DJ Halfords Group PLC: Preliminary Results: Financial Year 2021
Halfords Group PLC (HFD)
Halfords Group PLC: Preliminary Results: Financial Year 2021
17-Jun-2021 / 07:00 GMT/BST
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17 June 2021
Halfords Group plc
Preliminary Results: Financial Year 2021
Strong performance driven by share gains in Motoring services, profitability improvements across the Group, and share
gains and strong demand in Cycling.
Halfords Group plc ("Halfords" or the "Group"), the UK's leading provider of Motoring and Cycling products and
services, today announces its preliminary results for the 52 weeks to 2 April 2021 ("the period"). To aid
comparability, all numbers shown are before the impact of IFRS 16, before non-underlying items, and on a 52-week basis,
unless otherwise stated.
Overview
FY21
- Grew market share in Motoring Services and Cycling; strong growth in areas of strategic focus - Group Services, B2B
and Online; delivered significant cost efficiencies.
- Underlying Profit Before Tax of GBP96.3m, +GBP40.4m above last year.
- Strong cash generation; year-end Net Cash of GBP58.1m, including certain non-recurring benefits.
- Proposed final dividend per share of 5p.
FY22
- Building on strong foundations, we will accelerate investment in our transformation and position the business for
long term success.
- Confident in our prospects but conscious of continued COVID-19 volatility; targeting profit before tax, post-IFRS
16 adjustments, of above GBP75m and a proposed full year dividend per share of 9p.
Long term
- Confident in the long-term growth prospects of the motoring and cycling markets and our ability to compete strongly
in each.
- Significant growth opportunity in our Services and B2B businesses.
- Ambition to become the market leader in electric mobility services and support the UK's switch to a more
sustainable future.
- Progressive dividend policy.
Graham Stapleton, Chief Executive Officer, commented:
"We are delighted to have delivered a year of very strong financial and operational progress, especially in light of
the extraordinary challenges presented by the pandemic. As ever, I would like to thank our outstanding colleagues
across the business for their hard work, professionalism, and dedication.
It was a year in which Halfords' transformation into a service-led business was rapidly accelerated, and we were
particularly pleased to achieve a record revenue performance in the strategically important area of Motoring services.
We have continued to increase our scale and capacity in this area and customers can now receive our services at almost
800 fixed locations, or at home from one of our 143 mobile expert vans.
We have also continued to lead the transition to an electric vehicle future by investing in training and technology. By
the end of the current financial year, we will have trained more than 2,000 of our store and garage colleagues to
service electric cars, bikes and scooters.
Demand for our services remains strong in the new financial year, and our touring categories are currently performing
particularly well given the trend towards staycations this summer. In the longer-term, we remain confident in the
future prospects for the UK's motoring and cycling markets and our ability to compete strongly in both."
Group financial summary
FY21 FY20 FY20
(52 weeks) (53 weeks) (52 weeks) 52-week change 52-week LFL* Change
GBPm GBPm GBPm
Revenue 1,292.3 1,155.1 1,142.4 +13.1% +13.9%
Retail 1,039.8 961.0 950.6 +9.4% +14.6%
Autocentres 252.5 194.1 191.8 +31.6% +9.7%
Gross Margin 50.8% 51.1% 51.1% -34bps
Retail 48.3% 48.2% 48.2% +10bps
Autocentres 61.1% 65.4% 65.5% -440bps
Underlying EBITDA* 139.8 92.6 95.3 +46.7%
Underlying Profit Before Tax ("PBT")* 96.3 52.6 55.9 +72.3%
Net Non-Underlying Items, pre-IFRS 16 (37.3) (32.1) (32.1)
Impact of IFRS 16 5.5 (1.1) (1.1)
Profit Before Tax, after impact of IFRS 16 64.5 19.4 22.7 +184.1%
Underlying Basic Earnings per Share* 40.7p 22.9p 24.3p +67.5%
*Before IFRS 16, before non-underlying items. *Alternative performance measures are defined and reconciled to IFRS amounts in the glossary on page 21. The LFL change measure adjusts for the in-year store openings and closures, and acquisitions.
Key highlights - Autocentres, including our Halfords Mobile Expert vans ("HME"), gained significant market share, growing 9.7% LFL
against a backdrop of traffic more than 25% below pre-pandemic levels. - Strong growth in our areas of strategic focus: Group Services growing +23%, B2B +40% and Online +110%. - In Retail:
- LFL sales growth of +14.6% (total revenue +9.4%), with cycling +54.1% LFL and motoring down -12.1% LFL.
- In Motoring, essential products such as 3B's ("Blades, Bulbs and Batteries") outperformed traffic levels,
whilst touring, car cleaning and maintenance products finished in strong growth.
- In Cycling, we refreshed over 50% of our Adult bikes, attracting new and existing customers with our award
winning and exclusive own brand bikes.
- Strong Cycling services growth of +51%, fulfilled by our national coverage of technicians.
- Tredz grew revenue by +66% and profit by GBP7m YoY, as we focussed our investment on one performance cycling
brand following the closure of Cycle Republic. - In Autocentres:
- Total revenue growth of +31.6% (+9.7% LFL) and EBIT, before non-underlying items and IFRS 16 adjustments, of
GBP12.7m, +89.6% higher than last year. An exceptional performance reflecting significant market share gains.
- Strong growth of our Halfords Mobile Expert ("HME") vans business, growing revenue by +200% and finishing the
year with 143 vans, 14 hubs and over 250 technicians, with established hubs now profit accretive to the Group.
- Expanded our coverage of the commercial market through the acquisition of Universal Tyres, adding 20 garages to
our fixed estate and 89 commercial vans. - Electric mobility: - E-mobility sales (i.e., e-bikes, e-scooters and associated accessories) up +94% - By the end of FY22, more than 2,000 of our store and garage colleagues will be trained to service electric
vehicles, bikes and scooters. - Group gross margin declined by -34bps, reflecting a +680bps improvement in Cycling and underlying improvements in
the Autocentres businesses, largely offsetting the adverse mix impact of a -12 percentage-point change in
high-margin motoring revenues as a percentage of Retail sales and the full year mix impact of the McConechy's and
Tyres on the Drive acquisitions. - Operating costs were tightly controlled, increasing +5.6% before non-underlying items and IFRS 16 adjustments,
decreasing as a proportion of revenue by -3.1ppts. Costs of operating with COVID-19 were significant, approximately
GBP33m across the Group. The Group was also eligible for business rates relief, totalling GBP39m. - Profit Before Tax ("PBT"), pre-IFRS 16 and before non-underlying items of GBP96.3m. PBT after the impact of IFRS 16
and including non-underlying items of GBP64.5m, +GBP41.8m above FY20. - Free Cash Flow of GBP145.3m driven by strong profit generation, lower cycling stocks due to global supply
constraints, and our actions to preserve cash throughout the pandemic. - Non-underlying items were GBP37.3m, the majority of which are non-cash in the year and are mainly related to the
previously announced closure of 55 stores and garages, following a strategic review of low-return locations.
Current trading and Outlook
We have seen positive momentum carry forward into the first 9 weeks of FY22, with demand for our motoring services strong, cycling demand remaining elevated, and staycation products popular in Retail motoring. The two-year LFL growth rates (vs. FY20) for the first nine weeks of FY22 were as follows: Retail Motoring 6.6%, Retail Cycling 42.0%, Autocentres 6.6%.
Although we expect a continuation of the volatile and unpredictable trading seen throughout FY21, we are positive on our prospects for FY22. In the short term, we expect the market share gains we have made across our Autocentres business to continue, alongside an increase in more regular and routine motoring journeys. Within our Retail business, pent-up demand and the restrictions on foreign travel will give rise to increased demand for our touring and cycling products, whilst motoring products should benefit from more normalised traffic patterns.
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There are, however, external factors that add uncertainty to our outlook. Supply challenges for Cycling products remain acute, and a return to normal trading patterns remains highly uncertain, particularly in H2, as the hospitality industry and international travel potentially reopen to a greater extent. The general economic outlook remains challenging, with consumers likely to be more cautious and expecting greater value from their purchases. We will address this by making a significant investment in pricing in our Retail Motoring business. Although this may impact FY22 gross margins, we are confident it will strengthen the business in the medium and long term. After the strong start to the year, and in consideration of these factors, we are targeting FY22 profit before tax, including IFRS 16 adjustments, of above GBP75m.
In the longer term, we are confident in the outlook for the motoring and cycling markets and our ability to compete strongly in both. We have demonstrated the resilience and growth opportunity in our Services and B2B businesses by gaining market share through increasing scale and convenience alongside enhancing the overall customer experience. We also believe that the increased adoption of Cycling will continue, supported by Government investment and a societal need to tackle climate change. As a business, we will continue to drive our markets by launching more new and exclusive products, becoming the market leader in electric mobility as the UK switches to a sustainable future, and continuing to engage our customers by creating a seamless digital and physical experience. Building on the strong foundations we have created in FY21, Halfords is well-positioned to accelerate its transformation journey.
Capital structure and dividend
We have finished the financial year with a strong balance sheet, ending with net cash of GBP58.1m, although some of this is non-recurring, and will unwind as inventory levels return to optimal levels and the timing of creditor payments normalises. This financial strength gives us the ability to invest in our transformation plan, positioning the business for long-term success. Considering this opportunity, we have updated our capital allocation priorities as follows: 1. Maintaining a prudent balance sheet 2. Investment for growth 3. M&A, focused on Autocentres 4. Progressive dividend policy 5. Surplus cash returned to shareholders
Our maximum Net Debt: EBITDA ratio, on a pre-IFRS 16 basis, remains at 1.0x, or up to 1.5x on a short-term basis to fund M&A activity. However, given the current strength of our balance sheet and the uncertain economic environment, we will operate with more prudent debt levels in the near-term.
With a robust and proven strategy, it is imperative we invest in our transformation plan, which we believe will require between GBP50m and GBP60m per year of capital expenditure in the medium-term. Our growth plan will be complemented by acquisitions if we are able to find attractive businesses, with the right strategic fit and for a fair price. Our acquisition strategy will be focussed on scaling our motoring services business, propelling us to market leadership in aftermarket service, maintenance and repair.
We understand the importance of the ordinary dividend to many of our investors. Recognising this, and the strength of the current balance sheet, we are proposing an FY21 final dividend of 5p per share and a reinstatement of the ordinary dividend from FY22 at 9p per share, intending this to be progressive. Should surplus cash remain in the business that we feel we cannot deploy with good rates of return, we will return this to shareholders in the most appropriate way.
Enquiries
Investors & Analysts (Halfords)
Loraine Woodhouse, Chief Financial Officer
Neil Ferris, Corporate Finance Director +44 (0) 7483 360 675
Andy Lynch, Head of Investor Relations +44 (0) 1527 513 189
Media (Powerscourt) +44 (0) 20 7250 1446
Rob Greening halfords@powerscourt-group.com
Lisa Kavanagh
Jack Shelley
Results presentation
A conference call for analysts and investors will be held today, starting at 09:00am UK time. Attendance is by invitation only. A copy of the presentation and a transcript of the call will be available at www.halfordscompany.com in due course. For further details please contact Powerscourt on the details above.
Next trading statement
On 8 September 2021 we will report our trading update for the 20 weeks ending 20 August 2021.
Notes to Editors
www.halfords.com www.tredz.co.uk www.halfordscompany.com
Halfords is the UK's leading provider of motoring and cycling services and products. Customers shop at 404 Halfords stores, 3 Performance Cycling stores (trading as Tredz and Giant), 374 garages (trading as Halfords Autocentres, McConechy's and Universal) and have access to 143 mobile service vans (trading as Halfords Mobile Expert and Tyres on the Drive) and 192 Commercial vans. Customers can also shop at halfords.com and tredz.co.uk for pick up at their local store or direct home delivery, as well as booking garage services online at halfords.com.
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
Operational review
I am very pleased with our performance in FY21, shown not only in the financial results but also in the operational agility demonstrated throughout the business to overcome the many challenges presented last year. COVID-19 was clearly the most significant challenge faced by any retailer, but we have also faced Brexit, container shortages, port congestion and more recently, the blockage of the Suez Canal. Our performance not only showcases the resilience of our core business and the relevance of our strategy, but also the importance of our progress in creating a more efficient and profitable business to provide strong foundations for future growth.
Retail
Retail revenue of GBP1,039.8m was +9.4% above last year and +14.6% on a LFL basis. We saw a volatile and unpredictable year of trading, with large swings in LFL performances from week to week, and across our categories. Overall, we saw strong demand for our Cycling products, +54.1% above last year, with our performance cycling business Tredz performing even better at +66.3%. Motoring was -12.1% LFL, better than traffic levels but inevitably impacted by the lockdowns.
Retail Motoring
Retail motoring sales were down -12.1% LFL against the backdrop of -25% fewer car journeys and low consumer confidence. As an essential retailer we played our part in the COVID-19 response by carrying out over 60k Services for NHS and key workers during the height of the pandemic and over 1m essential services during full lockdowns. We also kept innovating our products and services, including the launch of our WeCheck app, which enables colleagues to digitally record vehicle checks undertaken and the recommended actions for a customer to keep their car safe. We performed well in product categories related to staycation or car maintenance - Touring was up +1.7%, whilst Car Cleaning (+7.4%), Body Repair (+5.4%) and Workshop (+6.4%) all grew strongly. We launched new products in Blades, Bulbs and Car Seats, enabling these categories to perform stronger than the lower traffic levels would suggest, and helping to mitigate the challenging conditions we faced in discretionary categories, such as Dash Cams and Audio.
Retail Cycling
Cycling performed very well, +54.1% above last year, but presented its own challenges in securing supply and predicting demand. All mainstream product categories saw strong growth, with Adult Mechanical bikes +113% and E-bikes +76%, while our Performance Cycling business Tredz also saw strong revenue and profit growth, capitalising on customer transfer from our closed Cycle Republic business. We identified very early in the pandemic the unprecedented levels of demand for cycling, enabling us to use our scale and relationships to secure stock from new and existing suppliers. We also launched a series of customer journey enhancements, beginning online, to optimise the customer experience at a time of high demand.
In this competitive market we continued to innovate and refresh our exclusive ranges of own brand Carrera, Boardman and Apollo bikes. Our bikes secured multiple awards from specialist press and magazines throughout the year for their design, specification, and value. Over 50% of our adult bikes were updated last year, adding new features such as comfort saddles and puncture resistant tyres, all following customer feedback. Supply was, and remains, a challenge, but where necessary, we quickly adapted specifications and componentry to mitigate bottlenecks in production and worked with new suppliers to achieve a steady intake of bikes throughout the year. Keeping customers updated and engaged was a key priority and we launched a series of digital developments designed to enhance and assist customers finding their new bike. One example was 'Email me when in stock' or the ability to register interest in new launches. We also introduced bookable collection slots, next day delivery and tripled our central bike build capacity, all of which have led to improved NPS scores and customer feedback.
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With high demand and limited global supply, many customers opted to fix their existing bike and we ensured our colleagues and systems were ready to help. Cycling Services grew more than +50% on last year as we offered free 32-point bike checks and took a market-leading share of the government's 'Fix Your Bike' scheme. We repaired and serviced over 1m bikes and were the only national retailer offering online booking slots, an initiative launched this year.
Retail gross margin
Despite the extreme, adverse change in motoring mix, Retail gross margin increased by +10bps, highlighting the importance and timeliness of our work over the last 18 months to improve the profitability of our Cycling business. We targeted a +300bps improvement in Cycling gross margins and through our work to rationalise componentry, improve buying terms, and optimise promotional effectiveness, we actually delivered a significant +680bps increase. This improvement enabled us to offset the -12 percentage-point change in motoring revenues as a percentage of total sales, and the corresponding impact on gross margins.
Retail operating costs
Our focus on efficiency and procurement saw Retail operating costs increase +1.6% year-on-year. Excluding GBP24.8m of COVID-19 related costs and GBP33.1m of business rate relief, operating costs were 3.6% higher year-on-year but decreased as a proportion of sales by -2.2ppts.
Our achievements helped mitigate the adverse mix impact described above, whilst also allowing investments in key strategic initiatives such as centralising customer contact. Our Retail business experienced the greatest disruption from COVID-19, implementing seven different operating models in six months to safeguard our customers and colleagues. We also employed front-of-house roles to monitor store capacity and social distancing, alongside significant investment in PPE. Acknowledging the unwavering commitment of our colleagues in such difficult circumstances, we launched almost GBP4m of initiatives during the year, including the Frontline Colleague Support Scheme and Halfords Here to Help Fund, alongside free flu vaccinations and wellbeing support lines.
Over the year, we continued to work on lowering the underlying costs within our business. As communicated at the end of FY20, we consolidated our performance cycling business, closing all 22 Cycle Republic stores and saving over GBP9m of annualised costs, whilst transferring a significant share of the customer base to our remaining Tredz business. In addition, we concluded our review of low-returning stores and consequently closed an additional 42 retail stores, where we are confident that trade-transfer will improve overall returns, generating an annualised cost saving of GBP15m. We also saved over GBP7m of annualised goods not for resale ("GNFR") costs, continued to improve our sustainability credentials through the continued roll-out of LED lighting and Building Management Systems, and renewed 19 leases for an average -30% reduction in rent premiums.
Autocentres
Autocentres revenue was GBP252.5m, growing 31.6% year-on-year and +9.7% on a LFL basis. The overall growth in Autocentres benefited from the annualisation of our FY20 acquisitions and the continued expansion of our Halfords Mobile Expert business, launching new vans and hubs to serve this growing and in-demand service.
However, our Autocentres business was not immune to the impacts of COVID-19. The reduction in traffic and MOT deferments required us to work hard to overcome these challenges, but our LFL and overall growth clearly demonstrate the significant increase in market share we have secured. This has been achieved by attracting new customers through our first Group Motoring Services marketing campaign, the ease for customers in booking appointments on our single Group website, and having their chosen service fulfilled through one of our fixed locations or by mobile experts at the customer's home or office. We further enhanced convenience for our customers by opening on Sundays in 131 garages, increasing our fleet of Halfords Mobile Expert vans to 143 and adding 20 garages to our business through our acquisition of Universal Tyres. We are confident that many of our customers will continue to use our services as their preferred choice, having grown the NPS score to 68.8 across the year and exiting FY21 at 72.6.
Autocentres EBIT was GBP12.7m on a reported basis, pre-IFRS 16, and GBP12.0m excluding COVID-19 related costs of GBP5.3m and business rates relief of GBP6.0m. EBIT growth was GBP5.3m versus FY20. This exceptional performance reflects ongoing improvements to the customer experience and increased operational efficiency, driven by continued enhancements to our digital operating model ('PACE'), and resulting in strong market share gains.
Areas of strategic focus
It has been a particularly strong year for our areas of strategic focus, demonstrating the resilience and relevance of our strategy in the face of a tough operating environment. We have seen market share increases and sales growth as our investments gain traction.
Group Services1
It was a very good year for Group Services, with revenues exceeding GBP370m, a growth of +23% on last year and now accounting for 29% of Group revenue. This was an excellent result under any circumstance but given the backdrop of -25% fewer journeys on UK roads, it is testament to our focus on this market. We launched several initiatives to boost customer awareness, including our 'Road Ready' campaign, our Group Services marketing campaign and our free 32-point bike check. We made booking our services easier than ever by enabling customers to book on our single Group website and we are the first national service provider to allow customers to book timed cycle service appointments or collections online. With heightened demand, we continued to increase our scale and capacity, making it easier and more convenient for customers to receive their services at one of almost 800 fixed locations, or at home or work from one of our 143 mobile expert vans.
Online
It was also a strong year for Group Online sales, which were GBP580m, growing +110% and accounting for 44% of Group revenue. Lockdowns and social distancing meant that customer demand for online and delivery channels grew dramatically. The successful launch of our new web platform in Q4 FY20 meant we were able to cope with a rapid +61% increase in traffic and provide a flexible platform from which we could continually develop the site and adapt to fast-changing customer needs. Not only did we change the focus and main content several times across the year, but we were able to add over 160 new customer-enhancing developments, such as guided selling, local stock availability, new services, new locations, bundles, recommendations, and personalisation across the Group. The result was a 10x increase in customers viewing Autocentre content and a conversion increase in Retail of +37%.
B2B2
Finally, B2B also delivered an excellent sales performance, growing +40% and accounting for 17.9% of Group revenue. We saw strong revenue growth in several areas of B2B. Our market-leading Cycle to Work ("C2W") scheme delivered +85% revenue growth, driven by a large increase in new clients to our scheme and increased uptake within our existing client base, with many increasing their employee spend limit above GBP1,000 for the first time. Our partnerships and gift card business also grew by over 20%, through increased reach, systems improvements allowing multi-channel redemption, and an expansion of our bulk product offering into fully-serviced bike fleets. The insurance replacement business recorded an 8% improvement year on year, supported by a growth in demand for bikes and our diversification into replacement children's car seats. Our fleet & commercial motoring servicing business grew by 72%, boosted by the acquisition of McConechy's, and although Tradecard declined -6%, this performance exceeded the consumer-facing growth rate of the most relevant product categories. Finally, we launched a new salary sacrifice offer, allowing employees to spread the cost of car maintenance, and improved our C2W offer within the Republic of Ireland.
Sustainability - Environmental, Social and Governance ("ESG")
In our FY20 Annual Report, we set out our ESG strategy and demonstrated its alignment to the Group's purpose: 'To Inspire and Support a Lifetime of motoring and cycling'. We have since updated our strategy, including a clear prioritisation on the topics most important to us and our broad stakeholder base, and created a roadmap for building the capabilities and governance processes to drive further progress against the strategy. Our four priority areas are shown below, further details of which will be available in our FY21 annual report to be published in July 2021. - Electrification - Net Zero - Diversity & Inclusion - Product, Packaging and Waste management
Progress on strategy in FY21
'To Inspire and Support a Lifetime of motoring and cycling.'
At our preliminary results in July 2020, reflecting the unprecedented impact and extreme uncertainty of the COVID-19 pandemic, we highlighted that we would moderate our near-term plan. We adjusted our short-term focus to cost efficiency and cash preservation, ensuring our colleagues are safeguarded and engaged in the success of the business and, of particular importance, adapting quickly to new customer trends. Our aim was to strengthen the core of our business during FY21 in the hope that we could return to more transformative investment in FY22 as the pandemic situation stabilised. Our progress on the key building blocks was as follows:
Continue to transform and build a unique and market-leading Motoring Services offer - Increased the scale of our Halfords Mobile Expert offer to 143 vans, 14 hubs and over 250 technicians to serve a
wider geographic reach. - Acquired Universal Tyres, adding 20 garages to our fixed estate, as well as 89 vans, enabling us to expand our
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