TIDMHFD
RNS Number : 6761S
Halfords Group PLC
07 November 2019
The following announcement replaces the announcement released at
07:00 today under RNS number 5588S. The Record Date has been
corrected to 6 December 2019. All other details remain the
same.
7 November 2019
Halfords Group plc
Interim Results and Strategic Update: Financial Year 2020
H1 profit in line with expectations, good strategic progress,
acceleration of our
motoring services business
Halfords Group plc, the UK's leading provider of Motoring and
Cycling products and services, today announces its interim results
for the 26 weeks to 27 September 2019 ("the period"), together with
a strategic update. All numbers shown are after adopting IFRS 16
and before non-underlying items unless otherwise stated.
Group Financial Summary
H1 FY20 H1 FY19 Change Like-for-Like Revenue* ("LFL")
GBPm GBPm
Revenue 582.7 599.9 -2.9% -2.4%
-------- -------- -------- -------------------------------
Retail 500.0 519.8 -3.8% -3.1%
-------- -------- -------- -------------------------------
Autocentres 82.7 80.1 +3.2% +2.1%
-------- -------- -------- -------------------------------
Gross Margin 50.1% 49.4% +70bps
-------- -------- --------
Retail 47.0% 46.6% +40bps
-------- -------- --------
Autocentres 68.6% 67.5% +110bps
-------- -------- --------
Underlying EBITDA pre- IFRS 16* 44.9 49.8 -9.8%
-------- -------- --------
Underlying Profit Before Tax pre- IFRS 16* 25.9 30.5 -15.1%
-------- -------- --------
Underlying Basic Earnings Per Share pre-IFRS 16* 10.4p 12.4p -16.1%
-------- -------- --------
Non-underlying operating expenditure (2.7) (2.3) 17.3%
-------- -------- --------
Adoption of IFRS 16 4.3 - -
-------- -------- --------
Profit before tax 27.5 28.2 -2.5%
-------- -------- --------
* Alternative performance measures are defined and reconciled to
IFRS amounts in the glossary on page 15
H1 Profit in line with expectations; growth from strategic
investment, gross margin improvements and tight cost control
partially mitigated the impact of a challenging retail backdrop and
tough weather comparators year-on-year
-- Group LFL sales declined by 2.4% in a tough market; sales
returned to growth in the last six weeks of the period
-- In Retail, cycling sales grew and in motoring our core
categories gained market share, however, sales of big-ticket
discretionary products were softer
-- Autocentres, Group services, Online and B2B all delivered strong sales growth in the period
-- Autocentres EBIT pre-IFRS 16 increased 39.1% to GBP3.2m. The
business continues to make strong progress on its transformation
and remains on track to deliver a third year of profit growth
-- Group remains cash generative; Free Cash Flow* of GBP44.2m,
up 29% on H1 last year. Net Debt to Underlying EBITDA pre-IFRS 16
on a comparable basis* 0.7 times (FY19: 0.7 times)
-- Strategic buying alliance agreed with Mobivia, a leading
player in the European motoring products and services market
-- Post balance sheet acquisition of 100% of the share capital
of McConechy's Tyre Service Limited and the trade and assets of
Tyres on the Drive, for a combined consideration of GBP9.3m
-- FY20 Underlying Profit Before Tax guidance, pre-IFRS 16, reconfirmed at GBP50-55m
-- Interim dividend flat at 6.18p (FY19 6.18p); final dividend
reduced to 8.0p. Full year dividend rebased to 12p for FY21
onwards
*after adjusting for post period end payment run (see page 15
for further details), on the last day of the period
Strategic update; To inspire and support a lifetime of motoring
and cycling
A year ago, at our Capital Markets Day, 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. A
year on, we have made significant progress against our
objectives:
-- Group web-platform remains on track for launch in Q4,
transforming our digital experience and, for the first time,
allowing customers to access an integrated services offer across
mobile, stores and garages through one website
-- Optimisation of cycling space in all Retail stores,
delivering a better shopping experience for customers through a
'right range, right store' approach. The enhanced offer led to a
2.5pts improvement in Customer Net Promoter Score ("NPS"), whilst
driving sales, margin and working capital improvements
-- Sales of exclusive products increased by c.30% via investment in product proposition
-- Acceleration of our growth in Autocentres through the
acquisition of McConechy's Tyre Service Limited, one of the UK's
leading garage chains; 60 sites and 100 vans, establishing strong
coverage in Scotland and the North of England
-- Continued development of our Halfords Mobile Expert
proposition, delivering best-in-class customer service. The
acquisition of Tyres on the Drive increases our mobile hub
footprint from 1 to 7 and provides a strong platform for future
growth
-- Double-digit growth in Group services jobs, with the launch
of weCheck free and premium services delivering over 30,000
consultations a week
-- On-demand retail motoring services trial in Autocentres
garages continuing to deliver promising results
-- Major enhancement of our Group financial services offer,
resulting in substantial double-digit growth year-on-year and
attracting new customers
-- B2B now represents 15% of Group sales, with 24.4% growth
driven through investment in our cross-group sales team and online
platform
-- Delivered significant cost and efficiency benefits through
value chain analysis, supply chain efficiencies, Retail
productivity programmes and improved procurement practices across
all cost categories.
Accelerating our strategy
-- Accelerating the growth of our motoring services business, to
generate higher and more sustainable financial returns
-- Building on our unique proposition of garages, retail stores
and mobile vans to increase our services footprint to over 1,200
locations in the medium-term, including 550 garages and 200 mobile
vans
-- Leveraging our trusted household brand to become a clear market leader in Motoring services
Within our strategy, we articulated the strengths of our
motoring services businesses alongside the growth opportunities
going forward. In a large and fragmented marketplace, with no clear
market leader, we have a strongly differentiated business. We are a
trusted household brand, providing customers with a unique
proposition, delivered through a combination of garages, stores
with on-demand fitting services, and a mobile services offer. This
unique offer is supported by well-trained and highly engaged
Colleagues across a broad geographical network.
Over the last year, our motoring services and B2B businesses
have continued to deliver strong growth and have remained
materially more resilient against volatility in consumer confidence
and weather. As macro-customer trends change, customers are seeking
more convenience and cars are becoming more complex, accelerating
the requirement for easily accessible Do It For Me ("DIFM")
services. We believe therefore, this is the right time to
accelerate the growth of our existing services business by building
on our growing and unique market position and leveraging the
positive macro-customer trends to become a clear market leader.
Investment in the expansion of our motoring services business
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. Our
motoring and cycling products businesses remain core but, beyond
this, we need to deliver a substantial shift to services in order
to drive growth and address the headwinds faced by retailers of
products.
Over the medium-term, as our business evolves, service-related
sales will double as a % of total Group sales and Autocentres will
represent a materially larger proportion of our Group profit. As a
result, motoring will inevitably grow in focus. Notwithstanding the
early investment required to build a scaled services operation, the
business will subsequently return to sustainable profit growth and
return on invested capital ("ROIC") will improve as greater
investment goes into businesses that naturally consume less
capital.
Full year outlook and financial guidance
The Group reconfirms its guidance on FY20 Underlying Profit
Before Tax (pre-IFRS 16), on a 52-week basis, to be within the
range of GBP50m to GBP55m. Capital investment, previously guided at
c.GBP35m for FY20, will increase by c.GBP11m, for the acquisitions
of McConechy's Tyre Service Limited and Tyres on the Drive.
Similarly, the exceptional costs of restructuring related to these
two businesses will further impact cash flow by c.GBP2-3m in H2
FY20.
Looking forward, in order to support our plan, our capital
expenditure guidance remains unchanged at between GBP40m and GBP60m
per year over the medium-term. The Group may also consider
appropriate acquisitions, to the extent they are in support of the
strategy. The operational cost base in FY21, however, will increase
as we upweight our relative investment in core infrastructure to
support the services business, including a new customer contact
strategy and investment in ensuring that we have the right number
of appropriately trained colleagues to build a market leading
services business.
Post the approval of the interim dividend, the Board considered
the full year position and is expecting to recommend a final
dividend of 8p per share, (FY19:12.39p). On this basis, the
proposed full year dividend would be 14.18p (FY19: 18.57p). The
reduction of the final dividend would have the effect of rebasing
future dividend pay-outs, with the FY21 full-year dividend expected
to be reset to c.12p per share.
The opportunities for growth, coupled with the results we have
seen against key parts of our strategy have given us confidence to
invest. The accelerated strategy will deliver an improvement in
return on invested capital, targeting growth in less
capital-intensive areas of the business. The resultant future cash
generation will sustain the reset dividend going forward.
Graham Stapleton, Chief Executive Officer, commented:
"In a period where retail sales were impacted by weakened
consumer confidence, we are pleased to have successfully increased
gross margin, kept a tight control over costs, and seen growth from
our strategic investment.
"Twelve months on from the launch of our strategy to inspire and
support a lifetime of motoring and cycling, we have made
encouraging early progress. Our Autocentres business delivered
strong growth in the half, while new initiatives helped to drive
top line momentum in Group Services, Online and B2B.
"We are clear that our service-led strategy is the right one for
Halfords. Our unique position, growing services business and
positive macro-customer trends, gives 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.
"Over the medium-term, we expect service-related sales to double
as a percentage of Group sales and Autocentres to represent a
materially larger proportion of Halfords' profits. As a result,
motoring will inevitably grow in focus for the Group. We are
confident that this strategy will drive long-term sustainable
growth."
Enquiries
Investors & Analysts (Halfords)
Loraine Woodhouse, Chief Financial Officer
Neil Ferris, Corporate Finance Director +44 (0) 7483 360 675
Media (Tulchan) +44 (0) 207 353 4200
Jonathan Sibun
Will Smith
Financial Guidance reference
For ease of navigation, the following lists the references to
financial guidance contained in this statement:
Description Page reference
FY20 full year guidance 3
---------------
Strategic update 6
---------------
Medium-term financial guidance 8
---------------
H1 FY20 Profit Before Tax 9
---------------
IFRS 16 13
---------------
Results Presentation
A presentation for analysts and investors will be held today
starting at 09:30am at Investec, 30 Gresham St, London, EC2V 7QP.
Attendance is by invitation only. A live webcast of the
presentation will be available at www.halfordscompany.com.
Forthcoming Newsflow
On 16 January 2020 we will report on trading for the 14 weeks to
3 January 2020, which includes the peak Christmas trading
period.
Notes to Editors
www.halfords.com www.halfordscompany.com www.halfordsautocentres.com
www.cyclerepublic.com www.boardmanbikes.com www.tredz.co.uk
Halfords is the UK's leading provider of motoring and cycling
services and products. Customers shop at 448 Halfords stores, 26
Performance Cycling stores (trading as Cycle Republic, Tredz,
Boardman and Giant) and 317 garages (trading as Halfords
Autocentres). Customers can also shop at halfords.com,
cyclerepublic.com and tredz.co.uk for pick up at their local store
or direct home delivery, as well as booking garage services online
at halfordsautocentres.com.
Note: store and garage numbers as at 27 September 2019
Cautionary Statement
This report contains certain forward-looking statements with
respect to the financial condition, results of operations, and
businesses of Halfords Group plc. These statements and forecasts
involve risk, uncertainty and assumptions because they relate to
events and depend upon circumstances that will occur in the future.
There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied
by these forward-looking statements. These forward-looking
statements are made only as at the date of this announcement.
Nothing in this announcement should be construed as a profit
forecast. Except as required by law, Halfords Group plc has no
obligation to update the forward-looking statements or to correct
any inaccuracies therein.
Chief Executive's Statement
Summary of Group Results
Group revenue of GBP582.7m reflected a like-for-like ("LFL")
decline of -2.4%, with all areas of the Group in sales growth
outside of Retail motoring. Retail performance was impacted by
tougher weather comparators year-on-year and consumers delaying
big-ticket discretionary purchases, reflecting the current economic
and political uncertainty. Autocentres continued to deliver strong
growth, with LFL sales of +2.1% in the period.
Gross margin improved by 70bps versus the prior year, with both
Retail and Autocentres ahead. The improvement reflected several
factors including buying efficiencies across the Group and better
cycling margins delivered through an improved customer shopping
experience and more focused promotions. These were partially offset
by the mix effect of softer motoring sales and a small negative FX
impact.
Group operating costs pre-IFRS 16 were broadly flat year-on-year
(+0.1%). The increased focus on costs at the beginning of the year
delivered strong results. Retail costs were down -0.7% reflecting a
rigorous cost control programme across supply chain, Retail
operations, property and utilities, to give just some examples. In
line with our guidance, cost investment in the strategy was
self-funded through efficiency savings across the Group.
Underlying Profit Before Tax pre-IFRS 16 was GBP25.9m, in line
with expectations and GBP4.6m less than FY19, reflecting gross
margin improvements and well controlled costs partially mitigating
the impact of the sales shortfall. Underlying Basic Earnings per
Share pre-IFRS 16 were 10.4p, down from 12.4p last year.
Cash generation was strong, with Free Cash Flow* of GBP44.2m, up
GBP10.0m on H1 last year. The result reflects the positive impact
of our working capital programme, including the impact of lower
stock levels arising from cycling space optimisation. Group Net
debt was GBP62.6m on a comparable basis*; the ratio of net debt on
a comparable basis to the underlying EBITDA, pre-IFRS 16, was 0.7x
at the period end (FY19: 0.7x).
The Board has approved an interim ordinary dividend of 6.18
pence per share, which is flat year-on-year (FY19 interim ordinary
dividend: 6.18 pence). This will be paid on 17 January 2020 to
shareholders on the register at the close of business on 6 December
2019.
After the balance sheet date, Halfords Autocentres, in line with
our strategy, acquired 100% of the share capital of McConechy's
Tyre Service Limited on 5 November 2019 for cash consideration of
GBP8.5m. The acquisition increases our garages footprint by 60
sites and establishes strong coverage in Scotland and the North of
England. On the 14 October 2019, we acquired the trade and assets
of Victor Holdings Limited (trading as "Tyres on the Drive") for an
immaterial balance. The acquisition secured the outright ownership
of market leading mobile services software for Halfords Mobile
Expert and acts as a significant enabler in the acceleration of our
growing Halfords Mobile Expert business.
*after adjusting for post period end payment run
Operational Review
Total Retail revenue was GBP500.0m, which was -3.1% down on a
LFL basis. Cycling sales delivered LFL growth of +0.2% in the
period, driven by performance ahead of expectations in the last six
weeks and continued strong growth in electric bikes and kids bikes,
which more than offset weaker sales of big-ticket discretionary
mainstream cycling products. Our own-brand and exclusive ranges of
electric bikes and kids scooters offer our customers unrivalled
levels of choice at all price points.
We continued to grow market share in our core motoring
categories within a challenging market. LFL performance declined
-5.3% year-on-year as growth in our core 3Bs (bulbs, blades and
batteries), car cleaning and exclusive security ranges was offset
by a weaker performance in big-ticket discretionary categories such
as car technology and workshop. Tough weather comparators in the
first 20 weeks of H1 saw camping and touring in decline
year-on-year.
Retail gross margin increased by 40bps in the period. The
improvement reflected several factors including buying efficiencies
across both cycling and motoring, cycling margin improvement
through investment in creating a better shopping experience for our
customers and more focused promotions to protect margin in areas
where demand has softened. These were partially offset by the mix
effect of softer motoring sales and a small negative FX impact.
Retail operating costs pre-IFRS 16 were well controlled,
reducing by -0.7% to GBP210.0m. Increased strategic investment was
self-funded through rigorous cost efficiency plans driven by better
procurement and operating efficiencies. Underlying cost inflation
in H1 was partially offset by a one-off adjustment to the claims
provision, driven by better visibility of the level of future
claims.
Total Autocentres revenues were up +2.1% on a LFL basis,
reflecting strong growth in sales of servicing, MOT and repair.
Delivery of the Autocentres transformation plan, through the
introduction of a new garage management system which enables
enhanced technician scheduling and improved parts ordering, has not
only improved financial performance but has also significantly
improved the customer experience; NPS at 68 has improved by 5
points year-on-year. Our 8 Halfords Mobile Expert vans continue to
provide best in class customer service, with a 4.8 out of 5
Trustpilot score. The financial performance of the 5 vans based in
the Greenford regional hub is encouraging. EBIT pre- IFRS 16 in
Autocentres increased significantly by 39.1% to GBP3.2m and a clear
focus on the operating model, along with good revenue growth, means
that Autocentres remains on track to deliver a third year of profit
growth.
Group service-related sales, which consist of the revenue
generated from paid fitting and repair services plus the associated
product attached to the transaction, grew 2.2% year-on-year,
through improved service penetration and the introduction of new
weCheck and cycle care services. We currently complete over 30,000
free weCheck services a week, with the introduction of a premium
paid-for service in October. The number of service jobs completed
increased by 12% in the period. In Retail, nearly 40% of 3B's sold
("penetration") were fitted to customers' cars by our colleagues
with penetration up 200bps year-on-year. This continues to reflect
the increasing relevance of our services proposition to the growing
proportion of 'do-it-for-me' customers.
Group online sales were up +10% in the period, with 22% of our
total Group sales now being delivered through our online platform.
In the period, we focused heavily on improving our search,
navigation and store locator pages, making it easier for customers
to find products, services, help & advice and information
regarding their local store. The importance of our store network
and service overlay continues to be highlighted by the strength of
our click & collect proposition, with around 85% of
Halfords.com online orders being collected in-store. The new Group
web-platform remains on track for launch in Q4, transforming our
digital experience and, for the first time, allowing customers to
access an integrated services offer across mobile, stores and
garages through one website.
B2B sales represent 15% of Group sales and delivered 24.4%
growth year-on-year, following investment in our cross-group sales
team and online platform. We continued to see good growth from all
areas within B2B, which include Cycle2Work, Halfords for Business,
Tradecard and Autocentres Fleet.
Sales through financial services, through a strengthened
customer offer, delivered substantial double-digit growth
year-on-year and attracted new customers.
Strategic Update
Context
Halfords Group plc is the UK's leading provider of motoring and
cycling products and services. We have nationwide coverage and,
today, our customers shop at 448 Halfords stores, 26 Performance
Cycling stores (trading as Cycle Republic, Tredz, Boardman and
Giant). 317 garages (trading as Halfords Autocentres) and 8
Halfords Mobile Expert Vans.
A year ago, 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. A year on, our strategy remains
absolutely the right direction for our business and we have made
significant progress against our objectives.
Within our Capital Markets day presentation, we highlighted the
fragmented nature of the motoring services market, which, with no
clear market leader, provided us with a significant opportunity to
increase our market share. Over recent years we have invested in,
and developed, a much more profitable garage operating model that
we are confident we can scale. In addition, our motoring services
business provides a clear source of differentiation against our
competitors through a unique combination of stores, garages and
mobile together with a trusted household brand. Equally, over the
last year, our services business has delivered strong growth and
has remained materially more resilient against the volatility in
consumer confidence and weather. As macro-customer trends change,
customers are seeking more convenience and cars are becoming more
complex, accelerating the requirement for Do It For Me
("DIFM").
In summary, our unique market position, growing services
business and the positive macro-customer trends gives us the
confidence to accelerate investment in our service-led
strategy.
Accelerating our Strategy
Evolving into a consumer and B2B services-focused business, with
a greater emphasis on motoring, generating higher and more
sustainable financial returns
To address the considerable market opportunity available to us,
we will be accelerating investment in the following areas:
-- Increasing our Autocentres garage footprint to 550 garages
over the medium-term, growing both organically and via appropriate
acquisition
-- Growing our mobile services proposition to 200 Halfords
Mobile Expert vans, providing a wider, more convenient, range of
mobile services to our customers
-- Investing in the provision of weFit services in our Retail
stores, enabled by a best in class customer contact strategy and
the redeployment of labour in store to allow well trained
colleagues to better service customer needs
-- Trialling a more inspirational, convenient, integrated and
digitally enabled shopping experience in two locations next year.
This will encompass a new destination retail store, an updated
Autocentres garage, a new format that will combine a garage with a
small store for motoring products, and a Halfords Mobile Expert
offer, all operating in conjunction across a major town or city. In
addition to significantly improving the customer experience, the
trial will also test whether we can deliver a similar, or greater,
level of sales from a lower fixed cost base
Delivery of our objectives will require additional investment in
the following:
-- Investment in the infrastructure necessary to drive fast
growth in our motoring services business, including a new customer
contact strategy and investment in our store colleagues to deliver
appropriately trained resource
-- Improving our services customer experience through investment
in a digital services management system; creating one seamless
journey for all bookable services across the Group to support our
customers and colleagues
-- Continued investment in our B2B systems and infrastructure,
maximising our growth potential by increasing our market share in
known markets and, simultaneously, leveraging new opportunities
-- Successfully consolidating and integrating the McConechy's
Tyre Service Limited and Tyres on the Drive acquisitions
-- Investment in marketing to drive awareness of our services,
with an increased focus on social and digital marketing
Incremental investment required will be part-funded through
further efficiency programmes:
-- An increased focus on improving the profitability of our
cycling businesses, through building on our existing GFR value
chain workstream. Leveraging our sourcing partnership with Mobivia,
with an initial focus on Far-East sourcing
-- Continuation of our cost and efficiency programmes across the
Group, with specific focus on supply chain, property costs and
procurement practices across infrastructure costs
The direction laid out, we believe, exploits our market growth
opportunities and builds on our successes delivered to date. The
acceleration of investment in our services business will make us
materially more resilient against external headwinds. The plan
allows 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. Our
motoring and cycling product businesses remain core but, over and
above this, we need to deliver a substantial shift to services in
order to drive growth and address the headwinds faced by retailers
of products, such as secular trends and the impact of today's
economic environment.
Over the medium-term, as our business evolves, service-related
sales will double as a % of total Group sales, Autocentres will
represent a materially larger proportion of our Group profit and,
as a result, motoring will inevitably grow in focus.
Notwithstanding the early investment required to build a more
sustainable services operation, the business will return to
sustainable profit growth and return on invested capital ("ROIC")
will improve.
Focus for FY21
The focus for FY21 will be on continued delivery of our CMD
strategy, targeting greater investment in our services
business:
-- Optimisation and further development of our integrated Group website
-- Growing our Autocentres footprint to 400 garages, in part via
the consolidation and integration of our McConechy's Tyre Service
Limited acquisition
-- Integrating our Tyres on the Drive acquisition and increasing
our Halfords Mobile Expert offer to 100 vans
-- Scaling our weFit proposition in Retail stores, through
increased investment in our customer contact strategy, increasing
the number of trained colleagues and investing in a supporting
digital services operating platform
-- Trialling a more inspirational, convenient, integrated and
digitally enabled shopping experience in two locations
-- Strengthening and improving the profitability of our core
motoring and cycling product offer
-- Continued investment in our customer-led product development and innovation
To facilitate the investment required, we will be continuing to
drive the cost and efficiency enablers of our plan.
Financial Outlook
The Group reconfirms its guidance on FY20 Underlying Profit
Before Tax (pre-IFRS 16), on a 52-week basis, to be within the
range of GBP50m to GBP55m. Capital investment, previously guided at
c.GBP35m for FY20, will increase by c.GBP11m, for the acquisitions
of McConechy's Tyre Service Limited and Tyres on the Drive.
Similarly, the exceptional costs of restructuring related to these
two businesses will further impact cash flow by c.GBP2-3m in H2
FY20.
Looking forward, in order to support our plan, our capital
expenditure guidance remains unchanged at between GBP40m and GBP60m
per year over the medium-term. The Group may also consider
appropriate acquisitions, to the extent they are in support of the
strategy. The operational cost base in FY21, however, will increase
as we upweight our relative investment in core infrastructure to
support the services business, including a new customer contact
strategy and investment in ensuring that we have the right number
of appropriately trained colleagues.
With regard to the full year dividend, the Board has considered
the current market outlook, the need for investment in the business
and the importance of the dividend payment to investors. In a
challenging retail and consumer market, Group profitability has
been lower and, as a consequence, operating cash flows have also
reduced. Whilst the Group remains highly cash generative, the Board
believes it is prudent to preserve cash in order to facilitate
sufficient investment in business growth whilst, at the same time,
maintaining a healthy balance sheet.
As a result, the Board is expecting to recommend a final
dividend of 8p per share, (FY19:12.39p). On this basis, the
proposed full year dividend would be 14.18p (FY19: 18.57p). The
reduction in the final dividend would have the effect of rebasing
future dividend pay-outs, with the FY21 full-year dividend expected
to be reset to c.12p per share.
The opportunities for growth, coupled with the results we have
seen against key parts of our strategy have given us confidence to
invest. The accelerated strategy will deliver an improvement in
return on invested capital, targeting growth in less
capital-intensive areas of the business. The business will remain
highly cash generative, supporting the reset dividend going
forward.
Graham Stapleton
Chief Executive Officer, November 2019
Halfords Group plc's LEI code is 54930086FKBWWJIOB179
Chief Financial Officer's Report
Halfords Group plc ("the Group" or "Group")
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 "H1 FY20" accounting period represents trading for the 26
weeks to 27 September 2019 ("the period"). The comparative period
"H1 FY19" represents trading for the 26 weeks to 28 September 2018
("the prior period"). The impact of IFRS 16 is shown in the table
below and further details of this impact are provide later within
this report.
Group Financial Results
H1 FY20 H1 FY19 Change
GBPm GBPm (%)
Group Revenue 582.7 599.9 -2.9%
Group Gross Profit 291.7 296.3 -1.6%
Underlying EBIT pre-IFRS 16* 27.1 32.0 -15.3%
Underlying EBITDA pre-IFRS 16* 44.9 49.8 -9.8%
Net Finance Costs (1.2) (1.5) -20.0%
Underlying Profit Before Tax pre-IFRS 16* 25.9 30.5 -15.1%
--------------------------------------------------- -------- -------- -------
Net non-underlying items (2.7) (2.3) 17.3%
Impact of adopting IFRS 16 4.3 - -
-------------------------------------------------- -------- -------- -------
Profit Before Tax 27.5 28.2 -2.5%
--------------------------------------------------- -------- -------- -------
Underlying Basic Earnings per Share pre-IFRS 16* 10.4p 12.4p -16.1%
* 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 15
Group revenue in H1 FY20, at GBP582.7m, was down 2.9% and
comprised Retail revenue of GBP500.0m and Autocentres revenue of
GBP82.7m. This compared to H1 FY19 Group revenue of GBP599.9m,
which comprised Retail revenue of GBP519.8m and Autocentres revenue
of GBP80.1m. Group gross profit at GBP291.7m (H1 FY19: GBP296.3m)
represented 50.1% of Group revenue (H1 FY19: 49.4%), reflecting an
increase in the Retail gross margin of 40 basis points ("bps") to
47.0% and an increase in the Autocentres gross margin of 110 bps to
68.6%.
Total operating costs before non-underlying items and IFRS 16
were broadly flat on last year at GBP264.6m (H1 FY19: GBP264.3m) of
which Retail comprised GBP210.0m (H1 FY19: GBP211.4m), Autocentres
GBP53.5m (H1 FY19: GBP51.8m) and unallocated costs GBP1.1m (H1
FY19: GBP1.1m). 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 9.8% to GBP44.9m
(H1 FY19: GBP49.8m), whilst net finance costs pre-IFRS 16 were
GBP1.2m (H1 FY19: GBP1.5m).
Underlying Profit Before Tax before IFRS 16 for the period was
down 15.1% at GBP25.9m (H1 FY19: GBP30.5m). Non-underlying items of
GBP2.7m in the period (H1 FY19: GBP2.3m) related predominantly to
organisational restructure and costs associated with strategic
implementation.
After non-underlying items and including IFRS 16, Group Profit
Before Tax was GBP27.5m (H1 FY19: GBP28.2m). The impact on the
Group of adopting IFRS 16 in the period was a GBP4.3m net increase
to Group Profit Before Tax. Further details on the impact of IFRS
16 is shown later in this report.
Retail
H1 FY20 H1 FY19 Change
GBPm GBPm (%)
Revenue 500.0 519.8 -3.8%
Gross Profit 235.0 242.2 -3.0%
Gross Margin 47.0% 46.6% +40 bps
Operating Costs (210.0) (211.4) -0.7%
Underlying EBIT pre- IFRS
16* 25.0 30.8 -18.8%
Non-underlying items (2.5) (2.3) +8.7%
Impact of adopting IFRS 16 8.9 - -
----------------------------- -------- -------- --------
EBIT post- IFRS 16 31.4 28.5 +10.1%
------------------------------ -------- -------- --------
Underlying EBITDA pre- IFRS
16* 38.9 44.6 -12.8%
------------------------------ -------- -------- --------
* 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 15
Revenue for the Retail business of GBP500.0m reflected, on a
constant-currency basis, a like-for-like (LFL) sales decrease
of
-3.1%. Non LFL revenue in the period included sales from Cycle
Republic stores that have been open for less than 12 months.
Please refer to the Retail Operational Review in the Chief
Executive's Statement for further commentary on the trading
performance in the period. Like-for-like revenues and total sales
revenue mix for the Retail business are split by category
below:
H1 FY20 H1 FY20 H1 FY19
LFL (%) Total sales mix (%) Total sales mix (%)
Motoring -5.3 57.5 58.8
Cycling +0.2 42.5 41.2
Total -3.1 100.0 100.0
Gross profit for the Retail business at GBP235.0m (H1 FY19:
GBP242.2m) represented 47.0% of sales, 40bps up on the prior year
(H1 FY19: 46.6%). This improvement reflected several factors
including buying efficiencies across the Group, and space
optimisation in Cycling. This was partially offset by a small
negative FX impact and the mix effect of softer Motoring sales.
The table below shows the average exchange rate reflected in
cost of sales, along with the year-on-year movement.
FY19 full FY20 full
year year
(estimated)
$ $
Average USD: GBP rate reflected
in cost of sales $1.32 $1.30
---------- -------------
Year-on-year movement in rate 0.03 (0.02)
---------- -------------
Retail operating costs before non-underlying items and IFRS 16
reduced by 0.7% to GBP210.0m (H1 FY19: GBP211.4m). This reflected
tight cost control, offsetting cost inflation, and a one-off claims
provision release, which was driven by better visibility over the
likely level of future claims.
Autocentres
H1 FY20 H1 FY19 Change
GBPm GBPm (%)
Revenue 82.7 80.1 +3.2%
Gross Profit 56.7 54.1 +4.8%
+ 110
Gross Margin 68.6% 67.5% bps
Operating Costs (53.5) (51.8) +3.3%
Underlying EBIT pre- IFRS
16* 3.2 2.3 +39.1%
Non-underlying items (0.2) - -
Impact of adopting IFRS 16 0.8 - -
----------------------------- -------- -------- -------
EBIT post- IFRS 16 3.8 2.3 +65.2%
------------------------------ -------- -------- -------
Underlying EBITDA pre- IFRS
16* 6.0 5.2 +15.4%
------------------------------ -------- -------- -------
* 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 15
Autocentres generated total revenues of GBP82.7m (H1 FY19:
GBP80.1m), an increase of 3.2% on the prior period with a LFL
increase of 2.1%.
The increase in revenues from the existing centres reflected
growth in repair, MOT and servicing sales, offset by declines in
tyres and air conditioning jobs.
Gross profit at GBP56.7m (H1 FY19: GBP54.1m) represented a gross
margin of 68.6%; an increase of 110 bps on the prior period,
reflecting continued focus on the operating model via technology
enabled efficiency programmes and growth in higher margin revenue
streams.
Autocentres' Underlying EBITDA before IFRS 16 of GBP6.0m (H1
FY19: GBP5.2m), was 15.4% higher than H1 FY19, and Underlying EBIT
before IFRS 16 was GBP0.9m higher than H1 FY19 at GBP3.2m (H1 FY19:
GBP2.3m).
Portfolio Management
The Retail store portfolio at 27 September 2019 comprised 474
stores (end of H1 FY19: 478; end of FY19: 476).
The following table outlines the changes in the Retail store
portfolio over the 26-week period:
Number
Relocations 1
-------
Leases re-negotiated 9
-------
Rightsized 0
-------
Openings 0
-------
Closed 2
-------
One Autocentre was opened, and one was closed in the period,
making the total number of Autocentre locations 317 as at 27
September 2019 (end of H1 FY19: 316; end of FY19: 317).
Net Non-Underlying items
The following table outlines the components of the
non-underlying items recognised in the period:
H1 FY20 H1 FY19
GBPm GBPm
Organisational restructure costs 1.2 0.2
Group-wide strategic review 0.8 2.1
Provision for expected settlement of an ongoing legal case 0.7 -
------------------------------------------------------------ -------- --------
Net non-underlying items 2.7 2.3
------------------------------------------------------------ -------- --------
In the current and prior period separate and unrelated
organisational restructuring activities were undertaken.
Current period costs comprised:
-- Redundancy and transition costs of GBP0.6m relating to roles
which have been outsourced or otherwise will not be replaced (H1
FY19: GBP0.2m)
-- GBP0.6m of asset write-offs, principally resulting from the
strategic decision to re-platform the Retail and Autocentres
websites (H1 FY19: GBPnil)
Costs of GBP0.8m were incurred in the current period in relation
to the costs of preparing and implementing the new Group strategy,
which comprised of the following:
-- GBP0.2m of external consultant costs (H1 FY19: GBP2.0m)
-- GBP0.6m of store labour costs, point of sale equipment and
other associated costs in completing the cycling space relay across
the store estate (FY19: GBPnil).
Prior period costs also included GBP0.1m of warehouse and
distribution costs in order to align our network with the new
strategy.
During the period a GBP0.7m provision was created for expected
costs of settling an ongoing legal case. The nature and expected
size of the settlement is outside the normal experience of the
Group.
Finance Expense
The net finance expense (before non-underlying items and IFRS
16) for the period was slightly lower year-on-year at GBP1.2m (H1
FY19: GBP1.5m).
Taxation
The taxation charge on profit for the financial period was
GBP5.6m (H1 FY19: GBP5.7m). The effective tax rate before
non-underlying items of 20.2% (H1 FY19: 21.3%) differs from the UK
corporation tax rate (19%) principally due to non-deductible
amortisation charged on intangible fixed assets.
The full year FY20 effective tax rate is expected to be
c.16%.
Earnings Per Share ("EPS")
Underlying Basic EPS before IFRS 16 was 10.4 pence and after
non-underlying items 9.3 pence (H1 FY19: 12.4 pence, 11.4 pence
after non-underlying items), a 16.1% and 18.4% decrease on the
prior period. Basic weighted-average shares in issue during the
period were 197.0m (H1 FY19: 197.2m).
Dividend ("DPS")
The Board has approved an interim dividend of 6.18 pence per
share (H1 FY19: 6.18 pence), which is flat year-on-year. This will
be paid on 17 January 2020 to shareholders on the register at the
close of business on 6 December 2019.
Capital Expenditure
Capital investment in the period totalled GBP16.6m (H1 FY19:
GBP16.5m) comprising GBP14.7m in Retail and GBP1.9m in
Autocentres.
Within Retail, GBP9.2m (H1 FY19: GBP5.6m) was invested in
stores, the majority of which related to LED lighting being
installed and the optimisation of Cycling space, both implemented
across the whole Retail estate. Additional investments in Retail
infrastructure included a GBP4.0m investment in IT systems,
including the development of the new website. The balance of
GBP1.5m was invested in other smaller support centre
upgrades/projects, and a small amount within Tredz &
Wheelies.
The GBP1.9m (H1 FY19: GBP2.2m) capital expenditure in
Autocentres principally related to the replacement of garage
equipment and replacement of fixtures and fittings.
On a cash basis, total capital expenditure in the period was
GBP16.0m (H1 FY19: GBP13.9m).
Inventories
Group inventory held as at the period end was GBP188.5m (H1
FY19: GBP193.3m). Retail inventory decreased to GBP187.2m (H1 FY19:
GBP191.8m), reflecting continued working capital efficiencies.
Autocentres' inventory was GBP1.3m (H1 FY19: GBP1.5m). The
Autocentres business model is such that only modest levels of
inventory are held within the centres, with most parts being
acquired on an as-needed basis.
Cashflow and Borrowings
Adjusted Operating Cash Flow during the period pre-post period
end payment run, was GBP74.7m (H1 FY19: GBP58.5m). After
acquisitions, taxation, capital expenditure and net finance costs,
Free Cash Flow* of GBP44.2m (H1 FY19: GBP34.2m) was generated in
the period. Group net debt on a comparable basis* was GBP62.6m (H1
FY19: GBP77.2m), with the Net Debt: Underlying EBITDA ratio at
0.7:1. All these numbers are pre-IFRS 16.
*after adjusting for post period end payment run
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 1.14% 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.
A summary of the impact on the Group income statement and
balance sheet is as follows:
Impact on the Group income H1 FY20 H1 FY19
statement:
GBPm GBPm
Operating costs:
Rent 45.9 -
Depreciation (36.2) -
------------------------------ -------- --------
Net reduction to Operating 9.7 -
costs
------------------------------ -------- --------
Finance costs (interest) (5.4) -
Net increase to Profit Before 4.3 -
Tax
------------------------------ -------- --------
The GBP9.7m net impact on Operating costs is comprised of
GBP8.9m for Retail and GBP0.8m for Autocentres as shown above. As
leases renew, we would expect the P&L impact of IFRS 16 to
reduce by year-end.
Impact on the Group balance H1 FY20 H1 FY19
sheet:
GBPm GBPm
Right-of-use asset 370.0 -
Lease liability (427.1) -
Retained Earnings 27.0 -
Brexit and impact of movements in foreign currency exchange
rates
At the date of finalising this report, there remains
considerable uncertainty around the timing and nature of the UK's
exit from the European Union. We have prepared for a "no deal",
however, there is corresponding uncertainty around the impact on
the Halfords Group.
1) Impact on exchange rates. The Group buys a significant
proportion of its goods in US dollars; between $200m and $300m a
year. As previously guided, the majority of our US dollar sourcing
is for cycling products.
2) Prolonged uncertainty over exit terms and continued weakness
in Sterling could lead to a slowdown in the UK economy and,
consequently, a further weakening of consumer confidence, impacting
trading conditions for the Group. Working groups have been held
throughout the year to identify, assess and implement mitigations
for the risks of a "no deal" Brexit. However, Halfords has strong
positions in fragmented Motoring and Cycling markets, and a
service-led offer that differentiates us from our competitors,
through both physical stores and online.
Principal Risks and Uncertainties
The Board considers risk assessment, identification of
mitigating actions and internal control to be fundamental to
achieving Halfords' strategic corporate objectives. In the Annual
Report & Accounts the Board sets out what it considers to be
the principal commercial and financial risks to achieving the
Group's objectives. The main areas of potential risk and
uncertainty in the balance of the financial year are described in
the Strategic Report on page 50 of the 2019 Annual Report and
Accounts, and all are considered relevant to the H1 FY20 reporting.
These include:
-- Economic risks; including market risks
-- Business strategy risks
-- Competitive risks
-- Compliance
-- Supply chain disruption
-- Product and service quality
-- Information technology systems and infrastructure
-- Dependence on key management personnel
Specific risks associated with performance include Christmas
trading as well as weather-sensitive sales, particularly within the
car maintenance and cycling categories in the Retail business.
Loraine Woodhouse
Chief Financial Officer, November 2019
Halfords Group plc's LEI code is 54930086FKBWWJIOB179
Glossary of Alternative Performance Measures
In the reporting of financial information, the Directors have
adopted various Alternative Performance Measures ("APMs"). APMs
should be considered in addition to IFRS measurements, of which
some are shown on Page 1. 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, as shown in the Group Income Statement.
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, as reconciled
below:
H1 FY20 H1 FY19
GBPm GBPm
Cash and cash equivalents 20.5 18.5
Borrowings - current* (17.8) (17.3)
Borrowings - non-current** (35.3) (78.4)
Net Debt (32.6) (77.2)
--------------------------------- -------- --------
Post period end payment run*** 30.0 -
--------------------------------- -------- --------
Comparable Net Debt (62.6) (77.2)
--------------------------------- -------- --------
*Borrowing - current post IFRS 16 (GBP16.3m) less IFRS 16
adjustment (GBP1.5m)
**Borrowing - non-current post IFRS 16 (GBP26.9m) less IFRS 16
adjustment (GBP8.4m)
***owing to the timing of the period end (27 September 2019)
certain creditor and payroll payments related to September were not
transacted until after the period close on Monday 30 September
2019
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 movements
in provisions (excluding post period end payment run adjustment),
as reconciled below:
H1 FY20 H1 FY19
GBPm GBPm
Underlying EBIT 27.1 32.0
Depreciation and Amortisation
pre IFRS 16 17.8 17.8
Underlying EBITDA 44.9 49.8
Non-underlying operating expenses (2.7) (2.3)
EBITDA 42.2 47.5
-------------------------------------- --- -------- --------
Share-based payment transactions 1.1 1.0
Loss on disposal of property,
plant & equipment 1.6 2.2
Working capital movements
(excluding post period end
payment run adjustment - GBP30.0m) 33.5 7.2
Provisions movement & other (3.7) 0.6
-------------------------------------- --- -------- --------
Adjusted Operating Cash Flow 74.7 58.5
-------------------------------------- --- -------- --------
8. Free Cash Flow is defined as Adjusted Operating Cash Flow (as
defined above) less capital expenditure, net finance costs,
taxation, exchange movements and arrangement fees on loans; as
reconciled below:
H1 FY20 H1 FY19
GBPm GBPm
Adjusted Operating
Cash Flow 74.7 58.5
Capital expenditure (16.0) (13.9)
Net finance costs* (1.0) (1.5)
Taxation (12.5) (6.3)
Exchange movements (1.0) (2.3)
Arrangement fees on loans - (0.3)
---------------------------- --- -------- --------
Free Cash Flow 44.2 34.2
---------------------------- --- -------- --------
*Net finance costs post IFRS 16 (GBP6.6m) less IFRS 16
adjustment (GBP5.6m)
Halfords Group plc
Condensed consolidated income statement
For the 26 weeks to 27 September 2019
26 weeks
26 weeks to to 52 weeks to
29 September 28 September 29 March
2019 2018 2019
Unaudited* Unaudited
Notes GBPm GBPm GBPm
Revenue 7 582.7 599.9 1,138.6
Cost of sales (291.0) (303.6) (559.6)
Gross profit 291.7 296.3 579.0
Operating expenses (257.6) (266.6) (524.6)
Operating profit before non-underlying
items and IFRS 16 27.1 32.0 62.2
Non-underlying operating expenditure 9 (2.7) (2.3) (7.8)
IFRS 16 operating expenditure 2 9.7 - -
--------------------------------------- ----- ------------ ------------ ---------------
Results from operating activities 34.1 29.7 54.4
Finance costs 10 (6.6) (1.6) (3.4)
Finance income 10 - 0.1 -
--------------------------------------- ----- ------------ ------------ ---------------
Net finance costs (6.6) (1.5) (3.4)
Profit before tax, IFRS 16
and non-underlying items 25.9 30.5 58.8
Non-underlying operating expenditure 9 (2.7) (2.3) (7.8)
IFRS 16 operating expenditure
and finance costs 4 4.3 - -
Profit before tax 27.5 28.2 51.0
Tax on underlying items 11 (6.1) (6.1) (10.5)
Tax on non-underlying items 9 0.5 0.4 1.4
Profit for the period attributable
to equity shareholders 21.9 22.5 41.9
Earnings per share
Basic earnings per share pre/post
IFRS 16 14 9.3p/11.1p 11.4p 21.2p
Diluted earnings per share
pre/post IFRS 16 14 9.3p/11.1p 11.3p 21.0p
Basic underlying earnings per
share pre/post IFRS 16 14 10.4p/12.2p 12.4p 24.5p
Diluted underlying earnings
per share pre/post IFRS 16 14 10.4p/12.2p 12.2p 24.2p
--------------------------------------- ----- ------------ ------------ ---------------
A final dividend of 12.39 pence per share for the 52 weeks to 29
March 2019 (2018: 12.03 pence per share) was paid on 30 August
2019. The directors have approved an interim dividend of 6.18 pence
per share in respect of the 26 weeks to 27 September 2019 (2018:
6.18 pence per share).
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
*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 4).
Halfords Group plc
Condensed consolidated statement of comprehensive income
For the 26 weeks to 27 September 2019
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018
Unaudited* Unaudited 2019
GBPm GBPm GBPm
Profit for the period 21.9 22.5 41.9
Other comprehensive income
Cash flow hedges: fair value changes
in the period 4.7 8.8 7.4
Change in fair value of investment - - (8.1)
Other comprehensive income for
the period,
net of tax 4.7 8.8 (0.7)
------------------------------------- ------------ ------------ ------------
Total comprehensive income for
the period
attributable to equity shareholders 26.6 31.3 41.2
------------------------------------- ------------ ------------ ------------
*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 4).
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of financial position
As at 27 September 2019
As at As at As at
27 September 28 September 29 March
2019 2018 2019
Unaudited* Unaudited
Notes GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 15 386.1 391.7 387.4
Property, plant and equipment 15 89.7 99.9 97.3
Right-of-use assets 15 370.0 - -
Deferred tax asset 8.9 - -
Investments 16 - 8.1 -
--------------------------------- ----- ------------- ------------- -----------
Total non-current assets 854.7 499.7 484.7
--------------------------------- ----- ------------- ------------- -----------
Current assets
Inventories** 188.5 193.3 173.7
Trade and other receivables 48.8 58.4 59.1
Derivative financial instruments 6.9 4.8 3.2
Cash and cash equivalents 17 20.5 18.5 9.8
--------------------------------- ----- ------------- ------------- -----------
Total current assets 264.7 275.0 245.8
--------------------------------- ----- ------------- ------------- -----------
Total assets 1,119.4 774.7 730.5
--------------------------------- ----- ------------- ------------- -----------
Liabilities
Current liabilities
Borrowings 17 (16.3) (17.3) (18.5)
Derivative financial instruments (0.9) (0.3) (1.4)
Lease liabilities 4 (76.6) - -
Trade and other payables (251.6) (209.4) (176.4)
Current tax liabilities 1.8 (3.1) (3.3)
Provisions (7.8) (13.5) (15.1)
--------------------------------- ----- ------------- ------------- -----------
Total current liabilities (351.4) (243.6) (214.7)
--------------------------------- ----- ------------- ------------- -----------
Net current liabilities/assets (86.7) 31.4 31.1
--------------------------------- ----- ------------- ------------- -----------
Non-current liabilities
Borrowings 17 (26.9) (78.4) (73.1)
Lease liabilities 4 (350.5) - -
Trade and other payables (3.6) (31.3) (28.1)
Deferred tax liability - (3.3) (0.1)
Provisions (4.4) (4.3) (5.2)
Total non-current liabilities (385.4) (117.3) (106.5)
--------------------------------- ----- ------------- ------------- -----------
Total liabilities (736.8) (360.9) (321.2)
--------------------------------- ----- ------------- ------------- -----------
Net assets 382.6 413.8 409.3
--------------------------------- ----- ------------- ------------- -----------
Shareholders' equity
Share capital 18 2.0 2.0 2.0
Share premium account 18 151.0 151.0 151.0
Investment in own shares (10.0) (9.1) (10.0)
Other reserves 3.6 3.9 1.9
Retained earnings** 236.0 266.0 264.4
--------------------------------- ----- ------------- ------------- -----------
Total equity attributable to
equity holders of the Company 382.6 413.8 409.3
--------------------------------- ----- ------------- ------------- -----------
*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 4).
** See note 8
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of changes in equity
For the 26 weeks to 27 September 2019
For the period ended 27 September 2019 (Unaudited)
Attributable to the equity holders of
the Company
--------------------------------- ------------------------------------------------------------------------
Other reserves
----------------------
Share Investment Capital
Share premium in own redemption Hedging Retained Total
capital account shares reserve reserve earnings** equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Closing balance at 29
March 2019* 2.0 151.0 (10.0) 0.3 1.6 264.4 409.3
Adjustment on initial
application of IFRS
16 - - - - - (27.0) (27.0)
Opening balance at 30
March 2019* 2.0 151.0 (10.0) 0.3 1.6 237.4 382.3
Total comprehensive
income for the period
Profit for the period - - - - - 21.9 21.9
Other comprehensive
income
Cash flow hedges: fair
value changes in the
period - - - - 4.7 - 4.7
Income tax on other - - - - - - -
comprehensive income
Total other comprehensive
income for the period
net of tax - - - - 4.7 - 4.7
---------------------------- ---- --------- ------------- ----------- --------- ------------ --------
Total comprehensive
income for the period - - - - 4.7 21.9 26.6
Hedging gains and losses
and costs of hedging
transferred to the cost
of inventory - - - - (3.0) - (3.0)
Transactions with owners
Share options exercised - - - - - - -
Share-based payment
transactions - - - - - 1.1 1.1
Dividends to equity
holders - - - - - (24.4) (24.4)
Total transactions with
owners - - - - - (23.3) (23.3)
---------------------------- ---- --------- ------------- ----------- --------- ------------ --------
Balance at 27 September
2019 2.0 151.0 (10.0) 0.3 3.3 236.0 382.6
---------------------------- ---- --------- ------------- ----------- --------- ------------ --------
*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 4).
** See note 8
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of changes in equity
(continued)
For the 26 weeks to 27 September 2019
For the period ended 28 September 2018 (Unaudited)
Attributable to the equity holders
of the Company
--------- --------------------------------------------------------------
Other reserves
----------------------
Share Investment Capital
Share premium in own redemption Hedging Retained Total
capital account shares reserve reserve earnings** equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Closing balance at
30 March 2018 2.0 151.0 (9.4) 0.3 (3.2) 269.5 410.2
Adjustment on initial
application of IFRS
15 - - - - - (3.3) (3.3)
--------------------------- --------- --------- ------------- ----------- --------- ------------ --------
Opening balance at
31 March 2018 2.0 151.0 (9.4) 0.3 (3.2) 266.2 406.9
--------------------------- --------- --------- ------------- ----------- --------- ------------ --------
Total comprehensive
income for the period
Profit for the period - - - - - 22.5 22.5
Other comprehensive
income
Cash flow hedges:
fair value changes
in the period - - - - 8.8 - 8.8
Total other comprehensive
income for the period
net of tax - - - - 8.8 - 8.8
--------------------------- --------- --------- ------------- ----------- --------- ------------ --------
Total comprehensive
income for the period - - - - 8.8 22.5 31.3
Hedging gains and
losses and costs
of hedging transferred
to the cost of inventory - - - - (2.0) - (2.0)
Transactions with
owners
Share options exercised - - 0.3 - - - 0.3
Share-based payment
transactions - - - - - 1.0 1.0
Dividends to equity
holders - - - - - (23.7) (23.7)
Total transactions
with owners - - 0.3 - - (22.7) (22.4)
--------------------------- --------- --------- ------------- ----------- --------- ------------ --------
Balance at 28 September
2018 2.0 151.0 (9.1) 0.3 3.6 266.0 413.8
--------------------------- --------- --------- ------------- ----------- --------- ------------ --------
** See note 8
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
Halfords Group plc
Condensed consolidated statement of cash flows
For the 26 weeks to 27 September 2019
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018 2019
Unaudited Unaudited
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit after tax for the period
before non-underlying items 24.1 24.4 48.3
Non-underlying items 9 (2.2) (1.9) (6.4)
---------------------------------------- ----- ------------ ------------ ---------
Profit after tax for the period 21.9 22.5 41.9
Depreciation and impairment 11.9 11.6 23.0
Amortisation of right-of-use asset 36.2 - -
Amortisation 5.9 6.3 13.0
Net finance costs 6.6 1.5 3.4
Loss on disposal of property,
plant and equipment 1.6 2.2 5.5
Equity-settled share-based payment
transactions 1.1 1.0 0.3
Exchange movement (1.0) (2.3) (0.3)
Income tax expense 5.6 5.7 9.1
(Increase)/decrease in inventories (14.8) (7.7) 11.9
Decrease/(increase) in trade and
other receivables 10.3 (2.4) (3.1)
Increase/(decrease) in trade and
other payables 50.2 17.3 (19.2)
(Decrease)/increase in provisions (2.3) 0.3 2.7
Finance income received - 0.1 -
Finance costs paid (6.4) (1.4) (3.1)
Corporation tax paid (12.5) (6.3) (12.7)
---------------------------------------- ----- ------------ ------------ ---------
Net cash from operating activities 114.3 48.4 72.4
---------------------------------------- ----- ------------ ------------ ---------
Cash flows from investing activities
Purchase of investment - (0.5) (0.5)
Purchase of intangible assets (4.8) (4.0) (11.0)
Purchase of property, plant and
equipment (11.2) (9.9) (18.4)
---------------------------------------- ----- ------------ ------------ ---------
Net cash used in investing activities (16.0) (14.4) (29.9)
---------------------------------------- ----- ------------ ------------ ---------
Cash flows from financing activities
Net proceeds from share options
and purchase of own shares - 0.3 (0.6)
Proceeds from loans, net of transaction
costs 446.0 445.7 1,138.7
Repayment of borrowings (483.0) (461.0) (1,159.0)
Payment of capital element of
leases (25.3) (0.3) (0.6)
Dividends paid 13 (24.4) (23.7) (35.9)
---------------------------------------- ----- ------------ ------------ ---------
Net cash used in financing activities (86.7) (39.0) (57.4)
---------------------------------------- ----- ------------ ------------ ---------
Net increase / (decrease) in cash
and bank overdrafts 17 11.6 (5.0) (14.9)
Cash and cash equivalents at the
beginning of the period 17 (7.4) 7.5 7.5
Cash and cash equivalents at the
end of the period 17 4.2 2.5 (7.4)
---------------------------------------- ----- ------------ ------------ ---------
The notes on pages 22 to 35 are an integral part of these
condensed consolidated interim financial statements.
Halfords Group plc
Notes to the condensed consolidated interim financial
statements
For the 26 weeks to 27 September 2019
1. General information
The condensed consolidated interim financial statements of
Halfords Group plc (the "Company") comprise the Company together
with its subsidiary undertakings (the "Group").
The Company is a limited liability company incorporated,
domiciled and registered in England and Wales. Its registered
office is Icknield Street Drive, Washford West, Redditch,
Worcestershire, B98 0DE.
The Company is listed on the London Stock Exchange.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 7 November 2019.
2. Statement of compliance
These condensed consolidated interim financial statements for
the 26 weeks to 27 September 2019 have been prepared in accordance
with IAS 34 'Interim financial reporting' as endorsed by the
European Union. They do not include all of the information required
for full annual financial statements and should be read in
conjunction with the 2019 Annual Report and Accounts, which have
been prepared in accordance with IFRSs as adopted by the European
Union.
This is the first set of the Group's financial statements where
IFRS 16 has been applied. Changes to significant accounting
policies and other adjustments are described in Note 4 and 8.
The comparative figures for the financial period ended 29 March
2019 are not the Group's statutory accounts for that financial
period. Those accounts have been reported on by the Group's
auditors and delivered to the registrar of companies. The report of
the auditor was (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies Act
2006.
3. Risks and uncertainties
The Directors consider that the majority of the principal risks
and uncertainties which could have a material impact on the Group's
performance in the remaining 26 weeks of the financial year remain
the same as those stated on pages 50 to 58 of our Annual Report and
Accounts for the 52 weeks to 29 March 2019, which are available on
our website www.halfordscompany.com.
4. Significant accounting policies
The Directors consider that the Group has adequate resources to
remain in operation for the foreseeable future and have therefore
continued to adopt the going concern basis in preparing the
condensed consolidated interim financial statements. The Group's
forecasts and projections, taking into account reasonably possible
changes in trading performance, show that the Group has adequate
resources to continue in operational existence for the foreseeable
future.
Except for the first time adoption of IFRS 16 detailed below, as
required by the Disclosure and Transparency Rules of the Financial
Conduct Authority, the condensed consolidated interim financial
statements have been prepared by applying the accounting policies
and presentation that were applied in the preparation of the 2019
Annual Reports and Accounts, which are published on the Halfords
Group website, www.halfordscompany.com. The changes to accounting
policies outlined below are also expected to be reflected in the
Group's consolidated financial statements as at and for the year
ending 3 April 2020.
Other than IFRS 16, there are no new or amended standards
effective in the period which has had a material impact on the
interim consolidated financial information.
IFRS 16 'Leases'
IFRS 16 introduced 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.
(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 recognizes 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 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,
calculates based on UK Government Gilt rates of an appropriate
duration and adjusted by an indicative credit premium and a lease
specific adjustment. The range of rates applied was 1.14% to
3.94%.
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 changed in the fixed lease payments.
(d) Impacts on the financial statements
The group leases many assets including properties, cars and
other equipment.
As a lessee, the Group previously classified leases as operating
lease or finance lease 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, except for short-term leases
and leases of low-value assets.
(i) Balance Sheet
The impact on the balance sheet on transition is summarised
below:
30 March 2019
GBPm
Right-of-use assets 389.1
Lease Liabilities (448.8)
Deferred tax asset 6.7
Prepayments (13.0)
Accruals 39.0
Retained Earnings 27.0
The table below shows a reconciliation from the total operating
lease commitment as disclosed at 30 March 2019 to the total lease
liabilities recognised in the accounts immediately after
transition:
30 March 2019
GBPm
Operating lease commitment at 29 March 2019
as disclosed in the Group's consolidated financial
statements 507.6
Discounted using the incremental borrowing
rate at 30 March 2019 (58.9)
Recognition exemption for lease of low-value
assets / short-term leases 0.1
Finance lease liabilities recognised at 29
March 2019 under IAS 17 10.6
---------------------------------------------------- -----------------
Total lease liabilities recognised at 30 March
2019 459.4
The Group presents right-of-use assets separately in the
consolidated balance sheet.
The carrying amounts of right-of-use assets are as below:
In thousands Property, Plant
and Equipment
GBPm
Balance at 30 March 2019 389.1
Balance at 27 September 2019 370.0
The Group presents lease liabilities separately in the
consolidated balance sheet.
(ii) Income statement
The Group has recognised depreciation and interest costs in
respect of leases that were previously classified as operating
leases in the income statement for the period, rather than rental
charges. During the period ended 27 September 2019, the Group
recognised GBP36.2m of additional depreciation charges and GBP5.4m
of additional interest costs in respect of these leases.
(iii) Reserves
Where the group has chosen to implement IFRS 16 using the
modified transition approach, whereby the initial right-of-use
asset values were equal to the present value of the remaining lease
payments there is no impact on reserves at the date of
transition.
Where the cumulative approach has been adopted the mismatch
between the liability and asset value at transition is taken to
reserves. The Group has taken GBP27.0m to reserves at the start of
the period.
5. Estimates and judgements
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those applied to the
consolidated financial statements as at and for the 52 week period
ended 29 March 2019 and the 26 weeks ended 28 September 2018,
except where the implementation of IFRS 16 discussed above required
a different approach to the accounting previously applied.
Significant estimates and judgements that have been required for
the implementation of this new standard are the determination of
the incremental borrowing rate used to measure lease
liabilities.
6. 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 and online platforms. The operations of the Car
Servicing reporting segment comprise car servicing and repair
performed from Autocentres.
The Chief Operating Decision Maker is the Executive Directors.
Internal management reports for each of the segments are reviewed
by the Executive Directors on a monthly basis. Key measures used to
evaluate performance are Revenue and Operating Profit. Management
believe that these measures are the most relevant in evaluating the
performance of the segment and for making resource allocation
decisions.
The following summary describes the operations in each of the
Group's reportable segments. Performance is measured based on
segment operating profit, as included in the management reports
that are reviewed by the Executive Directors. These internal
reports are prepared in accordance with IFRS accounting policies
(pre 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.
26 weeks
to 27 September
2019
Retail Car Servicing Total Unaudited
Income statement GBPm GBPm GBPm
-------------------------------------- ------ ------------- ----------------
Revenue 500.0 82.7 582.7
Segment result before non-underlying
items pre IFRS 16 25.0 3.2 28.2
Non-underlying items (2.5) (0.2) (2.7)
-------------------------------------- ------ ------------- ----------------
Segment result pre IFRS 16 22.5 3.0 25.5
Unallocated expenses(1) (1.1)
-------------------------------------- ------ ------------- ----------------
Operating profit pre IFRS 16 24.4
IFRS 16* 4.3
Net financing expense (1.2)
Profit before tax 27.5
Taxation (5.6)
-------------------------------------- ------ ------------- ----------------
Profit after tax 21.9
-------------------------------------- ------ ------------- ----------------
*See note 4
26 weeks
to 28 September
2018
Retail Car Servicing Total Unaudited
Income statement GBPm GBPm GBPm
-------------------------------------- ------ ------------- ----------------
Revenue 519.8 80.1 599.9
Segment result before non-underlying
items 30.8 2.3 33.1
Non-underlying items (2.3) - (2.3)
-------------------------------------- ------ ------------- ----------------
Segment result 28.5 2.3 30.8
Unallocated expenses(1) (1.1)
-------------------------------------- ------ ------------- ----------------
Operating profit 29.7
Net financing expense (1.5)
Profit before tax 28.2
Taxation (5.7)
-------------------------------------- ------ ------------- ----------------
Profit after tax 22.5
-------------------------------------- ------ ------------- ----------------
(1) Unallocated expenses have been disclosed to reflect the
format of the internal management reports reviewed by the Chief
Operating Decision maker and include an amortisation charge of
GBP1.1m in respect of assets acquired through business combinations
(2018: GBP1.1m).
52 weeks
to
29 March
2019
Retail Car Servicing Total
Income statement GBPm GBPm GBPm
-------------------------------------- ------ ------------- ---------
Revenue 977.2 161.4 1,138.6
Segment result before non-underlying
items 58.8 5.5 64.3
Non-underlying items (8.7) 0.9 (7.8)
-------------------------------------- ------ ------------- ---------
Segment result 50.1 6.4 56.5
Unallocated expenses(1) (2.1)
-------------------------------------- ------ ------------- ---------
Operating profit 54.4
Net financing expense (3.4)
Profit before tax 51.0
Taxation (9.1)
-------------------------------------- ------ ------------- ---------
Profit after tax 41.9
-------------------------------------- ------ ------------- ---------
(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
GBP2.1m in respect of assets acquired through business combinations
(2018: GBP2.1m).
26 weeks
to 27 September
2019
Retail Car Servicing Total Unaudited
Other segment items: GBPm GBPm GBPm
------------------------------ ------ ------------- ----------------
Capital expenditure 14.7 1.9 16.6
Depreciation expense 9.6 2.3 11.9
Amortisation of right-of-use
asset 32.0 4.2 36.2
Amortisation expense 4.4 0.5 4.9
------------------------------- ------ ------------- ------------------
26 weeks
to
28 September
2018
Retail Car Servicing Total Unaudited
Other segment items: GBPm GBPm GBPm
---------------------- ------ ------------- ----------------
Capital expenditure 14.3 2.2 16.5
Depreciation expense 9.2 2.4 11.6
Amortisation expense 5.8 0.5 6.3
----------------------- ------ ------------- ----------------
52 weeks
to
29 March
2019
Retail Car Servicing Total
Other segment items: GBPm GBPm GBPm
---------------------- ------ ------------- ---------
Capital expenditure 26.3 4.7 31.0
Depreciation expense 18.6 4.4 23.0
Amortisation expense 9.7 1.2 10.9
----------------------- ------ ------------- ---------
There have been no significant transactions between segments in
the 26 weeks ended 27 September 2019 (2018: GBPnil).
7. Revenue
A. Revenue streams and location
The Group's operations and main revenue streams are those
described in the last annual financial statements. The Group's
revenue is derived from contracts with customers.
Revenue split by the Group's operating segments are shown in
Note 6.
All revenue is recognised in the United Kingdom and Republic of
Ireland.
B. Seasonality of operations
In general, the Group's results are not seasonal with revenue in
the first half broadly similar to that of the second, however sales
of certain products tend to fluctuate by season. For example, sales
of children's cycles peak in the Christmas season and sales of
adult cycles tend to peak in the summer.
8. Inventories
Inventories at 27 September 2019 include a right to recover
returned goods amounting to GBP1.9m (29 March 2019: GBP1.8m 28
September 2018: GBP1.8m). These are measured by reference to the
former carrying amount of the sold inventories.
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.
The amount of such distribution centre costs included within
inventories (net of any provision to adjust to net realisable
value) as at 27 September 2019 was GBP11.7m. This is, broadly, the
same amount of such distribution centre costs that was included
within inventories as at the prior year end 29 March 2019, at the
prior period end 28 September 2018 and at the prior year end 30
March 2018.
In the condensed consolidated statement of financial position,
inventories at 27 September 2019, 29 March 2019 and 28 September
2018 are stated after adjusting for this amount, and consequently
retained earnings and net assets have been reduced by GBP11.7m. In
correcting this misapplication, there is no impact on reported
gross profit, operating expenses or other items in the condensed
consolidated income statement or in the condensed consolidated
statement of cash flows for the current or comparative periods.
9. Non-underlying items
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018 2019
Unaudited Unaudited
GBPm GBPm GBPm
Non-underlying operating expenses:
Organisational restructure
costs (a) 1.2 0.2 6.8
Group-wide strategic review
(b) 0.8 2.1 2.4
Provision for expected settlement 0.7 -
of an ongoing legal case (c) -
One-off royalty income (d) - - (1.6)
Acquisition and investment-related
fees (e) - - 0.2
Non-underlying items before
tax 2.7 2.3 7.8
------------------------------------ ------------ ------------ --------
Tax on non-underlying items
(f) (0.5) (0.4) (1.4)
------------------------------------ ------------ ------------ --------
Non-underlying items after
tax 2.2 1.9 6.4
------------------------------------ ------------ ------------ --------
(a) In the current and prior period separate and unrelated
organisational restructuring activities were undertaken.
Current period costs comprised:
-- Redundancy and transition costs of GBP0.6m relating to roles
which have been outsourced or otherwise will not be replaced (H1
FY19: GBP0.2m, FY19 full year: GBP1.5m)
-- GBP0.6m of asset write-offs, principally resulting from the
strategic decision to re-platform the Retail and Autocentres
websites (H1 FY19: GBPnil, FY19 full year: GBP5.3m)
(b) In the current and prior period costs were incurred in
preparing and implementing the new Group strategy.
Current period costs comprised:
-- GBP0.2m of external consultant costs (H1 FY19: GBP2.0m, FY19 full year: GBP2.0m)
-- GBP0.6m of store labour costs, point of sale equipment and
other associated costs in completing the cycling space relay across
the store estate (FY19: GBPnil).
Prior period costs also included GBP0.4m (H1 FY19: GBP0.1m) of
warehouse and distribution costs in order to align our network with
the new strategy.
(c) During the period a provision was created for expected costs
of settling an ongoing court case. The size and nature of the
settlement is outside the normal experience of the Group.
(d) A one-off royalty income was received in the prior period in
relation to the use of a software license.
(e) GBP0.2m 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.
(f) The tax credit in H1 FY20 represents a tax rate of 19.0%
applied to non-underlying items (H1 FY19: 19.0%, FY19 full year:
18.0%).
10. Net Finance Costs
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018 2019
Unaudited Unaudited
GBPm GBPm GBPm
Finance costs:
Bank borrowings (0.4) (0.8)) (1.6)
Amortisation of issue costs
on loans (0.2) (0.2)) (0.4)
Commitment and guarantee fees (0.3) (0.3)) (0.6)
Interest payable on finance
leases (0.3) (0.3)) (0.8)
IFRS 16 interest charge* (5.4) - -
Finance costs (6.6) (1.6)) (3.4)
Finance income:
Bank and similar interest - 0.1 -
Finance income - 0.1 -
Net finance costs (6.6) (1.5) (3.4)
------------------------------ ------------ ------------ --------
* 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 4).
11. Income tax expense
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year applied to the pre-tax income of the
interim period.
The effective tax rate before non-underlying items for the 26
weeks to 27 September 2019 is 20.2% (H1 2019: 21.3%). The effective
tax rate is higher than the UK corporation tax rate principally due
to non-deductible amortisation charged on intangible fixed
assets.
12. Financial Instruments and Related Disclosures
Accounting classifications and fair values
The following table shows the carrying amounts and fair values
of financial assets and 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.
Fair Value FVOCI -
- hedging equity Amortised Other financial Total carrying
instruments instruments cost liabilities amount
27 September 2019 GBPm GBPm GBPm GBPm GBPm
------------------------------ ------------ ------------ --------- --------------- --------------
Financial assets measured
at fair value
Forward exchange contracts
used for hedging 6.9 - - - 6.9
Equity investments - - - - -
------------------------------ ------------ ------------ --------- --------------- --------------
6.9 - - - 6.9
------------------------------ ------------ ------------ --------- --------------- --------------
Financial assets not measured
at fair value
Trade and other receivables* - - 34.4 - 34.4
Cash and cash equivalents - - 20.5 - 20.5
------------------------------- ------------ ------------ --------- --------------- --------------
- - 54.9 - 54.9
------------------------------ ------------ ------------ --------- --------------- --------------
Financial liabilities
measured at fair value
Forward exchange contracts
used for hedging (0.9) - - - (0.9)
------------------------------- ------------ ------------ --------- --------------- --------------
(0.9) - - - (0.9)
------------------------------ ------------ ------------ --------- --------------- --------------
Financial liabilities
not measured at fair value
Borrowings - - - (43.2) (43.2)
Lease liabilities - - - (427.1) (427.1)
Trade and other payables** - - - (176.5) (176.5)
------------------------------- ------------ ------------ --------- --------------- --------------
- - - (646.8) (646.8)
------------------------------ ------------ ------------ --------- --------------- --------------
* Prepayments and accrued income of GBP14.4m are not included as
a financial asset.
** Other taxation and social security payables of GBP26.6m,
deferred income of GBPnil, accruals of GBP39.0m and other payables
of GBP13.1m are not included as a financial liability.
Fair Value FVOCI -
- hedging equity Amortised Other financial Total carrying
instruments instruments cost liabilities amount
28 September 2018 GBPm GBPm GBPm GBPm GBPm
------------------------------ ------------ ------------ --------- --------------- --------------
Financial assets measured
at fair value
Forward exchange contracts
used for hedging 4.8 - - - 4.8
Equity investments - 8.1 - - 8.1
------------------------------- ------------ ------------ --------- --------------- --------------
4.8 8.1 - - 12.9
------------------------------ ------------ ------------ --------- --------------- --------------
Financial assets not measured
at fair value
Trade and other receivables* - - 35.6 - 35.6
Cash and cash equivalents - - 18.5 - 18.5
------------------------------- ------------ ------------ --------- --------------- --------------
- - 54.1 - 54.1
------------------------------ ------------ ------------ --------- --------------- --------------
Financial liabilities
measured at fair value
Forward exchange contracts
used for hedging (0.3) - - - (0.3)
------------------------------- ------------ ------------ --------- --------------- --------------
(0.3) - - - (0.3)
------------------------------ ------------ ------------ --------- --------------- --------------
Financial liabilities
not measured at fair value
Borrowings - - - (84.5) (84.5)
Finance lease liabilities - - - (11.2) (11.2)
Trade and other payables** - - - (142.2) (142.2)
------------------------------- ------------ ------------ --------- --------------- --------------
- - - (237.9) (237.9)
------------------------------ ------------ ------------ --------- --------------- --------------
* Prepayments and accrued income of GBP22.8m are not included as
a financial asset.
** Other taxation and social security payables of GBP14.1m,
deferred income of GBP29.2m, accruals of GBP41.0m and other
payables of GBP14.2m are not included as a financial liability.
Measurement of fair values
The fair values of each class of financial assets and
liabilities is the carrying amount, based on the following
assumptions:
Trade receivables, trade payables The fair value approximates to the carrying
and finance lease obligations, amount because of the short
short-term deposits and borrowings maturity of these instruments, using an
interest rate of 7.1% for long-term
finance lease obligations.
----------------------------------- ----------------------------------------------
Long-term borrowings The fair value of bank loans and other loans
approximates to the carrying value reported
in the statement of financial position as
the majority are floating rate where payments
are reset to market rates at intervals of
less than one year.
----------------------------------- ----------------------------------------------
Forward currency contracts The fair value is determined using the market
forward rates at the reporting
date and the outright contract rate.
----------------------------------- ----------------------------------------------
Financial instruments carried at fair value are required to be
measured by reference to the following levels:
-- Level 1: quoted prices in active markets for identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
All financial instruments carried at fair value have been
measured by a Level 2 valuation method, except for the equity
investments, as shown in Note 16, which is valued at Level 3. There
have been no changes to classifications in the current or prior
period.
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 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 period was GBP0.1m.
13. Dividends
During the period the Group paid a final dividend of 12.39p
pence per share in respect of the 52 weeks to 29 March 2019 (2018:
12.03 pence per share), which absorbed GBP24.4m of shareholders'
funds (2018: GBP23.7m).
The directors have approved an interim dividend of 6.18 pence
per share for the 26 weeks to 27 September 2019 (2018: 6.18 pence
per share), which is expected to be GBP12.2m (2018: GBP12.2m) and
will be paid on 17 January 2020 to those shareholders on the share
register at the close of business on 6 December 2019.
14. Earnings Per Share
Basic earnings per share is calculated by dividing the earnings
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 the Employee
Benefit Trust and has been adjusted for the issue/repurchase 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 26
weeks to 27 September 2019.
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018 2019
Unaudited Unaudited
Number Number Number
m* m M
Weighted average number of shares
in issue 199.1 199.1 199.1
Less: shares held by the Employee
Benefit Trust (2.1) (1.9)) (2.0)
------------------------------------ ------------ ------------ --------
Weighted average number of shares
for calculating basic earnings
per share 197.0 197.2 197.1
Weighted average number of dilutive
share options 0.7 2.1 2.1
Weighted number of shares for
calculating diluted earnings per
share 197.7 199.3 199.2
------------------------------------ ------------ ------------ --------
26 weeks 26 weeks 52 weeks
to to to
27 September 28 September 29 March
2019 2018 2019
Unaudited Unaudited
GBPm* GBPm GBPm
Basic earnings attributable to
equity shareholders before IFRS
16 17.6 22.5 41.9
Basic earnings attributable to
equity shareholders 21.9 22.5 41.9
Non-underlying items:
Operating expenses 2.7 2.3 7.8
Tax charge on non-underlying items (0.5) (0.4)) (1.4)
------------------------------------------ ------------ ------------ --------
Underlying earnings before non-underlying
items and IFRS 16 19.8 24.4 48.3
------------------------------------------ ------------ ------------ --------
Basic earnings per share* 9.3p 11.4p 21.2p
Diluted earnings per share* 9.3p 11.3p 21.0p
Basic underlying earnings per
share* 10.4p 12.4p 24.5p
Diluted underlying earnings per
share* 10.4p 12.2p 24.2p
Post IFRS 16 (comparatives numbers
are un-changed)
Basic earnings per share 11.1p 11.4p 21.2p
Diluted earnings per share 11.1p 11.3p 21.0p
Basic underlying earnings per
share 12.2p 12.4p 24.5p
Diluted underlying earnings per
share 12.2p 12.2p 24.2p
------------------------------------------ ------------ ------------ --------
*These numbers are quoted pre IFRS 16 (applying IAS 17) and
related tax charges (HY20: GBP0.7m) in order to show comparability
with the prior period.
The alternative measure of earnings per share is provided
because it reflects the Group's underlying performance by excluding
the effect of non-underlying items.
15. Capital Expenditure - Tangible and Intangible Assets
Tangible and Intangible
Assets
Unaudited
GBPm
Net book value at 30 March 2018 495.2
Additions 16.5
Disposals (11.1)
Depreciation, amortisation and impairment (9.0)
------------------------------------------- -----------------------
Net book value at 28 September 2018 491.6
------------------------------------------- -----------------------
Tangible and Right-of-use
Intangible assets
Assets Unaudited*
Unaudited
GBPm GBPm
Net book value at 29 March 2019 484.7 390.0
Additions 16.6 10.0
Disposals (1.4) (0.1))
Transfer of finance leases (6.3) 6.3
Depreciation, amortisation and impairment (17.8) (36.2)
------------------------------------------ ------------ ------------
Net book value at 27 September 2019 475.8 370.0
------------------------------------------ ------------ ------------
* 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 4).
16. Investments
Unaudited
GBPm
Investments at 29 March 2019 and 27 September
2019 -
---------------------------------------------- ---------
Investment at 28 September 2018 8.1
----------------------------------------------- ---------
In February 2019 Tyres On the Drive went into administration.
Tyres On the Drive sold its entire trade and assets to Victor
Holdings Limited (or its subsidiaries). This left the business with
no value. Therefore, the original value of the investment was
derecognised in FY19 resulting in a debit to OCI as a result of the
irrevocable election taken under IFRS 9 to account for the
investment as FVOCI.
17. Analysis of Movements in the Group's Net Debt in the Period
At
At Other non-cash 27 September
29 March Cash flow changes 2019
2019 Unaudited Unaudited Unaudited
GBPm GBPm GBPm GBPm
Cash in hand and at bank (7.4) 11.6 - 4.2
Debt due after one year (63.8) 37.0 (0.1) (26.9)
-------------------------- ---------- --------- -------------- -------------
Total net debt excluding
leases (71.2) 48.6 (0.1) (22.7)
-------------------------- ---------- --------- -------------- -------------
Finance leases due within
one year* (1.3) 25.3 (100.6) (76.6)
Finance leases due after
one year* (9.3) - (341.2) (350.5)
-------------------------- ---------- --------- -------------- -------------
Total finance leases (10.6) 25.3 (441.8) (427.1)
-------------------------- ---------- --------- -------------- -------------
Total net debt (81.8) 73.9 (441.9) (449.8)
-------------------------- ---------- --------- -------------- -------------
* 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 4). This requires the recognition
of lease liabilities on the balance sheet for lease contracts that
were previously classified as operating leases.
Non-cash changes comprise finance costs in relation to the
amortisation of capitalised debt issue costs of GBP0.1m, and
movements in finance leases. Cash and cash equivalents at the
period end consist of GBP15.4m of liquid assets, GBP5.1m of cash
held in Trust and GBP16.3m of bank overdrafts.
At
At Other non-cash 28 September
30 March Cash flow changes 2018
2018 Unaudited Unaudited Unaudited
GBPm GBPm GBPm GBPm
Cash in hand and at bank 7.5 (5.0) - 2.5
Debt due after one year (83.7) 15.3 (0.1) (68.5)
-------------------------- --------- --------- -------------- -------------
Total net debt excluding
finance leases (76.2) 10.3 (0.1) (66.0)
-------------------------- --------- --------- -------------- -------------
Finance leases due within
one year (1.3) 0.3 (0.3) (1.3)
Finance leases due after
one year (10.3) - 0.4 (9.9)
-------------------------- --------- --------- -------------- -------------
Total finance leases (11.6) 0.3 0.1 (11.2)
-------------------------- --------- --------- -------------- -------------
Total net debt (87.8) 10.6 - (77.2)
-------------------------- --------- --------- -------------- -------------
18. Share Capital
Share
Number of Share premium
shares capital account
m GBPm GBPm
As at 30 March 2018 and 28
September 2018 199.1 2.0 151.0
--------------------------- --------- -------- --------
Share
Number of Share premium
shares capital account
m GBPm GBPm
As at 29 March 2019 and
27 September 2019 199.1 2.0 151.0
------------------------ --------- -------- --------
During the 26 weeks to 27 September 2019 and 28 September 2018,
there were no movements in company share capital. The shares held
in treasury are used to meet options under the Company's share
options schemes.
19. Contingent liability
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 27 September 2019 amounted to
GBP1.5m.
Where right of set off is included within the Group's banking
arrangements, credit balances may be offset against the
indebtedness of other Group companies.
20. Related Party Transactions
The key management personnel of the Group comprise the Executive
and Non-Executive Directors and the Halfords Limited and Halfords
Autocentres management boards. The details of the remuneration,
long-term incentive plans, shareholdings and share option
entitlements of individual Directors are included in the Directors'
Remuneration Report on pages 99 to 108 of the Group 2019 Annual
Report and Accounts.
During the period 984,783 share options were granted to
directors in relation to the Performance Share Plan ("PSP") and 818
share options were granted in relation to the Deferred Bonus Plan
("DBP").
21. Post balance sheet events
After the balance sheet date on 14 October 2019 Halfords
Autocentres acquired the trade and assets of Victor Holdings
Limited (trading as "Tyres on the Drive") for an immaterial
consideration. On 5 November 2019 Halfords Autocentres acquired
100% of the share capital of McConechy's Tyre Service Limited for
cash consideration of GBP8.5m. The initial accounting for the
business combination has not been completed for the time these
financial statements have been issued, to include goodwill and fair
value calculations. Full disclosure will be made in the annual
accounts.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Loraine Woodhouse, Chief Financial Officer
6 November 2019
Halfords Group plc
Independent review report to Halfords Group plc
For the 26 weeks to 27 September 2019
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 27 September 2019 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of equity,
the condensed consolidated statement of cashflows and the related
notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 27
September 2019 is not prepared, in all material respects, in
accordance with International Accounting Standard 34, as adopted by
the European Union, and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London
6 November 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UGGPGGUPBGPM
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