16 April 2009
Halfords Group Plc
Earnings Growth From Resilient Core Sales and Sustainable Margin and Cost Management
Halfords, the UK's leading automotive and leisure products retailer, announces its Pre-Close Statement for the 13 weeks to 27 March 2009.
Profit before tax1 growth through active margin and cost management.
Like-for-like sales increased in Cycling and Car Maintenance within overall sales decline of 1.2 per cent.
Further £10m cost reduction programme started.
Underlying net debt below £170m, representing less than 1.4 times EBITDA.
Group sales in the quarter decreased by 1.7% over the equivalent period in 2008 with like-for-like sales 3.8% lower than the prior year. Adjusting for the impact of Easter, which fell into the comparable accounting period in 2008, Group sales and like-for-like sales decreased by 0.9% and 3.0% respectively.
For the 52 weeks to 27 March, Group sales decreased by 1.2% with like-for-like sales declining by 3.3%.
Favourable market characteristics and Halfords' leading proposition helped Car Maintenance and Cycling each continue to deliver like-for-like sales growth, with share increases in each of these fragmented markets. Our more discretionary Car Enhancement category continued to experience revenue decline, particularly in higher ticket satellite navigation products, where material unit price deflation only slowed towards the end of the period.
Through proactive margin management, which has delivered further margin accretion, and prudent cost control, Halfords is expecting to report an increased annual profit before tax1 of between £92.0m and £92.5m; high single digit growth in earnings per share2 and the maintenance of its progressive dividend policy.
Reflecting the strength of the company's cash flow and a preference, at this time, for capital flexibility, underlying net debt will close the year below £170m.
The company has a clear plan to adapt the business to the current environment as part of a strategy that delivers sustainable earnings growth and value creation. The four elements of the Group's business strategy are:
Key elements of this plan, outlined below, will deliver benefits progressively over the next two financial years and significantly increase profitability once completed. The costs associated with these initiatives, to be accounted for as exceptional costs in the financial year ended 3 April 2009, will total approximately £16.5m3.
Ongoing Cost Control
Management focus on cost control, ensures that the operating base is appropriate for each phase of the economic cycle and provides efficiencies to fund strategic investments.
Headcount reductions announced in November 2008 have been completed, as planned, with a further tranche of store-based reductions implemented during the fourth quarter. These changes reflect, in part, the efficiencies arising from our investment in core enterprise systems over the past four years. The exceptional cost of these staffing reductions was approximately £2.8m, with the associated full year reduction in operating costs in excess of £4m, being delivered in the financial year ending March 2010.
The Group has commenced the next phase of operational improvement, to re-configure and consolidate its' distribution infrastructure. This programme will incur restructuring costs of approximately £8m with anticipated transport efficiencies and improved labour productivity reducing annual distribution costs by c. £4m3 from financial year 2011/12 onward.
Halfords has a core capability and market leading position in Cycling that is delivering market share growth. Within the premium sector, these gains primarily reflect the continued success of our Boardman brand and an ongoing programme of premium brand introductions within the Group's existing core superstores.
Halfords' pilot stand-alone cycle stores have been impacted by the increasing success of our superstores in the premium market segment and the migration of sales to the web, particularly for accessories.
Consequently, we no longer believe that the stand-alone concept will deliver the absolute levels of financial return demanded of Halfords' investments. Ranges currently only available in stand-alone stores are therefore being transferred to our superstore chain and Bikehut and Cycle Republic stores are being re-branded, where appropriate, to a full Halfords offer via the Metro format. Recognising Halfords disciplined investment in this pilot, the exceptional exit costs, including the closure of stores where necessary, total approximately £1.2m.
Interest Rate Swaps
As a consequence of the current low interest rate environment and given the medium term forecasts for Base Rate, prior to the year end, the Board closed out the Group's existing interest rate hedging instruments, which were contracted until 2011. At prevailing interest rates, this will reduce finance charges in the current financial year by approximately £2.0m. The exceptional cost associated with the close out of these instruments was approximately £4.6m and has been recognised in the financial year ended 3 April 2009.
David Wild, Chief Executive Officer, commented:
"The Halfords business continues to perform strongly. The healthy like-for-like growth from our core product areas of Cycling and Car Maintenance re-enforced by our management efforts to improve margins and control costs has delivered earnings growth. In the present economic turbulence, this emphasises the resilient quality of our business.
Our early action to reduce costs and maintain a prudent balance sheet provides a solid platform for future earnings growth from our core strategic growth initiatives. The integration of our stand-alone cycle pilot into the main business signals our intention to focus our efforts on enhancing shareholder value through the more material expansion opportunities presented by Central Europe and our multi-channel activity, where we continue to generate significant sales growth.
We continue to target operating cost improvements and over the next two financial years will deliver further cost efficiencies through the re-configuration of our currently sub-optimal distribution facilities.
While we believe it is prudent to forecast that the consumer environment will remain challenging, Halfords' unique, market-leading position, combined with our active management of the business, provide the Board with confidence in the Groups' prospects for the current financial year."
1. Profit before tax range and growth in earnings per share before exceptional items is for the 52-weeks to 27 March 2009. Profit before tax and exceptional items for the 53 weeks to 3 April 2009 is anticipated to be between £94.0m to £94.5m.
2. Group sales performance:
- 13 Weeks
- 14 Weeks
- 52 Weeks
- 53 Weeks
i. 52/13 weeks to 27 March 2009 compares to 52/13 weeks to 28 March 2008
ii. 53/14 weeks to 3 April 2009 compares to 53/14 weeks to 4 April 2008
3. Subject to audit and, with regard to employment related costs, standard consultation processes.
Halfords will announce its Preliminary Results for the 53 weeks ended 3 April 2009 on 10 June 2009.
Halfords Group plc (www.halfordscompany.co.uk)
Nick Wharton, Finance Director 44 (0)1527 513047
Tony Newbould, Investor Relations 44 (0)1527 513113
Neil Bennett 44 (0) 207 379 5151
Richard Farnsworth 44 (0) 207 379 5151
Notes to Editors
The Group employs approximately 10,000 staff and sells over 10,000 different product lines, ranging from car parts and cycles through to the latest in-car technology, alloy wheels, child seats, roof boxes and outdoor leisure and camping equipment. Halfords' own brands include Ripspeed, for car enhancement and Bikehut, for cycles and cycling accessories, including the Apollo and Carrera brands. Two further premium brands were added during 2008; Boardman cycles and accessories, where Halfords has exclusive UK distribution rights, and URBAN Escape for camping equipment. Operating from 466 stores, including internationally, 22 stores in Republic of Ireland, five stores in the Czech Republic and one in Poland, and 29 smaller format, neighbourhood stores Halfords offers a "wefit" service for car parts, child seats, satellite navigation and in-car entertainment systems, and a "werepair" service for cycles.
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.