Slide 1: Driving Stopline
driving Stopline
Slide 2: Dennis Millard, Chairman
Dennis Millard Chairman
Slide 3: Agenda
Agenda • Introduction Dennis Millard, Chairman • FY13 Accounts Andrew Findlay, Group Finance Director • Strategy Matt Davies, Chief Executive • Coffee • Strategic Investments Andrew Findlay • Summary Matt Davies • Questions
Slide 4: Andrew Findlay, Group Finance Director
Andrew Findlay Group Finance Director
Slide 5: FY13 Financial Highlights
FY13 Financial Highlights • Group Revenue £871.3m, up 1.0% • Retail Gross Margin 53.3%, broadly flat • Profit Before Tax, down 21.9% to £72.0m • Basic Earnings Per Share, down 17.8% to 27.7p • Net Debt £110.6m, down £28.6m • Free Cashflow of £71.8m, up £1.4m • Final Dividend of 9.1p per share, down
Slide 6: FY13 Retail Revenues
FY13 Retail Revenues LFLs Total Retail % Cycling -0.6 FY13 Category Sales Car Maintenance +5.1 (%) Car Enhancement -4.2 Travel Solutions -6.8 12.9 Total -0.7 29.6 Proportion of Proportion Total 24.9 Online Retail of Total Revenue Online Retail Sales Retail Sales Growth % % % 32.6 Home Delivery 12.5
Slide 7: FY13 Retail Successes
FY13 Retail Successes 3Bs Fitting Penetration 3Bs Jobs (m) 35.2% 2.6 26.3% 1.7 FY12 FY13 FY12 FY13 Cycle Repair Sales (£m) Total Fitting & Service Income (£m) 6.1 20.7 4.9 15.2 FY12 FY13 7 FY12 FY13
Slide 8: Retail Performance
Retail Performance FY13 FY12 Change £m £m Revenue 745.5 752.3 -0.9% Gross Profit 397.0 399.8 -0.7% Gross Margin 53.3% 53.1% +12bps Operating Costs (323.4) (307.0) +5.3% EBIT 73.6 92.8 -20.7% EBIT Margin 9.9% 12.3% EBITDA 94.6 114.6 -17.5% EBITDA Margin 12.7% 15.2% Non-recurring items (1.0) 1.9 Notes
Slide 9: FY13 Retail Gross-Margin Influences
FY13 Retail Gross-Margin Influences Adverse Favourable Car Enhancement: Car Maintenance: intra-category mix 3Bs parts & fitting Inventory ‘spring clean’ and Retail disciplines: cash-accretive promotions lower shrinkage Cycling mix: the success of Weather-mix benefits Premium Cycles 9
Slide 10: Retail Operating Costs
Retail Operating Costs FY13 FY12 Change £m £m Store Staffing 85.1 80.1 +6.2% Store Occupancy 140.1 138.1 +1.5% Warehouse & Distribution 28.5 27.5 +3.6% Support Costs 69.7 61.3 +13.7% Total 323.4 307.0 +5.3% Depreciation/Amortisation/Impairment 21.8 21.8 - Notes: All numbers shown are before non-recu
Slide 11: Autocentres Performance
Autocentres Performance FY13 FY12 Change £m £m Revenue 125.8 110.8 +13.5% Gross Profit 80.1 73.0 +9.7% Gross Margin 63.7% 65.9% -221bps Core Centres (56.9) (55.0) +3.5% New Centres (11.3) (5.9) +91.5% Operating Costs Support (5.6) (5.1) +9.8% Total (73.8) (66.0) +11.8% EBIT 6.3 7.0 -10.0% EBIT Margi
Slide 12: Cashflow and Net Debt
Cashflow and Net Debt OPERATING £m FREE CASHFLOW £m NET DEBT £m CASHFLOW Operating Profit 78.1 Operating Cashflow 115.8 Opening Net Debt (139.2) Depreciation/ 27.0 Capex (20.4) Free Cashflow 71.8 Amortisation Employee Share Scheme 0.1 Net Finance Costs (3.9) Dividends (42.7) Working Capital 11.2 Tax
Slide 13: Total Net Debt
Total Net Debt £m 200 163.1 155.5 150 139.2 110.6 103.2 100 50 0 FY09 FY10 FY11 FY12 FY13 Net Debt: 1.3x 1.0x 0.7x 1.1x 1.1x EBITDA Adjusted Net Debt: EBITDAR 3.8x 3.6x 3.2x 3.9x 4.2x Refinancing to be completed in 2 013 Notes: Halfords Group has no pension liability. Adjusted ratio prudently calcul
Slide 14: Summary – Financial Performance
Summary – Financial Performance • A stronger top line • Retail gross margins in line with expectations • A focus on better-quality inventories: in better shape for FY14 • Continued investment in Autocentres • Strong operating cash generation and a prudent balance sheet • An appropriate rebasing of t
Slide 15: Matt Davies, Chief Executive
driving stopline Matt Davies we) Chief Executive
Slide 16: What I'll cover today
What I’ll cover today • Halfords is a good business • Clear strategic framework • Need to move from good to great • Drive profitable sales growth through leveraging expertise • Investment required • Short-term profitability and cash generation impact Plans intended to drive long-term revenue and pro
Slide 17: Help and Inspire Customers with their Life on the Move
Help and Inspire Customers with their Life on the Move 17
Slide 18: Autocentres
Autocentres
Slide 19: Sensible acquisition
Sensible acquisition • Halfords is a trusted brand in Automotive • A natural extension of Halfords business model • Clear long-term growth opportunities • Short-term profit expectations were over-optimistic – Implications of rapid expansion – Tougher market conditions 19
Slide 20: Auto Aftercare Retail Market has shrunk by 5% (2011–2013)
Auto Aftercare Retail Market has shrunk by 5% (2011–2013) Overall Market Cars to X X Spend / service MOT + Service visit = Total market 1% 1% -1% -5% -5% • National car parc increased slightly • Demand for MOT up slightly • Service market has shrunk – Longer periods between services – Less spend per
Slide 21: Halfords Autocentres has grown
Halfords Autocentres has grown • Retail LfL up 6.2% (incl. tyres) • Better capacity use • Halfords branding and advertising • Customer recruitment • Built tyre business • Product development – Brakes for Life 21
Slide 22: Markets still provide a huge opportunity for Halfords
Markets still provide a huge opportunity for Halfords • Total market c.£9bn • Halfords share c.1-2% • Growth opportunities in all core categories – MOT 1.1% – Servicing 2.1% – Mechanical repairs 2.0% – Tyres 2.1% • Improvement in market growth anticipated 22
Slide 23: Market consolidation continues
Market consolidation continues • Fragmented market – c.22,000 sites • Long-term capacity shrinkage: 1-2% (2001-2013) Halfords rapid expansion strategy • 27% growth since acquisition 23
Slide 24: Halfords uniquely placed to take market share
Halfords uniquely placed to take market share • Strong brand • Trust • National chain • National marketing Dealership quality at more affordable prices 24
Slide 25: Growth opportunity for business of significant scale
Growth opportunity for business of significant scale • Clear strategy for the future • Operational – more from existing customers • Innovation • Marketing – more customer footfall • Fleet – growing share & finding new customers • New-centre openings: 20-30 per annum • Profitability will build as we
Slide 26: Halfords Retail
Halfords Retail
Slide 27: Halfords has a strong place in UK retail
Halfords has a strong place in UK retail • Excellent brand • Fulfils a clear customer need • Leadership in Cycles • A go-to destination for Auto • Significant service element Our offer is relevant and key parts are unique 27
Slide 28: The Cycle market is buoyant
The Cycle market is buoyant £700m £700m £100m • Popularity of cycling increasing 100% – Tour de France, Olympics – Cycling club membership is up – Sky Rides • Market value growing at around 5% 80 85 92 – Cycles c.£700m, Halfords 20-25% share – Parts, Accessories and Clothing c.£700m, Halfords c.15%
Slide 29: The market for Auto Parts Replacement offers growth potential
The market for Auto Parts Replacement offers growth potential 100% £950m • 3Bs (parts and labour) c.£950m – Halfords share c.11% 89 • Invested in colleagues, training and advertising • 50.5% growth in fitting jobs FY13 • 10.9% growth in parts sales 0% 11 3Bs (Parts & Labour) Rest of Market Halfords
Slide 30: What's great about Halfords
What’s great about Halfords • Well positioned for market opportunities • Powerful brand with some excellent products • Great store network to leverage • Core colleague expertise 30
Slide 31: On our day we're hard to beat
On our day we’re hard to beat I was AMAZED by how helpful the assistant called Kevin was… he managed to find out from me what I needed… I felt really RELAXED and NOT PUSHED Tom went OUT OF HIS WAY to get the right part ordered for me. He was so helpful and very POLITE and has FANTASTIC communication
Slide 32: But those days don't happen enough
But those days don’t happen enough BAD customer service and UNHAPPY staff. This is my recent EXPERIENCE of my local________ This store is so TIRED and SHABBY. What does it say about ... I doubt it’s going to be very pleasant ________ 32
Slide 33: Our customers tell us
Our customers tell us • Stores tired • Out of stock • Uninspiring • Inconsistent value • Service variable – Expertise – Colleague availability Too many customers are now shopping elsewhere 33
Slide 34: We aren't inspiring our customers
Samantha B: @Halfords_uk after waitin 35mins &bein told noone could help. Awful customer service. Clearly understaffed & you lost 2 paying customers. We aren’t inspiring our customers Arwyn Boyland • Our Net Promoter Score has been I have returned a bike due to numerous comparable to value players a
Slide 35: 'Rude' Halfords named worst store
driving stopline ‘Rude’ Halfords named worst store
Slide 36: My perspective
My perspective • A good business - we could be great • Thousands of amazing people • A solid core of expertise • Not supporting colleagues to do the job they aspire to 36
Slide 37: We must act now
We must act now • Top line is eroding • Halfords will lose brand credibility • Competition is escalating • Cost base is rising • Customer service is too inconsistent • Stores are tired • Retail disciplines below par Service is the key to profitable growth 37
Slide 38: Getting Into Gear - 2016
driving stopline . | service revolution the ‘h’ factor Getting Into Gear - 2016 stores fit to shop 215t century ae infrastructure a click with the digital future
Slide 39: Getting Into Gear - 2016
driving stopline . | service revolution Getting Into Gear - 2016
Slide 40: Service is key area of focus
Service is key area of focus • Two-thirds of Halfords lines require service • Service is also a product we sell • Competitive advantage • Friendly expertise drives sales • Better customer experience increases recommendations 40
Slide 41: From / To: service culture
From To • No real service culture • Recruitment and retention a core KPI • Poor recruitment process • Rotas and scheduling • Little structured training • Colleague turnover high • Store incentives linked to service plus sales • Engagement low • Halfords academies • 3-Gears programme Happy Colleagues
Slide 42: The 3-Gears programme
The 3-Gears programme Gear 1 Gear 2 Gear 3 • All colleagues • Nine-month training • Guru • Completed in three • Expert level of product • Qualified to train others months knowledge • Training through • Structured e-learning • Specialise in auto – Workshops – Retail skills & leisure or cycle – Produc
Slide 43: Retail Disciplines
Retail Disciplines • Improved availability • Investing £15-20m in incremental stock Also • Step change in gap checking • Clearance process • Structured Support Centre communications • Trading feedback: listening • Mystery shopping • Weekly routines • Stock-friendly warehouses and store-friendly deli
Slide 44: Getting Into Gear - 2016
the ‘h’ factor Getting Into Gear - 2016
Slide 45: Reasserting our proposition authority
Reasserting our proposition authority • Excitement through innovation • Rebalance space • Celebrate our specialism • Build Cycle Repair scale • Regain authority in Auto Parts • Drive our service opportunity 45
Slide 46: Supporting drivers of every car
Supporting drivers of every car An exciting drive into summer motoring • Diagnostics in every store • Stop/Start battery replacement • Audio – App head units – Ready for DAB switchover • Exclusive Garmin free Lifetime traffic 46
Slide 47: Inspiring cyclists of every age
Inspiring cyclists of every age This is the Year of the Cycle at Halfords • New Voodoo range • Boardman range re launch – Including £999 carbon fibre • Pendleton, new additions to range – Ashwell • New Apollo range • Sky Ride - technical partner 47
Slide 48: Equipping families for their leisure time
Equipping families for their leisure time • Camping range extension – New Aventura range – New Vango tents – New Outwell and accessories ranges • Leverage Exodus brand • Investigating new category opportunities 48
Slide 49: Getting Into Gear - 2016
Getting Into Gear - 2016 stores fit to shop
Slide 50: Our estate
Our estate • Trading from 466 stores • 99% of stores make money • Surrender space where opportunity exists • Drive profitable sales • Stores are vital to digital future • Focus on Greater London • Maximise lease flexibility No significant change in store numbers 50 Stores profitability calculated on
Slide 51: Stores look and feel
Stores look and feel • Stores don’t match customer expectations particularly for cycling • Make step change in look and feel • c.£50m investment over three years • All cycling departments modernised 51
Slide 52: We are building on learnings from lab stores
We are building on learnings from lab stores 52
Slide 53: Store refurbishment work underway
50:39 work underway • 10 -15 stores in new format FY14 • c.150 stores refurbished FY14-FY16
Slide 54: Getting Into Gear - 2016
Getting Into Gear - 2016 21st century ae infrastructure
Slide 55: Supply Chain
Supply Chain • Support • In-store service focus • Availability • Digital future • Airlock deliveries trials • Seamless processes – in-store and online • Transport review 55
Slide 56: IT
IT To From • New IT Director • Systems out of date • Data centre relocation • Repeated “bolt ons”/ overlays • SAP upgrade • Complex and costly to maintain • New store voice and data • Not future ready network • Scalable systems to support growth plans • c.£38m IT & Digital investment 56
Slide 57: Getting Into Gear - 2016
Getting Into Gear - 2016 a click with the digital future
Slide 58: Creating a service-led digital proposition
Creating a service-led digital proposition • Multichannel experience inconsistent • NPS too low • Clear pricing policy • Build strong PACs offer • Leverage friendly in-store expertise to differentiate 58 • New Halfords.com website
Slide 59: Initiatives Underway
Initiatives Underway Website Experience Fulfillment • Three product pillars and deeper • Reserve & Collect stock ranges availability • Inspirational content • Improved fulfillment and returns capabilities • Build online community • Improved customer account • Easier to search, navigate and managemen
Slide 60: Getting Into Gear - 2016
driving stopline . | service revolution the ‘h’ factor Getting Into Gear - 2016 stores fit to shop 215t century ae infrastructure a click with the digital future
Slide 61: Halfords Retail to be…
Halfords Retail to be… • Specialist retailer – be the authority • Innovative range that excites and delights customers • An inspiring store – where customers want to shop • Friendly expertise – knowledgeable colleagues • Investment of c.£100m over three years Generate sustainable and profitable sale
Slide 62: Milestones
Milestones
Slide 63: Milestones - Colleagues
Milestones - Colleagues FY14 FY15 FY16 All qualifying colleagues through Gear 1 50% colleagues through Gear 2 3-Gears 80% colleagues through Gear 2 Two Gear-3 colleagues per store Reduce % of <12.5% colleagues leaving within 3 months <10% Colleague >85% Engagement (Group) 63
Slide 64: Milestones - Operational
Milestones - Operational FY14 FY15 FY16 Autocentres opened 20-30 20-30 20-30 Launch PACs Annual PACs sales growth 20% 20% Cycle Repair sales growth 25% 25% 25% Cycle Departments brought up to date 100 180 180 Full store refits 10-15 c.60 c.75 Launch new Retail website Mobile & tablet optimised site
Slide 65: Milestones - Customers
Milestones - Customers FY14 FY15 FY16 >60% 1 Net Promoter Score >65% >70% 25% Stores working stock outside peak trading hours Majority of stores Notes: 1) In line with Empathica data 65
Slide 66: Target - Sales
Target - Sales FY16 Group Sales £1 Billion 66
Slide 67: Coffee break
Coffee break
Slide 68: Andrew Findlay, Group Finance Director
Andrew Findlay Group Finance Director
Slide 69: Retail Capital Expenditure
Retail Capital Expenditure FY14 FY15-FY16 Stores FY14 FY15-FY16 (£m circa) (£m circa) Store Portfolio 15 35 Full Store Refits 10-15 c.135 Rightsizes and IT & Digital 13 25 c.8-10 c.15-20 Relocations Other 4 8 Cycle Departments c.100 c.360 Colleague Training TOTAL 32 68 up to 10 Facilities Prior annu
Slide 70: Retail Cash Opex
Retail Cash Opex Committed vs. FY14 vs. FY13 Volume/Performance (£m circa) Related Service Revolution, Pay Review 7 Largely Committed Incentives, Cycle Repair, Fitting 7 Volume / Performance Related Supply Chain 4 Volume / Performance Related Stores, Other 3 Largely Committed Uplift vs FY13 21 Robus
Slide 71: FY14 Inventory
FY14 Inventory A £15-20m Investment In Stock To underpin improved on-shelf availability To support our Cycling growth aspiration & range changes Selective PACs investment – where it makes sense 71
Slide 72: Medium-Term Margin Prospects
Medium-Term Margin Prospects Margin Drivers Trading stance, PACs, online-sales participation Gross >50% vs. Fitting & cycle repair, supply-chain leverage Retail Sales growth EBITDA Low double digit Cash gross margin Opex investments Tyre participation Gross Broadly flat vs. SMR supplier leverage Aut
Slide 73: Gearing And Capital Allocation
Gearing And Capital Allocation An anticipated cap on gearing: 1.5x Net Debt/EBITDA Priority Investment For Growth Dividend Returns Debt Management 73
Slide 74: Dividend Policy
Dividend Policy • FY13 dividend – A 35% reduction in the final dividend per share to 9.1 pence – A full-year dividend per share of 17.1 pence • FY14 full-year dividend – Anticipate c.14 pence per share • Medium term: nearer to 2x earnings cover • Why now: – Support investment for growth – Maintain a
Slide 75: FY14 Guidance
FY14 Guidance Retail Operating Costs c.6% Retail Gross Margin A decline of 125-175bps Retail Capital Expenditure c.£32m Autocentres EBITDA Marginally ahead of FY13 Autocentres Capital Expenditure c. £6m Net Finance Costs Marginally down on FY13 Effective Tax Rate 23-24% Notes: All numbers shown are
Slide 76: Future Reporting Calendar
Future Reporting Calendar Q1 Trading July Q2 Trading and Interims November Q3 Trading (15 weeks) January Q4 Trading (11 weeks) and Prelims May / June 76
Slide 77: Matt Davies, Chief Executive
driving stopline Matt Davies we) Chief Executive
Slide 78: Getting Into Gear 2016
Getting Into Gear 2016 • Group colleague engagement score increased to 77% • Step change in retail standards • 3 Gears launched • New recruitment website • New store format plan • New advertising agency appointed • Trialling out of hours delivery • PACs launch imminent Step change is underway 78
Slide 79: New Management Team Members
New Management Team Members Rob Anna Anna David Emma Emma
Slide 80: foplite
foplite
Slide 81: Our Investment in Change
Our Investment in Change • Dividend • Vital need for investment The right course of action 81
Slide 82: Why I am so excited
Why I am so excited • Halfords is relevant • Our issues are solvable - through proven routes to action • We know what we have to do and we have a clear and detailed plan • Upside from improved service brings competitive advantage 82
Slide 83: Questions
driving Stopline Questions
Slide 84: Appendices
Appendices
Slide 85: Group Income Statement
Group Income Statement FY13 FY12 Change £m £m Revenue 871.3 863.1 +1.0% Gross Profit 477.1 472.8 +0.9% Operating Costs 399.0 375.6 +6.2% OPERATING PROFIT 78.1 97.2 -19.7% Operating Profit % 9.0% 11.3% -230bps Net Finance Costs (6.1) (5.0) +22.0% PROFIT BEFORE TAX 72.0 92.2 -21.9% Basic Earnings Per
Slide 86: Group Components
Group Components Retail Autocentres Amortisation Group FY13 £m £m £m £m Revenue 745.5 125.8 - 871.3 Gross Profit 397.0 80.1 - 477.1 Operating Costs (323.4) (73.8) (1.8) 399.0 EBIT 73.6 6.3 (1.8) 78.1 EBITDA 94.6 8.8 - 103.4 Retail Autocentres Amortisation Group FY12 £m £m £m £m Revenue 752.3 110.8 -
Slide 87: Non-Recurring Items
Non-Recurring Items £m ‘Stores fit to shop' asset-impairment charges (0.8) Onerous lease-contract charges (1.2) Focus lease-guarantee provision release 1.0 Total (1.0) Notes: Cash element of £nil 87
Slide 88: Group Balance Sheet
Group Balance Sheet FY13 FY12 YOY Change £m £m £m Goodwill and Intangible Assets 342.2 343.9 (1.7) -0.5% Property, Plant & Equipment 90.6 97.9 (7.3) -7.5% Derivative Financial Instruments 1.7 (1.2) 2.9 +241.7% Net Working Capital 42.1 54.2 (12.1) -22.3% Net Debt (110.6) (139.2) 28.6 -20.5% Other Cre
Slide 89: Retail Capital Expenditure
Retail Capital Expenditure FY13 FY12 £m £m New stores and relocations 0.3 1.2 1 Retail Portfolio Store refreshes, rightsizes and other 5.5 10.3 Retail Infrastructure Systems 5.0 2.4 Warehouse & Distribution 1.4 1.0 Retail Other 1.0 0.3 Total Retail 13.2 15.2 Autocentres 5.6 4.5 TOTAL GROUP 18.8 19.7
Slide 90: Retail Portfolio – Store Types
Retail Portfolio – Store Types 466 467 466 436 436 435 Total Stores Superstores High Street 30 31 31 FY11 FY12 FY13 90
Slide 91: Retail Portfolio – FY13 Space
Retail Portfolio – FY13 Space Average Average Total Average Average Ground Trading Mezzanine Leaseable Floor FY13 Space1 Space, Trading Trading including Space (sq.ft) Space Mezzanine (sq.ft) (sq.ft) (sq.ft) 9,353 8,106 6,423 3,067 Notes: 1) Ground floor only, including back of house. 91
Slide 92: Retail Portfolio – Lease Expiries
Retail Portfolio – Lease Expiries Expiries FY14 23 FY15 29 FY16 26 FY17 18 FY18 16 Total Expiries 112 % of Retail Portfolio 24 Average remaining leases (total portfolio): 7.5 years 92
Slide 93: Autocentres Portfolio
Autocentres Portfolio Centres Acquired 223 FY11 230 FY12 250 FY13 283 Average remaining leases: 7.5 years 93
Slide 94: Contact and Newsflow
Contact and Newsflow For further information, please go to www.halfordscompany.com or contact Craig Marks Head of Investor Relations craig.marks@halfords.co.uk Landline: +44 (0)1527 513 113 Mobile: +44 (0)7712 888 807 Next newsflow: 10th July: Q1 Interim Management Statement 94
Slide 95: Forward-Looking Statements
Forward-Looking Statements INCLUDED IN THIS PRESENTATION ARE FORWARD- LOOKING MANAGEMENT COMMENTS AND OTHER STATEMENTS THAT REFLECT MANAGEMENT’S CURRENT OUTLOOK FOR FUTURE PERIODS These expectations are based on currently available competitive, financial, and economic data along with our current ope