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21 November 2012
Halfords Group plc
Interim Results Financial Year 2013
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 preliminary results for the 26-week period to 28 September 2012 ("the period"). All numbers shown in this statement are before non-recurring items, unless otherwise stated.
Group Financial Summary
|
|
HY13 £m |
HY12 £m |
Change |
|
Total Group Revenue |
455.6 |
454.0 |
0.4% |
|
Retail |
393.0 |
400.6 |
-1.9% |
|
Autocentres |
62.6 |
53.4 |
17.2% |
|
|
|
|
|
|
Operating Profit before non-recurring items |
|
|
|
|
Retail |
42.0 |
55.0 |
-23.6% |
|
Autocentres |
3.3 |
3.0 |
10.0% |
|
|
|
|
|
|
Profit Before Tax and non-recurring items |
41.9 |
54.7 |
-23.4% |
|
Basic Earnings Per Share, before non-recurring items |
16.2p |
19.8p |
-18.2% |
|
|
|
|
|
|
Profit Before Tax, after non-recurring items |
42.4 |
54.7 |
-22.5% |
|
Basic Earnings Per Share, after non-recurring items |
16.4p |
19.7p |
-16.8% |
|
|
|
|
|
|
Net Debt |
107.9 |
140.7 |
23.3% dec |
|
Interim Dividend Per Share |
8.0p |
8.0p |
Maintained |
Key Points For The Half:
· Retail delivered a robust revenue performance in Q2 following a difficult Q1
· Autocentres produced a double-digit increase in operating profit led by further strong top-line growth
· Free cash flow up 47% to £59.5m with continued focus on investment priorities and cash management
· Net debt reduced by 23% to £107.9m
· Interim dividend of 8p per share maintained
· Good progress made in the delivery of strategic initiatives
· Matt Davies joined as Chief Executive in October
Dennis Millard, Chairman, commented:
"Our Retail performance improved markedly in the second quarter after a difficult first quarter and, with a proactive trading stance, we took full advantage of the opportunities provided by the 'summer of sport'. We continue to be encouraged by the performance and long-term potential of Autocentres. We also made good progress on channel and category initiatives; central to this is the priority of building a company-wide customer service ethic as well as investing in training and support for colleagues.
Our second-half Retail planning assumptions remain unchanged and cautious given the prevailing pressures on the consumer as we approach the important winter and Christmas trading periods. We continue to plan for a full-year Group Profit before tax and non-recurring items of between £66m and £70m. We have a strong platform for sustainable growth; the management team retains its focus on active trading, cash generation, prudent cost management and the delivery of strategic objectives."
Notes
1. Where appropriate, revenues denominated in foreign currencies have been translated at constant rates of exchange.
2. All numbers shown in this statement are before non-recurring items, unless stated otherwise. These items, namely £0.5m of income, represent the partial release of the Focus lease guarantee provision, recognised as a non-recurring cost in FY11, resulting from the better than anticipated settlements in the period.
Enquiries
Analysts and Investors:
Craig Marks, Head of Investor Relations 44 (0)1527 513 113
Andrew Findlay, Group Finance Director 44 (0)1527 513 113 (on the day)
Media (Maitland):
Neil Bennett 44 (0) 207 379 5151
Tom Buchanan 44 (0) 207 379 5151
Results Presentation
A presentation for analysts and investors will be held today starting at 9.30am at Investec plc, 2 Gresham Street, London EC2V 7QP. Attendance is by invitation. A recorded webcast of the presentation will be available on www.halfordscompany.com during the day, as will a video interview with management.
Forthcoming Newsflow
Halfords Group plc will publish its third-quarter interim management statement on 15 January 2013.
Notes to Editors
www.halfords.com
www.halfordsautocentres.com
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 operators. Halfords customers shop at more than 465 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 more than 265 sites nationally and offers motorists dealership-quality MOTs, diagnostic services, tyres, repairs and car servicing at affordable prices.
Halfords employs approximately 12,000 colleagues and sells around 10,000 product lines in stores, increasing to around 16,000 lines online. The product offering encompasses 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, touring and in-car entertainment systems, as well as 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.
Chairman's Review - November 2012
A. Introduction
In the first half of the financial year, Halfords delivered a Retail performance of two contrasting quarters. In the first quarter, sales were adversely affected by poor weather; in the second, we capitalised on the better weather and the "summer of sport" with an active trading stance and recovered much of the lost ground. Autocentres produced an encouraging sales performance throughout the half.
We made good progress with our strategic projects. A particular focus has been, and will continue to be, on building a company-wide service ethic and investing in training and support for our Retail store colleagues. The aim is to improve the quality of service for our customers and, in doing so, drive sustainable medium-term growth. Amongst a number of initiatives, we recruited over 450 new fitting colleagues and retrained over 6,000 existing colleagues to help grow sales of Retail wefit solutions.
We were particularly pleased to announce the appointment of Matt Davies as Chief Executive. Matt had an exceptional record of customer-service delivery, colleague engagement and trading performance whilst Chief Executive for Pets at Home. He is ideally qualified to lead Halfords through the next stage of its evolution from a traditional out-of-town retailer to a significant multichannel and service provider, making our business more relevant in today's connected customer environment. Matt currently intends to provide an insight into his initial thoughts after publication of the third-quarter interim management statement. David Wild, the previous Chief Executive, departed the Halfords Group in July 2012.
Looking forward, we remain cautious about trading conditions for the second half given the prevailing pressures on the consumer as we approach the important winter and Christmas trading period. However, Halfords is well-placed to deliver exceptional value to customers through the quality and pricing of our products and services and the expertise of our colleagues.
B. Summary of Group Results
Group sales were £455.6m, up 0.4% with like-for-like ("LfL") sales down 0.1%. Group gross margin was 23 basis points ("bps") lower than the first half of last year and, in an environment of continuing inflationary pressures and with strategic investments being made to support the delivery of our longer-term strategy, operating costs rose by 6.4%. Underlying Group operating profit was £44.5m which compares with £56.9m in the first half of the previous year. Profit before tax and non-recurring items was £41.9m and earnings per share were 16.2p, down 23.4% and 18.2% respectively.
A focus on inventory management and a surge in Cycling demand in the second quarter resulted in a 13.3% reduction in Group stocks compared to the prior period. This decrease is not expected to be sustained over the full year as we plan to rebuild inventories to more normalised levels. The cashflow performance was robust with free cashflow of £59.5m being generated, some £19m better than the first half of last year. As a result, net debt decreased to £107.9m with net debt:EBITDA at 1.0 times. As indicated in July, an unchanged interim dividend of 8p per share will be paid in January 2013.
C. Review of Trading
Retail
Retail sales for the first half of the year were £393.0m, down 1.9% on the previous year and down 1.6% on a LfL basis. In the second quarter, LfL sales recovered strongly, up by 4.6% following a weak first quarter (-7.5%). The sales mix and continued focus on cash margin resulted in a small 19bps decline in the first-half gross margin.
After a disappointing start, it was a particularly strong summer for Cycling sales. The enthusiasm surrounding British successes in the Tour de France and at the Olympics & Paralympics helped fuel a stronger demand for cycles, cycle products and cycle accessories and we capitalised on this with our agile trading stance. Cycling LfL sales were up 1.9% for the half with a strong second quarter, up 14.7%. Sales of premium cycles, particularly our exclusive Boardman and Pendleton ranges, were a feature.
LfL sales of Car Maintenance products and services grew by 1.8% as the demand for wefit products continues to build and more customers look to us for expert help with basic Car Maintenance solutions. In the half, we fitted 27.5% of the bulbs, blades and batteries ("3Bs") we sold, up a full 530 basis points on the comparative period. We are investing in training, payroll, colleague numbers and national marketing to address this parts and labour market worth around £1bn where we only have a c.11% share. In the half, we also leveraged our market-leading position with timely promotions such as our four-litre £17.50 offer on Castrol Magnatec oil.
Car Enhancement LfL sales decreased by 6.0% in the first half, reflecting both the ongoing cyclical and structural pressures across much of this category. However, this reflects a slower rate of decline than in previous periods. Market share gains in Sat Nav reflected an enhanced execution and range, such as our focus on the value of Lifetime Map products. In Car Audio, we also made encouraging market-share gains, with a value-share rise of 9% over the last 12 months and an increase in volume and value share to over 60%. We are closer to the medium-term opportunity around DAB Digital Radio, and further share gains mean we have now captured around three quarters of this growing market.
We witnessed reduced demand for camping and touring products due to the generally poor weather for outdoor products. This was largely responsible for a 6.6% decline in LfL sales in our Travel Solutions category. One highlight was the sale of breathalysers as new French legislation made them compulsory for continental travel. Child Car Seats remains a product range facing both intense pricing and competitive pressure and thus we have continued to manage this category for cash.
Online revenues grew by 21.3% in the first half and represented 10.5% of Retail sales which compares with 8.6% in the prior period. This strong growth reflected the success of our investments in website capability, the introduction of our new 24-hour Reserve & Collect service and the rebalancing of promotions to focus more on product price rather than percentage discounting.
Autocentres
Sales for the first half were £62.6m, up 17.2% overall with LfL sales growth of 10.8%. Second-quarter LfL sales growth of 12.4% was the strongest since we acquired the business in February 2010. The performance was driven by our investment in marketing activity, the development of our tyre offer, our exclusive Brakes4Life proposition, trials of Sunday openings and the contribution from new centres. The significant increase in lower-margin tyre sales resulted in a 260bps decline in the gross margin.
We continue to acquire new retail customers whilst retaining a high level of existing customers. The fleet market remains challenging but we invested in capability in the first half as we seek to capitalise on this important sector of the market. In the first half, five new centres were opened, with a further four opened to date in the third quarter. Up to a further 21 new centres are targeted for opening in the second half. We will continue to selectively and appropriately invest in new centres to significantly grow our network over the years ahead. Investment in support infrastructure befitting that of a larger business was made in the first half together with a new brand-awareness advertising campaign.
D. Strategic Progress
During the half we made good progress in the delivery of our vision to Help and Inspire Customers with their Life on the Move via the three strategic pillars: The Friend of the Motorist, The Best Cycle Shop in TownandThe Starting Point for Great Getaways.
Some of the areas of progress are:
Car Maintenance/Fitting
· Our ranges of bulbs, wiper blades and batteries were extended to give 97% car-parc coverage and introduce the latest innovations in bulb and wiper technology.
· We recruited over 450 new in-store fitting colleagues and retrained over 6,000 existing colleagues, focusing on technical fitting skills and customer engagement.
· An inaugural, national TV advertising campaign for wefit was launched, complemented by up-weighted radio advertising and supported by new in-store point-of-sale advertising.
· In September, we achieved 30.9% 3Bs fitting penetration against 22.9% last year.
· LfL sales of Car Maintenance parts were up by 6.3% in the first half as a result of our unique offer.
Autocentres
· The portfolio was extended by five centres to 265 in the half, with a further four opened to date in the second half. The plan is to add up to a further 21 new centres in the remainder of the year and build a strong pipeline for FY14.
· Sunday-opening was trialled at 30 centres, with all new centres opening on Sundays.
· Further tyre-fitting equipment upgrading and investment was made resulting in 69% growth in the half, with tyres now making up 14% of total sales.
· A Business Development function was created to better leverage our fleet opportunities.
· An e-diary booking system was trialled and will go live nationally in the second half; this will greatly enhance customers' experience and will aid capacity planning.
Cycles and Cycle Parts, Accessories and Clothing
· A new Parts, Accessories and Clothing (PACs) commercial team has been recruited to aggressively drive this category.
· Trading arrangements were secured with c.170 leading brands and c.13,000 new SKUs were identified to be ready for our PACs re-launch next year; this envisages increases in the parts range from 750 current lines to 6,000, with increases in the clothing range from 200 current lines to 4,000.
· In addition to securing significant increases of our existing premium brands, ranging from key brands such as Gore, Altura, Shimano, Mavic, Knog and Sram, we have also secured a wide range of important accessory and clothing brands such as Compagnolo, Lezyne, Northwave, Hi5 and Adidas.
· Investment in training and resources resulted in first-half cycle-repair revenues up 36.5%.
· High-end performance cycle brands such as Cinelli and Tifosi were added online, extending the Halfords bike price range up to £3,400.
· A new range of 23 Apollo kids bikes and accessories, as well as an extended range of scooters, has been launched for the Christmas period.
· In December we will launch three new Boardman bikes at the key Cycle-To-Work sub-£500 price points and there will be other new additions to the Boardman and Voodoo ranges. We will also introduce three new feature-rich Carrera bikes, one of which is a market-beating road bike.
· An innovative "Summer of Cycling" TV advertising campaign was launched which featured a series of idents around the Tour de France and highlighting our sub-£1,000 Carrera Virago, the best value carbon-framed bike on the market.
Motoring / Getting Away
· An increase in roof-bar fitting sales of 4.5% in the period was achieved, driven by our comprehensive wefit offer.
· Continued investment in our private-label range of Exodus and Urban Escape along with the introduction of a new camping brand, Aventura, which will allow us to continue to offer great value to our customers as well as afford us market differentiation.
· Our camping and tent market reach will be extended by adding leading brands like Vango, Vacanza by Outwell, Coleman and Gelert.
· An increase in up-skilling of our IMI-accredited DAB radio fitting trainers and our range of the DAB radio and antenna offer is underway.
Web/IT Infrastructure
· The new 24-hour Reserve & Collect service was launched in March allowing customers to select from an extended range and take delivery at their local store the next day.
· A new dynamic e-mail programme was launched; our presence on Facebook and Twitter grew strongly as we further developed our digital marketing and customer-relationship management capability.
· Online search engine capability will be strengthened with the future launch the new Fred Hopper search technology to make product search easier and more intuitive.
· The IT infrastructure and website is being upgraded in preparation for trading the extended PACs range and will offer a robust returns process.
Laboratory Stores
· There are now five laboratory stores with several planned for opening in the near future.
· We will continue to test concepts though these formats remain experimental at this stage.
· The current formats differ between each of the laboratory stores as we test category locations, customer interactions, SKUs and space and different formats will continue to be tested.
Service
· The Redditch Head Office was re-named the Support Centre to reflect its primary role of helping our store and centre colleagues better serve customers.
· A new customer-engagement training programme was rolled out to nearly 9,000 colleagues.
· The introduction of a Customer Services Manager in our top 25 Retail stores was trialled.
· A new till-receipt system was introduced to more-readily capture customer feedback on our service in both stores and centres.
· A fundamental review of Retail store rotas, hours and training needs, based on customer-service requirements, is underway.
Our Colleagues
· The first Colleague Engagement Survey for several years was run and 92% of the c.12,000 Halfords colleagues responded, providing 8,000 individual comments and telling insights.
· Three regional Retail training centres will be opened in January 2013 with a view to open 12 more in FY14.
· We are introducing NVQs to give Retail store colleagues nationally recognised qualifications in fitting and service delivery.
· Further investment was made in our Autocentres apprentice scheme, the largest scheme of its kind in the UK; some180 colleagues aged 16-20 years are currently enrolled on a three-year programme to become qualified motor mechanics.
E. Summary and Outlook
During the first half good progress was made on our strategic initiatives. Morale in the business is good and this will help to build even more momentum into the second half of the year to capitalise on our long- term opportunities.
Our second-half Retail planning assumptions remain unchanged and cautious given the prevailing pressures on the consumer as we approach the important winter and Christmas trading periods. In response, management will retain its focus on pro-active trading strategies to capitalise on opportunities; cash generation and prudent cost management; as well as delivering our strategic objectives. We continue to plan for a full-year Group Profit before tax and non-recurring items of between £66m and £70m.
On behalf of the Board, I would like to thank all of our colleagues for their hard work and their immense contribution to the progress of our business and, in particular, the support they have given me during the last few months.
I am now pleased to hand over the baton to our new CEO Matt Davies. Matt has spent his first few weeks in the business engaging with colleagues and customers in both stores and centres. I know he will continue the excellent work that has started and further develop and enhance what is already a great business.
Dennis Millard
Chairman
November 2012.
FINANCE DIRECTOR'S REPORT
Halfords Group plc ("the Group" or "Group")
Reportable Segments
Halfords Group operates through two reportable business segments:
· Halfords Retail, operating in both the UK and Republic of Ireland; and
· Halfords Autocentres, operating solely in the UK.
All references to Group represent the consolidation of the Halfords ("Halfords Retail"/"Retail") and Halfords Autocentres ("Halfords Autocentres"/"Autocentres") trading entities.
|
|
26 weeks ended 28 September 2012 £m |
26 weeks ended 30 September 2011 £m |
Change |
|
Group Revenue |
455.6 |
454.0 |
0.4% |
|
Group Gross Profit |
246.3 |
246.5 |
-0.1% |
|
Group Operating Profit |
44.5 |
56.9 |
-21.8% |
|
|
|
|
|
|
Net Finance Costs |
(2.6) |
(2.2) |
18.2% |
|
|
|
|
|
|
Profit Before Tax and non-recurring items |
41.9 |
54.7 |
-23.4% |
|
|
|
|
|
|
Profit Before Tax, after non-recurring items |
42.4 |
54.7 |
-22.5% |
All items above are shown before non-recurring items unless otherwise stated.
Group revenue in HY13, at £455.6m, was up 0.4% and comprised Retail revenue of £393.0m and Autocentres revenue of £62.6m. This compared to HY12 Group revenue of £454.0m, which comprised Retail revenue of £400.6m and Autocentres revenue of £53.4m. Group gross profit at £246.3m (HY12: £246.5m) represented 54.1% of Group revenue (HY12: 54.3%), reflecting a decline in Retail business of 19 basis points ("bps") and a gross margin of 63.9% (HY12: 66.5%) in the Autocentres business.
Total Operating costs before non-recurring items increased to £201.8m (HY12: £189.6m) of which Retail represented £164.3m (HY12: £156.0m), Autocentres £36.6m (HY12: £32.5m) and unallocated costs £0.8m (HY12: £1.1m). Unallocated costs represent amortisation charges in respect of intangible assets acquired through business combinations (the acquisition of Nationwide Autocentres Ltd in February 2010), which arise on consolidation of the Group. Non-recurring income of £0.5m during the period represented the partial release of the Focus lease guarantee provision, recognised as a non-recurring cost in HY12, resulting from the better than anticipated settlements.
Net finance costs for the period were £2.6m (HY12: £2.2m).
Group Profit Before Tax and non-recurring items for the period was down 23.4% at £41.9m (HY12: £54.7m).
Group Profit Before Tax in the period after non-recurring items was £42.4m (HY12: £54.7m).
Based on the detailed assumptions set out later in this report, management reiterates its guidance for the full-year Group Profit before tax and non-recurring items of between £66m and £70m.
|
|
26 weeks ended 28 September 2012 £m |
26 weeks ended 30 September 2011 £m |
|
Sales |
393.0 |
400.6 |
|
Gross Profit |
206.3 |
211.0 |
|
Gross Margin |
52.5% |
52.7% |
|
Operating Costs before non-recurring items |
(164.3) |
(156.0) |
|
Operating Profit before non-recurring items |
42.0 |
55.0 |
|
Non-recurring income |
0.5 |
- |
|
Operating Profit after non-recurring items |
42.5 |
55.0 |
Revenue for the Retail business of £393.0m reflected, on a constant currency basis, a like-for-like sales decline of 1.6%. Non like-for-like stores contributed £0.8m revenue in the period, with total revenue declining 1.9%. By category, Cycling and Car Maintenance revenues were up 1.9% and 1.8% respectively, while Travel Solutions and Car Enhancement revenues were down -6.6% and -6.0% respectively. Revenue for the Retail business is split by category below.
|
|
26 weeks ended 28 September 2012 (%) |
26 weeks ended 30 September 2011 (%) |
52 weeks ended 30 March 2012 (%) |
|
Cycling |
32.9 |
31.6 |
29.5 |
|
Car Maintenance |
27.1 |
26.3 |
30.8 |
|
Car Enhancement |
25.1 |
26.4 |
25.8 |
|
Travel Solutions |
14.9 |
15.7 |
13.9 |
|
Total |
100.0 |
100.0 |
100.0 |
Gross profit for the Retail business at £206.3m (HY12: £211.0m) represented 52.5% of sales, 19bps down on the prior period (HY12: 52.7%). This dilution reflected the continued focus on maximising cash generation; the higher proportion of Cycling sales, particularly in lower-margin premium bikes and; continued cash-accretive promotional activity, such as the successful four-litre £17.50 Castrol deal. These were partly offset by a reduced level of lower-margin Car Enhancement sales, albeit better than anticipated; increased Car Maintenance parts & fitting revenues and; a continued supply-chain cost focus.
Operating costs before non-recurring items were £164.3m (HY12: £156.0m), up 5.3% on the prior period. The breakdown is set out below.
|
|
26 weeks ended 28 September 2012 £m |
26 weeks ended 30 September 2011 £m |
Change |
|
Store Staffing |
42.5 |
39.8 |
6.8% |
|
Store Occupancy |
69.9 |
70.6 |
-1.0% |
|
Warehouse & Distribution |
14.4 |
13.8 |
4.4% |
|
Support Costs |
37.5 |
31.8 |
17.9% |
|
Total Operating Costs before non-recurring items |
164.3 |
156.0 |
5.3% |
Note: The above figures reflect a re-allocation of carriage costs from Store Occupancy to Warehouse & Distribution upon the launch of the 24-hour Reserve & Collect fulfilment proposition. Comparatives have been adjusted accordingly.
In line with the objective to capture the Car Maintenance parts and fitting market opportunity, payroll hours were invested in '3B' (bulbs, blades and batteries) fitting activity during the period with additional fitters recruited in store during September. This, together with investment in training time in both technical and employee engagement skills, additional colleagues during the peak demand experienced in August and the underlying uplift in National minimum-wage rates, led to a 6.8% increase in Store Staffing costs.
Store Occupancy costs fell by 1.0% reflecting a focus on mitigating rental and rates increases, as well as procured savings in contracted store spend, such as refuse management.
Warehouse & Distribution costs increased by 4.4% driven by the carriage costs associated with the enhanced multichannel fulfilment offering launched in March.
Support Costs increased by 17.9% as a result of the delivery of increased recruitment and training in stores, enhanced Support Centre capability (Procurement, Human Resources and Multichannel, plus expertise to deliver on the Cycling Parts, Accessories and Clothing initiative), accelerated investment in marketing and the one-off costs associated with the change of Chief Executive.
Full-year guidance is also unchanged for Retail gross margins which are anticipated to be broadly flat year on year. Guidance on full-year Retail operating costs remains unchanged, reflecting an underlying 4% cost inflation with a further £6m of strategic investment compared to financial year 2012.
Halfords Autocentres
|
|
26 weeks ended 28 September 2012 £m |
26 weeks ended 30 September 2011 £m |
|
Sales |
62.6 |
53.4 |
|
Gross Profit |
40.0 |
35.5 |
|
Gross Margin |
63.9% |
66.5% |
|
Operating Costs |
(36.7) |
(32.5) |
|
Operating Profit |
3.3 |
3.0 |
Autocentres generated total revenues of £62.6m (HY12: £53.4m), an increase of 17.2% on the prior period. Non-like-for-like centres generated £3.8m of incremental revenue in the period. Five new Autocentres opened in the period and took the total number of Autocentre locations to 265 as at 28 September 2012. The increase in revenues from the like-for-like centres reflected the impact of enhanced media support and investment, growth in tyre sales, as well as the success of online bookings which represented 15% of total HY13 Autocentre revenues.
Gross profit at £40.0m (HY12: £35.5m) represented a gross margin of 63.9% against a prior period margin of 66.5% driven primarily by increased volumes of lower-margin, tyre sales, which represented 14.4% of total sales (HY12: 9.5%). Underlying service, MOT and repair margins were underpinned by improvements in parts buying.
Autocentres operating profit was up 10.0% at £3.3m (HY12 £3.0m) after operating expenses of £36.7m (HY12 £32.5m). To secure long-term growth and profitability, investment in the business has continued. A successful national media campaign, investment in training and support centre capability and in particular the impact of the new-centre opening programme contributed to the £4.2m increase in operating costs.
Given the difficult fleet market and the continued investment in the business, the full-year Autocentres operating profit is anticipated to be in line with the prior year.
The store and centre portfolio at the end of the period comprised 467 stores (end of HY12: 466) and 265 Autocentres (end of HY12: 246).
The following table outlines the changes in the Retail store portfolio over the period:
|
|
Number |
Stores |
|
Relocation |
2 |
Chingford, Durham |
|
Re-gear |
4 |
Stafford, Coventry, Norwich, Dartford |
|
Downsize |
2 |
Ipswich, Cheltenham |
|
'Laboratory' stores |
4 |
Nuneaton, Cheltenham, Uxbridge, Chingford |
|
Opened |
- |
- |
|
Closed |
- |
- |
Within Retail, three existing stores were reconfigured into 'laboratory' formats. Two stores were relocated (one opening in the laboratory test format), two stores were downsized (one opening in the laboratory test format), and four leases were re-signed with re-geared lease terms.
With the exception of nine long leasehold and two freehold properties within Autocentres, the Group's operating
sites are occupied under operating leases, the majority of which are on standard lease terms, typically with a 5 to
15-year term at inception and with an average lease length of seven years.
Since the period end, one store has been closed (Preston, Ribbleton Lane) in line with its lease expiry.
In Autocentres, the portfolio was extended by five centres to 265 in the half with four opened to date in the second half. The plan is to add up to a further 21 new centres in the remainder of the year.
At the end of FY11, an exceptional charge of £7.5m was recognised in respect of a provision for property leases to which Halfords was a guarantor, triggered by the demise of the Focus DIY retail chain. At 30 March 2012 the provision was £3.1m, reflecting the settlement of a number of leases and utilisation for on-going rent, insurance and service charges, and had reduced further at 28 September 2012 to £2.1m as a result of £0.5m release relating to a lease settlement and £0.5m utilisation.
The net finance expense was £2.6m (HY12: £2.2m). The higher expense in the period reflected higher weighted-average borrowings and lower interest income than the prior period. It is anticipated that the full-year finance expense will be marginally up on the prior year.
Taxation
The taxation charge on profit for the financial period was £10.5m (HY12: £14.9m), including a £0.1m charge (HY12: £0.2m charge) in respect of the tax on non-recurring items. The effective tax rate of 25.4% (HY12: 26.9%) differed from the UK corporation tax rate (24.0%) principally due to the non-deductibility of depreciation charged on capital expenditure, the reassessment of anticipated future tax deductions from employee share schemes and other permanent differences arising in the period.
A 25-26% effective tax rate is anticipated over the full year.
Earnings Per Share ("EPS")
Basic EPS before non-recurring items was 16.2 pence (HY12: 19.8 pence), an 18.2% decrease on the comparable period. Basic EPS after non-recurring items was 16.4 pence (HY12: 19.7 pence). Basic weighted-average shares in issue during the period were 194.2m (HY12: 201.7m). Diluted weighted average shares in issue during the period were 194.4m (HY12: 202.7m).
The share buyback programme ended in May 2012. During the period 0.3m shares were acquired for a consideration of £0.9m. Since April 2011 a total of 18.4m shares have been acquired by the company; of these 12,954,493 were cancelled, with 5,449,620 being converted to treasury shares and transferred to the Employee Share Benefit Trust to fulfil future employee benefit requirements. Shares held in the Employee Share Benefit Trust are excluded from the calculation of weighted-average number of shares (on both an underlying and dilutive basis) and do not attract dividends.
The Board has approved an interim dividend of 8.0 pence per share (HY12: 8.0 pence). This will be paid on 25 January 2013 to shareholders on the register at the close of business on 21 December 2012.
Capital investment in the period totalled £6.1m (HY12: £8.3m) comprising £4.6m in Retail and £1.5m in Autocentres. Consistent with prior periods, management has continued to adopt a prudent approach with regard to capital investment and has focused on investments generating material returns.
Within Retail, £2.3m was invested in stores, including the laboratory store concepts, relocations and right-size activity, and general capital spend relating to store roofing/flooring and security. Additional investments in Retail infrastructure included a £1.2m investment in IT systems, with further development in the on-line proposition, £1.0m in logistics and £0.1m in central facilities.
A further £1.5m (HY12: £1.6m) was invested in Autocentres to drive the centre roll-out plan and upgrade centre equipment, especially in relation to the delivery of the tyre fitting proposition.
Capital expenditure guidance for the full year remains at up to £25m for the Group.
Inventories
Group inventory held at the period end was £132.9m (HY12: £153.3m), down 13.3% on the prior period. Autocentres inventory was £1.3m, flat on the prior period. The management of inventory remains a key area of focus for the Retail business while the Autocentres business model is such that only small levels of inventory are held within the centres, with most parts being acquired on an as-needed basis.
Cashflow and Borrowings
Net cash generated from operating activities in the period was £68.0m (HY12: £49.0m). After taxation, capital expenditure and net finance costs, free cashflow of £59.5m (HY12: £40.4m) was generated.
Group net debt of £107.9m (HY12: £140.7m, FY12 £139.2m) represented a year-on-year decrease of £32.8m and a £31.3m decrease since the end of financial year 2012. At this level, Net Debt to 12-month EBITDA (earnings before non-recurring items, finance costs, depreciation and amortisation) was 1.0x (HY12: 1.0x, FY12: 1.1x).
Principal Risks and Uncertainties
Specific risks associated with the performance in the second half of the year include the impact of Christmas trading as well as winter weather-sensitive sales, particularly within the Car Maintenance category in the Retail business.
Andrew Findlay
Finance Director
November 2012.