Halfords Group PLC: Acquisition of National

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018

For immediate release

1 December 2021

Halfords Group PLC

("Halfords" or the "Company" and together with its subsidiaries, the "Group")

Acquisition of National

Halfords secures position as the UK's largest vehicle service, maintenance and repair business

Introduction

Halfords, the UK's largest provider of Motoring and Cycling products and services, today announces that it has signed a sale and purchase agreement (the "SPA") to purchase the entire issued share capital of Axle Group Holdings Ltd ("National") (the "Acquisition") on a cash free, debt free basis, for total consideration of £62 million (the "Consideration"), subject to adjustment for normalised working capital. The Consideration will be paid in cash on the date of completion, which is expected to be 9 December 2021. A further investment of c.£17 million will be made post acquisition on associated capital expenditure and c.£2 million on integration costs.

National is a well-established business in the tyre and automotive servicing, maintenance and repair ("SMR") market, operating under the following brands: National Tyres and Autocare ("NTA"), Viking Wholesale Tyres ("Viking") and Tyre Shopper. On completion of the Acquisition, National will be integrated into Halfords' Autocentres business.

The directors of the Company (the "Directors") believe that the Acquisition is both strategically and financially compelling, delivering on Halfords' objective of evolving into a business more heavily weighted towards Motoring Services.

Highlights of the Acquisition include:

• the Acquisition accelerates Halfords' Motoring Services strategy surpassing its current target of 550 garages and 200 consumer vans;
• post-completion, Halfords will have approximately 604 garages, 234 consumer vans and 190 commercial vans. Including retail stores this will mean a combined total of over 1,400 fixed or mobile Motoring Services locations;
• the Acquisition means the majority of UK motorists will be within a 20-minute drive of a Halfords garage;
• supports progress towards Halfords' new target of 800 garages, 300 consumer vans and 500 commercial vans and further enhances the Group's commercial and business-to-business ("B2B") offering;
• post-Acquisition, Motoring revenue is expected to represent more than 70% of the Group's revenue (calculated on a pro-forma basis), an increase from 67% (in H1 of FY22), and Services revenue is expected to represent more than 40% of the Group's revenue (calculated on a pro-forma basis), up from 33% (in H1 of FY22)1;
• the Acquisition presents significant synergy opportunities - expected to deliver incremental EBITDA2 of c.£18 million per annum by year 5, with a third of that expected to be achieved in year 1;
• the Consideration is expected to be broadly equivalent to the 'per site' cost of an organic roll-out alternative;
• the Acquisition is financially compelling, and is expected to deliver2,3:
  • Return on Investment ("ROI") greater than the Company's weighted average cost of capital ("WACC") in the first full financial year (FY23);
  • Single digit EPS accretion in the first full financial year (FY23) and double digit EPS accretion in FY24; and
  • ROI at maturity4 expected to be more than 20% with an expected project internal rate of return ("IRR") greater than 30%.

The Company intends to part-fund the Acquisition and maintain balance sheet flexibility for future opportunities by undertaking a non-pre-emptive placing, together with a management subscription and retail offer, to raise up to c.£64 million, that will be the subject of separate announcements today.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

"This acquisition helps cement our position as the UK's largest vehicle service, maintenance and repair business. It will also see us deliver on our established strategy of evolving Halfords to become a Motoring Services focused business, with Motoring revenue set to represent more than 70% of our pro-forma revenue following the acquisition.

National has a high quality, UK-wide network of garages and mobile tyre fitting vans, and 1,400 highly skilled colleagues, providing a complementary fit with Halfords' existing operations. Post-acquisition, Halfords will have over 1,400 fixed or mobile Motoring Services locations, servicing a broad range of vehicles and delivering 7.5 million motoring jobs a year. This increased scale will bring the majority of UK-mainland motorists within a 20-minute drive of a Halfords garage, with even more vans available to provide mobile services at their home or work.

Given our recent track record of successfully acquiring and integrating businesses, and the potential we see to further grow our Motoring Services business in other areas of the country, I am very excited about our future growth prospects, and I look forward to welcoming the new teams to the business."

National overview

National is a well-established business in the tyre and automotive SMR market. It employs c.1,400 people and operates under three brands:

• NTA operates 239 tyre and SMR garages and 60 mobile tyre fitting vans, providing national coverage across Great Britain. Tyres, which are predominantly sourced through Viking, represent over 80% of its sales mix with c.1.3 million tyres fitted per annum. MOT and service represent c.5% of NTA's sales mix. Headquartered in Stockport, NTA has approximately 1,200 FTE across its garage estate (equivalent to c.4-5 FTEs per garage) along with a database of 1.1 million customers. NTA's central support people costs (across all the National brands) is c.£7m per annum.
• Viking is a wholesaler of tyres and related consumables to B2B customers, including NTA. Headquartered in Glasgow, Viking has 8 warehouses5 strategically located close to the motorway network.
• Tyre Shopper is a UK based online tyre retailer, where users purchase tyres online and have them fitted at NTA centres or remotely using the mobile fitting service. Currently, 'online' represents just under a third of National's sales mix.

National's garage network is structurally similar to Halfords' Autocentres business and adds further complementary capabilities in the tyre market with Viking and Tyre Shopper. National's CEO, Tony Neill will also join the Group post-Acquisition.

In the COVID-19 impacted year to 31 December 2020, National generated £157.7 million revenue and delivered £3.0 million EBITDA2. The Company estimates that National's base case year 1 EBITDA2, assuming the tyre market returns to normal but margin headwinds and cost inflation are sustained, is c.£5.9 million pre-synergies.

Acquisition rationale

The Directors believe that the Acquisition will expedite Halfords' strategic growth plans in Motoring Services:

• National builds on Halfords' existing capability - Halfords is already the largest vehicle 'Service, Maintenance and Repair' business in the UK, having grown share through a superior operating model and better customer service. This Acquisition will build on an existing position of strength.
• National helps exceed the target of 550 garages - Halfords previously communicated a medium-term ambition to grow the garage estate to 550 and the number of consumer facing mobile vans to 200. The Acquisition will see Halfords comfortably exceed these targets and, given that the market opportunity remains significant, supports progress towards Halfords' new target of 800 garages, 300 consumer vans and 500 commercial vans.
• National can be successfully integrated - Halfords has acquired and integrated three similar businesses in the past two years, McConechy's, Tyres on the Drive and Universal, and is confident that it will be able to successfully integrate National and extract significant synergies.
• National contributes towards growing the Services business - Halfords' strategy to grow its Motoring Services business is not only focussed on scaling the physical estate. Other key initiatives, such as Project Fusion, Loyalty and Cross-Shop are important drivers of demand into Autocentres. Additionally, the increase in fixed and mobile servicing locations will allow Halfords to offer its customers greater convenience; for consumers, through reducing the distance from their home to a garage and, for B2B customers, offering a more convenient, national network and the ability to partner with just one services provider, rather than many.
• Add to a more consistent, higher quality revenue stream - The Motoring Services business is more resilient to economic volatility, has more repeat business and yields higher returns on capital.

Post-completion, Halfords will have approximately 604 garages, 234 consumer vans, 190 commercial van and 8 warehouses.

The Directors believe the Acquisition is financially compelling based on the synergies the Company expects to deliver. Targeted synergy benefits are expected to deliver incremental EBITDA2 of c.£18 million per annum by year 5, with a third of that expected to be achieved in year 1. In order to achieve these benefits, the Company expects to invest c.£17 million capex and £2m operating expenses spread across years 1 and 2. The Company expects that the Acquisition will deliver2,3: a ROI greater than the Company's WACC in the first full financial year (FY23); single digit EPS accretion in the first full financial year (FY23) and double digit EPS accretion in FY24; a ROI at maturity4 that is expected to be greater than 20% and an expected project internal rate of return ("IRR") greater than 30%.

As at 31 December 2020, National had gross assets2 of £74.1 million and in the year to 31 December 2020 delivered reported profit before tax2 of £0.04 million.

The selling shareholders are Alan Revie, Joan Revie, John Taylor, Julie Taylor and John Caldwell.

The Acquisition constitutes a Class 2 transaction for the purposes of the FCA's Listing Rules.

1 Motoring and Services Revenues are not mutually exclusive. The majority of Services revenues relate to Motoring, whilst less than half of Motoring revenue is from Services. Enlarged group based on Halfords H1 FY22 revenue split and National pro forma revenue.

2 On an IAS 17 basis

3 These metrics and return targets are targets only and not profit forecasts. There can be no assurance that these targets will be met. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company.

4 Maturity defined as Year 5 following the Acquisition.

5 Comprised of 7 warehouses in the Viking business and 1 warehouse from the Tyre Shopper business.

Enquiries

Investors & Analysts (Halfords) Loraine Woodhouse, Chief Financial Officer Neil Ferris, Corporate Finance Director Andy Lynch, Head of Investor Relations	44 (0) 7483 457 415
Media (Powerscourt) Rob Greening Nick Hayns	44 (0) 20 7250 1446 halfords@powerscourt-group.com

The person responsible for releasing this announcement is Loraine Woodhouse, Chief Financial Officer.

IMPORTANT NOTICES

This announcement does not constitute, and should not be construed as, an offer to purchase or sell or issue securities or otherwise constitute an inducement, invitation, commitment, solicitation or recommendation to any person to purchase, subscribe for, or otherwise acquire securities in the Company. Nothing contained in this announcement is intended to, nor shall it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever and, in particular, must not be used in making any investment decision. Any indication in this announcement of the price at which ordinary shares have been bought or sold in the past cannot be relied upon as a guide to future performance. The price of shares and any income expected from them may go down as well as up and investors may not get back the full amount invested upon disposal of the shares. Past performance is no guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each investor or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

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The forward-looking statements contained in this announcement speak only as of the date of this announcement. The Company, its directors, their respective affiliates and any person acting on its or their behalf each expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation, the FCA or the London Stock Exchange.

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