10^th November 2011

Halfords Group plc

Interim Results Financial Year 2012

 

Results As Expected And Strong Dividend Maintained

 

Halfords Group plc, the UK's leading retailer of automotive and leisure products and leading independent operator in garage servicing and auto repair, today announces its Interim Results for the 26 weeks to

30 September 2011 ("the period").

 

Group Financial Summary

 

	H1 FY12	H1 FY11	% change
Total Group Revenue	£454.0m	£456.3m	-0.5%
Halfords Retail	£400.6m	£407.3m	-1.6%
Halfords Autocentres	£53.4m	£49.0m	9.0%
UK/ROI LFL Sales % change
Car Maintenance	-3.1%	0.9%	-
Car Enhancement	-9.8%	-11.4%	-
Leisure	3.9%	-2.1%	-
Total Halfords Retail	-1.9%	-4.9%	-
Halfords Autocentres	2.7%	-0.8%	-
Gross Margin
Halfords Retail	52.7%	53.7%	-105 bps
Halfords Retail ex- C.Europe	52.7%	54.0%	-128bps
Halfords Autocentres	66.5%	66.1%	36 bps
Operating Profit	£56.9m	£69.1m	-17.7%
Operating Profit Margin	12.5%	15.1%	-260bps
Profit Before Tax	£54.7m	£68.7m	-20.4%
Adjusted Basic EPS	19.8p	24.1p	-17.8%
Net Debt	£140.7m	£109.8m	-
Interim Dividend Per Share	8.0p	8.0p	Maintained

 

 

Highlights                                                                   

 

·   Underlying* Group revenue down 0.1%

·   As predicted, Retail gross margin declined in our drive to maximise cash returns

·   Cycling sales continued to outperform, boosted by the launch of the new Carrera range in July and strong sales of accessories

·   In the Car Maintenance category, sales of the Halfords range of wefit services were particularly strong

·   Full-year management guidance on Retail gross margin and operating costs remains unchanged

·   Autocentres like-for-like revenues up 2.7%, with a gross margin improvement of 36 basis points

·   Material cash generation and a well-funded balance sheet facilitate both the share buyback programme and maintenance of a strong dividend

 

*excludes Halfords Retail's Central European operations

 

David Wild, Chief Executive, commented on the results:

 

"In a challenging market Halfords has delivered a robust sales performance in the first half.  Our new marketing campaign, "that's helpful, that's Halfords" has built awareness of our unique value offer to customers, which blends good prices, quality and innovative products with the expert service of our colleagues in each category in which we operate.

 

Within stores we have been encouraged with the customer response to our innovations in Cycling, where we have grown sales in Premium, Mainstream, Children's bikes and Accessories.

 

Motorists continue to be affected by inflationary rises in fuel and insurance costs, so their spending on maintenance has been subdued. We are, however, delighted with the growth of wefit in stores and the improvement in the sales performance of our Autocentres business.

 

We offer customers affordable prices and a quality service in automotive aftercare. The roll-out programme of Halfords Autocentres is continuing to make them more accessible to more people and we remain confident that they will make a significant long-term contribution to group earnings.

 

The strength of our balance sheet and our cash generation mean that we are maintaining our interim dividend whilst continuing to return cash to shareholders through our share buyback programme.  It is impossible to predict when trading conditions will ease. Despite this we are continuing to invest in value for customers, creating the right platform for long-term sustainable growth."

 

Notes: 

 

1.         Like-for-like sales represent revenues from UK and Irish stores trading for greater than 365 days. Where appropriate, revenues denominated in foreign currencies have been translated at constant rates of exchange.

2.         Adjusted Basic Earnings Per Share is defined as basic earnings per share before non-recurring items.

3.         All numbers shown in this statement are before non-recurring costs, unless stated otherwise.

4.         The H1 FY11 figures in the table above include the final contribution from the Central European operations, including revenue of £1.9m, unless stated otherwise.

5.         The sales benefit within Retail, from the timing of Easter, is estimated to be around 60bps for the first half.

 

Enquiries

 

Analysts and Investors:

Craig Marks, Head of Investor Relations                               44 (0)7712 888 807

Louise Richardson, Interim Investor Relations Officer             44 (0)7843 367 134

Andrew Findlay, Finance Director                                        44(0)207 379 5151 (on the day)        

 

Media (Maitland):

Neil Bennett                                                                     44 (0) 207 379 5151

Richard Farnsworth                                                           44 (0) 207 379 5151

 

Results Presentation

A presentation for analysts and investors will be held, today, at 9.30am at King Edward Hall, Bank of America Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1 1HQ. Attendance is by invitation. An audio recording of the presentation will be available on the corporate website later today.

 

An interview with David Wild, Chief Executive, is now available on the Halfords corporate website and can be viewed by clicking on the link http://www.halfordscompany.com/hal/pr/video.

 

Forthcoming Newsflow

Halfords Group will provide a third-quarter interim management statement on 12 January 2012.    

 

 

Notes to Editors

 

www.halfords.co.uk

www.halfordscompany.co.uk

 

Halfords Group plc

The Group is the UK's leading retailer of automotive, leisure and cycling products and through Halfords Autocentres also one of the UK's leading independent car servicing and repair operator. Halfords customers shop at 466 stores in the UK and Republic of Ireland and at halfords.com for pick-up at their local store or direct home delivery. Halfords Autocentres operates from 246 sites nationally and offers motorists dealership quality MOTs, repairs and car servicing at affordable prices.

 

Halfords employs approximately 11,000 staff and sells over 14,000 different product lines with significant ranges in car parts, cycles, in-car technology, child seats, roof boxes, outdoor leisure and camping equipment. Halfords own brands include the in-store Bikehut department, for cycles and cycling accessories, Apollo and Carrera cycles and exclusive UK distribution rights of the premium ranged Boardman cycles and accessories. In outdoor leisure, we sell a premium range of camping equipment, branded URBAN Escape. Halfords offers customers expert advice and a fitting service called "wefit" for car parts, child seats, satellite navigation and in-car entertainment systems, and a "werepair" service for cycles.

 

 

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 REVIEW

 

Introduction

The tough consumer environment in the UK and the Republic of Ireland (ROI) is continuing to affect the disposable incomes and spending patterns of our customers. Halfords' response has been to do what we do best - to offer great value through the price, quality and innovation of products and the expertise and service of our colleagues. There are clear signs that this strategy has had a positive impact in our stores through the summer, especially through the growth of cycles sales, wefit services and our newly re-branded Autocentres.

We are carefully managing all aspects of our business and investing for the future so that we deliver optimal performance for customers and investors alike in these difficult times.

The business is cash generative, pays material dividends and remains in a sound financial position. Net debt for the half year was £140.7 million. Since the announcement in April of the share buy-back we have purchased 13.8 million shares in the first half for £48.6 million.

 

Business Review

The first half performance reflects the pressures that are affecting the whole consumer sector.  While total sales have been broadly flat across the group, the Like-for-Like (LfL) sales decline in Retail combined with the anticipated input-cost inflation, our investments in gross margin and the Autocentres rollout programme mean that Group PBT was £54.7 million representing a year-on-year decline of 20.4%. 

 

First Half Trading Review

 

Retail

In the first half, overall UK/ROI Retail sales declined by 1.2% and by 1.9% LfL.

 

In Leisure, sales grew by 3.9% on a LfL basis. Within this category our relaunched cycle and cycle accessory ranges performed well.

 

Car Maintenance product sales remain subdued as motorists drive less and look to save money. Sales declined by 3.1% LfL. Encouragingly Halfords range of wefit services, which offer a competitively priced option for the replacement of wearing parts like bulbs, wiper blades and batteries, continued to grow. Wefit penetration of these items, was   22.2% during the half.

 

Car Enhancement sales fell by 9.8%, in line with the long-term trend.  Halfords is the market leader in this sector and through our partnerships with branded suppliers, our expert fitting service and strong promotions, we again increased market share in both

In-Car Audio and Sat Nav.  Other areas of Car Enhancement, Accessories and Car Cleaning declined as customers delayed discretionary expenditure.

 

Halfords online sales were 8.6% of total Retail sales for the half, flat year-on-year. This is as a result of the rebalancing of our promotional activity and the alignment of prices between stores and online.

 

The gross margin percentage decline in Retail of 128 basis points reflects the continued active focus on the delivery of cash profit within the business, with increased levels of promotional participation and higher sales of new lower-margin ranges. The impact of these programmes, together with the adverse effects of input-cost inflation, was partially offset by the continuing rise in penetration of our unique wefit and werepair proposition.

 

Autocentres

Halfords Autocentres' revenues continued on a positive and improving trend. Total sales grew 9.0% over the half and LfL sales were up 2.7%. Our strategy to bring the Halfords brand into the garage sector and offer quality repairs and servicing at affordable prices is resonating with motorists especially in the current climate. In particular, we have seen strong demand for services and tyres.

 

Against this background of strong growth in Autocentres we continue to invest in developing the business. This activity plus expected start-up losses from the opening programme means that first half operating profits for Autocentres are below last year. We launched six new centres in the first half and we expect to accelerate openings during the rest of the year.

 

Operational Progress

We have been pleased with the consistent performance of our reconfigured Distribution Centre over the half, which has produced planned savings. It has delivered good levels of availability for stores and contributed to an improvement in our customer offer.

Our efficiency programme in stores has created more flexibility in our rostering system. This has allowed us to keep payroll levels flat whilst ensuring more colleagues are available to serve at weekends. This focus on serving customers has resulted in ongoing improvements in conversion and the levels of penetration of our fitting services.

New Brand Campaign

Our brand campaign "that's helpful that's halfords" was launched at the start of April 2011.  "Helpful" reinforces Halfords unique service proposition, demonstrates how we understand our customers' needs and how we can help them live life on the move. We have employed this message across all forms of advertising during our spring and summer marketing and our brand tracking work shows that the message resonates with customers. 

 

Retail

Our consistent strategy continues to provide a roadmap for the development of our retail business.

 

Our focus is to offer great value to our customers through the quality, price and innovation of our products and the expertise and service of our colleagues.

 

We will:

1.         Extend our range and service advantage

2.         Invest in our store portfolio

3.         Continue to focus on cost control

4.         Leverage the Halfords brand in multi-channel

 

1. EXTENDING OUR RANGE AND SERVICE

 

Extending our range

Halfords Retail maintains market-leading positions across a unique blend of categories with ranges of unrivalled breadth and depth. Our scale means we can source high quality, own and exclusive brand products as well as leading branded ranges. We offer customers real value through innovative, high specification products at great prices. 

 

Our cycle category is an example of where we create value for our customers. We research, design and source our bikes from the best manufacturers globally. This means they are of unparalleled value for our customers, who pound for pound get more from a Halfords bike than those from other retailers. This summer's launch of the new Carrera range demonstrated the progress we have made. There are twenty one completely new models covering the spectrum of use from mountain bikes to road racers, with a particular emphasis on Hybrids, which are currently growing in popularity. The strong sales of this new range reflects how much customers like the offer.

 

The Carrera launch follows the recent relaunches of Halfords other cycle ranges. Apollo is the nation's leading bike brand and last year we introduced sixteen new models. The new 2011 range of Boardman cycles, designed exclusively for Halfords in the UK by former Olympic Champion, Chris Boardman, have been widely acclaimed for their leading designs, construction and price competitiveness. They are endorsed by world famous riders like Alistair Brownlee, the reigning World Triathlon champion. Finally, during the half, we introduced a new range of Voodoo. These are designed by Joe Murray, the award-winning American mountain biker and are exclusive to us in the UK.

 

The recently introduced Trax brand is sold boxed for self assembly. This quality bike is available at entry-level prices and gives Halfords a competitive offer against supermarkets and other non-specialist outlets.

 

Following these range launches more than half of our cycles, including all our premium cycles will be new in-store this Christmas.  These innovations mean that Halfords is uniquely positioned to compete strongly at all levels of the cycle market from entry-level boxed bikes to premium cycles for the competitive rider.

 

We also continue to develop ranges across the rest of our assortment with unique

car-parc coverage for our maintenance offer, the most contemporary in-car technology products and a brand new range of winter travel solutions for motorists.

 

Service

The expert knowledge, advice and service of our in-store colleagues is at the heart of the Halfords customer offer. They sell and fit many of our products and this differentiates us from our competition, acts as a barrier to market entry and generates attractive levels of return.

 

We build, free of charge, most of the bikes we sell and offer a free six-week first service. Customers can also buy our Bike Care Plan which provides repairs free of labour charges.

 

The biggest element of our fitting offer is wefit, the on-demand fitting of Car Bulbs, Wiper Blades and Batteries, (3Bs). During the half, the penetration of wefit jobs as a proportion of product sales rose to 22.2%. All product categories include a core service element.  For instance, we also fit roof bars, in-car entertainment units and child seats as well as repairing bikes.

 

Our fitting services offer us a good avenue for growth and we have set stretching targets for the year ahead to increase awareness, uptake and revenue. Our 3Bs service will be one of the focuses of winter advertising this year to help more customers realise the strength of our offer. Meanwhile, we continue to invest in technical and skills training of colleagues.

 

2. INVESTING IN STORE PORTFOLIO

 

With 466 stores trading throughout the UK and Ireland our scale supports our position as the store of first choice. 90% of our customers live within a 20-minute journey of one of our stores.

 

Our store refresh programme is giving a better balance to our categories and making them easier to shop. Cycle and Cycle Accessories have more space and there are dedicated zones for Travel, Car Enhancement and Camping. The stores also have a comprehensive range of Car Maintenance products. In the first half of the year 53 stores were refurbished.  We are targeting a further 25-30 stores for conversion in the second half. Our model for refurbishment is low cost with a short payback period. The sales uplifts are encouraging and represent a good return on the invested capital.

 

In London we are exploring new formats, reflecting the absence of suitable new superstore opportunities. We have launched three pilot stores in Kilburn, Wimbledon and on Ealing Broadway. These are Halfords branded stores, located in high footfall locations. Their ranges cater for the needs of local customers. They stock a significant cycle offer with a "best of the rest" drawn from across the Halfords range of products. These stores have made a promising start. We shall continue to assess their performance and will fully review the concept.

 

3. ONGOING FOCUS ON COST CONTROL

 

We have a strong cost control culture at Halfords and are committed to pro-active cost management. This ensures efficient use of resources, the correct operating base for the prevailing economic environment and the headroom to fund strategic investments in future growth.

 

Last year our two major initiatives included the reconfiguration of our distribution networks and the review of our store labour structure. Both are now seeing the benefits of the work achieved and are yielding expected savings and efficiencies for the business.

 

We also have a flexible sourcing policy and work closely with suppliers around the globe to ensure we achieve the most competitive product costs. Our sourcing team based in Asia manage all aspects of the supply chain to eliminate unnecessary costs in transport, shipping and stock holding.

 

We continue to work with landlords to reduce our store occupancy costs. The process can involve relocating stores, downsizing or negotiating lower rents. Halfords has a significant number of leases due to expire in the next five years and this programme is a key opportunity to reduce our cost base.

 

4. LEVERAGING THE HALFORDS BRAND IN MULTI-CHANNEL

 

Online sales have grown rapidly in recent years and now represent 8.6% of Halfords total retail sales.

 

Enhancing our online offer and further extending our multi-channel presence is an investment priority. In line with market trends, we continue to increase the amount of advertising dedicated to this medium.

 

Our strategy is focussed on seamlessly integrating halfords.com and our store operations. Our product mix lends itself to this strategy, as customers often want further advice, or a demonstration and fitting. Our online ordering service offers customers the option of direct delivery or to reserve and collect items at their local store. 87% of transactions on Halfords.com are now collected in store. This gives us the ability to add further expert advice and service to our online mix and provides Halfords with a differentiated offer and a competitive advantage. 

 

Our new shopping App is proving popular and is extending the ways that customers can shop with us and how we deliver the information they need to make decisions. Our Ratings and Reviews, and Ask and Answer facilities allows customers to tap into the expertise and experience of other users.

 

In addition to extending the site functionality, we sell an increased range of products online. Much of the additional inventory is managed in partnership with third party suppliers; this reduces stock costs and obsolescence risk.

 

AUTOCENTRES

This has been a period of significant progress for our Autocentres business. Customers have responded well to our rebranded and relaunched centres and sales have continued on a positive and improving trend. This demonstrates how the Halfords brand is gaining traction in the aftercare market and justifies the long-term investment we are making.

Our proposition is to offer dealership quality service at more affordable prices backed by a real focus on creating trust with our customers. We carry out quarterly customer surveys at each centre to ensure high standards are maintained. We are also focused on creating value for customers through new products like our recently launched Brakes4life, which provides ongoing free brake replacement for customers who register with us.

Halfords Autocentres is an excellent complement to Halfords Retail, building on our growing car parts and wefit service business. Car aftercare is a large and highly attractive market with a value of £9bn. Capacity is shrinking as the number of independent garages decline, leading to increasing demand from motorists for a reliable, quality independent operator.

The long-term growth opportunity of this business remains compelling given the market size, its fragmentation, the strength of the Halfords Autocentres proposition and the potential to leverage the Halfords brand. During the half we also opened 6 new centres and will accelerate new centre openings during the remainder of the year. In the medium term we believe there is an opportunity to open up to 600 centres nationally. Further growth opportunities exist from fleet customers and growing tyre sales. 

SUMMARY AND OUTLOOK

 

Halfords retains clear leadership in its core retail markets of Cycling and Car Maintenance. We are a resilient business with an excellent brand and have adapted to the changing needs of our customers by creating innovative, quality products at great prices supported by the expertise and service of colleagues.

 

The consumer environment will remain challenging, but we have demonstrated that we can make progress in these conditions. Our business is cash generative, pays material dividends and remains in a sound financial position. We are carefully managing all aspects of the business to deliver optimal performance for customers and investors alike in these harsh times. The Board believes the Group is well positioned and is focussed on trading in the half ahead. 

 

Our colleagues are the most important element of the experience we create for customers and their knowledge, energy and determination is central to our Helpful proposition. It is a pleasure to lead such a great team of people. I would like to thank them for their adaptability and hard work in the tough environment in which we currently operate.

 

David Wild

Chief Executive Officer