Halfords Group PLC: Acquisition of Lodge Tyre

DJ Halfords Group PLC: Acquisition of Lodge Tyre

Halfords Group PLC (HFD) Halfords Group PLC: Acquisition of Lodge Tyre 05-Oct-2022 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.

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5 October 2022

Halfords Group plc

Acquisition of Lodge Tyre

Halfords is now the market leading, commercial tyre provider in the UK.

Headlines

Halfords Group plc ("Halfords" or the "Group"), the UK's largest provider of Motoring and Cycling products and services, today announces the acquisition of LTC Trading Holdings Limited and its subsidiary Lodge Tyre Company (The) ("Lodge Tyre") (the "Acquisition") (the "Company") for total consideration of GBP37.2 million (the "Consideration") with GBP33.2 million paid on completion and GBP4 million paid in FY25 subject to performance.

-- Lodge Tyre is a well-established business in the UK commercial tyre market, providing automotive servicesto business-to-business ("B2B") customers from 50 garages and 248 mobile vans.

-- The Acquisition takes the Halfords garage services business to 656 garages, 253 consumer vans, 440commercial vans and 9 warehouses.

-- The directors of the Group (the "Directors") believe that the Acquisition is both strategically andfinancially compelling, delivering on Halfords' objective of further evolving into a business more heavily weightedtowards motoring services, which provide more resilient, needs-based revenue streams.

-- Post completion, on an annualised basis, Services revenue will account for c.48% of Group revenues, upfrom 26% in FY20.

-- Halfords is already the UK's market leading Motoring Service provider to consumers, and on completionwill also be the UK's largest B2B commercial tyre provider by revenue and national coverage.

-- Lodge Tyre generated pro forma EBITDA of GBP4.7 million on a pre-IFRS 16 basis (1) in the year ending 31March 2021. The Group expects to deliver incremental synergies worth GBP3.8 million (EBITDA) by year 5.

-- The deal will be EPS accretive in the first year of ownership and will deliver an IRR that exceeds theGroup weighted average cost of capital.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

"The acquisition of Lodge Tyre is yet another example of Halfords' strategic aim of becoming a Motoring Services-focused business, and will mean that Motoring accounts for over three quarters of our total revenue. The current trading environment reinforces the rationale for building ever-more resilient, needs-based revenue streams, which is exactly what the Motoring category offers. Within that, the nature of the commercial tyre market means that it is non-discretionary and therefore extremely well insulated against macroeconomic uncertainty.

Lodge is an outstanding operation that perfectly complements our existing commercial tyre businesses of McConechy's and Universal Tyres, and gives us a much greater reach across the UK. We were already the UK's market-leading Motoring Service provider to consumers, and this acquisition will also make us the UK's largest commercial tyre provider. We look forward to welcoming the Lodge team to the Halfords family."

Lodge Tyre overview

-- Lodge Tyre is a highly respected business in the tyre and vehicle maintenance market, with a richheritage dating back to 1935.

-- Employing over 400 highly skilled colleagues, it operates from 50 garages, 248 mobile tyre fitting vans,and a Warehouse in Birmingham, providing on-demand and emergency coverage across the Midlands, East Anglia, NorthWales and the North-West. The business headquarters are in Stafford.

-- These locations are highly complementary to Halfords' existing commercial tyres businesses of McConechy'sTyres (located in Scotland and Northern England) and Universal Tyres (located in London and the South-East ofEngland) therefore providing much greater nationwide coverage of Halfords' Commercial Fleet Service business.

-- Over 90% of Lodge Tyre's sales are to B2B customers operating commercial vehicles.

Strategic benefits

-- The Directors believe that the Acquisition is strategically compelling, delivering on Halfords' strategicgrowth plans in Motoring, Services and B2B markets and unlocking significant synergies.

-- Halfords is the UK's largest vehicle service, maintenance and repair business. This Acquisition furtherconsolidates this position. The addition of Lodge Tyre takes Halfords a significant step closer to its target of500 Commercial vans and 800 garages.

-- The Acquisition further enhances the proportion of needs-based revenue across the Group. On an annualisedbasis: -- Motoring revenues will account for c.77% of Group revenues, up from 65% in FY20.

-- Services revenues will account for c.48% of Group revenues, up from 26% in FY20.

-- B2B revenues will account for c.22% of Group revenues, up from 15% in FY20.

-- Lodge Tyre infills areas of the UK where Halfords' Commercial business has had less representation. Whencoupled with the Group's existing commercial businesses of McConechy's and Universal, Halfords will have a scalednational network helping to win larger, national commercial contracts and unlocking significant synergies.

-- The scale of Halfords' B2B business will enable it to further test and develop its Avayler platform forcommercial businesses, increasing the opportunity of its SaaS business.

-- The increased scale will create an opportunity to further leverage Viking, Halfords' wholesale, tyredistribution business.

Acquisition Summary

-- Halfords has signed a share purchase agreement to purchase the entire issued share capital of Lodge Tyreon a cash free, debt free basis, for total consideration of GBP37.2 million, subject to an adjustment for normalisedworking capital.

-- GBP33.2 million of the Consideration will be paid in cash on completion, with the remaining GBP4 million paidin FY25 subject to successfully achieving set profit performance criteria.

-- A further investment of up to c.GBP6 million of capex will be made in the three years post the Acquisitionto integrate and optimise the business.

-- In the year ending 31 March 2021 the Company had gross assets of GBP27.4 million, delivered turnover ofGBP68.2 million, EBITDA of GBP4.7 million and profit before tax of GBP2.9 million on a pre-IFRS 16 basis (1).

-- Targeted synergy benefits are expected to deliver incremental EBITDA of GBP3.8 million per annum by year 5.The Consideration reflects a 4x multiple of year 5 EBITDA (post synergies).

-- Lodge Tyres' existing shareholders Andrew Martin Christmas, Martyn Joseph Lodge and Simon Peter Christmaswill remain in the business on employment contracts as members of the Lodge senior management team.

(1) Figures reflect the Company's last audited financial statements, with pro forma adjustments made to reflect the differing structure of the business post completion. Adjustments include asset transfers, management charges and property rental costs. All numbers are pre-IFRS16.

Enquiries

Investors & Analysts (Halfords)

Jo Hartley, Chief Financial Officer

Richard Guest, Corporate Finance Director

Andy Lynch, Head of Investor Relations [phone]

Media (Powerscourt) [phone]

Rob Greening [e-mail]

Nick Hayns

Elizabeth Kittle

Next trading statement

On 23 November 2022 we will report our Interim results for the period ending 30 September 2022.

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 397 Halfords stores, 3 Performance Cycling stores (trading as Tredz and Giant), 656 garages (trading as Halfords Autocentres, McConechy's, Universal, National Tyres and Lodge Tyres) and have access to 253 mobile service vans (trading as Halfords Mobile Expert, Tyres on the Drive and National) and 440 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.

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ISIN:      GB00B012TP20 
Category Code: ACQ 
TIDM:      HFD 
LEI Code:    54930086FKBWWJIOBI79 
OAM Categories: 3.1. Additional regulated information required to be disclosed under the laws of a Member State 
Sequence No.:  192401 
EQS News ID:  1456695 
 
End of Announcement EQS News Service 
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October 05, 2022 02:00 ET (06:00 GMT)