedback received from colleagues
through both our annual internal engagement
survey, and the Sunday Times Top 25 Large
Employer surveys formed the basis of functional
engagement plans across the business. Regular
listening groups are held – with a total of 111
across the Group as a whole.

A full review of the culture of our business was
undertaken during the year, resulting in the
definition of a revised colleague values and
behaviours framework. This framework was built
with input from c1,300 of our colleagues from
across the business and is due to be launched in
2021. Further details can be found in the Corporate
Governance Report on pages 94 and 95.

The identification and development of top talent,
so strengthening succession was also a key
focus. This will remain a focus throughout 2021
and beyond.

COVID-19
A wellbeing newsletter was issued across the
business on a weekly basis, ensuring colleague
engagement has formed a key part of our
response to the pandemic.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Focus in 2020
Priorities in 2021
• Refreshed our Business
Continuity planning.

• Continued development of

relationships with current and
potential new suppliers.

• Post COVID-19 lockdown,
immediate switch to home
working for Support Centre
colleagues, supported by
enabling technology.

• Adaptations to critical

work environments – e.g.
Distribution Centres – to
enable safe working
conditions for colleagues.

• Alternative suppliers

identified to address potential
disruption in the supply chain
arising from the ongoing
implications of the pandemic.

• Review our Business

continuity planning with
lessons learned following the
impact of COVID-19.

• Strengthened the central

•

compliance function to ensure
focus on all relevant activities.

Increase colleague awareness
and understanding of
personal responsibilities
via improved visibility of
Company policies and
development of new training
resources.

Increase the number
and frequency of onsite
compliance audits to assess
adherence to Company
standards.

• Reinforce the need for a
culture of compliance by
default and design.

Risk Title
Critical physical
infrastructure
failure (including
supply chain
disruption)

Risk Description
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.

Current Mitigation
Extensive research is conducted into quality
and ethics before the Group procures products
from any new country or supplier. The Group’s
strong management team in the Far East blends
expatriate and local colleagues. It understands
the local culture, market regulations and risks
and we maintain very close relationships with
both our suppliers and shippers to ensure that
disruption to production and supply are managed
appropriately.

We work with suppliers in several 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 maintains
contacts with a range of logistics businesses
who could be utilised if necessary. As the
conclusion of the Brexit transition period draws
closer, we are continuing preparations for
changes in the nature of the border between the
UK and the Republic of Ireland.

COVID-19
We have worked exhaustively with our supply
chain to respond to the unique challenges
presented by the COVID-19 pandemic. Since the
virus was first reported in China, and during the
current lockdown restrictions in the UK, we have
maintained supply to our customers despite the
constraints and significant demand for some of
our product lines.

Compliance
Regulatory and
Compliance

A failure to adhere to our legal
and/or regulatory obligations
for some or all of the Group’s
activities leads to an inability
to meet our responsibilities
to stakeholders and/or the
imposition of financial penalties,
placing a strain on the business.

We have a compliance team with a wide remit to
set policy and verify that business activities are
compliant with legal and regulatory obligations.
In the past year, the Group has also established
a dedicated Compliance Committee with
senior input and attendance from all areas of
the business to drive localised ownership and
actions.

The senior leadership team communicates tone
from the top to provide guidance to colleagues
on all policy commitments.

•

Regular horizon scanning to capture new
regulations and guidance.

COVID-19
We have adhered to the 2020 Health Protection
Regulations throughout the lockdown period, only
opening our stores and autocentres when guidance
was clear and we were satisfied it was safe.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Risk Title
Service quality

Risk Description
The service we provide to
customers may fail to meet
regulatory / safety requirements
resulting in harm to customers
and / or legal / financial penalty.

Focus in 2020
Priorities in 2021
• Ongoing investment in

training across Retail and
Autocentres.

• Significant investment in
garage technology, via
workflow and self-audit
capability, to support quality
job completion.

• Monitoring of customer

satisfaction through detailed
review analysis.

• Continued development of

our colleagues and our estate
to provide high levels of
customer service.

Current Mitigation
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 and 2
programme to ensure they are consistently
knowledgeable about our products and able
to deliver a quality service to our customers.
Colleagues also complete an annual assessment
of their understanding of our quality procedures.
We have four equipped training academies
delivering training for Autocentre technicians
and 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.

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.

COVID-19
Our evolving ‘Lite’ model will apply to stores
and autocentres for the foreseeable future,
facilitating social distancing as we emerge
from the COVID-19 lockdown.

We also enabled remote working for many of our
colleagues not working in store, joining forces
with our customer service team to respond to
record levels of customer contact.

Key:

Increase

Decrease

No change

New

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur Principal Risks and Uncertainties

Risk Title
Cyber security

Risk Description
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.

Current Mitigation
Following on from a review of our IT Operating
Model, we have a Head of Information Security,
sitting on the IT Leadership Group, to manage
the IT security framework and ongoing
development and review of our IT Security
strategy and road map. Our IT Security partner,
TCS, have been successfully onboarded
and provide valuable support by managing
vulnerability scans and our email and website
security.

A perpetual training programme exists for the
benefit of our colleagues, raising awareness
and promoting good security hygiene.

The Audit Committee is briefed by senior IT
management on the business’ IT security
framework and continues to closely monitor
this area.

COVID-19
We maintained testing of our defences in
anticipation of a heightened threat. A major
COVID-19 ransomware attack was successfully
blocked, applying intelligence obtained from
various security threat advisories.

Focus in 2020
Priorities in 2021
• Process reviews and

recommended improvements
to increase overall security
posture.

•

Enhanced involvement of
security at the start of project
development (security by
design).

• Awareness training

delivered to all colleagues
on information security and
cyber security threats.

• Advanced programme of

penetration testing and
vulnerability assessments.

• Continued support and

training for our colleagues to
maintain good cyber hygiene

• Work towards fully managed
Security Operations Centre
(SOC) on target for 2021 to
increase visibility of threat
landscape.

• B – Low Case – a more prolonged

reduction in sales resulting in a c.27% full
year reduction in sales from FY20.

The key assumptions used in these models are:

These mitigations were modelled within the
scenarios and combined with the in-year
Government support resulted in cost savings
vs planned expenditure in FY21 of £89m.

Going Concern
In determining the appropriate basis of
preparation of the financial statements for
the year ended 3 April 2020, the Directors
are required to consider whether the Group
can continue in operational existence for the
foreseeable future. The Board has concluded
that it is appropriate to adopt the Going
Concern basis, having undertaken a rigorous
assessment of financial forecasts, with
specific consideration given to the trading
position of the Group in the context of the
current COVID-19 pandemic in the UK.

Due to the Government’s enforced lockdown,
and the requirement of the UK population
to self-isolate, the COVID-19 pandemic will
result in a material reduction in our expected
revenue and profit for the next financial period
ending 2 April 2021. This is mainly due to
decreased footfall in the first half of the next
financial year arising from store and garage
closures, revised store operating models
and Government-enforced social distancing
measures.

• A – Lockdown lifting in stages from end
of May, furlough and rates benefits are
received and further savings made across
the business. Dividend suspended and
working capital reduced;

• B – Same as Base Case but with

consumers continuing to isolate at similar
level until October, further reduced capital
expenditure and increased furlough
benefit;

The scenarios, particularly scenario B, are
considered to be prudent given trading seen
since the end of the FY20 financial year, but,
when modelled, have a significant impact on
sales, margin and cash flow. In response, the
Directors have taken immediate and significant
actions to reduce costs and optimise the
Group’s cash flow and liquidity. Amongst these
are the following mitigations:

The Directors have reviewed the rapidly
evolving situation relating to COVID-19 and
have modelled a series of scenarios that cover
the period to July 2021 and beyond in order
to assess not only the Going Concern status
of the Group but also longer-term viability (see
Viability Statement on page 79).

• Approval for increased funding to extend
the available facilities from £200m to
£225m;

• Approval for a covenant relaxation from

syndicate banks to ensure that covenants
are not breached in the next 12-month
period;

For the Going Concern assessment,
management focused on two key scenarios:

• A - Base Case – a steep sales reduction
in the first half of the year resulting in a
c.16% full year reduction in sales from
FY20.

• Reducing capital and investment

expenditure through postponing or
pausing projects and change activity;

•

Freezing non-essential recruitment;

• Deferring or cancelling discretionary

spend.

The Group has a Revolving Credit Facility of
£200m at the date of approval of these financial
statements, which expires on 3 September
2022. In addition, the Group has access to a
further £25m in the form of CLBILS financing
(which expires in January 2021). The Group
has no other debt or facilities. Covenants have
been amended for the full financial year ending
2 April 2021.

The Board has a reasonable expectation
that the Group and Company will be able to
continue in operation and meet its liabilities
as they fall due; retain sufficient available
cash and not breach any covenants under
any drawn facilities over the remaining
term of the current facilities. They do not
consider there to be a material uncertainty
around the Group’s or the Company’s ability
to continue as a going concern.

Credit Facilities, Change of
Control and Share Schemes
The Group’s credit facilities referred to above
require the Group 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 Group 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
Group’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 24
on pages 186 to 189.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Viability Statement

In accordance with paragraph 31 of the
2018 UK Corporate Governance Code, the
Directors have assessed the viability of the
Company and the Group over a three-year
period to 31 March 2023. The Directors
believe this period to be appropriate as
the Company’s and the Group’s strategic
planning encompasses this period, and
because it is typically a reasonable period
over which the impact of key risks can
be assessed within a fast-moving retail
business. The Directors are mindful, however,
of the heightened uncertainty driven by
the COVID-19 pandemic and accept that
forecasting across this time frame is now
materially more challenging and have
therefore also focused on understanding the
level of headroom available before the Group
reaches a position of financial stress.

In making this viability 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 and covenant
requirements.

The Group’s business model and strategy
are central to an understanding of its
prospects, and details can be found on
pages 22 to 38.

Context
The Group undertook a review of the
previously approved financial plan and
forecasts in light of the current economic
uncertainty existing surrounding COVID-19.
The previously approved plan had taken
account of existing factors such as Brexit.
The output of this review has created a new
base case for the period ending 2 April 2021
where short-term volatility is expected to
have an adverse effect on the results. The
future years included in viability modelling
have been constructed with reference
to the revised base case to create a new
three-year ‘Viability Scenario’ upon which
the Board has made its assessment of the
Group’s ongoing viability. This has also been
used as the basis for the Group’s review of
going concern.

Assessment Process and
Key Assumptions
The Viability Scenario takes into account all of
the principal risks and uncertainties (pages 66
to 78) facing the Group across the three-year
period in order to assess the Group’s ability

to withstand multiple challenges. It assumes
that a new like-for-like revolving credit facility
is obtained on the expiry of the current facility
in September 2022. The impacts of COVID-19
have been built into the scenario, but the
impact of further one-off ‘black swan’ events
that cannot be reasonably anticipated have
not been included.

Key Assumptions
• Sales for FY21 are 16% behind FY20,
with FY22 seeing a recovery to FY20
levels, with low single digit growth
thereafter.

• Store and garage rent and rates remain

largely flat with the Government business
rate holiday concluding in April 2021.

• No payment of a final dividend for FY20,

and reinstated thereafter.

• Working capital requirements reduction

of £16m year on year.

• Capital expenditure commitment of

£25m in FY21 to deliver the minimum
elements that the Group requires to
keep in touch with evolving customer
and operational necessities in line
with the Group Strategy but with a
deceleration of pace of change.

Mitigating actions have been taken in
year one to preserve cash which include,
but are not limited to, reducing planned
capital, marketing and non-essential
spend; suspension of the dividend for the
period ended 3 April 2020, and a reduction
in working capital balances focusing
predominantly on reducing inventory
balances. External mitigations include the
utilisation of the Government business rates
holiday and job retention scheme.

The Group has also assumed a prudent and
realistic efficiency programme, which it had
already set out to do, to commence in year
one to mitigate the impact of the reduction
in sales following COVID-19. The main
factors include reducing working capital
spend, delivering elements of the strategic
change progra3333345555mme that drive
up sales and margin and achieving plausible
cost efficiencies in payroll, property and
discretionary spend.

The Board considers this scenario to be
reasonable. Since the COVID-19 crisis
began, the Group was able to reopen most
Retail stores, garages and mobile vans at
the commencement of year one. The Group
is uniquely positioned to keep the UK’s cars
and bikes on the road and safe to drive or
ride, providing vital support to emergency
workers, fleet operations, key workers and
the general population as they travel for
essential supplies and, where required,
attend places of work. Sales to date in FY21,
are 32.9% higher than the base case.

Assessment of Viability
Although the Viability Scenario reflects the
Board’s best estimate of the future prospects
of the Group, the Board has also tested
the potential impact of a severe downside

scenario (“stress test”), by quantifying the
financial impact and overlaying this on the
detailed financial forecasts in place. Rather
than creating numerous scenarios that
model the large number of uncertainties in
the current climate, the Group has tested
the Viability Model to understand how far
sales would have to decline before the
Group’s banking covenants are breached
and when it would no longer meet its liquidity
requirements. This scenario has taken into
account aspects of principal risks, greater
reduction in sales in FY21, a much smaller
recovery in sales in FY22 and beyond; and a
significant reduction in cashflow to invest in
and transform the business.

In modelling this stress test, the Board has
assumed no spend on transformational and
strategic projects and a more aggressive,
but achievable, cost efficiency programme,
which would, for example, include a reduction
in the store estate. This includes a significant
reduction in year one performance as a
result of COVID-19 with sales down 30% on
FY20, and a much slower recovery in years
two and three with sales not recovering to
pre COVID-19 levels over the period under
review. The cost efficiency programme is
assumed to accelerate to a total of £27m
during this period to mitigate the reduction.
Should this cost reduction not be achievable,
the Group would breach its covenants.

In order for the Group to become unviable,
sales would need to fall to £884m in year three,
which is a decrease of 23% from the levels
achieved in the year ended 3 April 2020.

Unprecedented uncertainty arises because
of COVID-19. The Board has made its best
estimate of a hypothetical and severe
scenario for the purpose of creating
outcomes that have the ability to threaten
the viability of the Group. Should the
outcomes be significantly worse, the Group
would have to consider further mitigating
actions, for example further suppression
of capital spend or dividend payments,
accessing increased debt facilities, or
requesting further covenant waivers.

The outcome of the stress testing
demonstrates that due to the stability of
the Group in its position as a designated
provider of essential services, playing a
critical role in keeping the UK moving, it
would be able to withstand the impact of
a sustained downturn occurring over the
period of forecast by making deliverable
adjustments to its operating plans.

Viability Statement
The Board has a reasonable expectation
that the Group and Company will be able to
continue in operation and meet its liabilities
as they fall due; retain sufficient available
cash and not breach any covenants under
any drawn facilities over the remaining term
of the current facilities. 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.

halfords.annualreport2020.comOur GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportOur
Governance

82
84
90
112
114
116
120
122
132
141

Board of Directors

Keith Williams N R
Chairman

Date Appointed
24 July 2018 as Chairman and Chair of the Nomination Committee.

Background
Keith is Interim Executive Chair of Royal Mail Group, and the independent Chair of the
Government supported Rail Review. Keith is a qualified Chartered Accountant.

Keith was formerly a Non-Executive Director and Deputy Chairman of John Lewis, a Non-
Executive Director of Aviva Plc, and Chief Executive Officer and then Executive Chairman of
British Airways, having previously been at Boots, Reckitt and Colman and Apple Computer Inc.

Key Strengths
Keith brings extensive leadership and PLC board experience. He is a highly regarded
business leader with a proven record in retail and deep experience in relevant areas such as
treasury, cash management, customer service and digital.

Graham Stapleton E
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 is an outstanding business leader and 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 Memberships

A Audit Committee E Environmental, Social and Governance Committee

N Nomination Committee R Remuneration Committee EV Employee Voice

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020David 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 is currently a Non-Executive Director and Chair of the Audit Committee at Thinksmart
Ltd. 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), Hornby
Plc (Non-Executive Director and Chair of the Audit Committee), and Celine Group Holdings
Limited (previously Debenhams Group Holdings Ltd).

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 knowledge and experience to his role.

Helen Jones A E N R EV
Independent Non-Executive Director

Date Appointed
1 March 2014 as Non-Executive Director; 7 December 2015 as Chair of the Environmental,
Social and Governance Committee (formerly known as the Corporate Social Responsibility
Committee) and 1 May 2019 as the Employee Voice Director.

Background
Helen is a Non-Executive Director and Chair of the Remuneration Committee and Audit
Committee of Fuller, Smith & Turner Plc, a Non-Executive Director of Premier Foods Plc and a
member of the Supervisory Board of Directors of Ben and Jerry’s.

Previously, Helen was a member of the Supervisory Board and the Audit Committee for
Vapiano S.E. Prior to that, Helen was the CEO of the Zizzi Restaurants group and was also
responsible for successfully launching the Ben and 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 Chair and member
of the Audit and Nomination Committees of 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.

Previously, Jill was a Non-Executive Director, Remuneration Committee Chair and a member
of the Audit and Nomination Committees of Northgate Plc. 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
drinks 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.

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ 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 3 April 2020.

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

Additional Disclosure
Other information that is relevant to this report and which is incorporated by reference, including information required in accordance with the
UK Companies Act 2006 and Listing Rule 9.8.4(R), can be located as follows:

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
Colleague engagement

Colleagues’ involvement; training, diversity and disability

Community
Compensation for loss of office
Creditor payment policy
Culture
Directors’ biographies
Directors’ indemnities
Directors’ interests
Directors’ Remuneration Report and Remuneration Policy
Directors’ Responsibilities Statement
Diversity

Energy and Carbon Emissions
Financial instruments
Future developments of the business
Financial position of the Group, its cash flows, liquidity position and
borrowing facilities
Gender

Going concern
Governance
Important events since year-end
Independent Auditor

Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Audit Committee Report
Directors’ Report
Directors’ Report
Corporate Governance Report

Directors’ Report
Strategic Report: Our ESG Strategy
Corporate Governance Report
Strategic Report: Our ESG Strategy
Directors’ Report
Strategic Report: Our ESG Strategy
Strategic Report: Our ESG Strategy
Directors’ Report
Directors’ Report
Directors’ Report
Board of Directors
Directors’ Report
Directors’ Report
Directors’ Remuneration Report
Directors’ Responsibilities Statement
Directors’ Report, Corporate Governance Report and
Nomination Committee Report
Strategic Report: Our ESG Strategy
Note 22 to the Group Financial Statements
Chief Executive’s Statement
Chief Financial Officer’s Review

Strategic Report: Our ESG Strategy

Principal Risks and Uncertainties
Corporate Governance Report
Directors’ Report
Independent Auditor’s Report

Page
88
86
88
88
116
88
86
90

88
54 & 57
96
47
87
55
57
88
88
94
82
86
86
120
141
87,101
and 113
52
181
14
60

78
90
88
144

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Topic
Internal control and risk management
Long-term incentive schemes
Nomination Committee Report
Political donations
Powers of the Directors
Principal activities
Re-election of Directors
Restrictions on transfer of securities
Section 172 statement

Share capital

Significant shareholders
Subsidiary and associated undertakings
Stakeholders
Statement of Corporate Governance
Strategic Report
Viability statement
Voting rights
Waiver of dividends

Report
Corporate Governance Report
Directors’ Remuneration Report
Nomination Committee Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Strategic Report: Chairman’s Statement
Strategic Report
Corporate Governance Report
Directors’ Report
Note 23 to the Group Financial Statements
Directors’ Report
Note 4 to the Company Financial Statements
Corporate Governance Report
Corporate Governance Report
Strategic Report
Strategic Report
Directors’ Report
Directors’ Report

Page
110
132-140
112
88
86
86
86
86
12
59
90
87
186
87
194
106
91
20
79
87
86

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Report

UK Corporate Governance Code
The Company has applied the main
principles of, and complied with, the
provisions of the 2018 UK Corporate
Governance Code (the “Code”)
throughout the year. Given the exceptional
circumstances in which we find ourselves
in regard to COVID-19 it has been agreed
that David Adams will stay in office until
the end of 2020. The full reasoning behind
this decision is detailed on page 91. The
Board recognises that as it has assessed
that David will no longer be regarded as
independent for the purposes of the Code
because of his extended tenure, this has
created a technical breach of the Code’s
recommendation that the majority of the
Board be independent Non-Executive
Directors. However, we believe that
this short-term situation is justified in
these unprecedented and challenging
circumstances and that the Company will
benefit significantly from David’s continued
service on the Board.

Principal Activities
The principal activities of the Group are: the
retailing of motoring and cycling products
and services; and auto servicing and repairs
through garages and mobile vans. 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 150. The profit before tax was £19.4m
(2019: £51.0m) and the profit after tax
amounted to £17.5m (2019: £41.9m). As
announced on 25 March 2020, the decision
was made to suspend the final dividend in
order to preserve cash during the COVID-19
pandemic. An interim dividend payment of
6.18 pence per ordinary share was paid on
17 January 2020.

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 40 to
42 are appropriate measures to assess the
delivery of the Group’s Strategy.

Directors
The following were Directors of the
Company during the period ended 3 April
2020 and at the date of this Report:

• Keith Williams

• Graham Stapleton

•

Loraine Woodhouse

• David Adams

• Helen Jones

• Jill Caseberry

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 3 April 2020 will retire and
offer themselves for re-election at the 2020
Annual General Meeting (“AGM”).

The Service Agreements of the Executive
Directors and the Letters of Appointment
of the Non-Executive Directors are available
for inspection at the registered office of the
Company. A summary of these documents
is also included in the annual Directors’
Remuneration Report on pages 128 and 130.

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 2019 Annual General Meeting, held
on 31 July 2019, will expire on the date of
the 2020 Annual General Meeting. Since the
date of the 2019 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 Directors’ Remuneration Report on
pages 132 to 140.

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 or 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
colleagues, suppliers, customers and the
wider communities in which we operate.
More information on this can be found on
pages 59, 90 to 111.

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.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020withdrawn as an employer training provider
of apprenticeships and have instead
secured Instep UK as a partner. This means
that if a colleague wishes to complete
an apprenticeship qualification, they are
still able to do so. Further information on
colleague training can be found on pages 46
and 49 of Our ESG Strategy.

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
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 23 on
page 186. 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 6 July 2020, 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
FIL Limited
Dimensional Fund Advisors
Rathbones
BlackRock Inc
Aberforth Partners LLP (SC)
Evenlode Investment Management Ltd (UK)
Norges Bank Investment Management
Hargreaves Lansdown Asset Mgmt (UK)
The Vanguard Group Inc
River & Mercantile Asset Management LLP (UK)

Holding
19,756,804
9,324,639
8,337,898
8,011,853
7,870,518
7,707,229
7,054,816
6,436,936
6,373,403
5,711,874

% of Issued
Shares
9.92
4.68
4.19
4.02
3.95
3.87
3.54
3.23
3.2
2.87

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. For more information see
Our ESG Strategy on page 47.

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 113.

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 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
and Performance Cycling 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.
During the year, we have reviewed the best
way for the apprenticeship training to be
provided, and following this review, we have

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Report

Authority to Purchase Shares
At the 2019 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 29 March 2019, such
authority expiring at the conclusion of the
Annual General Meeting to be held in 2020 or,
if earlier, on 30 September 2020.

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 (FY19: nil). It remains the Company’s
policy not to make political donations or
to incur political expenditure. However, the
application of the relevant provisions of
the Companies Act 2006 is potentially very
broad in nature and, as last year, the Board is
seeking shareholder authority to ensure that
the Group does not inadvertently breach
these provisions as a result of the breadth
of its business activities. However, the Board
has no intention of using this shareholder
authority.

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 24 on pages 186 to 189.

Modern Slavery Statement
In order to support its estate of Retail
stores and garages and online operations,
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 Suppliers’
Code of Conduct Policy 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; and

• Halfords reserves the right to conduct risk
assessments in respect of its suppliers
and to 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
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
FY20, 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.

The Group’s Board of Directors reviews its
Modern Slavery Statement on an annual basis.
It was last approved on 6 February 2020.

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 3 April 2020 for the Group was 69 days
(2019: 60 days). The Company is a holding
company and has no trade creditors.

Branches
The Company and its subsidiaries have
established branches in the different
countries in which they operate.

Auditor
The Company’s current Auditor is BDO LLP.
A resolution proposing the reappointment of
BDO LLP will be set out in the Notice of the
2020 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:

ii.

so far as the Directors are aware, there
is no relevant audit information of which
the Company’s Auditor is unaware; and

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
The COVID-19 pandemic affected our
results in the final weeks of FY20 but the full
extent of the impact will be seen in FY21.
We have referred to COVID-19 throughout
this report, in terms of the impact on our
business, how we have responded and how
we are mitigating the risk, in future. The
Group is well positioned to successfully
manage this emerging risk and to continue
on its transformation journey.

Annual General Meeting (“AGM”)
The AGM will be held at the Halfords Group
plc Support Centre, Icknield Street Drive,
Washford West, Redditch, B98 0DE on
Tuesday 15 September 2020. 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
6 July 2020

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020O
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halfords.annualreport2020.com

Corporate Governance Report

Board Leadership
The role of the Board is to ensure not only
that the Company’s strategic objectives are
delivered but that in doing so, our business
acts in the right way and has a positive
impact on the communities in which we
operate.

To achieve this, we engage with a wide
variety of stakeholders (including:
colleagues; customers; suppliers; and those
communities in which we operate). We
consider their interests as well as the long-
term consequences of any decision on our
business and the Company.

Our Commitment to Engaging
with Stakeholders
We remain committed to engaging with
a wide variety of stakeholders as we see
this as an important part of making our
company successful. One example of
this is the consultation we undertook with
shareholders over our new Remuneration
Policy prior to it being presented at this
year’s Annual General Meeting. A further
example is the creation of our colleague
listening groups, many of which are
attended by Helen Jones, our designated
Non-Executive Director responsible for our
‘employee voice’ programme, these groups
ensure colleague feedback is brought to the
attention of the Board and helps shape and
influence some of the decisions that
are taken.

CHAIRMAN’S LETTER

Chairman’s Introduction and
Section 172 Statement
As Chairman, I lead the Board which is
collectively responsible for the long-
term success of the Company. My role
is to ensure that we have a Board which
contains the right balance of skills,
diversity and experience, to set the
strategy of the Company and oversee
the successful execution of it by the
business.

We know that a key element of our
business success is having good
corporate governance and so we have
implemented effective frameworks and
practices to ensure that high standards
of governance, as well as good values
and behaviours, are consistently
applied throughout the Group. We
see these as being critical factors for
the integrity of our business and in
helping to maintain the trust of all our
stakeholders in Halfords.

Read more on Our Section
172 Statement on page 59.

Company Purpose
Halfords has a clear purpose which is
to Inspire and Support a Lifetime of
motoring and cycling for an increasingly
mobile population. We fulfil an important
role in the social fabric of our society by
helping our customers with their ‘life’s
journeys’.

My role is to lead the Board, ensure
it operates effectively and contains
the right balance of skills, diversity
and experience.

Keith Williams
Chairman

You can read more throughout this report
about how we have engaged with these
groups and the impact this has had on the
decisions we have taken during the year.

We very much hope that we will be able to
hold our 2020 AGM in the usual way, but will
continue to monitor the COVID-19 situation
and have regard to developments over the
coming weeks ahead of the meeting.

Please continue to monitor our website and
announcements for any updates in relation
to the AGM arrangements that may need to
be provided to ensure we continue to act in
accordance with guidance issued by the UK
Government and relevant health authorities.

Keith Williams
Chairman

6 July 2020

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Corporate Governance Statement
The Board confirms that during the year
ended 3 April 2020, and as at the date
of this report, the Company has applied
the principles of, and complied with, the
provisions of the 2018 UK Corporate
Governance Code (“Code”) throughout the
year. Given the exceptional circumstances
in which we find ourselves in regard to
COVID-19, it has been agreed that David
Adams will stay in office until the end of
2020. The Board recognises that as it
has assessed that David will no longer be

regarded as independent for the purposes
of the Code because of his extended tenure,
this has created a technical breach of the
Code’s recommendation that the majority
of the Board be independent Non-Executive
Directors. However, the Board believes
that this short-term situation is justified
in these unprecedented and challenging
circumstances.

The Board welcomes the changes
introduced by the new Code in July 2019
to enhance long-term success and trust
in business. 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 as set out in the Code during
the period under review. A copy of the
Code is available on the Financial Reporting
Council’s website at www.frc.org.uk.

The Company has complied with the relevant
requirements under the Disclosure Guidance
and Transparency Rules, the Listing Rules, the
Directors’ Remuneration Reporting regulations
and narrative reporting requirements.

Section
Board leadership
and Company
purpose

Description
The Company is led by an effective Board, which promotes the long-term
success of the Company and engages with its shareholders
and stakeholders.

Further information

Read more on Stakeholder
Engagement on pages 106 and 107.

Division and
responsibilities

Composition,
succession
and evaluation

Audit, risk and
internal control

Remuneration

The Board has established the Company’s purpose, values and strategy
and is satisfied that these and its culture are aligned.

The Board has established an effective governance and risk framework.

The Board has ensured that the workforce is able to raise any matters
of concern, and that all policies and practices are consistent with the
Company’s values.
The Chair leads the Board which includes an appropriate combination of
Executive Directors and Non-Executive Directors.

The Non-Executive Directors provide constructive challenge, strategic
guidance and advice, and have sufficient time to meet their Board
responsibilities.

There is a clear division of responsibilities between the running of the Board
and the running of the business, and the Board has identified certain ‘reserved
matters’ that only it can approve. Other matters, responsibilities and authorities
have been delegated as appropriate, and there are relevant policies and
processes in place for the Board to function effectively and efficiently.
A comprehensive and tailored induction programme is in place for new
Directors joining the Board. The induction programme facilitates their
understanding of the Group and the key drivers of the business’s performance.

A rigorous, effective and transparent appointment procedure is in place, which,
together with the effective succession plans, promotes diversity of gender, social
and ethnic backgrounds, cognitive and personal strengths.
The Board has established formal and transparent policies and procedures to
ensure the independence and effectiveness of both internal and external audit
functions, and satisfies itself on the integrity of financial and narrative statements.

The Board presents a fair, balanced and understandable assessment of the
Group’s position and prospects.

The Board has established procedures to manage risk, oversee the internal
control framework and determine the nature and extent of the principal risks
of the Group.
The Company has designed the remuneration policies and practices to
support strategy and promote long-term sustainable success. The Executive
remuneration is aligned to the Company’s purpose and values and is clearly
linked to the successful delivery of our long-term strategy.

There is a formal and transparent procedure for developing executive
remuneration policy and determining director and senior management
remuneration.

Directors are able to exercise independent judgement and discretion when
authorising remuneration outcomes, taking into account Company and
individual performance and wider circumstances.

Read more on Culture on pages 94
and 95.

Read more on Principal Risks and
Uncertainties on pages 66 to 78.

Read more on Board Composition
on page 96.

Read more on Board
Responsibilities on page 97.

Read more on Key Board and
Committee Responsibilities and
Matters Reserved for the Board
on pages 96 and 97.

Read more on Directors’ induction,
training and development on page 108.

Read more on Diversity and the Group’s
Diversity Policy in the Nomination
Committee Report on page 113.

Read more in the Audit Committee
Report on pages 116 to 119.

Read more on Risk in the Principal
Risks and Uncertainties Report on
pages 66 to 78.

Read more on Executive Remuneration
in the Remuneration Committee Report
on pages 120 to 140.

Read more on our Remuneration Policy
in the Remuneration Committee
Report on pages 120 to 140.

Read more on Remuneration in the
Remuneration Committee Report
on pages 120 to 140.

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceCorporate Governance Report

Our purpose is to Inspire and Support a Lifetime
of motoring and cycling

Establishing Our Purpose
We know that the long-term success of our Company is founded on
having a clear purpose, supported by a strategy which considers
the views and needs of our many stakeholders. One such key
stakeholder group is our customers who we help meet their
motoring and cycling needs. This may be for their daily commute or
their leisure activities, such as holidays or staycations. Many ‘first’

purchases are made at Halfords, be that first car seat, first kids’
scooter, or first children’s bike and our role is to support customers
through these stages of their life’s journey. As society seeks to
reduce carbon and find more sustainable ways for us to live our
lives, we see the emergence of an ‘electric nation’ as a positive
opportunity that fits perfectly with our overall corporate purpose.

Read more about how our Purpose Aligns
with Our Culture on page 20.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020O
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Ensuring our Long-Term
Sustainable Success

Whilst all members of our Board have a solid understanding of the retail industry in general, and of customer service businesses in
particular, we have set out below the specific experiences of each Non-Executive Director and how their skills support the different
aspects of our operations in a complementary way.

How we are working towards our vision: being a super-specialist in motoring and cycling,
trusted by the nation:

Dynamic to the
Market Needs
Our Group operates in a market in which customer needs
and expectations are ever-changing. We need to be able
to evaluate these external trends so that we can make the
best strategic choices.

Skills our Board has
Retail industry-specific knowledge in relation to both our
core businesses and in those areas of increased focus
under our new Strategy (i.e. car services and offering
financial products that provide more convenient ways for
customers to pay).

Board members
• Jill Caseberry

• David Adams

Engagement With
Our Stakeholders
Engagement with our stakeholders to maintain trust and
enhance understanding of our business.

Skills our Board has
Experience in stakeholder engagement activities, such
as our ‘employee voice’ initiative and the shareholder
consultation in relation our new Remuneration Policy.

Board members
• Helen Jones

• Jill Caseberry

Commitment to
Delivering Financial Value
Commitment to delivering financial value to shareholders.

Skills our Board has
Experience in setting and delivering financial KPIs in
challenging retail markets.

Board members
• Keith Williams

• David Adams

• Helen Jones

• Jill Caseberry

Sustainable
Operations
Commitment to operating in a responsible way so that we
are a Company that people want to work for and invest in.

Skills our Board has
Experience of the setting and delivery of ESG
commitments, including recycling, energy usage and
sustainable electric cars and bikes.

Board members
• Helen Jones

• Jill Caseberry

Read more about the Skills of the Board
on page 100.

halfords.annualreport2020.com

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Corporate Governance Report

Key Statement of Halfords Culture
OUR CULTURE JOURNEY

The Board recognises the importance
of its role in ensuring the culture of the
organisation is aligned to its business
strategy and ambition to become a
market-leading services business. In
support of this, a full cultural review has
been completed this year in readiness
for the refresh of its colleague values and
behaviours in Q1 of 2021.

The Board monitors culture on an ongoing
basis both formally, and informally, through
the outputs of colleague engagement
surveys, including the Times Top 25 Big
Companies survey, in which Halfords was,
once again, placed in 2020; and through
regular listening groups held across all
areas of the business.

The voice of our colleagues is represented
in Board meetings by Non-Executive
Director, Helen Jones.

The table below outlines the key culture and
engagement activities undertaken this year:

9
1
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2

Listening groups are held throughout the year. These enable
colleagues to provide feedback about the business to
members of the senior management team and on occasion,
these meetings are also attended by Helen Jones and the
Executive Directors. Outputs and actions are monitored by
the Board.

Appointed Helen Jones as the Non-Executive Director with
accountability for Employee Voice.

Listening group programme established for new financial year to
include Board members.

Annual colleague engagement survey conducted.

Times Top 25 Big Companies survey conducted.

Engagement action planning undertaken.

Bonusable engagement targets set for Executive
Directors and the Executive Committee and approved
by the Board.

Listening groups are held throughout the year.

Full cultural review commenced, to include a review of
stores, symbols, structures, control systems and rituals
and routines.

Listening groups are held throughout the year.

Times Top 25 Big Companies accreditation
obtained.

1,300 colleagues engaged in defining colleague values
and behaviour framework.

Board review and input into culture review.

Values and behaviour framework agreed with the Board.

Project established to refresh colleague values and
behaviours.

Listening groups are held throughout the year.

0
2
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9
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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020
Aligning Our Purpose with Culture
Our colleagues and culture underpin our business Strategy and are critical to ensuring
our ability to become a market-leading services business.

OUR PURPOSE

To Inspire and Support
a Lifetime of motoring
and cycling

OUR VISION

The super-specialist in motoring and
cycling, trusted by the nation

OUR MISSION

1. Make motoring easier, safer and more enjoyable for everyone.

2. Get more people cycling, more frequently.

Our Strategic Priorities

Inspire

Support

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

Culture
A team inspired and motivated to drive towards delivering our Goals, Mission, Vision and
Purpose who live and breathe our brand values and represent the very best of what we offer
as a business to our customers.

We know that we will only be successful in
wowing our customers through engaging the
hearts and minds of our colleagues, ensuring
they go above and beyond to meet their needs.

During the course of the year, we
reviewed the culture of our business to
ensure alignment with our Strategy and
ambition to become a market-leading
services business, and our associated
plans. This review resulted in the refresh
of our colleague values and behavioural
frameworks which builds on the strength
of our existing leadership and ‘hands
on’ colleague behaviours. Our aim is to
create a ‘One Halfords’ team approach

and unite all parts of our business, old and
new. We engaged over1,300 colleagues
in building these values and behaviours,
through a combination of both face-to-face
workshops and questionnaire completion.

Due to the COVID-19 pandemic we took the
decision to delay the roll-out until the first
half of FY21 to ensure that it will have the
full attention of our colleagues across the
Group, this was led by senior leaders who
had training sessions which commenced
prior to the onset of the pandemic. We look
forward to sharing our colleague values with
you following our internal roll-out.

s
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Culture and Values

CREATE A ‘ONE HALFORDS’ PERFORMANCE CULTURE WHERE COLLEAGUES ENJOY WORKING
EFFICIENTLY AND EFFECTIVELY TOGETHER USING THEIR SKILLS AND EXPERTISE TO WIN
THE HEARTS AND MINDS OF OUR CUSTOMERS.

Values

Behaviours

Plan

Act

Check

Work with colleagues across all
areas of the business, to define the
appropriate values and behaviours
for our Group as a whole that will
underpin our forward strategy and
build on the language of our purpose
and create beliefs that are active and
give all our colleagues clear direction.

Create a leader-led roll-out plan that
will introduce all colleagues across
the Group to the refreshed values
which will shape our culture and offer
all colleagues clarity and a sense
of belonging as part of the
One Halfords Family.

Integrate our newly defined
values into the performance
management framework
and appropriate elements of the
colleague lifecycle.

Customers

Colleagues

Shareholders

• Will have joined-up

•

experience wherever they
shop across the Group

Engaged colleagues will
work together and use
their skills and expertise to
deliver an excellent, efficient
customer experience

• Will benefit from our

financial commitments,
through the generation of
additional profitable sales
and a reduction in costs

Directors and senior leaders, across the
business, are already measured on the level
of colleague engagement in their respective
areas of the business through bonusable
objectives that are set by the Board on an
annual basis. The integration of behaviours
into our performance management
framework from the start of the new
financial year will see this measurement
extend further into the organisation.

Workforce Engagement
Halfords has long established practices of
inviting feedback from colleagues across
all areas of the business, including holding
regular listening groups, appointing and
meeting with local colleague engagement
champions, and conducting regular
colleague surveys, including the Times
Top 25 Big Companies survey, in which we
were placed again this year for the seventh
consecutive year.

This year we held a total of 111 listening
groups across the Group as a whole.
Outputs and associated actions are
reviewed by the Board and are incorporated
into Executive Directors’ and Executive
Committee functional engagement plans.
As discussed above, colleague engagement
is a bonusable objective for Executive
Directors and members of the Executive
Committee.

Under Helen Jones’ direction, our focus this
year has been to ensure consistency of our
engagement approach and action planning
across the Group.

In addition to the above, the Group has long
established grievance and whistleblowing
policies that facilitate colleagues’ ability to
raise any matters of concern more formally,
and in total confidence, should the need
arise. The Board reviews reports relating to
whistleblowing cases and the process is
outlined in the Audit Committee Report on
page 119. We know from the calls received and
the data obtained that a large proportion of the
whistleblowing calls received via the helpline
are from store colleagues seeking clarification
on HR or safety issues, this shows that the
process works well as an adjunct to our normal
HR processes and ensures we provide the best
support we can to our colleagues.

Monitoring Culture
The Board plays an active role in monitoring
the culture of the business through its
regular facilitation of listening groups and
site visits. The Board reviews the results of
the annual colleague engagement survey
and sets engagement targets for Executive
Directors and Executive Committee
members. The outputs of listening groups
and associated action plans are reviewed by
the Board and key actions are incorporated
into functional engagement plans.

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Corporate Governance Report

Our more holistic review of the culture of the
business undertaken earlier this year, in the
context of our strategy and plans, told us
that Halfords is a great, collaborative place
to work, is engaging and is values led with
knowledgeable friendly colleagues that go
the extra mile to serve our customers. It also
enabled us to identify opportunities for us
to improve our rituals and routines, control
systems and structures that will enable us to
improve our customer centricity through a ‘One
Halfords’ team approach which will embed,
throughout our business, through the roll-out of
the colleague values and behaviours refresh.

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 86 and the biographies of
each Director, including any other business
commitments, are available on pages 82
and 83. 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 100.

In May 2020, Keith Williams became interim
Executive Chair of Royal Mail Group.

Chairman 1

Executive Directors 2

Non-Executive Directors 3

Board changes
David Adams will have been in office for nine
years this year, and so in accordance with the
Code and best practice, David is due to stand
down. The search for a new Non-Executive
Director to replace David commenced at the
start of the year, but the search has taken
longer than expected due to the impact of the

COVID-19 pandemic in the spring of 2020.
Given the difficulties created by the global
pandemic, the Nomination Committee agreed
to extend David’s term of appointment until
December 2020. It is expected that a new
Non-Executive Director will be appointed in
the autumn / winter of 2020 which will allow
an orderly handover. In addition, it has been
agreed that David will step down as Senior
Independent Director at the conclusion of the
AGM on Tuesday 15 September 2020 and
Helen Jones will be appointed in his place.

Board Independence
The Non-Executive Directors bring wide
and varied experience to the Board and
its Committees. The Code 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 and 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 Helen
Jones and Jill Caseberry to be independent
in character and judgement. However, due to
the length of David Adams’ tenure, the Board
has assessed that he is no longer regarded
as independent for the purposes of the Code.
David has agreed to stay on until the end
of 2020 to ensure continuity for the Board
through the COVID-19 pandemic crisis.
Whilst this has created a technical breach of
the Code’s recommendation that the majority
of the Board be independent Non-Executive
Directors, the Board believes that this short-
term situation is justified in these current
circumstances. Although David continues to
act as a Non-Executive Director and Chair of
the Audit Committee, he will cease to act as
Senior Independent Director and this
role with be fulfilled by Helen Jones with
effect from the date of the AGM on Tuesday
15 September 2020. The Chairman, Keith
Williams was considered independent upon
his appointment.

Re-election
In compliance with the Code and the
Company’s Articles of Association, all of the
Directors on the Board as at 6 July 2020, will
seek re-election at the 2020 Annual General
Meeting (“AGM”), these being: Keith Williams,
Helen Jones, David Adams, Jill Caseberry,
Graham Stapleton and Loraine Woodhouse.

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
32 to 39.

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.

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 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.

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.

This is available at
www.halfordscompany. com/governance/
matters-reserved-for-the-board

Director Tenure and
Board Succession
Succession planning for the Board is
monitored regularly and in particular is
considered in detail during the annual
evaluation of the Board performance as
described above. A new Non-Executive
Director will be appointed towards the end
of 2020 to replace David Adams, who has
come to the end of his tenure, as described
above. Details of the tenure for all Board
members can be found on page 98.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Shareholders

The Chairman – Key Responsibilities
• manages and provides leadership to the Board;

• builds an effective and complementary Board of Directors;

•

sets the agenda, style and tone of Board discussions;

facilitates and encourages active engagement in meetings,
promoting effective relationships and open communication;

•

ensures effective communication with shareholders and
other stakeholders;

ensures that the performance of individuals and of the Board
as a whole and of its Committees is evaluated at least once a
year;

•

acts as an advisor to the Chief Executive Officer;

• meets with the Non-Executive Directors without Executive

Directors being present; and

•

ensures constructive relations between Executive Directors
and Non-Executive Directors.

The Board – Key Responsibilities
• The Board is collectively responsible for the long-term success of the Company, with due regard to the views of shareholders and

other stakeholders. It provides leadership and direction on the Company’s culture, values and purpose; sets the strategic direction;
agrees the risk framework and ensures these are managed effectively. The Board is accountable to shareholders for the financial and
operational performance of the Group.

• See page 96 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 Company;

Key Responsibilities:
• provides a sounding board for the Chairman;

• develops the Group’s objectives and strategy for Board approval;

•

creates and recommends to the Board an annual budget 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;

keeps the Chairman informed on all important matters; and

• manages the Group’s risks in line with the Board-approved risk

profile.

•

holds meetings with the other Non-Executive Directors
without the Chairman at least once a year to appraise the
Chairman’s performance;

acts as an intermediary for the other Directors; and

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:
•

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 Group sites, stores 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.

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.

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceCorporate Governance Report

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 99. In addition, the Environmental,
Social and Governance (“ESG”) Committee
was established in December 2015
(previously known as the Corporate Social
Responsibility (“CSR”) Committee). The ESG
Committee comprises Directors and senior
management and is chaired by a Non-
Executive Director. Each Committee has its
own Terms of Reference which are approved
and regularly reviewed by the Board.

These are available at www.
halfordscompany.com/governance

On the following pages each Committee
Chair reports how the Committee they chair
discharged its responsibilities in FY20 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 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 principal
Committees.

Keith Williams

David Adams

Jill Caseberry

Helen Jones

Graham Stapleton

Loraine Woodhouse

1 year 11mths

1 year 4mths

9yrs 4mths

6yrs 4mths

2yrs 5mths

1 year 8mths

6
1
0
2

l
i
r
p
A
1

7
1
0
2

l
i
r
p
A
1

8
1
0
2

l
i
r
p
A
1

9
1
0
2

l
i
r
p
A
1

0
2
0
2

l
i
r
p
A
1

1
1
0
2

l
i
r
p
A
1

2
1
0
2

l
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p
A
1

3
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2

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p
A
1

4
1
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2

l
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p
A
1

5
1
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l
i
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p
A
1

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 nine Board
Committee meetings and seven 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.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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 101.

Read more within the
Nomination Committee
Report from page 112.

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 from
page 116.

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 from page 120.

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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Corporate Governance Report

A Skilled and
Experienced Board

The below graphic illustrates the number of Directors on the Board who have the relevant skills and experience alongside the years
worth of experienced combined.

Supply Chain 5

Total years 92

Corporate 6

Total years 98

Banking 3

Finance 5

Total years 190

Marketing 5

Cross-Functional 6

M&A 4

Total years 67

retail

Total years 116

Total years 119

Leadership 6

Strategy 6

Governance 6

Total years 374

Retail 6

Total
years 134

Customer Service 5

Business Development 6

Digital 4

Total years 92

Total years 134

Total years 60

100

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

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 Policy.

The Nomination Committee keeps under
review the composition and diversity of the
Board and the capability and capacity to
commit the necessary time to the role in
its recommendations to the Board. Whilst
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
and that the Board members work together
effectively to achieve its objectives. The
intention is to ensure the appointment of

the most suitably qualified candidate to
complement the Board and to promote
diversity. 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 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.

Gender

50%

Female

Male

Educational Attainment

Level 7 – Master’s degree
Level 6 – Bachelor’s degree
Level 5 – Higher National Diploma

101

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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. Four additional Board calls
were held during the period to discuss the
release of the 20-week trading update, the
interim results, the 40-week trading update
and the emerging COVID-19 pandemic.

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 a
Strategy meeting to discuss the Company’s
strategic review.

Board member
Executive Directors

Graham Stapleton

Loraine Woodhouse

Non-Executive Directors

Keith Williams

David Adams

Jill Caseberry

Helen Jones

Board
scheduled: 9

Audit Committee
scheduled: 4

Remuneration
Committee
scheduled: 6

Nomination
Committee
scheduled: 2

ESG Committee
scheduled: 2

N/A

Meetings attended Possible meetings

Other members of the Executive Team and professional 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, as well as 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.

102

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Board in Action – Case Studies

Case Study

TWICKENHAM AND NEW
MALDEN
In January, Jill Caseberry, Non-
Executive Director, spent the day
conducting store visits in Twickenham
and New Malden. This was a good
opportunity to gain a greater insight
into the store operations, as well as
to witness the new cycling range
and store layout which Jill described
as “hugely impressive visually and
impactful in terms of improved sales
rates.”

Jill took the opportunity to discuss
product development and innovation
throughout the business with Paul
Tomlinson, Interim Cycling Director.
They discussed the new range of
reflective cycle clothing for enhanced
safety and style, and the exclusive
range of folding balance bikes which
were developed with Trunki. Jill was
also able to gain a practical insight into
the store-wide services proposition and
its operational logistics.

Case Study

MCCONECHY’S VISIT
In February 2020, David Adams,
Non-Executive Director, visited the
McConechy’s operation in Scotland
with Andy Randall, Managing Director
of Halfords Autocentres. The aim of
the visit was to look at the integration
programme put in place to bring
McConechy’s into the Halfords Group,
to discuss the opportunities identified
during the process of acquisition of
the business, and to visit some of the
operations.

To this end, they visited the
McConechy’s Head Office in Ayr,
meeting key members of the
McConechy’s management team
and the integration support put
into the business from Halfords. In
particular, David and Andy discussed
the communications programme
with the McConechy’s colleagues,
before visiting garages and
commercial operations in Ayrshire and
Renfrewshire.

Case Study

BROMPTON
In July 2019, two of our Non-
Executive Directors, David Adams
and Helen Jones, visited the
Brompton factory in Greenford.
Founded in 1975, Brompton
produces the iconic, hand-built
folding bikes, popular with
commuters. Halfords introduced
Brompton bikes to its cycling range in
2018, and this relationship provides
a greater choice of premium brands
for Halfords’ customers as well as
reinforcing its specialist cycling
credentials. For Brompton, having
access to Halfords’ mainstream
customer base was extremely
attractive, their objective being
to promote the many health and
environmental benefits of cycling to a
wider audience.

On arrival at the factory, David and
Helen were given a tour and were
introduced to all the highly trained
people, including the brazers who
assemble each bike by hand. Every
Brompton bike sold anywhere in the
world is hand-built on this site. The
emphasis on quality and precision
was evident throughout the tour.

Helen stated that “as Non-
Executive Directors it’s really
important to understand our
suppliers and their relationship
with Halfords. On this occasion,
we recognised the pride in the
Brompton brand but also the
important role we at Halfords play
in meeting customers’ needs and
making cycling accessible to all.”

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.

103

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceCorporate Governance Report

Board Activities in FY20

Main Areas:

Strategy

Governance

Board Matters

Key activities and discussions:
• Reviewed the progress and delivery of

the Group Strategy.

• Refreshed the five-year business plan.

• Reviewed the internal and external

communication of the strategic plan.

• Received regular updates on the

progress of the One Halfords Group
website.

• Reviewed potential M&A

opportunities.

• Reviewed disposal and closure

opportunities.

Link to Stakeholder

Key activities and discussions:
• Received regular updates from the
Chairs of the Remuneration, Audit,
Nomination and ESG Committees.

• Reviewed and approved the FY19

Annual Report.

• Reviewed and approved the Directors’
Conflicts of Interests Register, Group
policies, the Group Risk register and
the roles of the Chairman, CEO and
SID.

• Reviewed and approved the updated

defence manual.

Link to Stakeholder

Key activities and discussions:
• Reviewed succession plans for the
Board and the senior team, and
reviewed updates against searches
for candidates to fulfil senior roles.

• Reviewed the Board and Committees’
programme and forthcoming meeting
schedule.

• Reviewed the outcome of the internal

FY19 Board evaluation.

• Discussed and agreed the scope of
the external FY20 Board evaluation
and its outcome.

• Discussed the Board programme of

visits.

Link to Stakeholder

Financial and Risk
Management

Commercial
Matters

Shareholder and
Stakeholder Relations

Key activities and discussions:
• Reviewed monthly business reviews

Key activities and discussions:
• Received updates on the Autocentres

Key activities and discussions:
• Received an update on the ESG

and trading performance.

transformation and operating model.

strategy.

• Reviewed and approved the

• Reviewed, approved and received

• Reviewed colleague engagement

prelim, interim and trading update
approaches and announcements.

regular updates on the outsourcing
arrangements for IT.

• Reviewed and approved the dividend
recommendations and dividend
policy.

• Reviewed the proposal to centralise
customer calls to improve call
response rates.

• Reviewed and approved the FY20
budget and forecast, the FY21
budget, and hedging strategy.

• Discussed the financial risk presented

by the COVID-19 pandemic.

Link to Stakeholder

• Reviewed and approved the

opportunity to further develop the
roll-out of LED lighting across the
estate.

survey results and colleague turnover.

• Discussed the progress on defining,
developing and monitoring Halfords’
Company culture.

• Discussed the work undertaken on
the Group’s colleague engagement
initiatives (e.g. One Team Strategy,
Huddles, Listening Groups and SLT
meetings).

• Approved the delegated authority for
the CFO to purchase electricity at the
most advantageous rate available.

• Reminder to Directors of obligations
under Section 172 of the Companies
Act 2006.

• Discussed, managed and mitigated

the risks presented by the COVID-19
pandemic.

• Reviewed monthly investor relations
reports and annual shareholder body
reports.

Link to Stakeholder

• Reviewed and approved the 2019

Notice of the Annual General Meeting.

Link to Stakeholder

Key:

Colleagues

Investors

Communities

Media

Customers

Suppliers

Environment

Government

104

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Board Priorities for the Following Year

Main Areas:

Strategy

Governance

Board Matters

Key activities and discussions:
• Review the progress and delivery
of the Group Strategy, particularly
any changes required in response to
COVID-19.

Key activities and discussions:
• Receive regular updates from the
Chairs of the Remuneration, Audit,
Nomination and ESG Committees.

• Review and approve the FY20 Annual

• Review any potential M&A

Report.

Key activities and discussions:
• Review succession plans for the
Board and the senior team.

• Review the Board and Committees’

programme and forthcoming meeting
schedule.

opportunities.

Link to Stakeholder

• Review and approve the Directors’

• Discuss and agree the scope of the

Conflicts of Interests Register, Group
policies, the Group Risk register
and the roles of the Chairman, CEO
and SID.

Link to Stakeholder

internal FY21 Board evaluation and its
outcome.

• Review the Board programme of visits.

Link to Stakeholder

Financial and Risk
Management

Commercial
Matters

Shareholder and
Stakeholder Relations

Key activities and discussions:
• Review monthly business reviews and

Key activities and discussions:
• Review commercial matters brought

Key activities and discussions:
• Review colleague engagement survey

to the Board for attention and
potential approval.

Link to Stakeholder

trading performance.

• Review and approve trading update
approaches and announcements.

• Review and approve the dividend

recommendations and dividend
policy.

• Review and approve the FY21 budget

and forecast, the FY22 budget,
banking arrangements and the debt /
hedging strategy.

Link to Stakeholder

results and colleague turnover.

• Discuss the progress monitoring

Halfords’ Company culture.

• Reminder to Directors of obligations
under Section 172 of the Companies
Act 2006.

• Review monthly investor relations

reports and annual shareholder body
reports.

• Review and approve the 2020 Notice

of the Annual General Meeting.

Link to Stakeholder

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Corporate Governance Report

How the Board Engages with Stakeholders

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

Why is it Important to Engage?
Understanding our customers’ needs and behaviours
allows us to deliver relevant products and services,
retain customers and also attract new ones. It also
identifies opportunities for growth.

Satisfaction surveys
Rewards

Ways the Board Engages
•
•
• Commercial website
•

Social media engagement

Communities

Why is it Important to Engage?
Ensures continued viability of the business into the long-
term. We aim to contribute positively to the communities
and environment in which we operate.

Ways the Board Engages
• Community investment initiatives
• Media channels
•
•

Recycle initiatives
Prison initiatives

Media

Why is it Important to Engage?
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.

Ways the Board Engages
•
•
•
•

Product videos and peer reviews
TV and radio advertising campaign
Email and PR customer engagement
Improving Twitter, Facebook and Youtube
content

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

Colleagues

Why is it Important to Engage?
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.

Ways the Board Engages
•
‘3-Gears’ training programme
•
Listening: surveys and colleague groups
•
‘Aspire’ store management development
courses
Recognition and reward

•

Suppliers

Why is it Important to Engage?
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.

Ways the Board Engages
•

Far East trading office developing mutually
beneficial relationships
Logistics efficiencies and environmental
management
Supplier conferences
Infrastructure

•

•
•

Investors

Why is it Important
to Engage?
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.

Annual Report
RNS announcements
Annual General Meeting
Investor presentations

Ways the Board Engages
•
•
•
•
• Corporate website
• One-on-one meetings

Government

Why is it Important
to Engage?
Policies and regulatory changes
may provide opportunities and
pose risk to our operations.
Working closely with the
Government ensures that our
products and services evolve.

Ways the Board Engages
• Cycle-to-Work policy

campaigning

• DAB radio working groups
• Driver training and vehicle
safety enhancements
Engaging with VOSA, DVLA,
TSI, ASA and HSE

•

halfords.annualreport2020.com

107

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Corporate Governance Report

Induction Process

1 Understand the
Business

• Governance induction

programme covering external
governance matters (e.g. UK
Corporate Governance Code,
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.

2 Meet the Management

Teams

• One-to-one meetings with

the Directors, and the senior
management teams from key
areas of the business.

3 Visit the Business
• Visit the Group’s stores,

Autocentres and other
operational and distribution
sites.

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.

FY19

Internal Evaluation

FY20

External Evaluation by Lintstock

FY21

Internal Evaluation

Directors’ Induction
All 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’
performance. The new Non-Executive
Director will receive a full and personally
tailored induction programme upon their
appointment later in 2020.

Directors’ Training
and Development
All Directors have the opportunity for
ongoing development and support via:

•

a programme of visits to the Support
Centre, Distribution Centres, stores and
Autocentres;

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.

FY20 External Evaluation Process
Step One

Step Two

Interviews
One-to-one interviews held
with each Board member,
facilitated by a pre-prepared
briefing note.

Surveys
Design the review content
to ensure that the specific
needs of the Board are
addressed and allowing
questions to be framed
around key corporate
events.

Issue online surveys to the
Board members.

Step Three

Presentation
Lintstock delivers a report
and facilitates discussion at
the Board around the results
and to provide further
context concerning the
output.

108

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020The findings identified by the FY20 external review were as follows:

Topic
Strategic plan

FY20 outcomes
The Board mentioned that continued delivery and clear reporting of the progress against the delivery plan is
essential throughout the year.

NED programme

The introduction of a NED programme to ensure the best contribution from the NEDs.

Quality and structure of
Board meetings

The Board highlighted the importance of getting out and about to the different locations around the Group,
and to split some of the Board and Committee meetings over two days. This would allow more time for
location visits and ensure time is available to receive the required number of management presentations.

Quality of Board packs

The Board felt that more focus is required in Board papers to ensure the Board is able to effectively monitor
the progress on delivery.

Culture and talent

Being a people-driven, service-based business, the Board felt that a renewed review of our culture was
necessary to ensure that it evolves and remains fit for the future. The Board will also monitor the talent within
the business and the implementation of appropriate succession planning.

Board training

All Board members to update on training they have received.

The findings identified by the FY19 internal review were as follows:

Topic
Newly established Board

Delivery of the Strategy

Response to regulatory
changes

FY19 outcomes
There were significant changes during FY19, starting
with the appointment of Keith Williams, as the new
Chair, in July 2018, followed in November 2018 by
Loraine Woodhouse joining as the new Chief Financial
Officer, and in March 2019 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
became fully integrated with the business to be as
effective as possible. Achieving this was regarded
as being of particular importance in relation to the
delivery of the Strategy.

The Strategy was intended to be transformational
to ensure the business could be in the best possible
place to thrive in future years. During the FY19
evaluation, the Board recognised that the Group
needed to differentiate itself from purely online
retailers and therefore the continued growth of the
services business is important.

Progress made in FY20
In June 2019 the Board agreed to appoint an external
company to undertake a forward-looking Board
evaluation. A number of companies were approached
to provide a proposal, and Lintstock was appointed.

We have progressed the Strategy to increase our
focus on the delivery of services to customers. The
acquisitions made in the period of McConechy’s and
Tyres on the Drive, which will develop our garage
network and our Halfords Mobile Expert offering, are
consistent with our aim of offering customers a wider
choice of how and when they receive their services
from us.

The Board identified that its ongoing training would
be particularly important during FY19, 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 intended to
receive regular updates and training throughout the
year.

Throughout the year the Board has been kept
regularly updated on corporate governance
developments such as the obligations in relation to
Section 172, the requirement to set out a Company’s
purpose and the importance of explaining a
Company’s Culture. In addition, all Directors have
spent additional time in the business this year so that
they gain a better understanding of the operations
and the challenges faced by colleagues.

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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 66 to 78.

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
Audit Committee considers the principal
and emerging risks of the business and
reviews the mitigating controls with senior
management.

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.
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 four 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.

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 annual Directors’
Remuneration Report on pages 132 to 140.

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

110

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Shareholder Engagement

Key Themes Discussed with
Shareholders in FY20

Investor Relations
Programme

• Progress on our strategy, “To Inspire and Support a Lifetime

of motoring and cycling”, including our intention to
accelerate investment in our Services and B2B businesses.

• The dynamics of the motoring, cycling and services

markets, including our growth opportunities and relative
financial returns from each segment.

• Capital allocation priorities, specifically the balance of
maintaining a prudent balance sheet, maintaining the
dividend and enabling investment for growth.

• The impact of foreign exchange volatility.

• Gross and operating margin performance.

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 Corporate Finance Director regularly
engage with the Company’s largest shareholders on a one-to-
one basis, to discuss strategic issues and give presentations
on the Group’s results. Further communication is achieved
through the Annual Report and Accounts, corporate website
and investor meetings 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 Environmental, Social and Governance activities;

• management roadshows – allow key investors access to
management. These are usually attended by the Chief
Executive Officer, the Chief Financial Officer and the
Corporate Finance Director; and

•

responding promptly – the Group is committed to
responding to any investor-related queries within a short
time frame.

IR Calendar Dates for
FY20–21

•

FY20 Prelim Results

• UK Management

Roadshow

•

FY21 20-week Trading
Update

• Annual General Meeting

•

FY21 Interim Results

• UK Management

Roadshow

•

FY21 Q3 Trading
Statement

July
2020

Sept
2020

Nov
2020

Jan
2021

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, Remuneration and ESG
Committees and the Matters Reserved for the Board.

The Annual General Meeting (“AGM”) gives all shareholders the opportunity to communicate
directly with the Board and their participation is welcomed. It is the Company’s practice
to propose separate resolutions on each substantial issue at the AGM. The Chairman will
advise shareholders on the proxy voting details at the meeting.

We very much hope that we will be able to hold our 2020 AGM in the usual way, but we will
continue to monitor the COVID-19 situation and will have regard to developments over the
coming weeks ahead of the meeting.

By order of the Board

Tim O’Gorman
Company Secretary
6 July 2020

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceNomination Committee Report

Keith Williams
Chair of the Nomination Committee

CHAIR’S LETTER

The Committee’s role is to:

•

review the size, structure and
composition of the Board;

ensure plans are in place for orderly
succession to the Board and senior
management positions; and

lead the process for appointments
by identifying and making
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 has overseen the
process for the search and appointment
of David Adams’ successor. This process
will run into the autumn of 2020. Given
the exceptional circumstances in which
we find ourselves in regard to COVID-19,
it has been agreed that David Adams
will stay in office until the end of 2020.
The full reasoning behind this decision
is detailed on page 96. In addition, it
has been agreed that David will step
down as Senior Independent Director at
the conclusion of the AGM on Tuesday
15 September 2020 and Helen Jones will
be appointed in his place.

FY20 Key Achievements
•

commencing the search for a
new Non-Executive Director; and

•

appointing Helen Jones to take
over as Senior Independent
Director from David Adams.

Areas of Focus in FY21
to continue the search to
•
identify and appoint a new Non-
Executive Director to replace
David Adams;

•

to assist the management team
in developing its relationship
with the Board and business;
and

to identify an appropriate
candidate for the role of Group
People Director.

Nomination
Committee
meetings held

Committee Composition
During the year, the Committee comprised:

Keith Williams
Chair of the Nomination Committee
6 July 2020

• Keith Williams (Chair)

• David Adams

• Helen Jones

• Jill Caseberry

Two scheduled Committee meetings were
held during the year, and were attended
by all members. After each Committee
meeting, I reported to the Board on the key
issues that we had discussed. A number of
informal discussions, particularly relating to
the appointment of the new Board member,
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 Non-Executive
Director and to appoint a replacement
Senior Independent Director.

During the year, the Committee:

•

commenced the search for a new Non-
Executive Director to replace David
Adams;

considered the appointment of Helen
Jones as the Senior Independent
Director;

reviewed the composition of the Board
and its succession plan;

reviewed progress made on the
recruitment for senior positions;

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 external Board
performance evaluation process.

112

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Board Succession
As a Board, we consider succession
planning each year in respect of both
Director roles and our senior management
team. Our senior Executives have well
developed skills and experience to fulfil their
roles, but we know that these have to be
constantly updated as new challenges arise.
A key factor in making better decisions is
that we have a diverse range of Directors,
Executives and colleagues throughout
the business. Accordingly, we monitor our
diversity and gender positions each year
and are able to identify where we will benefit
from changes and improvements.

Looking Ahead
We expect our monitoring activities to
continue in future and this will ensure that
the leaders within our business are best
equipped to deal with the challenges ahead
and ensure the long-term success of the
Group.

Board Appointment Process

Step One

•

Identify and appoint external search
consultancy; and

Identify and approach suitable
candidates.

Step Two

•

Interview suitable candidates;

• Make a formal offer; and

• Consider the requirements of the

Terms of Reference in relation to the
appointment.

Keith Williams
Chair of the Nomination Committee
6 July 2020

Step Three

• Announce appointment; and

• Commence induction programme

The Terms of Reference for the
Committees are available at www.
halfordscompany.com/governance

Board Appointments
As explained in the FY18 Annual Report,
David Adams will have served nine years this
year which means his term of appointment
came to an end in the spring of 2020.
However, as detailed above, David has
agreed to stay until the end of 2020 to
ensure continuity for the Board through the
COVID-19 pandemic. Further details can be
found on page 96. Whilst David continues
to act as a Non-Executive Director, he will
cease to act as Senior Independent Director
at the AGM on Tuesday 15 September
2020 when Helen Jones will be appointed
to cover this position. The search for a new
Non-Executive Director will continue in FY21
with the expectation that a replacement
will be appointed during the autumn/winter
of 2020. Odgers Berndtson has been
appointed as advisors to the Committee in
the search for the external candidates for
this role. The process is being led by myself,
as Chair, together with the Committee.
Odgers Berndtson does 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. In addition, 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.

Further information regarding Board
diversity can be found on pages 87 and 101.

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceEnvironmental, Social and Governance
(“ESG”) Committee Report

We have always worked to
ensure that our ESG strategy is
closely aligned to our Company
goals and values.

Helen Jones
Chair of the ESG Committee

CHAIR’S LETTER

In the last year we have evolved our
Environmental, Social and Governance
(“ESG”) commitments into a more broadly
based series of sustainable business
initiatives, measures and targets.

Our new ESG strategy has been
developed under the three strategic
pillars of Inspire, Support and Lifetime.

The Inspire pillar includes our ‘North
Star’ ambition to champion the shift to
electric smart travel through education,
engagement and community support.

In line with our commitment to support
customers through a lifetime of
motoring and cycling we undertook
to set an example by making a lifetime
commitment of our own – to make our
business carbon neutral by 2050.

Helen Jones
Chair of the ESG Committee
6 July 2020

114

Committee Composition and
Meetings
The Committee consisted of:

• Helen Jones (Chair)

• Graham Stapleton

• Andy Randall

• Michelle Burton (appointed September

2019)

• Clare Moore (resigned July 2019)

The Company’s Chairman, Keith Williams,
whilst not a member of the Committee,
attends the meetings upon the invitation
of the Committee Chair. During the year,
the Committee appointed colleague
representatives from different areas of the
business who were invited to attend the
meetings.

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.

FY20 Key Achievements
• development of a new ESG

•

strategy aligned with the three
strategic pillars of Inspire,
Support and Lifetime;

agreement to adopt a North Star
commitment – to champion the
shift to electric smart travel;

adoption of commitment to
achieve carbon neutrality by
2050; and

agreement to develop a Science
Based Targets framework to
create a roadmap towards the
net zero target.

Areas of Focus FY21
•

adopting a coherent set of
measures and targets across all
three pillars of our strategy;

•

implementing measures
necessary to make progress
against the Science Based
Targets;

• publishing our Scope 3
emissions baseline; and

•

initiating campaign to champion
the shift to electric smart travel.

ESG Committee
meetings held

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Activities Undertaken
During the year the Committee:

Our New ESG Strategy
Our new ESG strategy supports the three strategic pillars:

Inspire

Support

Lifetime

Championing the shift to electric smart travel
through education, engagement and community
support (further information on pages 46 to 48).

Help put the consumer in control, through
products, services and solutions (further
information on pages 49 to 51).

Walk the walk: make our business carbon
neutral by 2050 (further information on
pages 52 to 58).

•

evaluated ESG strategies of peer group
companies to help inform our thinking;

adopted a new ESG strategy (see below);

researched and evaluated candidates
for a ‘North Star’ sustainability objective;

set the parameters for an environmental
audit and appointed Trucost to establish
the baseline for Science Based Targets
towards the goal of achieving carbon
neutrality by 2050;

evaluated plastic and other waste
recycling programmes;

reviewed our bike recycling partner;

reviewed partnerships and charity
support in light of new ESG strategy; and

appointed colleague representatives to
the Committee.

Further information on ESG around the
Group, including environmental details on
emissions, can be found on page 52 of the
Strategic Report.

Developing the ESG Strategy
The ESG Strategy has been developed to
align with the three strategic pillars of the
Company’s Strategy, these being; Inspire,
Support and Lifetime.

Looking Ahead
In FY21 we will publish Science Based
Targets for reductions in our Scope 1, 2
and 3 emissions and make further progress
on recycling and plastic-use reduction.
We also plan to initiate a campaign to help
consumers make the switch to electric, this
will involve further investment in products
and services, the roll-out of consumer
education programmes, and lobbying the
Government on E-scooter legalisation.

Helen Jones
Chair of the ESG Committee
6 July 2020

The Terms of Reference for the
Committees are available at www.
halfordscompany.com/governance

115

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceAudit Committee Report

Throughout the current year, the
Audit Committee has challenged
management on the robustness and
effectiveness of internal controls
and risk management systems
alongside the consideration of
a series of financial reporting
judgements.

David Adams
Chair of the Audit Committee

CHAIR’S LETTER

I am pleased to present the report of
the Audit Committee for the 53 weeks
ended 3 April 2020, which describes
how the Committee has carried out its
responsibilities during the year. The
Committee reviews financial reporting
judgements and monitors risk and internal
control through engagement with executive
management, internal audit and the external
Auditor.

We have considered a number of key
issues during the year, most significantly:

•

the impact of COVID-19 on the Group

the adoption of the new leasing
standard, IFRS 16;

judgements in respect of M&A and
disposal activity in the year;

the carrying value of investments,
tangible and intangible assets;

review of the Financial Reporting
Council’s correspondence in respect
of the Annual Report and Accounts to
29 March 2019; and

updates to the Group’s Tax and
Treasury policy in relation to foreign
exchange and hedging requirements
in light of the evolving Brexit position

David Adams
Chair of the Audit Committee
6 July 2020

116

A key focus area for the Audit
Committee for the year under review
has been application of the new
accounting standard IFRS16 on
Leases and the significant impact it
has had on our financial statements.
The Committee has reviewed other
significant accounting judgements,
including Inventory provisioning, the
closure impact of Cycle Republic and
the acquisition of McConechy’s and
Tyres on The Drive as the business
pursues its strategic plan.

Throughout the current year, the
Audit Committee has challenged
management on the robustness and
effectiveness of internal controls and
risk management systems, alongside
the consideration of a series of
financial reporting judgements.
Significant risks have been reviewed,
within the framework for expressing
and managing risk appetite. I would
like to thank the members of the
Committee, the management team
and our external Auditor for the open
discussions that take place at our
meetings and their contribution and
support during the year.

Audit Committee
meetings held

Committee Composition
and Meetings
During the year the Committee consisted of:

• David Adams (Chair)
• Helen Jones
• Jill Caseberry
Member
David Adams
Helen Jones
Jill Caseberry

Role Attendance
4/4
Chair
4/4
Member
4/4
Member

Four scheduled Committee meetings were
held during the year and were attended by
all members. After each Committee meeting
the Audit Committee Chair reported to the
Board on the key issues discussed.

Although the Chairman of the Company,
the CEO and the CFO are not members of
the Committee, they do attend meetings
regularly and so contribute to the work of
the Committee and assist with the fulfilment
of its oversight functions.

Membership and Remit of the
Audit Committee
During the year members of the Audit
Committee were considered to be
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 having chaired six listed
companies’ Audit Committees. Each of the
other independent Non-Executive Directors
has, through their other business activities,

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020significant experience in financial matters.
The Audit Committee is considered to have
competence relevant to the sector in which
the Company operates. The effectiveness
of the Audit Committee is reviewed at
least annually through discussions at the
Board and Audit Committee. The Board has
assessed that David Adams will no longer be
regarded as independent for the purposes
of the 2018 UK Corporate Governance Code
because of his extended tenure. However,
David has agreed to stay on until the end
2020 to ensure continuity for the Board
through the COVID-19 pandemic. Full details
can be found on page 96.

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 four such meetings in the
period ended 3 April 2020 and nothing of
note was reported.

2019/20 Key Achievements
• Carried out our responsibilities as set

out in the Terms of Reference, including
reviewing the external reporting
to ensure it is fair, balanced and
understandable.

• Reviewed the accounting policies and
judgements made in applying the new
standard on leases.

• Reviewed the accounting treatment
associated with the acquisitions and
disposals made during the year.

• Reviewed and challenged the Longer-
Term Viability Statement and Going
Concern basis of preparation in advance
of approval by the Board, including a
review of the carrying value of goodwill.

• Reviewed and challenged the external

Auditor’s year-end and half-year reports.

• Reviewed the statement of external

Auditor’s independence.

• Approved the non-audit fee policy.

• Reviewed key and emerging risks and

the effectiveness of the Group’s risk
management framework.

• Reviewed and challenged progress of
the Internal Audit plan and received
regular updates on internal control
systems.

• Reviewed and approved the Internal

Audit Charter.

• Received an update on the Group’s

GDPR and Compliance, and on Health
and Safety matters.

• Reviewed and approved the Group’s tax

strategy and arrangements.

• Reviewed and approved the

Committee’s Terms of Reference.

• Reviewed and approved the external
Auditor’s annual strategy and fees.

• Reviewed and challenged the
effectiveness of the Group’s
whistleblowing procedures and
approved the Group Whistleblowing
Policy.

• Reviewed and approved the Anti-Money

Laundering Policy.

• Received regular updates on the Gifts

and Hospitality register.

• The Group received a letter on

8 November 2019 from the Financial
Reporting Council (FRC) noting it had
carried out a limited review of the Annual
Report and Accounts for the year ended
29 March 2019. The letter indicated that
the FRC had not identified any matters
on which it wished to raise specific
questions with the Group but made
some observations relating to certain
disclosures included in the annual report
on the impairment of non-financial
assets and the presentation of the
financial statements. As a result, the
Group has sought to improve its goodwill
impairment disclosures and certain
critical accounting estimates. The Group
recognises that the FRC’s review was
solely based on a review of its Annual
Report and Accounts for the year ended
29 March 2019 and did not benefit from
detailed knowledge of the Company’s
business or an understanding of the
underlying transactions entered into. As
a result, the review did not provide any
assurance that the Company’s Annual
Report and Accounts are correct in all
material respects.

Areas of Focus FY21
• Monitor the impact upon the Group’s

viability and going concern in response
to the COVID-19 pandemic.

• Continued emphasis on the quality
of financial reporting, including the
application of accounting judgements.

• Maintain focus on the adequacy of

the control environment and further
development of the risk management
framework.

Principal Responsibilities
Financial Reporting
• Review the financial statements of the
Group and assess whether appropriate
suitable accounting policies have been
adopted, and whether management
has made appropriate estimates and
judgements. Assess the appropriateness
of disclosures in the Annual Report
and Accounts and ensure that it is fair,
balanced and understandable.

Risk and Control Environment
• Assist 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.

• Review the risk management framework
and the Principal Risks and mitigation
strategies.

• Review concerns of financial fraud.

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Internal Audit
• Review reports from Internal Audit 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.

External Audit
• Make 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.

Policies
• Approve 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.

• Approve the Company’s systems and
controls for the prevention of bribery
and corruption, including the receipt of
any reports on non-compliance.

• Approve the Group’s Tax Policy and

published tax strategy.

• Approve the Group’s Treasury Policy,

including foreign currency and interest
rate exposure.

The Audit Committee has reviewed its Terms
of Reference and its composition during the
year and believes that both are appropriate.

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

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 150 to 157.

•

With regard to the COVID-19 pandemic, the
Committee reviewed its impact in consideration
of the following key accounting judgements:

Impairment of Goodwill associated
with the Group’s Retail and Car
Servicing Cash Generating Units
(CGU):
•

following a number of business
combinations across both CGUs, the

118

•

Group holds significant goodwill. There
are a number of factors that could
impact on the future profitability of the
business (e.g. loss of key customers,
change in market behaviour) and,
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 11 on page 175 to 176 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 the CGUs.
Consideration has been given to
ensuring that cash flow models,
discount rates, sensitivity analysis and
store 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.

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 15 on page 178 of the Financial
Statements). Management has fully
reviewed the inventory provision in the
current year, with particular regard to
the impact of COVID-19, and believe
the level of provisioning is appropriate.
Range reviews are regularly undertaken
to ensure that all discontinued inventory
is identified;

the Audit Committee has received
detailed reports from Halfords’ finance
team and 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; and

•

following a review of inventory costing
during the period, the Committee
reviewed in detail the treatment of certain
distribution costs that had historically been

included within the cost of inventories
and the treatment of such distribution
centre costs as an operating expense
rather than a cost of sales. Subsequent to
detailed discussions with management
and the external Auditor, the Committee
agreed that this was not in line with the
Group’s accounting policy and adjusted
the Financial Statements accordingly. In
the consolidated statement of financial
position, inventories at 29 March 2019 and
30 March 2018 are stated after adjusting
for this amount, and consequently
retained earnings and net assets have
been reduced by £11.7m. In correcting
this misapplication, there is no impact on
reported gross profit, operating expenses
or other items in the consolidated
income statement or in the consolidated
statement of cash flows for the current or
comparative periods.

Adoption of IFRS 16 ‘Leases’
The Group has initially applied IFRS 16
Leases as at 30 March 2019. The work
to collect the relevant data, implement
a new accounting system and agree the
appropriate adoption method, accounting
policies and disclosures has been
significant. During both the prior and current
period, the Committee and external Auditor
received regular updates to ensure that
the Committee reviewed all aspects of
IFRS 16 adoption and is satisfied that the
methodology used and the judgements and
assumptions applied are fair and reasonable.

Non-underlying Costs Related
to the Closure of Cycle Republic
Following the strategic review of the
Group’s cycling business, the decision
was made to commence with the closure
of the operations of Cycle Republic and
the Boardman Performance Centre during
the period. The Committee reviewed the
treatment of the costs related to this closure
and is satisfied with the relevant inclusion in
non-underlying costs for the period.

External Auditor
BDO UK LLP present their audit plan, risk
assessment, and audit findings to the
Committee, identifying their consideration
of the key audit risks for the year, including
the impact of COVID-19, and the scope of
their work. These reports are discussed
throughout the audit cycle.

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.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020In addition, at its meeting in March 2020, 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:

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.

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.

•

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

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

Approach to Appointment
or Reappointment
BDO UK LLP was appointed as external
Auditor to the Group in 2019 following a
formal tender process. The Audit Committee
considers that the relationship with the
Auditor is working well and is satisfied with its
independence, objectivity and effectiveness
and has not considered it necessary to
require BDO UK LLP to retender for external
audit work this year. The Audit Committee has
recommended to the Board, for approval by
shareholders at the Annual General Meeting
on 15 September 2020, the reappointment
of BDO UK LLP as external Auditor. The
Audit Committee monitors, and will continue
to comply with, best practice and external
guidance in respect of the frequency of audit
tenders.

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.

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.

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 170 to the Financial Statements.

Role and Effectiveness of
Internal Audit
Internal Audit follows an annual risk-
based programme of audits to review the
effectiveness of the control environment.
The Audit Committee reviews the annual
audit programme for coverage and may
revise it according to changing business
circumstances or requirements. The
Audit Committee ensures that there are
sufficient resources to undertake the audit
programme.

The Head of Internal Audit attends each
Committee meeting, providing a summary
of audit findings and an update on progress
against the plan. The Committee also
reviews the status of implementation of
audit recommendations ranked by age and
level of risk to the business. All internal audit
reports are shared upon completion with the
external Auditor.

Internal Audit reports to the Chief Financial
Officer but maintains direct and regular
communication to the Audit Committee
Chair outside of Committee meetings.

The Audit Committee is satisfied that
the Internal Audit team has the quality,
experience and expertise appropriate for the
business.

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.

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 in a way that ensures 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
The Board is responsible for the Group’s risk
management processes and the system
of internal control. The Audit Committee
contributes to this purpose by providing
oversight and challenge to the Group’s risk
management framework. During the year
Risk Management was an agenda item at
each Committee meeting where attention
was given to risk appetite, the principal risks
and development of the risk management
framework. The Committee also receives
regular ‘deep dive’ presentations on key risk
areas, in the year this included GDPR, Health
and Safety and Financial Controls.

Further details of the Group’s internal
control and risk management framework
are set out on pages 66 to 78.

CMA Order 2014
Statement of Compliance
The Group confirms that it was compliant
with the provisions of The Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014 during the
financial year ended 3 April 2020.

David Adams
Chair of the Audit Committee
6 July 2020

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceRemuneration Committee Report

The revised Directors’ Remuneration
Policy that we will be submitting for
shareholder approval at this year’s
AGM builds to the changes we made
last year to comply with the UK
Corporate Governance Code and to
further align with best practice.

Jill Caseberry
Chair of the Remuneration Committee

CHAIR’S LETTER

Dear Shareholder
On behalf of the Remuneration
Committee, I am pleased to present the
Remuneration Report for the financial
period ended 3 April 2020.

The Report consists of three sections:

• A summary of the pay outcomes for
FY20, and our approach for FY21;

• The 2020 Directors’ Remuneration
Policy – in accordance with the
Directors’ Remuneration Reporting
Regulations, Halfords is bringing
a revised Directors’ Remuneration
Policy to the Annual General Meeting
(“AGM”) in September 2020 for
shareholder approval; and

• The annual Directors’ Remuneration

Report – this summarises the
remuneration outcomes for FY20
and explains how we intend to apply
the Remuneration Policy in FY21.

2020 Directors’
Remuneration Policy
For Executive Directors, Halfords operates
an annual bonus with deferral plus a
performance share plan. The Committee
believes that this framework remains
appropriate to support the Company’s
execution of the strategy and long-term
shareholder value creation. The 2020
Directors’ Remuneration Policy (the “Policy”)
that we are putting forward for shareholder
approval at the 2020 AGM is therefore
largely the same as the 2017 Directors’
Remuneration Policy. The Committee has,
however, made a number of changes to
the Policy to reflect the introduction of the
2018 UK Corporate Governance Code (the
“Code”) and to align with best practice.

120

Key Area for FY21
Continuing to keep our approach
to Directors’ remuneration under
review to ensure that it supports
the business as we recover from
the impact of COVID-19 and as we
continue to execute our Strategy
and our focus on service-related
revenue increases.

Remuneration
Committee
meetings held

In last year’s Directors’ Remuneration Report I
outlined a number of changes to our approach
which have now been formalised as part of the
2020 Policy. These changes included:

• Pensions – for any new Executive

Directors appointed to the Board the
pension opportunity will be in line with
the maximum employer contribution
available for the majority of the
workforce. In addition, mindful of
shareholder guidance the Executive
Directors have, however, agreed to
reduce their pension in line with the rate
available for the wider workforce from
1 April 2023.

• Malus and clawback – malus and
clawback provisions have been
expanded to include a broader range
of circumstances, including a material
failure of risk management, corporate
failure and serious reputational damage.

• Discretion – incentive arrangements

include the ability to exercise discretion to
adjust incentive pay-outs (both upwards
and downwards) if the original outcome is
not considered to reflect the underlying
financial or non-financial performance
of the business or where the outcome is
not considered appropriate in the context
of the experience of shareholders or
other stakeholders over the performance
period.

In light of the Code and evolving market
practice, as part of the policy review, the
Committee has also introduced a post-
employment shareholding guideline to
support the alignment of interests between
Executive Directors and shareholders
following an Executive Director’s departure
from the Board. Under this guideline,
Executive Directors will be expected to
retain their shareholding guideline (200%
of salary) for a period of two years post
stepping down as an Executive Director.
This guideline will apply to any performance
incentive shares that vest from 1 April 2020.

Implementation of Remuneration
Policy for FY21
Base Salary
Base salaries for Executive Directors were
increased by 1.8% with effect from 1 October
2019 in line with the rate of increase received
throughout the workforce. Salaries from
1 October 2019 are therefore £555,523 for the
Chief Executive Officer (“CEO”) and £365,300
for the Chief Financial Office (“CFO”).

Pension
Executive Directors currently receive a
pension allowance of 15% of base salary. The
Committee carefully considered the level of

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020pension allowance for Executive Directors and
no changes have been made to this allowance
for FY21. Whilst the Committee acknowledges
that this level of pension is above the rate that
is available to the wider workforce in the UK,
the Committee did not consider that it was
appropriate to lower the pension allowance
for Executive Directors at this stage, given
their existing contractual entitlements and
short period of tenure. However, mindful
of shareholder guidance that pensions for
Executive Directors should be aligned with
the pension provision available for the wider
workforce, the Executive Directors have,
however, agreed to reduce their pension to
be in line with the rate available for the wider
workforce from 1 April 2023.

Performance Based Incentives
On 7 November 2019 we set out our intention
to accelerate the growth of the motoring
services business, to generate higher
and more sustainable financial returns for
shareholders. The Committee has therefore
reviewed performance measures for the
annual bonus plan and performance share
plan to ensure that they are appropriate in
the context of our evolving strategy, current
economic climate and the steps the business
needs to take over the short and medium term
to ensure we continue to recover from the
impact of COVID-19.

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

For FY21 the annual bonus performance will
be based 77.5% on financial measures (Net
Debt 30%, Cost Reduction 25%, Underlying
Group PBT (post exceptions) 15%, Operating
Cashflow 7.5%) and 22.5% on strategic
measures. The strategic measures for
FY21 are NPS, Employee Engagement and
Digital Sales to incentivise management to
drive sales in key strategic segments while
improving the customer experience.

The Committee retains the discretion to
adjust the annual bonus outcome if it is not
considered to be reflective of underlying
financial or non-financial performance of the
business, the performance of the individual
or where the outcome is not considered
appropriate in the context of the experience of
shareholders or other stakeholders.

Performance Share Plan (“PSP”)
The normal PSP award is 200% of base
salary. The Committee is mindful of
shareholder guidance that award levels
should be adjusted where the share price has
fallen significantly compared to prior years.
The Committee will take this into account
when determining award levels in September.

2020 PSP awards will be based on the
following performance measures (in 2019
awards were based 50% on EPS growth,

25% on Group Revenue Growth and 25% on
Free Cash Flow):

•

20% based on EPS growth

10% based on Group Services-Related
Revenue

30% based on Free Cash Flow

40% based on relative Total Shareholder
Return vs. the constituents of the FTSE
All-Share General Retailers Index at the
share of the performance period.

The vesting of awards is subject to the
achievement of a net debt underpin.

Given our strategic focus on increasing
services-related revenue the Committee
considered that it was appropriate to replace
Group revenue with a more focused services-
related revenue metric to incentivise and
reward management for delivering against the
Strategy. Vesting in respect of this portion will
also be subject to the Company maintaining
an appropriate margin on services revenue.

Group revenue will not be included as a
performance measure for 2020. Whilst,
growing Group revenue continues to
remain an important strategic objective
for the Company, the Committee wanted
to incentivise a clear focus on growth in
Group Services-Related Revenue over
the next three years given the criticality of
this to future shareholder value creation.
Relative Total Shareholder Return has also
been introduced as a performance measure
to ensure that PSP outcomes are aligned
with the value we have returned to our
shareholders relative to our key retail peers.
Free Cash Flow continues to be included
as performance measures for the PSP
reflecting our ongoing focus on earnings
growth and our objective to increase free
cash flow outlined at the capital markets
day in September 2018 to strengthen the
business over the longer term, as does EPS
growth which the Committee considers
incentivises management to both grow
revenue and manage cost in a balanced way.

Our normal practice is to grant awards in
September. In light of this and the continuing
economic and business uncertainty facing the
Company the Committee has not set financial
targets for the 2020 PSP at this time. The
Committee intends to set targets in advance of
award and targets will be disclosed as part of
the RNS at the time of award. In line with prior
years the Committee will set targets which are
considered to be appropriately stretching in the
context of the business’ evolving strategy and
business circumstances.

As with the annual bonus, the Committee
retains the discretion to adjust the PSP
vesting outcome if it is not considered
to be reflective of underlying financial or
non-financial performance of the business
or the performance of the individual or

where the outcome is not considered
appropriate in the context of the experience
of shareholders or other stakeholders.

FY20 Performance
Share Plan awards
In last years’ Directors’ Remuneration
Report we indicated our intention to
grant PSP awards of 200% of base salary
to Executive Directors. The Committee
continued to monitor the Company’s share
price performance prior to the grant of
awards in September 2019. The Committee
determined that taking into account the
Company’s share price at that time compared
to the share price used to determine the
2018 PSP award, it was appropriate to reduce
the PSP awards granted to 175% of salary.

Remuneration Outcomes for FY20
Annual bonuses for FY20 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.
The threshold target was not met and the
Committee did not therefore award any
payments to Directors under the scheme.
Whilst the Committee concluded that the
threshold would have been achieved and
payments triggered, had the business not
experienced the impact of widespread store
closures in the final week of the financial
year, arising from the COVID-19 pandemic,
the Committee concluded the proposed
incentive outcomes are appropriate in the
context of the shareholder experience.

Our CEO, Graham Stapleton, received a PSP
award upon appointment in January 2018,
based 75% on EPS performance and 25%
on Group Revenue performance. This award
was made in line with the PSP awards made to
other Group senior executives in September
2017. The EPS and Revenue performance
targets for these PSP awards have not been
met and therefore no portion of these awards
shall vest.

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 on
both the 2020 Directors’ Remuneration
Policy and the 2019/20 annual Directors’
Remuneration Report at the Company’s
Annual General Meeting.

Jill Caseberry
Chair of the Remuneration Committee
6 July 2020

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Remuneration Policy

2020 Directors’ Remuneration
Policy – Key Principles
The Committee seeks to support the
delivery of the Group’s strategy through
establishing appropriate remuneration
arrangements. Our goal is to build a
strong long-term sustainable business
by delivering ongoing sales growth and
shareholder returns through an enhanced
focus on services-related revenue along-
side our traditional authoritative ranges of
products, colleague and service excellence,
digital participation and helpful retail and
service environments.

The overall Remuneration Policy of the
Committee, and of the Board, has been
developed taking into account the following
principles:

•

Link variable pay to performance
and the delivery of the agreed
Strategy – provide management with
the opportunity to earn competitive
remuneration through annual and long-
term variable pay arrangements that are
designed to support delivery against
key financial, strategic and shareholder
value creation objectives. Performance
measures are aligned with strategic goals
so that remuneration arrangements are
transparent to executives, shareholders
and other stakeholders. Different
elements of Executive Directors’ pay
are delivered over the short and longer
term and are designed to ensure that a
substantial proportion of the Executive
Directors’ remuneration is variable and
performance-related.

• Drive sustainable performance
– remuneration arrangements are
designed to support the sustainable
delivery of performance and to prevent
excessive risk-taking. We carry out a
robust target-setting process each
year taking into account our strategic
plan as well as external expectations
of performance. Targets are set to
ensure that the maximum remuneration
can only be earned for delivering
exceptional performance whilst not
encouraging excessive risk-taking. Our
Policy includes provisions which enable
the Committee to exercise discretion
to ensure that incentive outcomes are
appropriate and which allow for the
application of clawback and/or malus in
specific negative circumstances.

2020 Directors’
Remuneration Policy
Pages 123 to 131 of this report sets out the
Directors’ Remuneration Policy (the “Policy”)
that the Company intends to apply, subject
to shareholder approval, with effect from
15 September 2020 (the date of the
(“AGM”)). It is intended that this Policy
will apply until the 2023 AGM, unless the
Company seeks shareholder approval for a
revised Policy which comes into force before
this date.

• Simple, clear and aligned with our

• Align Executive Directors with

shareholders – ensure management’s
interests are aligned with those
of shareholders by incentivising
management to deliver the Group’s
long-term strategy of a sustainable,
growing business and thus enhance
shareholder value. A significant portion
of reward is delivered in shares to
create alignment of interests. Executive
Directors are required to build up a
shareholding in Halfords which they
are expected to maintain whilst in
employment and post-employment to
provide an extended period of alignment
with shareholders.

culture and purpose – the remuneration
framework has been designed to be
simple and transparent to ensure that it
is clear to shareholders, participants and
other stakeholders. Our Policy is that
Executive Directors only participate in
an annual bonus and the performance
share plan to ensure this simplicity.
Incentive opportunities are capped
so that the maximum potential pay-
out under each scheme is clear. This
simple reward framework is aligned with
Halfords’ culture and purpose of working
together to achieve our strategic goals.

• Attract and retain whilst remaining
appropriate, taking into account
external and internal comparisons
– enable the Group to attract and
retain management of a high calibre
with the necessary retail, customer
service, financial, digital and service-
industry skills and credentials required
to deliver a sustainable business
model and drive shareholder returns.
Remuneration arrangements are set at
levels appropriate to achieving this goal
without paying more than is considered
necessary. The Committee considers
external and internal reference and
ratios when determining the reward
framework for Executive Directors.
External market data is reviewed at
appropriate intervals to inform the
positioning of Executive Directors’ pay
relative to the companies of a similar
size and in similar sectors, without
seeking to ‘match the median’, to
identify and mitigate the risk of losing
strong performers. The Committee
also regularly reviews remuneration
arrangements for the wider workforce
population to ensure that Executive
Director’s pay structure and levels are
appropriate in this context.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Policy Table

Base Salary

Purpose and link to Strategy

Maximum opportunity

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

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

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

•

changes in an individual’s role or responsibility;

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

• where a salary is significantly out of line with market practice.

Operation

Performance measures

The payment of salary is not subject to performance conditions.
However, when determining salary increases the performance of
Executive Directors is taken into account.

Base salaries are normally reviewed annually with increases
effective from 1 October for Executive Directors but may be
reviewed at other times if the Committee considers this
appropriate.

In determining base salary levels and any salary increase,
consideration is given to:

•

the individual’s experience and the performance of the Group
and the individual;

salary levels at other companies of a similar size and complexity
and at other UK listed retailers; and

the pay levels and increases for other employees in the Group.

Benefits

Purpose and link to Strategy

Maximum opportunity

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

The maximum participation levels for all-employee share plans
is the same as any maximum applicable to other employees (and
consistent with any relevant HMRC limits).

Performance measures

None.

To provide Executive Directors with market-competitive benefits
consistent with the role.

Operation

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

Executive Directors can currently receive a car plus fuel or a cash
allowance, private health insurance, life assurance and a driver as
standard benefits.

However, the Committee may determine that additional benefits
may be provided based on individual circumstances when it is
considered appropriate.

In the event that an Executive Director is required to relocate to
perform their role then additional one-off or ongoing benefits may
be provided such as relocation expenses, a housing allowance and
school fees.

The Company reimburses reasonable business expenses and
may pay any tax incurred in relation to these.

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

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Pension

Purpose and link to Strategy

Maximum opportunity

To enable the Company to offer market-competitive remuneration
through the provision of additional retirement benefits.

The aggregate value of any annual pension contributions and cash
allowance for each of the Executive Directors in role on 31 March
2019 will not exceed 15% of their base salary.

Pension contributions/allowances for the Executive Directors in role
will be aligned with the maximum employer pension contribution
available to the majority of the workforce from 1 April 2023.

For any Executive Director appointed to the Board from 1 April
2019, the value of any pension contribution and/or pension
allowance will be in line with the maximum employer pension
contribution available to the majority of the workforce in the UK.

Operation

Performance measures

Executive Directors are eligible for defined employer contribution
funding to the Halfords Pension Plan, payments into a personal fund
and/or a cash allowance in lieu of pension.

None.

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

Annual bonus

Purpose and link to Strategy

To incentivise Executive Directors to achieve annual financial
targets and performance against key strategic objectives. Deferral
of bonus under the Deferred Bonus Plan (“DBP”) further incentivises
Executive Directors to manage risk and align their long-term
interests with those of shareholders.

Maximum opportunity

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

Operation

Performance measures

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

After the year-end the Committee determines the extent to which
targets have been met.

The Committee may determine that it is appropriate to adjust the
bonus outcome if, for example, outcomes are not considered to be
reflective of underlying financial or non-financial performance of
the business or the performance of the individual, where targets
are no longer considered appropriate or where the outcome is
not considered appropriate in the context of the experience of
shareholders or other stakeholders over the performance period.

Normally, up to two-thirds of the total bonus is paid in cash. The
remaining one-third of the bonus is deferred as shares for three
years. The Committee may determine that a different portion of the
bonus will be paid in shares or that the bonus may be paid in cash.

Deferred awards normally vest three years from award (or after
such other period as the Committee determines) and have no
additional performance conditions.

Malus and clawback provisions apply, detailed on page 126.

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

For FY21 the annual bonus will be based 77.5% on financial and
22.5% on strategic measures.

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

No bonus will be paid for below threshold performance, typically
around 50% of the bonus will be paid for achieving ‘target’ levels
of performance and 100% of bonus will be paid for achieving a
stretching performance target.

Performance targets are set by the Remuneration Committee with
reference to prior year performance, the Group’s business plan as
well as external expectations of performance.

Targets are considered to be commercially sensitive and will be
disclosed retrospectively following completion of the relevant
financial year.

Bonuses are non-pensionable.

124

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Performance Share Plan (“PSP”)

Purpose and link to Strategy

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

Maximum opportunity

Maximum award under the PSP is 200% of base salary.

Operation

Performance measures

Annual awards of shares with vesting normally based on
performance over a three-year period (or such other period as
the Committee determines). The vesting of awards to Executive
Directors is subject to the satisfaction of performance conditions.

The Committee may determine that it is appropriate to adjust the
vesting outcome if, for example, outcomes are not considered to
be reflective of underlying financial or non-financial performance
of the business or the performance of the individual, where targets
are no longer considered appropriate or where the outcome is
not considered appropriate in the context of the experience of
shareholders or other stakeholders over the performance period.

A post-vesting retention period will apply to awards granted
under the PSP. Shares that vest will not normally be released to
Executive Directors (and nil-cost options will not normally become
exercisable) for a further two-year period (unless the Committee
determines otherwise) from the point at which the Committee
determined that the performance conditions have been met.

Malus and clawback provisions apply, as detailed on page 126.

For 2020, awards will vest subject to the achievement of earnings per
share (“EPS”), Group Services Related Revenue, Free Cash Flow and
relative Total Shareholder Return (“TSR”) targets.

Normally up to 25% of the award may vest for entry-level
performance.

For future awards, the Committee may determine that different
financial, operational/strategic or share price related performance
measures may apply to awards or that a different weighting between
performance measures may apply to ensure continued alignment
with our evolving Strategy.

Targets for the measures will normally be set ahead of each annual
grant by reference to the latest strategic plan, long-term financial
goals and market expectations.

Share ownership guidelines

Purpose and link to Strategy

Maximum opportunity

Align the interests of Executive Directors and shareholders and
encourage long-term shareholding and commitment to the
Company both in and post-employment.

n/a

Operation

Performance measures

Executive Directors are expected to build and retain a shareholding
with a value equal to at least 200% of their annual base salary.
Executive Directors are expected to retain 75% of any post-tax
shares that vest under any performance share incentive plans until
this shareholding is reached.

n/a

Executive Directors will normally be expected to maintain a
minimum shareholding of 200% of salary (or actual shareholding
if lower) for two years following stepping down as an Executive
Director. The Committee retains discretion to waive this guideline if
it is not considered to be appropriate in the specific circumstance.

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Remuneration Policy

Approved Payments
The Committee reserves the right to
make any remuneration payments and/
or payments for loss of office (including
exercising any discretions available to
it in connection with such payments),
notwithstanding that they are not in line
with the Policy set out above where the
terms of the payment were agreed (i) before
the Policy set out above came into effect,
provided that the terms of the payment were
consistent with any applicable shareholder-
approved Directors’ Remuneration Policy
in force at the time they were agreed or
where otherwise approved by shareholders;
or (ii) at a time when the relevant individual
was not a Director of the Company (or
other persons to whom the Policy set
out above applies) and, in the opinion of
the Committee, the payment was not in
consideration for the individual becoming
a Director of the Company or such other
person. For these purposes “payments”
includes the Committee satisfying awards of
variable remuneration and, in relation to an
award over shares, the terms of the payment
are “agreed” no later than the time the award
is granted. This Policy applies equally to any
individual who is required to be treated as a
director under the applicable regulations.

Information Supporting the Policy
Malus and Clawback
Malus and clawback provisions apply to the
cash bonus payments and deferred share
awards for a period of three years from
award. Malus and clawback provisions apply
to PSP awards for a period of two years
following its vesting.

The circumstances in which malus and
clawback provisions may apply include: a
material misstatement of the Company’s
results; or misconduct by the Executive
Director; or where there is a material failure
of risk management; or corporate failure;
or serious reputational damage; or if the
Committee considers there are other similar
circumstances which mean that the malus
and/or clawback provisions should apply.

Share Plan Operation
Awards under the Company’s DBP and
PSP:

• may be granted as conditional share
awards or nil-cost options or in
such other form that the Committee
determines has the same economic
effect;

• may have any performance conditions
applicable to them amended by the
Committee if an event occurs which
causes the Committee to consider that
the existing performance condition
should be amended to ensure that
the objective criteria against which
performance will be measured will be

126

a fairer measure of such performance
and that the amended performance
condition will afford a more effective
incentive to the Executive Director;

• when assessing the level of vesting

under the PSP, the Committee will
consider the underlying financial
performance of the Company and
the value generated for shareholders
and may adjust the level of vesting if it
considers that the outcome based on
the assessment of performance against
targets does not reflect this;

• may incorporate the right to receive
additional shares to the value of
dividends which would have been paid
on the shares under an award that vests
up to the time such shares are delivered.
This amount may be calculated assuming
that the dividends have been reinvested
in the Company’s shares on a cumulative
basis;

• may in respect of the PSP, be settled
in cash or with the grant of a vested
option at the Committee’s discretion.
For Executive Directors, this provision
will only be used in exceptional
circumstances such as where, for
regulatory reasons, it is not possible to
settle awards in shares; and

• may be adjusted in the event of any

alteration of the Company’s share capital
by way of capitalisation or rights issue,
sub-division, consolidation or reduction,
the payment of a special dividend, a
demerger or any other variation of the
share capital of the Company.

Summary of Decision-Making
Process and Changes to Policy
The previous Policy is considered to be
fit for purpose and therefore no material
changes are proposed. However, the Policy
has been updated to reflect the new UK
Corporate Governance Code as well as
recent developments in best practice. In
determining the new Remuneration Policy,
the Committee followed a robust process
which included discussions on the content
of the Policy at Remuneration Committee
meetings during the year. The Committee
considered the input from management and
our independent advisors, and as well as
considering best practice and shareholder
guidance from major shareholders. A
summary of the changes to the Policy
compared to the 2017 Policy is set out below:

• Pension – for any Executive Director

appointed to the Board from 1 April 2019
the value of any pension contribution
and/or pension allowance will be in line
with the maximum employer pension
contribution available to the majority of
the workforce in the UK. This change
has been made to align with shareholder

expectations. Pension contributions /
allowances for the Executive Directors
in role will be aligned with the maximum
employer pension contribution available
to the majority of the workforce from
1 April 2023.

• Malus and clawback – malus and
clawback provisions have been
expanded to reflect a broader range
of circumstances, including a material
failure of risk management, corporate
failure and serious reputational damage,
to reflect best practice.

• Discretion – discretion provisions

have been broadened to provide the
Committee with the ability to exercise
discretion to adjust incentive pay-outs
if appropriate.

• Shareholding guideline – a post-

employment shareholding guideline has
been introduced to comply with the UK
Corporate Governance Code.

• Other minor changes have been made
to the wording of the Policy to aid
operation and to increase clarity.

The changes outlined above in relation to
pension, malus and clawback and discretion
were disclosed in the 2018/19 Directors’
Remuneration Report.

Selection of Performance
Measures
Annual Bonus:
The bonus is subject to a mix of financial and
strategic measures. These measures are
selected each year to provide an appropriate
balance between financial and strategic
objectives and to incentivise individual
Executive Directors to meet corporate
targets and drive individual performance.

Performance Share Plan (“PSP”):
The performance measures for 2020 awards
are (1) EPS growth; (2) Free Cash Flow; (3)
Group Services-Related Revenue; and (4)
relative TSR.

EPS growth has been included to incentivise
management to both grow revenue and
manage cost in a balanced way. Free Cash
Flow will also continue to be included
as performance measures for the PSP,
reflecting our ongoing focus on earnings
growth and our objective to increase Free
Cash Flow to strengthen the business
over the longer term. Group Services-
Related Revenue has been introduced to
reflect our strategic focus on increasing
services-related revenue to generate a
higher and more sustainable financial return
for shareholders. Relative TSR has been
introduced to ensure vesting levels are
aligned with relative returns to shareholders.

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

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Remuneration Arrangements
elsewhere in the Group
Whilst our Remuneration Policy follows
the same principles across the Group,
remuneration packages for colleagues
reflect their different roles and experiences,
and market practice for similar roles.

The remuneration policy for senior
executives in the Group is similar to the
Policy for Executive Directors as set out
in this report – a substantial proportion of
remuneration is performance-related in
order to encourage and reward superior
business performance and shareholder
returns and remuneration is linked to both
individual and Company performance.
Basic salary is targeted at normal
commercial rates for comparable roles
and is benchmarked on a regular basis.
Bonuses can be earned on a similar basis
as the Executive Directors (there are some
variations to take account of the specific
role performed by the relevant senior
executive). Senior executives below
Board level also benefit from participation
in the PSP.

Increases to executive managers’ base
salaries are considered at the same time
as all other colleagues across the Group
and increases are generally in line with all
colleagues.

All of the Group’s c.10,400 colleagues are
eligible to join the Halfords Sharesave Plan
(also known as “SAYE”) after they have
served one complete month’s service.
Where appropriate, some groups of
colleagues are eligible for a quarterly or
full-year bonus, although the type, limits and
performance conditions vary according to
job level. Senior managers and other key
management individuals are invited to join
the Restricted Share Plan.

In FY20, all newly appointed colleagues
and other existing colleagues who had
experienced a ‘joining-trigger’ event were
automatically enrolled into the Halfords
Pension Plan 2009. All eligible colleagues
who have met the auto enrolment criteria
have the option to choose to join the
Pension Plan from their first day of
employment. All members of the Pension
Plan are required to make a minimum
contribution of 5% and the Company also
contributes a minimum of 3%, dependent
on length of service and seniority.
During the year, the Company has met
its obligations under the pensions auto
enrolment legislation, auto enrolling all other
colleagues as appropriate.

Remuneration Outcomes in Different Performance Scenarios
As outlined above, the Remuneration Policy is designed to ensure that a substantial
proportion of the Executive Directors’ remuneration is variable and performance-related.
By linking the remuneration of the individual Executive Director to the performance
of the Company, the Committee seeks, as far as possible, to motivate that individual
towards superior business performance and shareholder value creation, and to only pay
rewards when these goals have been realised. Performance measures are aligned with
strategic goals so that remuneration arrangements are transparent to Executive Directors,
shareholders and other stakeholders.

The charts below illustrate remuneration arrangements in different performance scenarios.
The assumptions for each scenario are outlined below:

Four performance scenarios have been illustrated for each Executive Director:

Below threshold
performance

Mid-range performance

Maximum performance

Maximum performance plus
50% share price growth

Fixed remuneration
No annual bonus pay-out
No vesting under the PSP
Fixed remuneration
50% annual bonus pay-out
50% vesting under the PSP
Fixed remuneration
100% annual bonus pay-out
100% vesting under the PSP
Fixed remuneration
100% annual bonus pay-out
100% vesting under the PSP + 50% share price growth

The charts have been prepared on the following basis:

• Base salary – the base salary in place at 1 April 2020.

• Benefits – based on the disclosed benefits value in the single figure for 2019/20.

• Pensions – based on a contribution of 15% of salary.

• Bonus – based on the maximum award of 150% of base salary.

• PSP – based on the maximum award of 200% of base salary.

No payment of dividend equivalents has been assumed. Potential benefits under
all-employee plans have not been included. No share price growth has been assumed
other than where stated.

Graham Stapleton – CEO

Loraine Woodhouse – CFO

£4,000k

£3,500k

£3,000k

£2,500k

£2,000k

£1,500k

£1,000k

£500k

£0k

£3,184k

£2,628k

17.5%

£1,656k

42%

35%

£684k

34%

25%

32%

26%

100%

41%

26%

21.5%

Minimum In line with

expecta-
tions

Maximum Maximum
+ Share
Price
Growth
(50%)

£3,000k

£2,500k

£2,000k

£1,500k

£1,000k

£500k

£0k

£1,669k

£1,046k

43%

£2,026k

18%

35%

£422k

34%

26%

32%

26%

100%

40%

25%

21%

Minimum In line with

expecta-
tions

Maximum Maximum
+ Share
Price
Growth
(50%)

Fixed pay

Annual bonus

PSP

Share Price Growth

Fixed pay has been calculated as follows:

CEO
CFO

Base salary
£555,523
£356,300

Benefits
£44,862
£12,479

Pension
£83,328
£53,445

Total Fixed
Pay
£683,713
£422,224

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Remuneration Policy

Remuneration Policy for Newly
Appointed Directors
When determining the remuneration
package for a newly appointed Executive
Director, the Committee would seek to apply
the following principles:

• The package should be market competitive
to facilitate the recruitment of individuals
of sufficient calibre to lead the business.
At the same time, the Committee would
intend to pay no more than it believes is
necessary to secure the required talent.

• New Executive Directors will normally
receive a base salary, benefits and
pension contributions in line with the
Policy described on pages 122 to 131
and would also be eligible to join the
bonus and share incentive plans up to
the limits set out in the Policy.

•

In addition, the Committee has discretion
to include any other remuneration
component or award which it feels
is appropriate, taking into account
the specific circumstances of the
recruitment, subject to the limit on variable
remuneration set out below. The key terms
and rationale for any such component
would be disclosed as appropriate in the
Remuneration Report for the relevant year.

• Where an individual forfeits outstanding
variable pay opportunities or contractual
rights at a previous employer as a result
of appointment, the Committee may offer
compensatory payments or awards, in
such form as the Committee considers
appropriate, taking into account all
relevant factors, including the form of
awards, expected value and vesting
timeframe of forfeited opportunities.

• When determining any such “buy-out”,

the guiding principle would be that awards
would generally be on a “like-for-like” basis
unless this is considered by the Committee
not to be practical or appropriate.

• The maximum level of variable

remuneration which may be awarded
(excluding any “buy-out” awards referred
to above) in respect of recruitment is
350% of salary, which is in line with the
current maximum limit under the annual
bonus and PSP.

• Where an Executive Director is required
to relocate from their home location
to take up their role, the Committee
may provide assistance with relocation
(either via one-off or ongoing payments
or benefits).

•

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

To facilitate any buy-out awards outlined
above, in the event of recruitment, the
Committee may grant awards to a new
Executive Director relying on the exemption
in the Listing Rules which allows for the
grant of awards, to facilitate, in unusual
circumstances, the recruitment of an
Executive Director, without seeking prior
shareholder approval or under any other
appropriate Company incentive plan.

The remuneration package for a newly
appointed Non-Executive Director would
normally be in line with the structure set
out in the policy table for Non-Executive
Directors on page 130.

Executive Directors’
Service Agreements
Term and Notice Periods
The Company’s policy in relation to
contractual terms on termination, and
any payments made, is that they should
be fair to the individual, the Company and
shareholders. Failure should not be rewarded
and the departing Executive Director’s duty
to mitigate any loss he or she suffers should
be recognised. The notice period for the
current Executive Directors is six months on
either side. The Committee policy is that the
notice period for new Executive Directors will
be no more than 12 months. The Committee
will continue to review this policy, to ensure
that it remains in line with the Company’s
overall Remuneration Policy.

Director
Graham
Stapleton
Loraine
Woodhouse

Date of
service
agreement
8 September
2017

Notice
period

6 months

12 July 2018 6 months

Service agreements are available for
inspection by shareholders at the
Company’s registered offices.

Termination of Contract
No compensation would be payable if a
service contract were to be terminated by
notice from an Executive Director or for
lawful termination by the Company (other
than as set out below). The Company
may terminate service agreements in
accordance with the appropriate notice
periods. In the event of termination for any
reason (other than for a reason justifying
summary termination in accordance with
the terms of the service agreement) the
Company may (but is not obliged to) pay to
the Executive Director, in lieu of notice, a
sum equal to the Executive Director’s then
salary, benefits and pension contributions,
which he or she would have received during
the contractual notice period, the sum of
which shall normally be payable in monthly

128

instalments (but may be paid in a fixed
amount at the discretion of the Committee).

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

The Committee reserves the right to make
any other payments in connection with a
Director’s cessation of office or employment
where the payments are made in good faith
in discharge of an existing legal obligation
(or by way of damages for breach of such
an obligation) or by way of settlement
of any claim arising in connection with
the cessation of a Director’s office or
employment. In addition, the Committee
reserves the right, acting in good faith, to
pay fees for outplacement assistance and/
or the Director’s legal and/or professional
advice fees in connection with his or her
cessation of office or employment.

Mitigation on Termination
Where a contract has been terminated early,
and the Executive Director is engaged to
provide services (under a service agreement,
consultancy, or any other arrangement or
understanding), with effect from the date
upon which these services are provided each
subsequent instalment of pay in lieu shall
be reduced by an amount equal to any basic
salary, fees, remuneration or other financial
benefits received during the monthly interval
prior to the payment of each instalment.

In good leaver circumstances the Executive
Director might be offered a lump sum
termination payment paid at the time they
cease employment.

Change of Control
The service agreements of Executive
Directors do not provide for any enhanced
payments in the event of a change of control
of the Company.

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

Share Plans – Leaver Treatment
The treatment of outstanding share awards in
the event that an Executive Director ceases
to hold office or employment with the Group
of the Company’s associated companies is
governed by the relevant share plan rules.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020The following table summarises leaver provisions under the executive share plans.

‘Good leavers’ as determined
by the Committee

Performance Share Plan (“PSP”)

Awards will normally vest at the end of the performance period and
be released at the end of the retention period.

The Committee will determine the level of vesting, having due
regard to the extent to which the performance conditions have
been met and, unless the Committee determines otherwise, the
proportion of the performance period that had elapsed at leaving.

The Executive Director has 12 months from the end of the retention
period to exercise options if awards are structured as nil-cost
options.

Alternatively, the Committee may determine that awards should
vest and be released at the time of leaving on the basis set out
above. In these circumstances the Executive Director has 12
months from his or her date of leaving to exercise options if awards
are structured as nil-cost options.

Deferred Bonus Plan (“DBP”)

Outstanding awards vest on leaving.

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

Leavers in other circumstances
(other than gross misconduct)

Unvested awards lapse on leaving.

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

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

Awards will lapse on leaving.

‘Good leavers’ include death, injury, ill-health, disability, redundancy, retirement, sale of the individual’s employing business or company out
of the Group or to a company which is not associated with the Company or in any other circumstances the Committee determines.

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

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

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

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur Governance

Directors’ Remuneration Policy

Remuneration Policy table for Non-Executive Directors
Purpose and
Link to Strategy
To attract and retain
high-calibre individuals to
serve as Non-Executive
Directors.

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

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

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

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

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

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

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

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

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

The Company reimburses reasonable business expenses and
may settle any tax incurred in relation to these.

The Chairman and Non-Executive Directors are not entitled to
participate in any of the Group’s incentive plans or pension plans.

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

Appointment
None of the Non-Executive Directors has an employment contract with the Company. However, each has entered into a letter of appointment
with the Company confirming their appointment for a period of three years, unless terminated by either party giving the other not less than
three months’ notice or by the Company on payment of fees in lieu of notice.

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

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

Director
Keith Williams
David Adams
Helen Jones
Jill Caseberry

Date of current appointment
24 July 2018
1 March 2020
1 March 2020
1 March 2019

Expiry date
23 July 2021
31 December 2020
28 February 2023
28 February 2022

Unexpired term at the date of
report
12 months
5 months
31 months
19 months

130

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Termination of Non-Executive
Directors’ Letters of Appointment
No compensation would be payable to
a Non-Executive Director if his or her
engagement were terminated as a result of
him or her retiring by rotation at an Annual
General Meeting, not being elected or re-
elected at an Annual General Meeting or
otherwise ceasing to hold office under the
provisions of the Articles of Association of
the Company. There are no provisions for
compensation being payable upon early
termination of the appointment of a Non-
Executive Director.

Dialogue with Shareholders
The views of our shareholders are very
important to the Committee and it is
our policy to consult with our largest
shareholders in advance of making
any material changes to the executive
remuneration arrangements. The Committee
consulted in detail regarding changes made
to remuneration in 2019 and 2020 and the
final proposals were shaped by the feedback
provided.

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

The Committee does not consult directly
with colleagues regarding Executive
Directors’ remuneration. However, at regular
intervals, the Company conducts a survey
of the views of colleagues in respect of their
experience of working at Halfords, including
their own reward. The Company also
conducts regular listening groups across
the Group; these are chaired by senior
executives or Director-level colleagues and
cover a wide range of subjects, including
communication, pay, benefits and ESG
issues.

Terms and Conditions for the
Chairman and Non-Executive
Directors
The Chairman and Non-Executive Directors
serve the Company on the basis of
renewable letters of appointment which
can be terminated by written notice by
either party. The Chairman’s appointment
is subject to three months’ notice and
the other Non-Executive Directors are
also subject to three months’ notice. No
compensation is awarded on termination.
Letters of appointment are available for
inspection at the AGM and the Company’s
registered office.

Their appointments are subject to the
provisions of the Companies Act 1985
and 2006 and the Company’s Articles of
Association, and, in particular, the need for
re-election. Continuation of an individual
Non-Executive Director’s appointment
is also contingent on that Non-Executive
Director’s satisfactory performance, which
is evaluated annually by the Chairman.
The Chairman is evaluated by the Senior
Independent Director.

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

131

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceWillis 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 £3,900
charged on a time and materials basis. Willis
Towers Watson also provide insurance
broking services and employee benefits
services to the Group.

Shareholder Dialogue
We are pleased with the strong level of
shareholder support received for our FY19
Directors’ Remuneration Report which
99.38% of shareholders voted in support
of at the 2019 AGM. We continue to be
mindful of the views of our shareholders
and other stakeholders and encourage
discussion with shareholders on any issue
related to executive remuneration. During
2019/20 the Committee undertook a review
of our Directors’ Remuneration Policy in
advance of submitting a revised Policy to
shareholders for approval at the 2020 AGM.
The Committee has undertaken a detailed
consultation with shareholders regarding
the proposed changes to the Policy to align
with best practice, as well as proposed
changes to performance measures for PSP
awards to better support the execution of
our Strategy. The Committee was pleased
with the level of support received for the
changes and we thank our shareholders for
engaging with us at this time.

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.

Directors’ 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
144 to 149, as specified by the UK Listing
Authority and the Regulations.

Committee Composition
During the year the Committee consisted of:

Jill Caseberry (Chair)

Keith Williams

David Adams

Helen Jones

Six scheduled Committee meetings were
held during the year, and were attended
by all relevant members at the time of the
meeting. In addition, a meeting was held
primarily to discuss the remuneration
relating to a member of the senior
management team. After each Committee
meeting the Remuneration Committee Chair
reported to the Board on the key issues
that had been 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:

•

reviewed and approved the Directors’
Remuneration Report in the FY19 Annual
Report and Accounts;

• discussed and approved incentive

outcomes for FY19;

•

approved FY20 grants under the PSP,
the Restricted Management Share Plan
(“MSP”) (to senior managers below the
Board) and the Sharesave Scheme;

• prepared a revised Directors’

Remuneration Policy to be submitted to
shareholder approval, including changes
to remuneration arrangements to reflect
the 2018 UK Corporate Governance Code;

•

considered the approach to
implementing remuneration policy
for FY21, including setting Executive
Director salaries from 1 October 2019
and reviewing performance measures
and considering the approach to

132

performance measures and target
setting targets for FY21 annual bonus
and performance share plans;

•

reviewed the mechanics and assets of
the Employee Benefit Trust and hedging
arrangements;

• discussed and approved remuneration

arrangements for the executive
management team below the Board;

•

reviewed the Committee’s Terms of
Reference;

reviewed remuneration arrangements
for the wider workforce and took
these into account when considering
executive pay;

reviewed developments in shareholder
guidance; and

reviewed and approved the appointment
of remuneration advisors.

Advisors and Other Attendees
During the year, the Committee has been
supported by Clare Moore, Group People
Director (to July 2019) and Michelle Burton,
Group People Director (from July 2019),
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
the Directors’ Remuneration Policy review
and its implementation, 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 £37,850
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 or its Directors that might
impair their independence. The Committee
considered the potential for conflicts
of interest and judged that there were
appropriate safeguards against such
conflicts.

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020The following table sets out the votes cast at the 2017 AGM in respect of the Directors’ Remuneration Policy, and the votes cast at the 2019
AGM in respect of the previous year’s Directors’ Remuneration Report.

FY19 Directors’ Remuneration Report (2019 AGM)*
FY17 Directors’ Remuneration Policy (2017 AGM)†

* 1.107m votes (0.67% 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
99.38%
99.04%

% of votes
Against
0.62%
0.96%

How the Remuneration Policy was Implemented in FY20 – Executive Directors
Single remuneration figure (audited)

2019/20
Graham Stapleton
Loraine Woodhouse
2018/19
Graham Stapleton
Loraine Woodhouse

Base Salary
(£)
550,611
353,150

540,329
145,833

Bonus
(£)
–
–

–
–

Benefits
(£)
44,862
12,479

48,8323
4,667

Pension
(£)
82,592
52,973

80,919
21,875

PSP1
(£)
-
-

–
–

Other
(£)
-
-

—
7,9092

Total
“Single
Figure” (£)
678,065
418,602

670,080
180,284

1. Graham Stapleton was granted a PSP award upon joining, this did not vest as the performance conditions were not met. Loraine Woodhouse did not hold a

PSP award which vested in the year. The table below shows the history of PSP award vesting over the last five years.

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. An incorrect figure of £20,869 was reported for FY19 in error, which has been corrected.

PSP vestings (% of maximum)

FY16
102.5%1

FY17
0%

FY18
0%

FY19
0%

FY20
0%

1. Previously, up to 150% of the award could vest under the PSP for maximum performance.

FY20 Annual Bonus
The annual bonuses for FY20 for the Executive Directors were based as follows:

Chief Executive Officer
Chief Financial Officer

Graham Stapleton
Loraine Woodhouse

The PBT targets and performance against these is set out below:

80% PBT and 20% delivery of key strategic initiatives

PBT performance

Threshold
(15%
payable)
£57m

Target
(50%
payable)
£60m

Maximum
(100%
payable)
£66m

PBT
performance
for FY20
£57.1m1

% of
maximum
bonus
achieved
0%

1. This outturn does not include an accrual for Executive bonus payments and therefore the threshold has not been met. The acquisitions of Tyres on the Drive

and McConechy’s have been excluded from the FY20 Group PBT outturn.

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

Employee
Engagement
Group Services-
related retail
Operating
Cash Flow

Definition
Retail and Autocentres NPS *Both Retail
and Autocentres threshold must be met
Index achieved for Group in April 2020

FY20
outturn
Retail 62.4%
Autocentres 69%
Note 1

Threshold
Retail 62.9%
Autocentres 66.5%
79%

Maximum
Retail 63.2%
Autocentres 68%
81%

Growth in total service-related sales,
including product (Retail)
Group Underlying EBITDA adjusted
for the movement in average working
capital year on year

£299.5m

£106.8m2

£293m

£301.8m

£101.25m

£107.7m

1. The Engagement Survey has been delayed due to COVID-19 and therefore no score is available.

2. The acquisitions of Tyres on the Drive and McConechy’s have been excluded from the FY20 Operating Cash Flow outturn.

% achieved
(out of 5%)
0%

Note 1

3.7%

4.3%

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Remuneration Report

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 FY20. In determining performance
outcomes the Committee considered the underlying financial performance of the Group during the performance period, taking into
account performance against key financial indicators as well as broader performance and the experience of stakeholders. Whilst the
Committee concluded that the threshold would have been achieved and payments triggered, had the business not experienced the impact
of widespread store closures in the final week of the financial year, arising from the COVID-19 pandemic, the Committee concluded the
proposed incentive outcomes are appropriate in the context of the shareholder experience.

Benefits
Benefits include payments made in relation to a car plus fuel or a cash allowance, private health insurance, life assurance and a driver.

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.

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:

Date
of award
Graham Stapleton 20 September 2019

Loraine Woodhouse 20 September 2019

Type
of award
Nil cost option
(0p exercise price)
Nil cost option
(0p exercise price)

1. These awards were based on 175% of salary.

Maximum
face
value of
award2
£954,974

Threshold
vesting
(% of award)
25%

Number
of shares1
563,074

361,143

£612,499

25%

Performance
period
30 March 2019 to
1 April 2022
30 March 2019 to
1 April 2022

2. Based on the average mid-market price on three preceding days of the awards of £1.696 on 20 September 2019.

In last years’ Directors’ Remuneration Report we indicated our intention to grant PSP awards of 200% of base salary to Executive Directors.
The Committee continued to monitor the Company’s share price performance prior to the grant of awards in September 2019. The
Committee determined that, taking into account the Company’s share price at that time, compared to the share price used to determine the
2018 PSP award, it was appropriate to reduce the PSP awards granted to 175% of salary.

Performance Conditions
The performance conditions and targets for PSP awards granted during FY20 are as follows:

Award
(200% of salary)

100% vesting
Straight-line vesting
25% vesting
0% vesting

Group Revenue Growth –
CAGR (25% of the award)
6.0%
Between 3.5% and 6.0%
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 award shares that vest will become exercisable in August 2022. The shares
that vest will be subject to a two-year holding period.

Deferred Bonus Plan
No awards granted during the year.

134

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Perform-
ance period
years to

Holding
period to
3 Apr 2020 50% to 3 Apr
2021, 50% to
3 Apr 2022
2 Apr 2023
1 Apr 2024
2 Apr 2023

2 Apr 2021
1 Apr 2022
2 Apr 2021

Outstanding Share Awards (Audited)
Performance Share Plan (“PSP”)
The following summarises outstanding awards under the PSP:

Grant
Price4
(£)

Awards
held
30 March
2019
3.5173 323,615

Awarded
during
the
period
–

Dividend
reinvest-
ment5
35,600

Forfeited
during
the
period
–

Lapsed
during
the
period
–

Exercised
during the
period

Awards
held
3 April
2020
– 359,215

Award date
24 Jan 20181

5 Oct 20182
20 Sept 20193
9 Nov 20182

Graham
Stapleton

Loraine
Woodhouse

3.1970 343,277

1.696
3.079 233,180

–
– 563,074
–

37,763
22,537
25,652

–
–
–

–

–
–
–

–

– 381,040
– 585,611
– 258,832

20 Sept 20193

1.696

– 361,143

14,455

– 375,598

1 Apr 2022

1 Apr 2024

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), 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 is 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. The performance targets for this award were not
met based on performance for FY20 and therefore this award will lapse.

2. FY19 awards are subject 50% to underlying EPS growth (25% vesting for 1.5% p.a. growth. 100% vesting for 6.0% p.a. growth), 25% to Group Revenue

Growth targets (25% vesting for 3.5% p.a. growth, 100% vesting for 8% p.a. growth), and 25% subject to Free Cash Flow (25% vesting for £125m, 100%
vesting for £165m) 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.

3. FY20 awards are subject 50% to underlying EPS growth (25% vesting for 5% p.a. growth. 100% vesting for 10.0% p.a. growth), 25% to Group Revenue

Growth targets (25% vesting for 3.5% p.a. growth, 100% vesting for 6% p.a. growth), and 25% subject to Free Cash Flow (25% vesting for £125m, 100%
vesting for £165m) 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.

4. The grant price is calculated by taking the mid-market average across the three preceding days prior to the grant date.

Interim and final dividends have been reinvested in shares at prices between £1.544 and £1.841.

Deferred Bonus Plan (“DPB”)

Award date
31 May 2018

Graham
Stapleton

Grant
price1
(£)
3.3760

Awards
held
30 March
2019
12,162

Awarded
during the
period
–

Dividend
reinvest-
ment2
1,337

Forfeited
during the
period
–

Lapsed
during the
period
–

Exercised
during the
period
–

Awards
held
3 April
2020
13,499

Vesting
31 May 2021–
31 May 2022

1. The grant price is calculated by using the mid-market quotation on the date of grant.

Interim and final dividends have been reinvested in shares at prices between £1.544 and £1.841

CEO Pay Compared to Performance
The following graph shows the TSR performance of the Company since April 2010, 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).

250

200

150

100

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

0
2
0
2

Halfords Group

FTSE All-Share General Retailers

Source: Thompson Research

135

halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceDirectors’ Remuneration Report

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.

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

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
670
–
–
–
–
–
–
–
–
–
–
–
–
–
–

FY20
678
–
–
–
–
–
–
–
–
–
–
–
–
–
–

1. Graham Stapleton was appointed in January 2018. An incorrect benefits figure was reported for FY19 in error, this has been corrected and reflected in the

total for FY19.

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.

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 3 April 2020
Current value (based on share price on 3 April 2020)
Current % of salary

Graham
Stapleton
200%
28,748
£18,657
3.42%

Loraine
Woodhouse
200%
22,395
£14,534
4.15%

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 3 April 2020 and 6 July 2020.

In light of the Code and evolving market practice, the Committee has introduced a post-employment shareholding guideline to support
the alignment of interests between Executive Directors and shareholders following an executive’s departure from the Board. Under this
guideline, Executive Directors will be expected to retain their shareholding guideline (200% of salary) for a period of two-years post stepping
down as an Executive Director. This post-employment shareholding guideline will apply to any performance incentive shares that vest from
1 April 2020.

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.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020How the Remuneration Policy was Implemented in FY20 – Non-Executive Directors
Non-Executive Director single figure comparison (audited)

Committee
Chair /
Employee
representative
Director fees
(£)
–
10,000

Senior
Independent
Director fee
(£)
–
10,000

Taxable
Benefits1
(£)
–
2,224

Total “Single
Figure”
2020
(£)
192,400
74,224

Total “Single
Figure”
2019
(£)
132,404
72,0003

–

–
–
–

10,000

715

62,715

9,583
–
10,000

1,597
–
–

63,180
–
–

5,0863

57,0003
64,7583
56,9143

Board fees (£)
192,400
52,000

52,000

52,000
192,400
52,000

Role

Director
Keith Williams2 Chairman
David Adams

Senior Independent Director
and Audit Committee Chair
Jill Caseberry4 Remuneration Committee

Chair
CSR Committee Chair

Helen Jones5
Dennis Millard6 Chairman
Claudia Arney7 Remuneration Committee

Chair

Includes hotel and travel costs incurred when attending Halfords’ meetings and Board visits.

2. Keith Williams was appointed on 24 July 2018. His fee for the role of Chairman is £192,400. Keith did not claim any taxable benefits during the year.

3. Due to a payroll error, a portion of fees which related to FY19 were actually paid in FY20. This amount was: £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.

4. Jill Caseberry was appointed on 1 March 2019.

5. To ensure compliance with the 2018 Corporate Governance Code, in March 2019 the Company appointed Helen Jones as the Workplace Voice

Representative which commenced on 1 May 2019. The fee for this additional role was set at £5,000 and has been pro-rated accordingly.

6. Dennis Millard stepped down as Chairman on 24 July 2018.

7. Claudia Arney stepped down as a Non-Executive Director on 1 March 2019.

Non-Executive Director Shareholding
Director
Keith Williams
David Adams
Jill Caseberry
Helen Jones

2020
130,000
9,041
–
3,000

2019
80,000
8,157
–
3,000

These figures include those of their spouses, civil partners and infant children, or stepchildren, as required by Section 822 of the Companies
Act 2006. There was no change in these beneficial interests between 3 April 2020 and 6 July 2020.

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 FY21 – Executive Directors
Salary
Salaries for Executive Directors were increased by 1.8% with effect from 1 October 2019 in line with the increase received across the wider
workforce. 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 2020.

£555,523
£356,300

Pension
Executive Directors will continue to receive a pension allowance of 15% of base salary. The Committee carefully considered the level
of pension allowance for Executive Directors and no changes have been made to this allowance for 2020/21. While the Committee
acknowledges that this level of pension is above the rate that is available to the wider workforce in the UK, the Committee did not consider
that it was appropriate to lower the pension allowance for Executive Directors at this stage, given their existing contractual entitlements and
limited tenure in role. However, mindful of shareholder guidance that pensions for executives should be aligned with the pension provision
available for the wider workforce, the Executive Directors have, however, agreed to reduce their pension to be in line with the rate available
for the wider workforce from 1 April 2023.

For any new Executive Director appointed to the Board, the pension opportunity will be in line with the policy for the majority of the
workforce.

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Annual Bonus
The normal maximum annual bonus for the CEO and CFO is 150% of base salary with 2/3 paid in cash and 1/3 paid in Halfords shares
deferred for three years.

Performance measures for FY21 annual bonus
Financial Measures
• Net debt (30%)

• Cost reduction (25%)

• Underlying PBT, post exceptions (15%)

• Operating cash flow (7.5%)
Strategic Measures
• NPS (7.5%)

•

Employee engagement (7.5%)

• Digital sales (7.5%)

77.5%

22.5%

The strategic measures for FY21 are NPS, employee engagement and digital sales to incentivise management to drive sales in key strategic
segments whilst improving the colleague and customer experience.

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.

Performance Share Plan (“PSP”)
The normal PSP award for Executive Directors is 200% of base salary. The Committee is mindful of shareholder guidance that award levels
should be adjusted where the share price has fallen significantly compared to prior years. The Committee will take this into account when
determining award levels in September.

FY21 PSP awards will be based on the following performance measures:

•

20% based on EPS growth

10% based on Group services-related revenue

30% based on free cash flow

40% based on relative total shareholder return vs. the constituents of the FTSE All-Share General Retailers Index at the share of the
performance period.

Given our strategic focus on increasing services related revenue the Committee considered that it was appropriate to replace Group revenue
with a more focused services related revenue metric to incentivise and reward management for delivering against the Strategy. Vesting in
respect of this portion will also be subject to the Company maintaining an appropriate margin on services revenue.

Group revenue will not be included as a performance measure for 2020. While, growing Group revenue continues to remain an important
strategic objective for the Company, the Committee wanted to incentivise a clear focus on growth in Group Services-Related Revenue
over the next three years given the criticality of this to future shareholder value creation. Relative Total Shareholder Return has also been
introduced as a performance measure to ensure that PSP outcomes are aligned with the value we have returned to our shareholders
relative to our key retail peers. Free Cash Flow continues to be included as performance measures for the PSP reflecting our ongoing focus
on earnings growth and our objective to increase free cash flow outlined at the capital markets day in September 2018 to strengthen the
business over the longer term, as does EPS growth which the Committee considers incentivises management to both grow revenue and
manage cost in a balanced way.

Our normal practice is to grant awards in September. In light of this and the continuing economic and business uncertainty facing the
Company the Committee has not set financial targets for the 2020 PSP at this time. The Committee intends to set targets in advance of
award and targets will be disclosed as part of the RNS at the time of award. In line with prior years the Committee will set targets which are
considered to be appropriately stretching in the context of the business’ evolving Strategy and business circumstances.

In determining whether any annual bonuses are payable or performance share plan awards vest, the Committee retains the discretionary
authority to adjust incentive pay-outs (both upwards and downwards) if the original outcome is not considered to reflect the underlying
performance of the Company or the participant over the period, the outcome is not considered appropriate in the context of circumstances
that were unexpected or unforeseen at the time the targets were set, or where the outcome is not considered appropriate in the context of
the experience of shareholders or other stakeholders over the performance period.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020How the Remuneration Policy will be Implemented for FY21 – 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 was set at £5,000.

The fees of the Non-Executive Directors were reviewed in March 2020 and it was agreed that in the current market a fee increase would not
be appropriate. The next fee review is due in March 2021.

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 (ESG)

FY21
£192,400
£52,000

FY20
£192,400
£52,000

£10,000
£10,000
£5,000
£5,000

Change in Remuneration of Chief Executive Officer Compared to Group Employees
The table below sets out the increase in total remuneration of the Chief Executive Officer and that of all colleagues.

Chief Executive Officer
All colleagues

% change in base salary
FY19 to FY20
1.8%
3.18%

% change in bonus paid
FY19 to FY20
0%1
-12.84%2

% change in benefits
FY19 to FY20
No change3
No change3

1. No bonus payable for FY19 or FY20.
2. Based on all colleagues who were paid a bonus during FY19 and FY20.
3. No change to the benefits available for both CEO and colleagues.

CEO pay ratio
Halfords being a UK listed Company with more than 250 employees means that the Company is required to disclose annually the ratio of its
CEO’s pay to the median, lower quartile and upper quartile pay of their UK employees. Details of this can be found in the table below.

Year
2019/20

Method
Option B

25th percentile
pay ratio
40:1

Median
pay ratio
36:1

75th percentile
pay ratio
28:1

In addition to the ratio of the CEO’s pay to the 25th, median and 75th percentile of UK employees, companies are also required to disclose:

•

an explanation of the methodology used, including an explanation of the reason where any components of total remuneration have been
omitted and a brief explanation of any assumptions used to determine full-time equivalent remuneration;

the total remuneration and salary value (the £ value) for the 25th, median and 75th percentile employees used in the pay ratio calculation;

an explanation for changes to the ratio year on year (not applicable for first year disclosures); and

• whether the Company considers the median pay ratio consistent with the company’s wider policies on employee pay, reward and

progression.

Of the three options set out in the new legislation for calculating the CEO pay ratio, we have used Option B using Gender Pay Gap data. This
option was chosen as it represents the most efficient method to determine the respective pay ratios. The colleagues at the three quartiles
were identified and their respective single figure values calculated. To ensure the identified colleagues were representative, the total
remuneration for a group of individuals above and below the identified colleague at each quartile were also reviewed.

In order to determine the full-time equivalent salary component for the representative colleagues, the hourly rate was multiplied by full-time
hours to calculate the full-time equivalent salary. No component of total remuneration was omitted. The base salary and total remuneration
for each representative colleague are outlined below.

Component
Base Salary
Total Remuneration

P25
£16,946.15
£16,981.65

P50
£18,719.35
£18,721.85

P75
£23,739.06
£24,454.26

Gender Pay Gap Report
Details of the Group’s Gender Pay Gap Report for 5 April 2019 are available at www.halfordscompany.com/corporate-responsibility/
colleagues/gender-pay-gap/.

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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 Directors2
Dividend paid to shareholders and share buybacks

20201
£185.9m
£53.6m

£232.7m
£1.1m
£36.6m

2019
£98.2m
£58.8m

£217.8m
£1.0m
£35.9m

1. The FY20 figures reflect the impact on adopting IFRS 16 and the 53-week period to 3 April 2020, and are therefore, not comparable to the prior period.

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

140

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Directors’ Responsibilities

as regards the group financial statements,
Article 4 of the IAS Regulation. They are
also responsible for safeguarding the
assets of the company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.

Website Publication
The directors are responsible for ensuring
the annual report and the financial
statements are made available on a website.
Financial statements are published on the
company’s website in accordance with
legislation in the United Kingdom governing
the preparation and dissemination of
financial statements, which may vary
from legislation in other jurisdictions. The
maintenance and integrity of the company’s
website is the responsibility of the directors.
The directors’ responsibility also extends
to the ongoing integrity of the financial
statements contained therein.

Directors’ Responsibilities
Pursuant to DTR4
The directors confirm to the best of their
knowledge:

• The group financial statements have
been prepared in accordance with
International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS
Regulation and give a true and fair view
of the assets, liabilities, financial position
and profit and loss of the group.

• The annual report includes a fair review
of the development and performance of
the business and the financial position
of the group and the parent company,
together with a description of the
principal risks and uncertainties that
they face.

Approved by order of the Board.

Keith Williams
Chairman
6 July 2020

The directors are responsible for preparing
the annual report and the financial
statements in accordance with applicable
law and regulations.

Company law requires the directors to
prepare financial statements for each
financial year. Under that law the directors
are required to prepare the group financial
statements in accordance with International
Financial Reporting Standards (IFRSs) as
adopted by the European Union and have
elected to prepare the company financial
statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards and applicable law). 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
company and of the profit or loss for the
group for that period.

In preparing these 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 European Union, subject to any
material departures disclosed and
explained in the financial statements;

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;

• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business; and

• prepare a director’s report, a strategic
report and director’s remuneration
report which comply with the
requirements of the Companies Act
2006.

The directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the company and enable
them to ensure that the financial statements
comply with the Companies Act 2006 and,

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halfords.annualreport2020.comStrategic ReportFinancial StatementsShareholder InformationOverviewOur GovernanceFinancial
Statements

Independent Auditor’s 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

144
150

151

152

153

154

155
156
168
190

191
192
193

Independent Auditor’s Report to the
Members of Halfords Group plc

Opinion
We have audited the financial statements of Halfords Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the 53 week
period ended 3 April 2020 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income,
Consolidated Statement of Financial Position, Consolidated Statement of Changes in Shareholders’ Equity, Company Balance Sheet,
Company Statement of Changes in Shareholders’ Equity, Consolidated Statement of Cash Flows and notes to the financial statements,
including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the
Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union
The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law
and United Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom
Generally Accepted Accounting Practice).

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 3 April 2020 and of
the Group’s profit for the year then ended;

the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS Regulation.

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.

Conclusions Relating to Principal Risks, Going Concern and Viability Statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention to:

•

the Directors’ confirmation set out on page 79 in the annual report that they have carried out a robust assessment of the Group’s
emerging and principal risks and the disclosures in the annual report that describe the principal risks and the procedures in place to
identify emerging risks and explain how they are being managed or mitigated;

the Directors’ statement set out on page 78 in the financial statements about whether the Directors considered it appropriate to adopt
the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties
to the Group and the Parent Company’s ability to continue to do so over a period of at least twelve months from the date of approval of
the financial statements;

• whether the Directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is

materially inconsistent with our knowledge obtained in the audit; or

•

the Directors’ explanation set out on page 79 in the annual report as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider 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.

144

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified
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. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

Matter

Going Concern
The basis of preparation note to the financial statements explains
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 risk most likely to adversely affect the Group and Company’s
available financial resources over this period was considered to
be the uncertainty of the future impact of COVID-19 owing to the
unprecedented nature of the event, and as a result, we determined
going concern to be a key audit matter.

IFRS 16 – Leases
(Accounting polices, Note 13 Leases – closing right-of-use assets
£349.9m, lease liabilities £416.0m)

The Group has a large portfolio of retail and autocentre sites of
which the majority are leased, the impact to the financial statements
this year of adopting IFRS 16 is therefore significant.

The calculation of lease assets and liabilities involves assumptions
of the lease term and the incremental borrowing rate, small changes
in either of these assumptions across a number of leases could lead
to a material change in the valuation of lease assets and liabilities.

Owing to the magnitude of the lease asset and liability balances and
the estimation required in accurately assessing these balances, the
implementation and application of IFRS16 was raised as a key audit
matter.

How we addressed the matter in our audit

Our audit procedures included:

• Assessment of assumptions within the COVID-19 adjusted
cashflows: consideration of the Group’s assessment of the
impact of COVID-19 with reference to current year financial
results and pre COVID-19 adjusted projections.

• Disclosures: evaluation of the adequacy of the disclosures in

relation to the specific risks posed and scenarios the Group has
considered in reaching their going concern assessment.

• Sensitivity analysis: evaluation of sensitivities over the Group’s
COVID-19 adjusted cashflows with reference to the financial
covenants in place over the existing banking facilities. The
analysis considered reasonably possible adverse effects that
could arise as a result of a decrease in sales due to the impact of
COVID-19 as well as a stress test to consider the level of future
revenue reduction the Group could support.

• Post year end trading performance: comparison of the post

year end trading results to the COVID-19 adjusted forecasts so
as to evaluate the accuracy and achievability of the forecasts
prepared.

Our Results:
Our observations in respect of this matter are set out in the
Conclusions relating to principal risks, going concern and viability
statement section.

Our audit procedures included:

• Technical analysis: assessing the calculation methodology
driving the lease liability and right-of-use asset against the
requirements of the accounting standard.

• Sample testing: testing the completeness and accuracy of

the lease right-of-use asset and liability figures calculated by
re-performing the calculation for a sample of leases within the
transition adjustment, new leases agreed in the year and lease
modifications.

•

Lease length assumptions: evaluating assumed lease terms
with reference to both the underlying lease agreements and
consideration of the broader economics of the lease contracts.

• Valuation assumptions: corroboration of the inputs applied

within the incremental borrowing rate calculation so as to
confirm appropriate.

• Disclosures: Assessing the adequacy of the Group’s accounting

policy and disclosures.

Our Results:
We found the Group’s approach to the adoption of and application
of IFRS16 to be appropriate.

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Independent Auditor’s Report to the
Members of Halfords Group plc

Matter

Inventory Valuation
(Accounting policies, Note 15 Inventories - £173.0m)

The Group has significant levels of inventory and estimates are
made over the potential net realisable value, obsolescence and
shrinkage of the balance.

Given the level of judgement and estimation involved to ensure that
inventory is correctly valued at the lower of cost and net realisable
value, this was considered to be a key audit matter.

Goodwill Impairment
(Accounting policies, Note 11 Intangible assets - £350.6m)

Goodwill in the Group balance sheet is significant and subject to an
annual impairment review.

The review requires the Group to estimate the recoverable amount
of its two cash generating units (retail and car servicing) which
requires the forecasting and discounting of future cashflows for
inclusion within a value in use model.

The value in use model is inclusive of a high degree of estimation
uncertainty, particularly owing to the uncertain impact of COVID-19
on the future cashflows of the Group and the goodwill impairment
review has therefore been raised as a key audit matter.

How we addressed the matter in our audit

Our audit procedures included:

• Methodology applied: assessing the appropriateness of
the Group’s inventory provisioning policies based on our
understanding of the business and the industry. This was
inclusive of consideration as to the potential impact of
COVID-19.

• Review of post year-end information: consideration of post

year-end sales information to provide evidence as to the net
realisable value of the inventory at the end of the reporting
period.

• Data analytics: comparison of the retail sales and inventory

costing data on a product by product basis to identify instances
of sales below cost to consider if appropriately provided for
within the Group’s provisioning assessment.

• Shrinkage assumptions: recalculation of the retail shrinkage
provision based on the Group’s inventory count results.

Our Results:
We found the estimates and judgements made by the Group in their
assessment of the carrying value of inventory to be acceptable.

Our audit procedures included:

• Technical analysis: assessing the calculation methodology

applied within the goodwill impairment model against the
relevant accounting standards and considering the appropriate
interaction of IAS36 (impairment) and IFRS16 (leases).

• Historical comparison: assessing the reasonableness of the
Group’s budgets by considering the historical accuracy of
previous forecasts.

• Assessment of cashflows: confirmed that the cashflows

modelled agreed to the COVID-19 adjusted cashflows which
have been used to support the Group’s going concern
assessment.

• Valuation assumptions: using our internal valuation specialists to
assess the reasonableness of the Group’s discount rate applied,
by corroborating the relevant inputs into the calculation to
external sources.

• Sensitivity analysis; performing sensitivity analysis over the

key assumptions and ensuring the Group considered the same
reasonably possible adverse effects that could arise as a result
of a decrease in sales due to the impact of COVID-19 as applied
to their going concern considerations.

• Disclosures: assessing whether the Group’s disclosures detail

the key judgements within the impairment model and sources of
estimation uncertainty.

Our Results:
We found the Group’s assessment of goodwill impairment to be
appropriate.

146

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Matter

Cycle Republic Closure Costs
(Note 5 Non underlying items - £26.8m)

On 16 March 2020 the Group announced its plans to close the Cycle
Republic business and Boardman Performance Centre.

Material impairments and provisioning are therefore recorded in
relation to redundancies and costs associated with the planned
store and website closures which also resulted in fixed assets, right
of use assets and inventory having a reduced recoverable amount.

Provisioning and impairment are key areas of judgement and
particularly owing to the proximity to the year end this was
considered a key audit matter.

How we addressed the matter in our audit

Our audit procedures included:

• Accounting treatment: analysis of management’s assessment
as to the treatment of the planned closures of the business
components in accordance with IFRS5.

• Review of post year-end information: consideration of sub

lease arrangements and lease surrender agreements reached
following the year-end to inform the assessment of the
recoverability of right-of use-assets at the balance sheet date.

•

Lease testing: recalculation of a sample of lease modification
adjustments with reference to the underlying lease agreement
where the Group now intended to exercise the break option.

• Redundancy costs: confirmation of a communicated

redundancy program prior to the year-end and recalculation of a
sample of redundancy provisions.

• Corroborative work: corroboration of a number of estimates

included within the provisioning with reference to comparable
costs incurred by the Group during the financial year and post
year end.

•

Fixed asset / intangible asset impairment: evaluation of the
recoverable amount of the fixed and intangible assets with
reference to post year-end results and agreement of charges to
the underlying asset registers.

• Disclosure: assessment of the adequacy of the Group’s

disclosures and consideration as to whether the closure costs
met with the Group’s definition of a non-underlying item owing
to their size, nature and incidence.

Our Results:
We found the resulting estimate of the closure costs to be
acceptable.

Our Application of Materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users
that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements
exceed materiality, we use a lower materiality, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Level of Materiality Applied and Rationale
We determined materiality for the Group financial statements as a whole to be £2.6m which represents 5% of profit before tax and non-
underlying items. We consider profit before tax and non-underlying items to be the most appropriate benchmark as it provides a more stable
measure year on year than group profit before tax.

Materiality for the parent Company financial statements as a whole was set at £1.3m, determined with reference to 50% of Group materiality.

Individual significant component audits were carried out using component materialities of between 50 - 90% of overall Group financial
statement materiality.

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial
statements as a whole. Performance materiality was set at 65% of materiality. In setting the level of performance materiality we considered a
number of factors including the expected total value of known and likely misstatements.

We agreed with the Audit Committee that misstatements in excess of £130k, which were identified during the audit, would be reported to
them, as well as smaller misstatements that in our view should be reported on qualitative grounds.

147

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsIndependent Auditor’s Report to the
Members of Halfords Group plc

An Overview of the Scope of our Audit
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the group financial statements
as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.

In establishing the overall approach to the Group audit, we assessed the audit significance of each reporting unit in the Group by reference
to both its financial significance and other indicators of audit risk, such as the complexity of operations and the degree of estimation and
judgement in the financial results.

All of the Group’s 3 significant components (inclusive of Halfords Group Plc) were subjected to full scope audits for Group purposes. All
components are located in the UK and were audited by the Group audit team.

The significant components within the scope of our work accounted for 95% of group revenues and 97% of total assets.

How the Audit was Considered Capable of Detecting Irregularities, including Fraud
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and
considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. These included but were not
limited to compliance with Companies Act 2006, the FCA listing and DTR rules, the principles of the UK Corporate Governance Code, and IFRSs.

We designed audit procedures to respond to the risks of material misstatement in the financial statements, recognising that the risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery, misrepresentations or through collusion.

We focused on laws and regulations that could give rise to a material misstatement in the Group financial statements. Our tests included, but
were not limited to:

•

agreement of the financial statement disclosures to underlying supporting documentation;

enquiries of management;

review of minutes of Board meetings throughout the year; and

• obtaining an understanding of the control environment in monitoring compliance with laws and regulations

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We also addressed
the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the
Directors that represented a risk of material misstatement due to fraud.

Other Information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report and
Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:

•

Fair, balanced and understandable set out on page 141 – the statement given by the Directors that they consider 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, performance, business model and strategy, is materially inconsistent with our knowledge obtained in the
audit; or

• Audit committee reporting set out on page 116 – the section describing the work of the audit committee does not appropriately

address matters communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 91 – the parts of the Directors’

statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.

148

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Opinions on Other Matters Prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and

the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on Which we are Required to Report by Exception
In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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.

Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 141, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the 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 the
Directors 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 for the Audit of the Financial Statements
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 error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other Matters Which we are Required to Address
Following the conclusion of a formal tender process led by the Group’s Audit Committee, the Board proposed appointment of BDO LLP as
the Company’s auditor for the financial year ending 3 April 2020 and subsequent financial periods. The appointment was approved by the
Company’s shareholders at the Annual General Meeting on 31 July 2019. The period of total uninterrupted engagement is 1 year.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Use of Our Report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.

Diane Campbell (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
6 July 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

149

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial Statements52 weeks to 29 March 2019
Non-
underlying
items
(Note 5)
£m
–
–
–
(7.8)

Before
non-
underlying
items
£m
1,138.6
(559.6)
579.0
(516.8)

Total
£m
1,138.6
(559.6)
579.0
(524.6)

62.2
(3.4)
–
(3.4)
58.8
(10.5)

48.3

24.5p
24.2p

(7.8)
–
–
–
(7.8)
1.4

54.4
(3.4)
–
(3.4)
51.0
(9.1)

(6.4)

41.9

21.2p
21.0p

Consolidated Income Statement

53 weeks to 3 April 2020

Before
non-
underlying
items
£m
1,155.1
(565.4)
589.7
(522.5)

Non-
underlying
items
(Note 5)
£m
–
–
–
(34.2)

67.2
(13.9)
0.3
(13.6)
53.6
(6.9)

(34.2)
–
–
–
(34.2)
5.0

46.7

(29.2)

23.7p
23.3p

Notes

3
6
6

9
9

Total
£m
1,155.1
(565.4)
589.7
(556.7)

33.0
(13.9)
0.3
(13.6)
19.4
(1.9)

17.5

8.9p
8.7p

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

All results relate to continuing operations of the Group.

The notes on pages 155 to 189 are an integral part of these consolidated financial statements.

150

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Consolidated Statement of
Comprehensive Income

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

Other comprehensive income for the period, net of income tax

Total comprehensive income for the period attributable to equity shareholders

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

17.5

41.9

Notes

7.9

–

(0.7)

7.2

24.7

7.4

(8.1)

–

(0.7)

41.2

All items within the Consolidated Statement of Comprehensive Income are classified as items that are or may be recycled to the
consolidated income statement.

The notes on pages 155 to 189 are an integral part of these consolidated financial statements.

151

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsConsolidated Statement of Financial Position

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax asset
Investments
Total non-current assets
Current assets
†
Inventories
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
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

3 April
2020*
£m

29 March
2019
†
(Restated)
£m

30 March
2018
†
(Restated)
£m

Notes

11
12
13
21
14

15
16
22

18
18
22
19

18
18
19
21
20

23
23
23
23

395.7
83.1
349.9
7.3
–
836.0

173.0
53.5
8.7
8.2
115.5
358.9
1,194.9

(0.2)
(83.2)
(1.1)
(217.0)
–
(9.7)
(311.2)
47.7

(179.1)
(332.8)
(1.9)
–
(4.1)
(517.9)
(829.1)
365.8

2.0
151.0
(10.0)
4.9
217.9
365.8

387.4
97.3
–
–
–
484.7

173.7
59.1
3.2
–
9.8
245.8
730.5

(18.5)
–
(1.4)
(176.4)
(3.3)
(15.1)
(214.7)
31.1

(73.1)
–
(28.1)
(0.1)
(5.2)
(106.5)
(321.2)
409.3

2.0
151.0
(10.0)
1.9
264.4
409.3

393.9
101.3
–
–
8.1
503.3

183.8
56.0
0.3
–
27.0
267.1
770.4

(20.8)
–
(5.4)
(187.0)
(3.3)
(11.9)
(228.4)
38.7

(94.0)
–
(31.2)
(2.7)
(3.9)
(131.8)
(360.2)
410.2

2.0
151.0
(9.4)
(2.9)
269.5
410.2

* The Group has initially applied IFRS 16 at 30 March 2019, using the modified retrospective approach. Under this approach, comparative information is not

restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. See Note 13.

† see Note 15.

The notes on pages 155 to 189 are an integral part of these consolidated financial statements.

The financial statements on pages 150 to 189 were approved by the Board of Directors on 6 July 2020 and were signed on its behalf by:

Loraine Woodhouse
Chief Financial Officer

Company Number: 04457314

152

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Consolidated Statement of
Changes in Shareholders’ Equity

Attributable to the equity holders of the Company

Share
premium
account
£m
151.0
–
151.0
–
151.0

Investment
in own
shares
£m
(9.4)
–
(9.4)
–
(9.4)

Other reserves
Capital
redemption
reserve
£m
0.3
–
0.3
–
0.3

Hedging
reserve
£m
(3.2)
–
(3.2)
–
(3.2)

Share
capital
£m
2.0
–
2.0
–
2.0

Retained
Earnings*
£m
281.2
(11.7)
269.5
(3.3)
266.2

Total
equity
£m

421.9
(11.7)
410.2
(3.3)
406.9

–

–
–
–

–
–

–

–
–

–
–
–
2.0
–
2.0

–

–
–

–

–
–

–
–
–
2.0

–

–
–
–

–
–

–

–
–

–
–
–
151.0
–
151.0

–

–
–

–

–
–

–

–
–
–

–
–

–

(1.0)
0.4

–
–
(0.6)
(10.0)
–
(10.0)

–

–
–

–

–
–

–
–
–
151.0

–
–
–
(10.0)

–

–
–
–

–
–

–

–
–

–
–
–
0.3
–
0.3

–

–
–

–

–
–

–
–
–
0.3

–

41.9

7.4
–
–

7.4
7.4

(2.6)

–
–

–
–
–
1.6
–
1.6

–

7.9
(0.7)

7.2
7.2

(4.2)

–
–

–
–
–
4.6

–
(8.1)
–

7.4
(8.1)
–

(8.1)
33.8

–

–
–

0.3
(35.9)
(35.6)
264.4
(25.1)
239.3

(0.7)
41.2

(2.6)

(1.0)
0.4

0.3
(35.9)
(36.2)
409.3
(25.1)
384.2

17.5

(2.3)
(0.8)

(3.1)
14.4

–

–
1.0

(0.2)
(36.6)
(35.8)
217.9

5.6
(1.5)

4.1
21.6

(4.2)

–
1.0

(0.2)
(36.6)
(35.8)
365.8

Closing balance at 30 March 2018
Prior year adjustment
Closing balance at 30 March 2018 (restated)
Impact of adoption of IFRS 15
Opening 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
Changes 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
Share options exercised
Share-based payment transactions
Income tax on share-based payment
transactions
Dividends to equity holders
Total transactions with owners
Closing balance at 29 March 2019 (restated)
Impact of adoption of IFRS 16
Opening balance at 29 March 2019
Total comprehensive income for the period
Profit for the period

Other comprehensive income
Fair value changes in the period
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 3 April 2020

* The Group has initially applied IFRS 16 at 30 March 2019, using the modified retrospective approach. Under this approach, comparative information is not

restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. See Note 13.

The notes on pages 155 to 189 are an integral part of these consolidated financial statements.

153

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsConsolidated 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 – property, plant and equipment

Impairment – property, plant and equipment
Amortisation and impairment of right-of-use assets
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 in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
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
Finance income received
Finance costs paid
Payment of loan following acquisition
Proceeds from loans, net of transaction costs
Repayment of borrowings
Payment of capital element of leases (2019: payments on finance leases)
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and bank overdrafts
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

Notes

46.7
(29.2)
17.5
24.3

5.4
83.0
11.4
13.6
2.8
1.0
(2.0)
1.9
3.9
3.7
44.4
(3.1)
(16.3)
191.5

(10.9)
–
(12.5)

(21.1)
(44.5)

–
0.3
(13.5)
(1.8)
1,377.0
(1,262.0)
(87.7)
(36.6)
(24.3)
122.7
(7.4)
115.3

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
(12.7)
75.5

–
(0.5)
(11.0)

(18.4)
(29.9)

(0.6)
–
(3.1)
–
1,138.7
(1,159.0)
(0.6)
(35.9)
(60.5)
(14.9)
7.5
(7.4)

11
6
3

Cash and cash equivalents at the period end consist of £115.5m (2019: £9.8m) of liquid assets and £0.2m (2019: £17.2m) of bank overdrafts.

The notes on pages 155 to 189 are an integral part of these consolidated financial statements.

154

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Note 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 leases
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
Total net debt

At
29 March
2019
£m
(7.4)
(63.8)
(71.2)
(1.3)
(9.3)
(10.6)
(81.8)

Cash flow
£m
122.7
(115.0)
7.7
87.7
–
87.7
95.4

At
30 March
2018
£m
7.5
(83.7)
(76.2)
(1.3)
(10.3)
(11.6)
(87.8)

Recognised
on adoption
of IFRS 16
–
–
–
(79.4)
(377.4)
(456.8)
(456.8)

Cash flow
£m
(14.9)
20.3
5.4
0.6
–
0.6
6.0

Other
non-cash
changes
£m
–
(0.3)
(0.3)
(90.2)
53.9
(36.3)
(36.6)

Other
non-cash
changes
£m
–
(0.4)
(0.4)
(0.6)
1.0
0.4
–

At
3 April
2020
£m
115.3
(179.1)
(63.8)
(83.2)
(332.8)
(416.0)
(479.8)

At
29 March
2019
£m
(7.4)
(63.8)
(71.2)
(1.3)
(9.3)
(10.6)
(81.8)

Non-cash changes include finance costs in relation to the amortisation of capitalised debt issue costs of £0.4m (2019: £0.6m) and changes
in classification between amounts due within and after one year.

Cash and cash equivalents at the period end consist of £115.5m (2019: £9.8m) of liquid assets and £0.2m (2019: £17.2m) of bank overdrafts.

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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 3 April 2020 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 below, 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”), share-based payments (IFRS 2 “Share-
based payment”) and leases (IFRS 16 “Leases”). Management have undergone rigorous financial reviews taking into account specific
consideration in regards to the trading position of the Group in the context of the current COVID-19 pandemic in the UK.

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 53 weeks to 3 April 2020, whilst the comparative period covered the 52 weeks to 29 March 2019.

Going Concern
In determining the appropriate basis of preparation of the financial statements for the year ended 3 April 2020, the Directors are required to
consider whether the Group can continue in operational existence for the foreseeable future. The Board has concluded that it is appropriate
to adopt the Going Concern basis, having undertaken a rigorous assessment of financial forecasts, with specific consideration to the trading
position of the Group in the context of the current COVID-19 pandemic in the UK.

Due to the government’s enforced lock-down, and the requirement of the UK population to self-isolate, the COVID-19 will result in a material
reduction in expected revenue and profit for the next financial period ending 2 April 2021. This is mainly due to decreased footfall in the
first half of the next financial year arising from store and garage closures, revised store operating models and government-enforced social
distancing measures.

The Directors have reviewed the rapidly evolving situation relating to COVID-19 and have modelled a series of scenarios that cover the
period to July 2021 and beyond in order to assess not only the Going Concern status of the Group but also longer-term viability (see Viability
Statement on page 79).

For the Going Concern assessment, management focused on two key scenarios:

• A - Base case – a steep sales reduction in the first half of the year resulting in a c.16% full year reduction in sales from FY20

• B – Low Case – a more prolonged reduction in sales resulting in a c.27% full year reduction in sales from FY20

The key assumptions used in these models are:

• A – Lockdown lifting in stages from end of May, furlough and rates benefits are received and further savings made across the business.

Dividend suspended and working capital reduced;

• B – Same as base case but with consumers continuing to isolate at similar level until October, further reduced capital expenditure and

increased furlough benefit;

The scenarios, particularly scenario B, are considered to be prudent given trading seen since the end of the FY20 financial year, but, when
modelled, have a significant impact on sales, margin and cash flow. In response, the Directors have taken immediate and significant actions
to reduce costs and optimise the Group’s cash flow and liquidity. Amongst these are the following mitigations:

• Approval for increased funding to extend the available facilities from £200m to £225m;

• Approval for a covenant relaxation from syndicate banks to ensure that covenants are not breached in the next 12-month period;

• Reducing capital and investment expenditure through postponing or pausing projects and change activity;

•

Freezing non-essential recruitment;

• Deferring or cancelling discretionary spend.

These mitigations were modelled within the scenarios and combined with the in-year government support resulted in cost savings vs planned
expenditure in FY21 of £89m.

The Group has a revolving credit facility of £200m at the date of approval of these financial statements, which expires on 3 September 2022. In
addition, the Group has access to a further £25m in the form of CLBILS financing (expiring in January 2021). The Group has no other debt or facilities.
Covenants have been amended for the full financial year ended 2 April 2021.

The Board has a reasonable expectation that the Group and the Company will be able to continue in operation and meet its liabilities as
they fall due; retain sufficient available cash and not breach any covenants under any drawn facilities over the remaining term of the current
facilities. They do not consider there to be a material uncertainty around the Group’s or the Company’s ability to continue as a going
concern.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Basis 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, in which case an
adjustment is made in the opening balance sheet.

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 3 April 2020 are detailed in Note 4 to the Company balance sheet on page 193.

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
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.

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

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.

Service and repair plans

Product warranties

In the case of Cycle to Work, a company will pay to be part of the scheme on a contracted basis but the
balance will be held on the balance sheet until the product or service has been transferred to the customer, at
which point revenue is recognised.

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 and cycling, 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.

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Returns
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
Deferred income in relation to gift card redemptions is estimated on the basis of historical returns and redemption rates.

Supplier Income
As is common in the retail industry, the Group receives income from their suppliers based on specific agreements in place. These enable the
Group to share the costs and benefits of promotional activity and volume growth and are explained below. This supplier income received is
recognised as a deduction from cost of sales based on the entitlement that has been earned up to the balance sheet date for each relevant
supplier agreement. The Group receives other contributions that do not meet the definition of supplier income, including, but not limited to,
marketing, advertising and promotion contributions that are offset against the costs included in administrative expenses to which they relate.

The supplier income arrangements are often not co-terminus with Group’s financial period end. Such income is only recognised when there
is reasonable certainty that the conditions for recognition have been met by the Group, and the income can be reliably measured based
on the terms of the contract. The Group is sometimes required to estimate the amounts due from suppliers at year end. However, as the
majority of supplier income is confirmed before the year end, the level of estimation and judgement required is limited.

Supplier income is recognised on an accruals basis, based on the entitlement that has been earned up to the balance sheet date for each
relevant supplier contract. The accrued supplier income is included within trade and other receivables.

Supplier income comprises:

• Rebates – typically these are based on the volume of purchases of goods for resale. These are earned based on purchase triggers over

set periods of time. In some cases, rebates will also be received to support promotional pricing.

•

Fixed contributions – typically these will be for cost price discounts or for favourable positioning of products in store.

Supplier income recognised is recorded against cost of sales and inventory, which is adjusted to reflect the lower purchase cost for the
goods on which the income has been earned. Depending on the agreement with the supplier, supplier income is either received in cash from
the supplier or netted off payments made to suppliers.

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 (one-off, non-trading costs) 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 and presented
prior to IFRS 16 adjustments. A reconciliation of this alternative measure to the statutory measure required by IFRS is given in Note 9.

Foreign Currency Translation
Functional and Presentation Currency
The consolidated financial statements are presented in pounds sterling, which is the Group’s presentation currency and are rounded to the
nearest £0.1m. Items included in the financial statements of the Group’s entities are measured in pounds sterling which is the currency of the
primary economic environment in which the entity operates (the functional currency).

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Transactions 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.

As a result of IFRIC23, the group no longer holds any provisions against uncertain tax positions. An historic provision of £1.1m relating
to transfer pricing, R&D claims and capital allowances was released in the period as the uncertainty over these positions was resolved in
dicussions with HMRC.

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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.

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). Property, plant and equipment relating to Retail stores or for Car Servicing garages are grouped on an
individual store or garage basis.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Leases
The Group has changed its accounting policy for leases where the Group is the lessee as a result of IFRS 16 ‘‘Leases’’. The new policy and
the impact of the change are described on page 166.

Until 29 March 2019, 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 were 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 was 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, were included
in borrowings. The interest element of the rental was 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.

Leases in which a significant portion of the risks and rewards of ownership were retained by the lessor were classified as operating leases.
Payments made under operating leases were charged to the income statement on a straight-line basis over the period of the lease. The
benefit of incentives from lessors were recognised on a straight-line basis over the term of the lease.

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 were recognised in the income statement on the exchange of contracts, where there was no
further substantial acts to complete.

The Group leases properties from which it no longer trades. These properties are often sublet to third parties. Rents receivable were
recognised by offsetting the income against rental costs accounted for within selling and distribution costs in the income statement.

The following policies apply subsequent to the date of initial application, 30 March 2019.

The Group leases various offices, warehouses, retail stores, car servicing garages, equipment and vehicles. Rental contracts are typically
made for fixed periods between 3 months and 25 years, but may have break clauses or extension options.

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-
lease components based on their relative standalone prices. However, for leases of real estate for which the Group is a lessee, it has elected
not to separate lease and non-lease components and instead accounts for these as a single lease component.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value
of the following lease payments:

•

fixed payments (including in-substance fixed payments), less any lease incentives receivable;

variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

amounts expected to be payable by the Group under residual value guarantees;

the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease
payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for
leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the
funds necessary
to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group:

• where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in

financing conditions since third-party financing was received

•

uses a build-up approach that starts with a risk free interest rate adjusted for credit risk for leases held by the Group; and

• makes adjustments specific to the lease, for example location, type of property.

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease
liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and
adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

•

the amount of the initial measurement of lease liability;

any lease payments made at or before the commencement date less any lease incentives received;

any initial direct costs; and

restoration costs.

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For leases acquired as part of a business combination, the lease liability is measured at the present value of the remaining lease payments.
The right-of-use asset is measured at the same amount as the lease liability adjusted to reflect favourable or unfavourable terms of the lease
when compared to market terms.

Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and
are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over
the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease (because, for example, it reassesses the probability of a lessee extension or
termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised
term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly
revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment
is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease
term. If the carrying value of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

The right-of-use assets are considered for impairment at each reporting date, see Note 13.

When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:

•

if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the
additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;

in all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more
additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the
right-of-use asset being adjusted by the same amount;

if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset
are reduced by the same proportion to reflect the partial of full termination of the lease with any difference recognised in profit or loss.
The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the
renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is
adjusted by the same amount.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-
line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise
warehousing, IT and telephone equipment.

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as
operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the
statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added
to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are
recognised as revenue in the period in which they are earned.

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 20.

Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset when the reimbursement is
certain.

A wear and tear 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 for
maintaining the property. 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.

Cash and Cash Equivalents
Cash and cash equivalents on the consolidated statement of financial position comprise cash at bank and in hand and short-term deposits
with original maturities of less than 90 days which are subject to an insignificant risk of changes in value. In the consolidated statement of
cash flows, net cash and cash equivalents comprise cash and cash equivalents, as defined above, net of bank overdrafts.

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Financial 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 cost 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 22). 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).

Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL

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 22 for derivatives designated
as hedging instruments.

Financial assets at amortised cost

Equity investments at FVOCI

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.

163

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsAccounting Policies

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. Where the Group
uses the derivatives to hedge highly probable forecast transactions, 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 cost of sales.

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 hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income
at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the
income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other
comprehensive income is recognised immediately in profit or loss.

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more
than 12 months or, as a current asset or liability, if the remaining maturity of the hedged item is less than 12 months.

vi) Impairment
The Group recognises loss allowances for expected credit losses (“ECLs”) on financial assets measured at amortised cost. These are always
measured at an amount equal to lifetime ECL for trade receivables and lease receivables. 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.

164

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Estimates 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. These assumptions have been
reviewed in light of COVID-19.

A sensitivity analysis has been carried out on the carrying value of inventory, including consideration of the uncertainties arising from
COVID-19. 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 £0.6m.

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 11.

The carrying amount of these assets and liabilities can be seen in the notes to the financial statements on pages 168 to 189. Sensitivity
analysis on the key assumption in the value-in-use calculations has been undertaken on the two Group cash-generating units (Retail and Car
Servicing) independently of one another, which found that there is a more than adequate amount of headroom before an impairment could
be triggered.
This included the consideration of the COVID-19 base case.

Lease terms and incremental borrowing rate
Under IFRS 16, the Group recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing
its obligation to make lease payments. The lease liability is initially measured at the present value of the remaining lease payments,
discounted using the Group’s incremental borrowing rate, adjusted to take into account the risk associated with the length of the lease which
ranges between 1 and 25 years and the location of the lease. The Group has therefore made a judgement to determine the incremental
borrowing rate used. As a result of the significant impact the transition to IFRS 16 has had on the Group’s opening balance sheet, the
discount rate is considered to be a significant judgement. The discount rate applied ranges between 1.14% and 3.77% dependent on the
length of the lease term.

At the commencement date of property leases the Group determines the lease term to be the full term of the lease, assuming that any
option to break or extend the lease is unlikely to be exercised. The Group considers the lease term to be the non-cancellable period and in
assessing this applies the definition of a contract and determines the period for which the contract is enforceable. The length of the lease
term is based on the contractual right to utilise the asset and is not considered to involve a significant level of judgement because the Group
has not taken into account break clauses unless they have been approved.

Adoption of New and Revised Standards
New standards impacting the Group that will be adopted in the annual financial statements for the 53 weeks ended 3 April 2020, and which
have given rise to changes in the Group’s accounting policies are:

•

IFRS 16 Leases (IFRS 16); and

IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23)

Details of the impact these two standards have had are set out below. Other new and amended standards and interpretations issued by
the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either
not relevant to the Group’s activities or considered immaterial.

The Group has adopted IFRS 16 “Leases” with a date of initial application of 30 March 2019. IFRS 16 supersedes IAS 17 “Leases” and related
interpretations.

IFRS 16 introduces a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use
assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor
accounting remains similar to previous accounting policies.

165

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsAccounting Policies

(a) Transition Method and Practical Expedients Utilised
The Group has applied IFRS 16 using the modified retrospective transition approach, with recognition of transitional adjustments on the date
of initial application (30 March 2019), without restatement of comparative figures.

Previously, the Group determined at the inception of a contract whether an arrangement was or contained a lease under IFRIC 4 ‘Determining
Whether an Arrangement contains a Lease’. The Group now assesses whether a contract is or contains a lease based on the new definition
of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a
period of time in exchange for consideration.

On transition to IFRS 16, the Group elected to apply the practical expedient allowing the standard to be applied only to contracts that were
previously identified as leases under IAS17 and IFRIC 4. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts
entered into or changed on or after 30 March 2019.

IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. In applying IFRS 16
for the first time, the Group has used the following practical expedients permitted by the standard:

• Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;

• The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;

• Reliance on previous assessments on whether leases are onerous;

• Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining

as of the date of initial application.

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred
substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most
leases. However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value assets. The
Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

At the commencement date of property leases the Group, on a lease by lease basis, determines the lease term to be the full term of the
lease, assuming that any option to break or extend the lease is unlikely to be exercised. Leases are regularly reviewed and will be revalued
if it becomes likely that a break clause or option to extend the lease is exercised.

(b) Right-of-use assets
The Group recognises a right-of-use asset at the lease commencement date. The right-of-use assets are measured at either:

• Their carrying amount as if IFRS 16 has been applied since the commencement date, discounted using the lessee’s incremental

borrowing rate at the date of initial application – the Group applied this approach to the majority of the Retail property portfolio; or

• An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments – the Group applied this

approach to all other leases.

Subsequent to measurement, right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the
remaining economic life of the asset if this is judged to be shorter.

(c) Lease liabilities
The lease liabilities are measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing
rate as at 30 March 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an
independent creditor under comparable terms and conditions. Judgement is required to determine an approximation, calculated based
on UK Government Gilt rates, of an appropriate duration and adjusted by an indicative credit premium and a lease specific adjustment.
The incremental borrowing rate applied to the lease liabilities was in the range of 0.76% to 3.77% in the period.

Subsequently, the lease liability is increased by the interest cost on the lease liability and decreased by the lease payment made. It is
remeasured if there is a modification, a change in lease term or a change in the fixed lease payments.

166

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020(d) Impacts on the financial statements
For leases previously classified as finance leases, the Group recognised the carrying amount of the lease asset and lease liability
immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application.
The measurement principles of IFRS 16 are only applied after that date.

The table below shows a reconciliation from the total operating lease commitment as disclosed at 29 March 2019 to the total lease liabilities
recognised in the accounts immediately after transition:

For the period
Operating lease commitment at 29 March 2019 as disclosed in the Group’s consolidated financial statements:
Discounted using the incremental borrowing rate at 30 March 2019
Recognition exemption for lease of low-value assets/short-term leases
Finance lease liabilities recognised at 29 March 2019 under IAS 17
Total lease liabilities recognised at 30 March 2019
Of which:
Current lease liabilities
Non-current lease liabilities

The implementation of IFRS 16 affected the following items on the balance sheet at transition.

• Property, plant and equipment – decrease by £7.2m

• Right-of-use asset – increase by £389.1m

• Deferred tax assets – increase by £6.2m

• Prepayments – decrease by £13.0m

• Provisions and accruals – decrease by £39m

•

Lease liabilities – increase by £446.2m

The net impact on retained earnings at 30 March 2019 was £25.1m.

30 March
2019
£m
507.6
(61.5)
0.1
10.6
456.8

79.4
377.4
456.8

IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is
uncertainty over income tax treatments. The Interpretation requires:

• The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which

approach provides better predictions of the resolution;

• The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and

•

If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or
expected value, depending on whichever method better predicts the resolution of the uncertainty.

This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine
and have full knowledge of all related information when making those examinations. The Group elected to apply IFRIC 23 retrospectively with
the cumulative effect recorded in retained earnings as at the date of initial application, 30 March 2019. The adoption of IFRIC 23 resulted in no
impact on the Group’s £1.1m provision for transfer pricing structure. There was therefore no impact on retained earnings.

New Standards and Interpretations Not Yet Adopted
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in
future accounting periods that the Group has decided not to adopt early. The most significant of these are as follows, which are all effective
for the period beginning 4 April 2020:

•

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment –
Definition of Material)

IFRS 3 Business Combinations (Amendment – Definition of Business)

• Revised Conceptual Framework for Financial Reporting

The Group is currently assessing the impact of these new accounting standards and amendments.

167

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes 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, with the exception of IFRS 16, 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 pre IFRS 16
IFRS 16 -underlying
IFRS 16 - non-underlying
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
961.0
52.0
(29.5)
22.5

Car
Servicing
£m
194.1
5.5
(2.6)
2.9

913.5
47.5
961.0

Retail
£m
977.2
58.8
(8.7)
50.1

168.3
25.8
194.1

Car
Servicing
£m
161.4
5.5
0.9
6.4

932.2
45.0
977.2

116.6
44.8
161.4

53 weeks to
3 April
2020
Total
£m
1,155.1
57.5
(32.1)
25.4
(2.1)
22.3
11.8
(2.1)
33.0
0.3
(13.9)
19.4
(1.9)
17.5
1,081.8
73.3
1,155.1

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

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 (2019: £2.1m).

168

Halfords Group plc Annual Report and Accounts for the period ended 3 April 20201. Operating Segments continued

Other segment items:
Capital expenditure
Depreciation and impairment expense
Impairment of right-of-use assets
Amortisation of right-of-use assets
Amortisation expense

Other segment items:
Capital expenditure
Depreciation and impairment expense
Amortisation expense

There have been no transactions between segments in the 53 weeks ended 3 April 2020 (2019: £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 (2020: in relation to short term or low value leases):
– 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
Amortisation of right-of-use assets
Depreciation of:
– owned property, plant and equipment
– assets held under finance leases
Impairment of :
– owned property, plant and equipment
– impairment of right-of-use assets
– assets held under finance leases
Trade receivables impairment
Staff costs (see Note 4)
Cost of inventories consumed in cost of sales

53 weeks to
3 April
2020
Total
£m
46.8
29.7
9.4
73.6
9.3

52 weeks to
29 March
2019
Total
£m
31.0
23.0
10.9

Car
Servicing
£m
18.0
4.7
0.9
9.9
0.8

Car
Servicing
£m
4.7
4.4
1.2

Retail
£m
28.8
25.0
8.5
63.7
8.5

Retail
£m
26.3
18.6
9.7

53 weeks to
3 April
2020
£m
436.0
436.0
86.5
34.2
120.7
556.7

52 weeks to
29 March
2019
£m
424.3
424.3
92.5
7.8
100.3
524.6

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

0.6
2.5
(3.0)
(0.6)
2.8
11.4
73.6

24.3
–

–
9.4
–
0.2
256.2
563.8

3.8
93.1
(3.1)
(1.3)
5.5
13.0
–

22.3
1.0

(0.3)
–
–
0.1
239.4
554.2

169

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

3. Operating Profit continued
The total fees payable by the Group to BDO LLP (2019: KPMG LLP) and their associates during the period was £0.6m (2019: £0.4m), in
respect of the services detailed below:

For the period
Fees payable for the audit of the Company’s accounts
Fees payable to BDO LLP (2019: 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 24)
Contributions to defined contribution plans (Note 26 )

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

53 weeks to
3 April
2020
£’000
43.0

52 weeks to
29 March
2019
£’000
34.0

487.0
55.0
585.0

334.9
53.0
421.9

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

232.7
17.0
1.1
5.4
256.2

217.8
15.9
0.3
5.4
239.4

Number

9,437
595
975
11,007

9,538
579
1,031
11,148

53 weeks to
3 April
2020
£m
3.1
–
0.5
0.3
–
3.9

52 weeks to
29 March
2019
£m
4.0
0.6
0.7
0.4
0.4
6.1

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 132 to 140 which form part
of these financial statements.

170

Halfords Group plc Annual Report and Accounts for the period ended 3 April 20205. Non-underlying Items

For the period
Non-underlying operating expenses:
Non-underlying operating expenses:
Organisational restructure costs (a)
Group-wide strategic review (b)
Closure costs (c)
Acquisition and investment-related fees (d)
One-off claims (e)
Impairment of right-of-use-asset (f)
One-off royalty income (g)
Non-underlying items before tax
Tax on non-underlying items (h)
Non-underlying items after tax

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

2.8
1.0
26.8
1.9
0.8
0.9
–
34.2
(5.0)
29.2

6.8
2.4
–
0.2
–
–
(1.6)
7.8
(1.4)
6.4

In the current and prior period separate and unrelated organisational restructuring activities were undertaken.

Current period costs comprised:

• Redundancy and transition costs of £1.4m relating to roles which have been outsourced or otherwise will not be replaced

(FY19: £1.5m); and

•

£1.4m of asset write-offs, principally resulting from the strategic decision to re-platform the Retail and Autocentres websites
(FY19: £5.3m)

In the current and prior periods costs were incurred in preparing and implementing the new Group strategy.

•

£0.4m of external consultant costs (FY19: £2.0m); and

£0.6m of store labour costs, point of sale equipment and other associated costs in completing the cycling space relay across the
store estate (FY19: £nil).

Prior period costs also included £0.4m of warehouse and distribution costs in order to align our network with the new strategy.

c. Closure costs represent costs associated with the closure of the operations of Cycle Republic and the Boardman Performance Centre

(“Cycle Republic”) following a strategic review of the Group’s cycling businesses. The provision mostly relates to the impairment of right-
of-use assets, intangible assets, tangible assets and inventories.

In the current and prior periods costs were incurred in relation to the investment in McConechy’s Tyre Services and Tyres On The Drive.

• Tyres On The Drive acquisition costs comprise of £1m principally relating to the costs of dual running Halfords Mobile Expert and

Tyres on The Drive, as well as the write-off of the receivables balance due from Tyres On the Drive related to Halfords Mobile Expert
prior to acquisition; and

•

£0.9m relating to professional fees in respect of the acquisition of McConechy’s Tyres Services

£0.2m of costs were incurred in the prior period in relation to the investment in Tyres on The Drive and costs relating to a potential
acquisition which did not progress.

e. During the year a provision was created for expected costs of settling an ongoing court case, which was then settled during the second
half of the period. In addition, a provision of £0.6m has been created in relation to the audit by HMRC relating to the national minimum
wage.

In light of the ongoing COVID-19 pandemic, the Group has revised future cash flow projections for stores and garages. As a result,
£0.9m incremental impairment has been recognised in relation to garages where the current and anticipated future performance does
not support the carrying value of the right-of-use asset and associated tangible assets. This charge is directly attributable incremental
impairment due to COVID-19 and relates primarily to the right-of-use asset value.

g. A one-off royalty income was received in the prior period in relation to the use of a software licence.

h. The tax credit of £5.0m represents a tax rate of 14.6% applied to non-underlying items. The prior period represents a tax credit at 18.0%

applied to non-underlying items.

171

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

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
Interest payable on lease liabilities
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% (2019: 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

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

(1.6)
(0.4)
(0.6)
(11.3)
(13.9)

0.3
0.3
(13.6)

(1.6)
(0.4)
(0.6)
(0.8)
(3.4)

–
–
(3.4)

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

5.4
(0.5)
4.9

(1.5)
(1.5)
(3.0)
1.9

11.5
0.2
11.7

(1.4)
(1.2)
(2.6)
9.1

53 weeks to
3 April
2020
£m
19.4
3.7

52 weeks to
29 March
2019
£m
51.0
9.7

0.5
0.8
(1.9)
(0.3)
(0.9)
1.9

0.5
0.1
(1.0)
(0.2)
–
9.1

The tax rate was due to reduce from 19% to 17% from 1 April 2020, following changes substantively enacted on 6 September 2016. In the
March 2019 Budget it was announced that the corporation tax rate would remain at 19% from 1 April 2020. This was substantively enacted
on 17 March 2020.

The deferred tax asset at 3 April 2020 has been calculated based on the rate of 19% substantively enacted at the balance sheet date.

The effective tax rate of 9.7% (2019: 17.8%) is lower than the UK corporation tax rate principally due to the impact of overseas tax rates,
adjustments in respect of prior periods now closed with HM Revenue and Customs, and the impact of the rate change in deferred tax
recognised in the balance sheet.

The tax charge for the period was £1.9m (2019: £9.1m), including a £5.0m credit (2019: £1.4m credit) in respect of tax on non-underlying items.

An income tax charge of £0.7m (2019: nil 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.

172

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020In this period, the Group’s contribution from both taxes paid and collected exceeded £208m (2019: £172m) with the main taxes including
corporation tax of £16.3m (2019: £12.7m), net VAT of £101.4m (2019: £72.2m), employment taxes of £54.3m (2019: £48.2m) and business rates of
£36.3m (2019: £39.8m).

8. Dividends

For the period
Equity – ordinary shares
Final for the 52 weeks to 29 March 2019 – paid 12.39p per share (2019: 12.03p)
Interim for the 53 weeks to 3 April 2020 – paid 6.18p per share (2019: 6.18p)

53 weeks to
3 April
2020
£m

52 weeks to
29 March
2019
£m

24.4
12.2
36.6

23.7
12.2
35.9

In addition, the Directors are not proposing a final dividend (2019: £24.4m at 12.39p per share) in respect of the financial period ended
3 April 2020.

9. Earnings Per Share
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period. The weighted average number of shares excludes shares held by an Employee Benefit Trust
(see Note 23) and has been adjusted for the issue/purchase of shares during the period.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market
price of the Company’s ordinary shares during the 53 weeks to 3 April 2020.

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 199.

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
Weighted average 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

* Note that all numbers are quoted as per IAS 17 in order to show comparability with the prior period.

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

53 weeks to
3 April
2020
Number of
shares
m*
199.1
(2.1)
197.0
3.3
200.3

53 weeks to
3 April
2020
£m
17.5

53 weeks to
3 April
2020
(pre-IFRS 16)
£m*
17.6

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

34.2
-
(5.0)
46.7

32.1
–
(4.7)
45.0

7.8
–
(1.4)
48.3

53 weeks to
3 April
2020
8.9p
8.7p

53 weeks to
3 April
(pre-IFRS 16)
2020
8.9p
8.8p

52 weeks to
29 March
2019
21.2p
21.0p

23.7p
23.3p

22.9p
22.5p

24.5p
24.2p

173

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

10. Acquisition of Subsidiaries
a) McConechy’s
On 5 November 2019, the Group acquired 100% of the issued share capital of McConechy’s Tyre Service Limited and its subsidiary
companies (see page 194) (“McConechy’s”) for a cash consideration of £6.0m (excluding transaction costs). The acquired business
comprises of Scotland’s leading tyre and autocare specialist. The principal reason for the acquisition was to increase the Group’s footprint in
Car Servicing by 60 sites and establish a strong coverage in Scotland and the North of England.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows (fair value is used
apart from leases, contingent liabilities and income taxes).

Book
value
£m

Fair value
adjustment
£m

IFRS 16
adjustment
£m

Final fair
value
£m

McConechy's net assets at the acquisition date
Intangible assets
Tangible assets
Inventories
Trade and other receivables
Cash
Trade and other payables
Borrowings
Bank overdraft
Other taxation and social security
Deferred tax liability
Total

Goodwill
Goodwill was recognised as a result of the acquisition as follows:

Total cash consideration
Less fair value of identifiable (assets)/liabilities (excluding intangible assets)
Goodwill and intangible assets
Intangible assets:
Customer relationships
McConechy’s brand names
Goodwill

1.2
2.1
3.4
6.3
–
(8.9)
(1.0)
(3.1)
(0.9)
(0.2)
(1.1)

1.5
0.8
(0.2)
–
–
(1.1)
–
–
–
(0.7)
0.3

–
11.4
–
–
–
(11.5)
–
–
–
–
(0.1)

2.7
14.3
3.2
6.3
–
(21.5)
(1.0)
(3.1)
(0.9)
(0.9)
(0.9)

£m
6.0
3.6
9.6

(2.0)
(0.7)
6.9

None of the goodwill acquired is expected to be deductible for income tax purposes. The goodwill constitutes value of locational benefits
giving Halfords ability to expand growth within the Scottish market.

The McConechy’s businesses contributed £18.2m revenue and a loss of £0.4m to the Group’s profit before tax for the period between the
date of acquisition and the balance sheet date.

If the acquisition of the McConechy’s businesses had been completed on the first day of the financial year, Group revenues for the period
would have been £26.0m higher and Group profit before tax of the parent would have been £0.5m higher (before amortisation of intangible
assets arising on consolidation).

Acquisition costs of £0.9m arose as a result of the transaction. These have been recognised as part of non-underlying costs in the
consolidated income statement (see Note 5).

b) Tyres on the Drive
On 14 October 2019, the Group acquired the trade and assets of Victor Holdings Limited (trading as “Tyres on the Drive”) for an immaterial
amount. The acquisition secured the outright ownership of market leading mobile services software for Halfords Mobile Expert and acts as
a significant enabler in the Group’s plans to grow that business. Goodwill of £0.7m arose on acquisition.

174

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202011. Intangible Assets

Cost
At 30 March 2018
Additions
Disposals
At 29 March 2019
Additions
Reclassification to right-of-use assets
Disposals
At 3 April 2020
Amortisation
At 30 March 2018
Charge for the period
Disposals
At 29 March 2019
Charge for the period
Reclassification to right-of-use assets
Disposals
At 3 April 2020
Net book value at 3 April 2020
Net book value at 29 March 2019

Brand
names and
trademarks
£m

Customer
relationships
£m

Supplier
relationships
£m

Favourable
leases
£m

Computer
software
£m

Goodwill
£m

9.8
–
–
9.8
0.7
–
–
10.5

2.9
0.7
–
3.6
0.7
–
–
4.3
6.2
6.2

14.9
–
–
14.9
2.0
–
–
16.9

10.6
0.7
–
11.3
0.7
–
–
12.0
4.9
3.6

7.8
–
–
7.8
–
–
–
7.8

0.9
0.5
–
1.4
0.5
–
–
1.9
5.9
6.4

2.3
–
–
2.3
–
(2.3)
–
–

0.7
0.1
–
0.8
0.1
(0.9)
–
–
–
1.5

64.9
11.0
(8.3)
67.6
12.5
–
(2.1)
78.0

33.7
11.0
(3.8)
40.9
9.4
–
(0.4)
49.9
28.1
26.7

364.7
–
–
364.7
7.6
–
–
372.3

21.7
–
–
21.7
–
–
–
21.7
350.6
343.0

Total
£m

464.4
11.0
(8.3)
467.1
22.8
(2.3)
(2.1)
485.5

70.5
13.0
(3.8)
79.7
11.4
(0.9)
(0.4)
89.8
395.7
387.4

No intangible assets are held as security for external borrowings.

Goodwill is allocated to two groups of cash-generating units, being Retail and Car Servicing as follows:

1) Retail
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 £10.7m arose on the acquisition of Boardman Bikes Limited and Boardman International Limited
on 4 June 2014 which form part of the Retail offering.

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.

2) Car Servicing
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.

During the current period Autocentres acquired McConechy’s Tyre Service Limited with goodwill of £6.9m and Tyres on the Drive with
goodwill of £0.7m. These acquisitions have also been allocated to the Car Servicing segment. The goodwill relates to a portfolio of garages
within Scotland which management monitors on an overall basis as part of the Car Servicing 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 Group is required to test, on an annual basis, whether goodwill has suffered any impairment. 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.

This requires estimation of the present value of future cash flows expected to arise from the continuing operation of the CGU. 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.

175

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

11. Intangible Assets continued
These estimates require assumptions over future sales performance; future costs; and long-term growth rates, as well as the application
of an appropriate discount rate. Management have used the Viability Scenario projections which have been adjusted for the uncertainty
surrounding COVID-19 (see the basis of preparation note) for the basis of the impairment reviews. Further sensitivity analysis over the
projected cashflows has then been completed using other scenarios modelled as part of the Group’s going concern analysis. Cash outflows
required to replace leased assets which are essential to the ongoing operation of the CGU were also considered and the estimates informed
by the Group’s recent lease negotiations. Management has considered other reasonably possible changes in key assumptions that would
cause the carrying amounts of goodwill to exceed the value in use for each asset.

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 two CGUs The growth rates for both
the retail and car servicing CGUs has been reviewed and updated as required to reflect the current strategy.

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, incorporating the impact of IFRS-16, and adjusted for the specific risks relating to each cash-generating unit. The discount rates
used are shown below.

Discount rate
Growth rate

Notes
1
2

Retail

2020
10.6%
1.0%

2019
10.6%
0.0%

Car Servicing
2020
10.6%
1.0%

2019
10.8%
1.0%

Goodwill for the retail CGU was £273.3m (2019: £273.3m) and for the car servicing CGU was £77.3m (2019: £69.7m).

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 taking into account the affect of COVID-19.
This found that there is a more than adequate amount of headroom before an impairment would be triggered. For Retail and Car Servicing,
there is no reasonably possible change in key assumptions including those relating to future sales performance and future costs that would
lead to an impairment, modelling included the viability base case and low case.

Overall, the Directors have concluded that the recoverable value of the Group’s CGUs exceeded their carrying amount.

12. Property, Plant and Equipment

Cost
At 30 March 2018
Transfer between classes
Additions
Disposals
At 29 March 2019
Reclassification to right-of-use assets
Additions
Disposals

At 3 April 2020
Depreciation and impairment
At 30 March 2018
Depreciation and impairment for the period
Disposals
At 29 March 2019
Reclassification to right-of-use assets
Depreciation for the period
Impairment for the period
Disposals
At 3 April 2020
Net book value at 3 April 2020
Net book value at 29 March 2019

Fixtures,
fittings
and
equipment
£m

Payments on
account and
assets in
course of
construction
£m

Land and
buildings
£m

80.1
–
2.3
(2.0)
80.4
(13.7)
3.3
(0.4)

69.6

47.3
4.7
(1.1)
50.9
(7.5)
4.2
0.6
(0.4)
47.8
21.8
29.5

229.2
2.0
17.7
(8.6)
240.3
(3.5)
20.7
(2.2)

255.3

162.7
18.3
(8.5)
172.5
(1.6)
20.1
4.8
(1.8)
194.0
61.3
67.8

2.0
(2.0)
–
–
–
–
–
–

–

–
–
–
–
–
–
–
–
–
–
–

Total
£m

311.3
–
20.0
(10.6)
320.7
(17.2)
24.0
(2.6)

324.9

210.0
23.0
(9.6)
223.4
(9.1)
24.3
5.4
(2.2)
241.8
83.1
97.3

No fixed assets are held as security for external borrowings. Impairment of £5.4m relates to Cycle Republic assets and is included within
non-underlying items (note 5).

176

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202013. Leases
All leases where the Group is a lessee are accounted for by recognising a right-of-use asset and a lease liability except for:

•

Leases of low value assets; and

Leases with a term of 12 months or less.

IFRS 16 “Leases” was adopted on 30 March 2019 without restatement of comparative figures. For an explanation of the transitional
requirements that were applied as at 30 March 2019, see page 166.

i) Amounts recognised in the Consolidated Statement of Financial Position
Right-of-Use Assets

At 30 March 2019
Reclassification from intangible assets
Additions on acquisition of subsidiary
Additions to right-of-use assets
Amortisation charge for the year
Effect of modification of lease
Derecognition of right-of-use assets
Impairment
At 3 April 2020

Land and
buildings
£m
388.5
2.4
11.1
10.0
(70.2)
11.6
–
(9.4)
344.0

Equipment
£m
7.8
–
0.3
1.9
(3.4)
–
(0.7)
–
5.9

Of the £9.4m right-of-use asset impairment, £7.7m relates to Cycle Republic and is included in non-underlying costs (note 5).

Lease Liabilities

At 30 March 2019*
Additions on acquisition of subsidiary
Additions to lease liabilities
Interest expense
Effect of modification to lease
Lease payments
Foreign exchange movements
At 3 April 2020

Carrying value of lease liabilities included in the statement of financial position
Current liabilities
Non-current liabilities

Land and
buildings
£m
448.6
11.0
10.5
11.1
11.7
(83.8)
0.7
409.8

Equipment
£m
8.2
0.2
1.8
0.2
–
(4.2)
–
6.2

Total
£m
396.3
2.4
11.4
11.9
(73.6)
11.6
(0.7)
(9.4)
349.9

Total
£m
456.8
11.2
12.3
11.3
11.7
(88.0)
0.7
416.0

Total
£m
83.2
332.8

* In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17,

‘Leases’. The assets were presented in property, plant and equipment and the liabilities as part of the Group’s borrowings. For adjustments recognised on
adoption of IFRS 16 on 30 March 2019, please refer to page 166.

Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year
Between one and two years
Between two and five years
After five years
Total contractual cash flows

3 April
2020
£m

92.9
76.6
177.0
108.7
455.2

177

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

13 Leases continued
ii) Amounts recognised in the Consolidated Income Statement

53 weeks ended 3 April 2020
Depreciation charge on right-of-use assets
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets
52 weeks ended 29 March 2019
Lease expense
Sub-lease income presented in ‘other revenue’

iii) Amounts recognised in Statement of Cash Flows
The total cash outflow for leases for the period ended 3 April 2020 was £87.7m.

Land and
buildings
£m

Equipment
£m

70.2
11.1
2.5
–

93.1
(3.1)

3.4
0.2
–
0.6

3.8
–

Total
£m

73.6
11.3
2.5
0.6

96.9
(3.1)

14. Investments
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. Subsequently, The Group has acquired back the trade and assets during the
current year, see Note 10. During the previous 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.

15. Inventories

Finished goods for resale

2020
£m
173.0

2019
(Restated)
£m
173.7

2018
(Restated)
£m
183.8

Finished goods inventories include £18.0m (2019: £20.0m) of provisions to carry inventories at lower of cost and net realisable value where
such value is lower than cost. The Group did not reverse any unutilised provisions during the period.

During the period £6.9m was recognised as an expense in respect of the write-down of inventories (2019: £8.4m) to net realisable value,
of which £3.8m related to Cycle Republic and is included in non-underlying items (note 5). No inventories are held as security for external
borrowings.

Goods bought for resale recognised as a cost of sale amounted to £563.8m (2019: £554.2m).

Following a review of inventory costing during the period, the Group concluded that the historic inclusion of certain distribution centre costs
within the cost of inventories and the treatment of such distribution centre costs as an operating expense rather than a cost of sale was not
in line with the Group’s accounting policy.

In the consolidated statement of financial position, inventories at 29 March 2019 and 30 March 2018 are stated after adjusting for this
amount, and consequently retained earnings and net assets have been reduced by £11.7m. In correcting this misapplication, there is
no impact on reported gross profit, operating expenses or other items in the consolidated income statement or in the consolidated
statement of cash flows for the current or comparative periods.

Inventories at 3 April 2020 include a right to recover returned goods amounting to £1.9m (2019: £1.8m). These are measured by reference to
the former carrying amount of the sold inventories.

178

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202016. Trade and Other Receivables

Falling due within one year:
Trade receivables
Other receivables
Prepayments and accrued income

2020
£m

16.6
14.3
22.6
53.5

2019
£m

11.6
15.1
32.4
59.1

Information about the Group’s exposure to credit and market risks and impairment losses for trade and other receivables is included in
Note 22.

17. Cash and Cash Equivalents

Cash at bank and in hand

2020
£m
115.5

2019
£m
9.8

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. £5.1m (2019: £5.1m) of the Group’s cash and cash equivalents included in the balance sheet and the
cashflow statement, is held by the trustee of the Group’s employee benefit trust in relation to the share scheme for employees. Therefore,
these funds are restricted and are not available to circulate within the Group on demand.

18. Borrowings

Current
Unsecured bank overdraft
Lease liabilities (see Note 13)

Non-current
Unsecured bank loan and other borrowings1
Lease liabilities (see Note 13)

2020
£m

0.2
83.2
83.4

179.1
332.8
511.9

2019
£m

17.2
1.3
18.5

63.8
9.3
73.1

1. The above borrowings are stated net of unamortised issue costs of £0.9m (2019: £1.2m).

The Group’s borrowing facility was extended in the prior year, after exercising the option to extend the facility for a further year. 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 195 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

2020
£m
20.0
–
–
20.0

2019
£m
20.0
–
65.0
85.0

The overdraft facility expiring within one year is an annual facility subject to review at various dates during the period. The facility of £nil
(2019: £85.0m) relates to the Group’s revolving credit facility. All these facilities incurred commitment fees at market rates.

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19. 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

2020
£m

106.7
33.2
12.3
–
64.8
217.0

–
1.9
1.9

2019
£m

95.2
25.3
13.0
5.2
37.7
176.4

26.2
1.9
28.1

Trade and other payables at 3 April 2020 includes £3.4m (2019: £3.4m) of deferred income in relation to product warranties; of which £1.5m
(2019: £1.5m) is in current liabilities and £1.9m (2019: £1.9m) is in non-current liabilities.

20. Provisions

At 29 March 2019
Charged during the period
Adjustment on adoption of IFRS 16
Utilised during the period
Released during the period
At 3 April 2020
Analysed as:
Current liabilities
Non-current liabilities

Property-
related
£m
11.5
2.2
(6.4)
(0.8)
–
6.5

5.2
1.3

Other
trading
£m
8.8
8.0
–
(8.4)
(1.1)
7.3

4.5
2.8

Total
£m
20.3
10.2
(6.4)
(9.2)
(1.1)
13.8

9.7
4.1

Property-related provisions consist of costs associated with wear and tear.

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.

21. 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.

Property-
related
items
£m
3.6
(0.3)
–
–
3.3
6.2
(0.2)
2.1
–
–
11.4

Short-term
timing
differences
£m
(6.5)
5.6
–
–
(0.9)
–
–
1.0
(0.7)
–
(0.6)

Share-based
payments
£m
1.8
(1.4)
–
–
0.4
–
–
–
(0.2)
–
0.2

Intangible
assets
£m
(1.6)
(1.3)
–
–
(2.9)
–
(0.7)
(0.1)
–
–
(3.7)

Total
£m
(2.7)
2.6
–
–
(0.1)
6.2
(0.9)
3.0
(0.9)
–
7.3

At 30 March 2018
Credit/(charge) to the income statement
Credit to other comprehensive income
Credit to equity
At 29 March 2019
Adjustment on adoption of IFRS 16
Acquisition of subsidiary
Credit/(charge) to the income statement
Credit to other comprehensive income
Credit to equity
At 3 April 2020

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Halfords Group plc Annual Report and Accounts for the period ended 3 April 202021. Deferred Tax continued
Deferred income tax assets and liabilities are offset when the Group has a legally enforceable right to do so and when the deferred income
taxes relate to the same fiscal authority. The offset amounts are as follows:

53 weeks to
3 April
2020
11.6
(4.3)
7.3

52 weeks to
29 March
2019
3.7
(3.8)
(0.1)

Deferred tax assets
Deferred tax liabilities

22. 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 18.

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.

3 April 2020
Financial assets measured at fair value
Forward exchange contracts used for hedging
Equity investments

Financial assets not measured at fair value
Trade and other receivables*
Current tax assets
Cash and cash equivalents

Financial liabilities measured at fair value
Forward exchange contracts used for hedging

Financial liabilities not measured at fair value
Borrowings
Lease liabilities
Trade and other payables†

Fair value
– hedging
instruments
£m

Mandatorily
at FVTPL
– others
£m

Notes

Carrying amount
FVOCI
– equity
instruments
£m

Amortised
cost
£m

Other
financial
liabilities
£m

Total
carrying
amount
£m

18
18
19

8.7
–
8.7

–
–
–
–

(1.1)
(1.1)

–
–
–
–

–
–
–

–
–
–
–

–
–

–
–
–
–

–
–
–

–
–
–
–

–
–

–
–
–
–

–
–
–

30.9
8.2
115.5
154.6

–
–

–
–
–
–

–
–
–

–
–
–
–

–
–

(179.3)
(416.0)
(106.7)
(702.0)

8.7
–
8.7

30.9
8.2
115.5
154.6

(1.1)
(1.1)

(179.3)
(416.1)
(106.7)
(702.0)

* Prepayments and accrued income of £22.6m are not included as a financial asset.
† Other taxation and social security payables of £33.2m, deferred income and accruals of £66.7m, and other payables of £12.3m are not included as a financial

liability.

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22. Financial Instruments and Related Disclosures continued

29 March 2019
Financial assets measured at fair value
Forward exchange contracts used for hedging
Equity investments

Financial assets not measured at fair value
Trade and other receivables*
Cash and cash equivalents

Financial liabilities measured at fair value
Forward exchange contracts used for hedging

Financial liabilities not measured at fair value
Borrowings
Current tax liabilities
Finance lease liabilities
Trade and other payables**

Fair value
– hedging
instruments
£m

Mandatorily
at FVTPL
– others
£m

Notes

16
17

18
19

3.2
–
3.2

–
–
–

(1.4)
(1.4)

–
–
–
–
–

–
–
–

–
–

–
–
–
–
–

Carrying amount
FVOCI
– equity
instruments
£m

Amortised
cost
£m

Other
financial
liabilities
£m

Total
carrying
amount
£m

–
–
–

–
–

–
–
–
–
–

–
–
–

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.

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 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 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 mark to market rates at the reporting
date and the outright contract rate.

Fair Value Hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:

•

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All financial instruments carried at fair value have been measured by a Level 2 valuation method.

c. Financial Risk Management
The Group has exposure to the following risks arising from financial instruments:

• Credit risk

•

Liquidity risk; and

• Market risk.

182

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202022. Financial Instruments and Related Disclosures continued
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 £163.3m (2019: £39.7m).

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

53 weeks to
3 April
2020
0.2
–
0.2

52 weeks to
29 March
2019
0.1
–
0.1

Trade receivables
The Group does not have any individually significant customers and so no significant concentration of credit risk.

The majority of the Group’s sales are paid in cash at point of sale which further limits the Group’s exposure. The Group’s exposure to credit
risk is influenced mainly by the individual characteristics of each customer. The Board of Directors has established a credit policy under
which each new customer is analysed individually for creditworthiness before the Group’s standard payment terms and conditions are
offered. The Group limits its exposure to credit risk from trade receivables by establishing a maximum payment period of one month for
customers. All trade receivables are based in the United Kingdom.

The Group has taken into account the historic credit losses incurred on trade receivables and adjusted it for forward-looking estimates.
The movement in the allowance for impairment in respect of trade receivables during the year was £0.2m.

Cash and cash equivalents
The Group held cash and cash equivalents of £115.5m at 3 April 2020 (2019: £9.8m). 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 (2019: £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.

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22. Financial Instruments and Related Disclosures continued
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 53 weeks to 3 April 2020, 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 3 April 2020, 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
57.1
1.3084

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

The amounts at the reporting date relating to items designated as hedged items were as follows:

1–6
months
85.6
1.3267

Maturity

6–12
months
28.3
1.3060

Maturity

6–12
months
45.3
1.3243

More than
one year
15.3
1.3097

More than
one year
21.8
1.3519

Forward currency risk
At 3 April 2020
Inventory purchases
At 29 March 2019
Inventory purchases

Change in value used
for calculating hedge
ineffectiveness
£m

28.6

20.0

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

5.3

1.8

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

3 April 2020

29 March 2019

USD
£m
2.4
(44.2)
(41.8)

Other
£m
2.8
(0.6)
2.2

USD
£m
–
(9.6)
(9.6)

Other
£m
0.5
(0.4)
0.1

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

2020
Increase/
(decrease) in
equity
£m
17.6
(14.4)

2019
Increase/
(decrease) in
equity
£m
17.3
(14.2)

A strengthening/weakening of sterling, as indicated, against the USD at 3 April 2020 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.

184

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202022. Financial Instruments and Related Disclosures continued
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 (2019: £0.7m).

Interest rate movements on deposits, obligations under 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 2020 (2019: 0.8:1).

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. However, with the onset of the COVID-19 pandemic, and to ensure the group had instant access to
the funds available to it in the event of a UK wide lockdown, a temporary derogation from this was obtained, such that the group drew down
the available facility in full across the balance sheet date. This ensured that the group had instant access to the liquidity made available to it
under the RCF, to ensure the business could continue to operate in the event of a period of extended closure.

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 12. All trade and other payables are due within one year.

The contractual maturity of bank borrowings, including estimated interest payments and excluding the impact of netting agreements, is
shown below:

Due less than one year
Expiring between one and two years
Expiring between two and five years
Expiring after five years
Contractual cash flows
Carrying amount

3 April
2020
Bank
borrowings
£m
0.9
0.9
180.0
-
181.8
179.1

29 March
2019
Bank
borrowings
£m
1.2
1.2
65.0
–
67.4
63.8

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22. Financial Instruments and Related Disclosures continued
The following table provides an analysis of the anticipated contractual cash flows for the Group’s forward currency contracts. Cash flows
receivable in foreign currencies are translated using spot rates as at 3 April 2020 (29 March 2019).

Due less than one year
Due between one and two years
Contractual cash flows
Fair value

2020
Receivables
£m
146.1
17.5
163.6
8.7

2020
Payables
£m
(90.7)
(6.4)
(97.1)
(1.1)

2019
Receivables
£m
133.2
22.6
155.8
3.2

2019
Payables
£m
(130.9)
(21.7)
(152.6)
(1.4)

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

23. Capital and Reserves

Ordinary shares of 1p each:
Allotted, called up and fully paid

2020
Number of
shares
199,116,632

2020
£000
1,991

2019
Number of
shares
199,116,632

2019
£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 (2019: £151.0m).

In total the Company received proceeds of £nil (2019: £0.4m) from the exercise of share options. During the year the Company purchased
£nil (2019: £1.0m) of its own shares.

Investment in Own Shares
At 3 April 2020 the Company held in Trust 2,134,139 (2019: 2,134,139) of its own shares with a nominal value of £21,341 (2019: £21,341).
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 3 April 2020 was £1.4m (2019: £5.1m). In the current period nil (2019: nil) were repurchased and transferred into the Trust,
with nil (2019: 254,689) 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.

24. 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 £1.0m (2019: £0.3m).

1. Halfords Company Share Option Scheme ‘CSOS’
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.

186

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202024. Share-based Payments continued
2. Management Share Plan (“MSP”)
The CSOS has been 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.

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 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 were weighted 25% towards Group revenue growth targets and 75% towards Group EPS growth
targets. From the 2018 award onwards the PSP performance criteria are 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
a net debt to EBITDA ratio no greater than 1.5 throughout the three-year performance period.

For other senior participants conditions are based on the performance of the individual business units. The awards are weighted 25%
towards Group EPS growth targets, 12.5% weighted towards Group revenue growth targets, 12.5% weighted towards Group free cash flow
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” )
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.

187

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

24. Share-based Payments continued
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 3 April 2020

CSOS

MSP

SAYE

PSP

RSP-SMP

Number
(‘000)
2,363
–

WAEP
(£)
3.63
–

Number
(‘000)
713
746

WAEP
(£)
2.73
1.25

Number
(‘000)
2,996
2,937

WAEP
(£)
2.71
1.8

Number
(‘000)
2,262
2,161

WAEP
(£)
–
–

Number
(‘000)
323
–

WAEP
(£)
–
–

–
–
–
0.34
1.94

–

8.8

–
(12)
–
(2,963)
2,958
–

–
2.7
–
2.2
2.0

271
(134)
–
(323)
4,237
–

1.77–2.78

–
(9)
–
(257)
57
–

–
–
–
–
–

–

2.6

1.8

–
–
–
–
–

–

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
(£)
–
–

–
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

Outstanding at start of year
Granted
Shares representing dividends
reinvested
Forfeited
Exercised
Lapsed
Outstanding at end of year
Exercisable at end of year

–
–
–
(1,635)
728
–

–
–
–
3.38
3.71

–
–
–
(61)
1,398
–

Exercise price range (£)
Weighted average remaining
contractual life (years)

3.07–5.43

3.3

For the period ended 29 March 2019

CSOS

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

188

Halfords Group plc Annual Report and Accounts for the period ended 3 April 202024. Share-based Payments continued
The following tables give the assumptions applied to the options granted in the respective periods shown:

Grant date
Share price at grant date (£)
Exercise price (£)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividend yield
Probability of forfeiture
Weighted average fair value of options granted (£)

53 weeks to 3 April 2020

MSP
2.30/1.70
–

31.87%/29.7%

10
3
–

8.22%/10.86%

33%
1.78/2.22

SAYE
2.10
1.77
30.46%
3
3.5
0.46%
9.06%
41%
0.27

52 weeks to 29 March 2019

PSP
1.70
–
30.11%
3
2.53
–
–
39%
1.70

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

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.

25. Commitments

Capital expenditure: Contracted but not provided

2020
£m
1.2

2019
£m
0.6

26. 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 (2019: £5.4m).

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.

27. 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 3 April 2020 amounted to £1.5m (2019: £4.0m).

The Group’s banking arrangements are subject to a netting facility whereby credit balances may be offset against the indebtedness of other
Group companies.

28. 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 190 to 195.

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 132 to 140. Key management compensation is disclosed in
Note 4.

Directors of the Company control 1.0% of the ordinary shares of the Company.

29. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

189

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsCompany 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

3 April
2020
£m

29 March
2019
£m

Notes

8
8
8

22.2

21.2

501.1
71.4
572.5
(218.5)
354.0
(179.1)
197.1

2.0
151.0
(10.0)
0.3
53.8
197.1

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

The notes on pages 192 to 195 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 192.

The financial statements on pages 190 to 195 were approved by the Board of Directors on 6 July 2020 and were signed on its behalf by:

Loraine Woodhouse
Chief Financial Officer

Company number: 04457314

190

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020

Company Statement of Changes in
Shareholders’ Equity

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
Profit for the period
Share options exercised
Issue of new share options
Share-based payments
Dividends paid
At 3 April 2020

Share
capital
£m
2.0
–
–
–
–
–
2.0
–
–
–
–
–
2.0

Share
premium
£m
151.0
–
–
–
–
–
151.0
–
–
–
–
–
151.0

Investment
in own
shares
£m
(9.4)
–
0.4
(1.0)
–
–
(10.0)
–
–
–
–
–
(10.0)

Capital
redemption
£m
0.3
–
–
–
–
–
0.3
–
–
–
–
–
0.3

Retained
earnings
£m
116.8
5.1
–
–
0.3
(35.9)
86.3
3.1
–
–
1.0
(36.6)
53.8

Total
£m
260.7
5.1
0.4
(1.0)
0.3
(35.9)
229.6
3.1
–
–
1.0
(36.6)
197.1

The notes on pages 192 to 195 are an integral part of the Company’s financial statements.

191

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsAccounting 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 53 weeks to 3 April 2020, whilst the comparative period covered the 52 weeks to 29 March
2019. 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 on page 78, 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 16 was 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.

192

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Notes to the Financial Statements

1. Profit and Loss Account
The Company made a profit before dividends paid for the period of £3.1m (52-week period to 29 March 2019: £5.4m). 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 BDO LLP (2019: 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 132 to 140 which forms part of the audited information.

4. Investments

Shares in Group undertaking
Cost
At 29 March 2019
Additions – share-based payments
At 3 April 2020

£m

21.2
1.0
22.2

The investments represent shares in the following subsidiary undertakings as at 3 April 2020 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

Incorporated in
Great Britain*

Ordinary shares
percentage owned
%

Principal
Activities
100 Intermediate holding company

* Registered in England and Wales. Registered office; Icknield Street Drive, Washford Ln, Redditch, B98 0DE.

In the opinion of the Directors the value of the investments in the subsidiary undertakings is not less than the amount shown above.

193

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsNotes to the Financial Statements

4. Investments continued
The related undertakings of the Company at 3 April 2020 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*
McConechy’s Tyres Services Holdings Limited*
McConechy’s Tyre Services Limited*
Gordon’s Auto Centre (Sheffield) Limited*
Gordon’s Auto Centre (Castleford) Limited*
Gordon’s Auto Centre (Wakefield) Limited*
Strathclyde Tyre Services 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
Intermediate holding company
Car servicing
Dormant
Dormant
Dormant
Car servicing
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
100
100
100
100
100

100

0.27

* 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

2020
£m

501.1
501.1

2019
£m

494.4
494.4

Amounts owed by Group undertakings are subject to interest. At 3 April 2020, the amounts bear interest at a rate of 1.92% (2019: 1.92%).

194

Halfords Group plc Annual Report and Accounts for the period ended 3 April 20206. Creditors

Falling due within one year:
Bank borrowings (Note 7)
Amounts owed by Group undertakings
Accruals and deferred income

Falling due after more than one year:
Bank borrowings (Note 7)

7. Borrowings

Current
Unsecured bank overdraft
Non-current
Unsecured bank loan and other borrowings (expiring between two and five years)

The above borrowings are stated net of unamortised issue costs of £0.9m (2019: £1.2m).

Details of the Company’s borrowing facilities are in Note 18 to the Group’s financial statements.

2020
£m

–
217.3
1.2
218.5

179.1
179.1

2020
£m

–

179.1
179.1

2019
£m

19.2
207.2
0.9
227.3

63.8
63.8

2019
£m

19.2

63.8
83.0

8. Equity Share Capital

Ordinary shares of 1p each:
Allotted, called up and fully paid

2020
Number of
shares
199,116,632

2020
£000
1,991

2019
Number of
shares
199,116,632

2019
£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 (2019: £151.0m).

In total the Company received proceeds of £nil (2019: £0.4m) from the exercise of share options. During the year the Company purchased
£nil (2019: £1.0m) 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 24 to the Group’s financial
statements.

9. Reserves
The Company settled dividends of £36.6m (2019: £35.9m) 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 3 April 2020 amounted to £1.5m (2019: £4.0m).

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.

195

halfords.annualreport2020.comStrategic ReportOur GovernanceShareholder InformationOverviewFinancial StatementsShareholder
Information

Five Year Record
Glossary of Alternative Performance
Measures
Company Information

198

199
200

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 before IFRS 16
Basic underlying earnings per share before IFRS 16†
Weighted average number of shares

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

52 weeks to
27 March
2020*
£m
1,142.4
(558.4)
584.0
(525.3)
58.7
(32.1)
26.6
(2.8)
55.9
(32.1)
–
23.8
(8.0)
4.7
20.5
10.3p
24.3p
197.0m

* The statutory 53-week period to 3 April 2020 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 2020.

† These alternative performance measures are defined on page 199.

198

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Glossary of Alternative Performance Measures

In the reporting of financial information, the Directors have adopted
various Alternative Performance Measures (“APMs”), previously
termed as ‘Non-GAAP measures’. APMs should be considered in
addition to IFRS measurements, of which some are shown on page
150. 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. All numbers
are shown pre-IFRS 16 (on an IAS 17 basis) to enable comparability
with the prior period performance:

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. 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.

4. Underlying Earnings Per Share is Profit after income tax before

non-underlying items as shown in the Group Income Statement,
divided by the number of shares in issue.

5. Net Debt is current and non-current borrowings less cash and
cash equivalents, both in-hand and at bank, as shown in the
Consolidated Statement of Financial Position.

FY20
Pre-
IFRS 16
£m
115.5
(1.8)
(186.9)
(73.2)

FY20
Post-
IFRS 16
£m
115.5
(83.4)
(511.9)
(479.8)

FY19
£m
9.8
(18.5)
(73.1)
(81.8)

Cash & cash equivalents
Borrowings – current
Borrowings – non-current
Net Debt*

* The statutory 53-week period to 3 April 2020 comprises reported

results that are non-comparable to the 52-week period reported in the
previous period.

6. Net Debt to Underlying EBITDA ratio is represented by the ratio
of Net Debt to Underlying EBITDA (both of which are defined
above).

7. Adjusted Operating Cash Flow is defined as EBITDA plus

share-based payment transactions and loss on disposal of
property, plant and equipment, less working capital movements
and movement in provisions; as reconciled below.

FY20
Pre-
IFRS 16
£m
55.4

FY20
Post-
IFRS 16
£m
67.2

37.2
92.6

(32.1)
60.5

118.7
185.9

(34.2)
151.7

FY19
£m
62.2

36.0
98.2

(7.8)
90.4

1.0

0.3

2.8
48.7

2.8
52.0

5.5
(10.4)

(3.1)

2.7

109.9

204.4

88.5

Underlying EBIT
Depreciation, amortisation &
impairment
Underlying EBITDA
Non-underlying operating
expenses
EBITDA
Share-based payment
transactions
Loss on disposal of property,
plant & equipment and
intangibles
Working capital movements
Provisions movement
and other
Adjusted Operating
Cash Flow*

* The statutory 53-week period to 3 April 2020 comprises reported

results that are non-comparable to the 52-week period reported in the
previous period.

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.

FY20
Pre-
IFRS 16
£m

FY20
Post-
IFRS 16
£m

109.9
(34.1)
(2.4)
(16.3)
(2.5)
–
54.6

204.4
(33.6)
(13.2)
(16.3)
(2.0)
–
139.3

FY19
£m

88.5
(29.4)
(3.1)
(12.7)
(0.3)
(0.3)
42.7

Adjusted Operating
Cash Flow
Capital expenditure
Net finance costs
Taxation
Exchange movement
Arrangement fees on loans
Free Cash Flow*

* The statutory 53-week period to 3 April 2020 comprises reported

results that are non-comparable to the 52-week period reported in the
previous period.

199

halfords.annualreport2020.comStrategic ReportOur GovernanceFinancial StatementsOverviewShareholder InformationCompany Information

Financial Calendar
Tuesday 15 September 2020

Annual General Meeting

Tuesday 8 September 2020

20 Week Trading Update

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
BDO LLP
55 Baker Street
London
W1U 7EU

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

200

Halfords Group plc Annual Report and Accounts for the period ended 3 April 2020Corporate and IR website
www.halfordscompany.com

Online Annual Report 2020
halfords.annualreport2020.com
Commercial Website
www.halfords.com

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