Halfords Group Plc · LSE:HFD
Halfords — H1 FY20 Earnings Presentation
57 slides from Halfords's earnings presentation, Nov 7, 2019
Slide 1: FY20 Interim Results
HALFORDS GROUP PLC FY20 INTERIM RESULTS 7TH NOVEMBER 2019
Slide 2: Agenda
2 Agenda H1 FY20 Performance Loraine Woodhouse, CFO Strategy Update Graham Stapleton, CEO Financial Guidance Loraine Woodhouse, CFO Q&A
Slide 3: H1 FY20 Performance
3 H1 FY20 PERFORMANCE Loraine Woodhouse, CFO
Slide 4: Operational Highlights
4 Operational Highlights • Positive cycling sales growth; increased share in our core motoring categories • Group service-related sales, Online, B2B and Financial Services all delivered strong sales growth • Autocentres transformation on track to deliver third consecutive year of profit growth • Acq
Slide 5: Group Financial Overview
5 Group Financial Overview -2.9% YoY Revenue £582.7m -2.4% LFL Gross Margin 50.1% +70 bps Operating costs* £264.6m +0.1% YoY Underlying PBT* £25.9m -15.1% YoY Basic Underlying EPS* 10.4p -16.1% YoY Free Cash Flow** £44.2m +29.2% YoY Note: * numbers are reflected on a pre-IFRS 16 basis, appendix 1 &
Slide 6: Retail Financial Overview
6 Retail Financial Overview LFL Sales Growth -3.8% YoY 5.1% Revenue £500.0m -3.1% LFL Gross Margin 47.0% +40 bps 0.2% -1.1% Operating Costs* £210.0m -0.7% YoY -3.2% -5.3% -5.9% Underlying EBIT* £25.0m -18.8% YoY 20 week 21-26 week H1 FY20 Motoring Cycling Note: *numbers are reflected on a pre-IFRS 1
Slide 7: Retail Gross Margin
7 Retail Gross Margin Retail GM% H1 Gross Margin Improvement FY 20 H 1 47.0% 10 bps (10 bps) (20 bps) FY 19 H 1 46.6% 60 bps 47.0% 46.6% FY 18 H 1 45.7% FY19 H1 GFR Cycling FX headwind Motoring mix FY20 H1 Efficiencies customer & Targeted experience promotions FY 17 H 1 47.6%
Slide 8: Retail Operating Costs
8 Retail Operating Costs +1.2% (2.6%) +1.2% (0.5%) Note: numbers are reflected on a pre- IFRS 16 basis; “+” = increase and “(-)” = reduction
Slide 9: Autocentres Financial Overview
9 Autocentres Financial Overview +3.2% YoY Revenue £82.7m Autocentres EBIT +2.1% LFL 3.9% Gross Margin 68.6% +110 bps 2.9% £3.2m 1.9% Operating Costs* £53.5m +3.3% YoY £2.3m 1.2% £1.5m £0.9m Underlying EBIT* £3.2m +39.1% YoY FY17 H1 FY18 H1 FY19 H1 FY20 H1 EBIT % EBIT as a % of Sales Note: *numbers
Slide 10: Group Cash Flow
10 Group Cash Flow Group Cash Flow -£16.0m £31.3m -£13.3m -£25.0m £42.2m £44.2m £19.2m EBITDA Working capital Capex Tax & other Free Cash Flow* Ordinary Net cash Dividend & position other Note: * Free Cash Flow has been adjusted for the post period end payment run
Slide 11: Group Cash Flow – movement year-on-year
11 Group Cash Flow – movement year-on-year Average stock £196.7m Free Cash Flow movement year-on-year £181.7m -£2.1m -£6.4m £23.8m -£5.3m H1 FY19 H1 FY20 £44.2m Average Creditor days £34.2m 79.6 77.9 FY19 H1 Free EBITDA Working Capex Tax & other FY20 H1 Free Cash Flow Capital Cash Flow* H1 FY19 H1 F
Slide 12: Net debt to EBITDA
12 Net Debt 1.8 1.6 1.4 Debt target of 1x Net debt to EBITDA 1.2 (with range up to 1.5x for M&A) 1 0.8 0.6 0.4 0.2 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY19 FY20 H1 H1* Note: * for the purpose of this ratio net debt for FY20 has been been adjusted for the post peri
Slide 13: Interim Dividend
13 Interim Dividend Dividend pence per share (p) • Interim dividend of 6.18 pence paid on 17th January 2020 to shareholders on the register at 6.18 6.18 the close of business on 6th December 2019 Interim FY19 Interim FY20
Slide 14: Summary
14 Summary • Market share gains in both motoring and cycling • Group services, online and B2B delivering strong growth • Margin gains; strong cost control • Autocentres remain on track to deliver third consecutive year of profit growth • Strong Group cash generation • Acquisition of McConechy’s Tyre
Slide 15: Strategy Update
15 STRATEGY UPDATE Graham Stapleton, CEO
Slide 16: Halfords is the UK and Ireland's leading retailer of motoring and cycling products and services
Halfords is the UK and Ireland’s leading retailer of 16 motoring and cycling products and services • UK and Ireland’s leading retailer of motoring and cycling products and services. • Trusted brand with over 125 years of heritage • Market leading brand awareness in our retail business • Over 20 mill
Slide 17: Nationwide coverage of the UK offering motoring and cycling products and services
Today, we have a nationwide coverage of the UK offering customers motoring and 17 cycling products and services 317 448 Garages Retail Stores 26 Performance Cycling Stores 8 Vans
Slide 18: Different parts of our business deliver different levels of return
18 Different parts of our business deliver different levels of return Product Autocentres has 2% market share Services Autocentres Size of bubble represents relative Retail size of segment Motoring Services Market Growth Opportunity B2B Cycling Products Motoring Products Performance Retail Cycling C
Slide 19: To inspire and support a lifetime of motoring and cycling
19 To inspire and support a lifetime of motoring and cycling
Slide 20: Strategy laid out at the CMD remains the right direction
We are confident that the strategy laid out at the CMD remains the right direction for 20 the business 1 Inspire our customers through a differentiated, super-specialist shopping experience 2 Support our customers through an integrated, unique and more convenient services offer 3 Enable a lifetime o
Slide 21: Inspire our customers through a differentiated, super-specialist shopping experience
21 1 Inspire our customers through a differentiated, super-specialist shopping experience
Slide 22: Fully integrated Group website to deliver best in class digital customer experience
22 Fully integrated Group website to deliver best in class digital customer experience Before After Retail store Autocentre Garage
Slide 23: Optimisation of cycling space in all Retail stores
23 Optimisation of cycling space in all Retail stores Before After
Slide 24: Innovative products delivered a 30% increase in sales of exclusive products
Our range of innovative products delivered a 30% increase in sales of exclusive 24 motoring and cycling products
Slide 25: Support our customers through an integrated, unique and more convenient services offer
25 2 Support our customers through an integrated, unique and more convenient services offer
Slide 26: Customers rate our proposition highly
Our customers rate our proposition highly and is bringing new customers to the 26 Group, particularly younger and female customers • Delivering strong customer satisfaction scores • Introducing new customers to the Group • Attracting a different customer to our traditional automotive services busine
Slide 27: Driving growth and profitability of the Halfords Mobile Expert business
27 We are driving growth and profitability of the Halfords Mobile Expert business by… …leveraging best-in-class proprietary software …targeting a healthy mix of tyre replacement and other services …leveraging the Garage assets of the business
Slide 28: New WeCheck services
28 We are building relevance, awareness and value through new WeCheck services weCheck
Slide 29: On-demand weFit trial in Autocentres
29 On-demand weFit trial in Autocentres continues to deliver promising results
Slide 30: Enable a lifetime of motoring and cycling
3 Enable a lifetime of motoring and cycling
Slide 31: Accelerated investment in financial services offer
Accelerated investment in financial services offer giving us double-digit growth 31 year-on-year and access to a new customer demographic
Slide 32: Cost and Efficiency
32 Cost and Efficiency • Much of the investment funded from cost and efficiency savings: ‒ Goods for resale ‒ Rent savings in Retail ‒ Savings in distribution costs ‒ Reduction in electricity costs ‒ Selling and Administrative costs
Slide 33: Summary of business and opportunity today
33 Summary of business and opportunity today • Market leading and trusted brand • Unique and differentiated omnichannel portfolio • Great progress in delivering the strategic plan • Significant growth opportunities in high value markets
Slide 34: Clear rationale to further accelerate our service-led strategy
34 Clear rationale to further accelerate our service-led strategy Tailwinds Opportunities • Cars and bikes are becoming more • Market leading and trusted brand complex • Unique and differentiated omnichannel • Customers are demanding greater levels portfolio of convenience • Great progress in delive
Slide 35: Accelerating the Strategy
35 Accelerating the Strategy
Slide 36: Evolve into a consumer and B2B services-focused business
36 “Evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns.”
Slide 37: Accelerating the growth of our Autocentre business
37 Accelerating the growth of our Autocentre business Positiontoday Position today Before 550 After McConechy’s McConechy’s McConechy’s acquisition garages 550 garages
Slide 38: Accelerating the growth of our Halfords Mobile Expert business
38 Accelerating the growth of our Halfords Mobile Expert business Position today Position today Coverage Coverage Coverage after Tyres Tyres on on the the Drive Drive before after Tyres200 on the Drive Tyres Tyres on on the the Drive Drive hubs hubs vans acquisition 200 van coverage
Slide 39: Increased investment to enable growth in our WeFit services
39 Increased investment to enable growth in our WeFit services
Slide 40: Trial a more inspirational, convenient, integrated customer experience
We will trial a more inspirational, convenient, integrated and digitally enabled 40 customer experience within a location Before After
Slide 41: Investment required to achieve the plan
41 In order to achieve the plan, investment will be required… • Investment in a new customer contact centre and tools to deliver ‘best in class’ customer contact Infrastructure • Development of a digital services customer and colleague management system • Continued investment in B2B systems and infr
Slide 42: Delivered through ongoing focus on cost and efficiency benefits
…which will be delivered through our ongoing 42 focus on delivering cost and efficiency benefits • Delivering cost and efficiency benefits across the Group: ‒ Supply chain ‒ Property portfolio ‒ Procurement • Strategic buying alliance with Mobivia • Improving the profitability of our cycling product
Slide 43: Customers, Colleagues, Shareholders
43 Customers, Colleagues, Shareholders
Slide 44: Customer will have…
44 Customer will have… …significantly more convenient services proposition …services consistently delivered, when and where they want them …better access to technical advice and expertise …a market leading digital customer experience both online and in stores, garages and mobile
Slide 45: Colleagues will see…
45 Colleagues will see… …clarity and focus across the Group …excitement around accelerated investment and growth …investment in expertise and specialism …cross-Group career opportunity
Slide 46: Shareholders will see…
46 Shareholders will see… …sustainable profit growth and improved ROIC …greater focus on areas of significant growth opportunity …less exposure to the volatility of FX, weather and consumer sentiment …higher barriers to entry for our competitors
Slide 47: What does this mean for the business?
47 What does this mean for the business? • Acceleration of the existing plan • It will mean: ‒ Service-related sales will double as a % of Group sales ‒ Autocentres will represent a larger proportion of our Group profit ‒ Continued reduction in fixed costs ‒ Lower exposure to recent headwinds
Slide 48: Focus for FY21
48 Focus for FY21 Accelerated Investment • Optimise our new Group website • Integrate our McConechy’s acquisition and increase to 400 garages • Integrate our Tyres on the Drive and grow to 100 vans • Scale our WeFit services • Trial a new shopping experience in two locations Supported by • Improving
Slide 49: Financial Outlook
49 FINANCIAL OUTLOOK Loraine Woodhouse, CFO
Slide 50: Full-year Dividend
50 Full-year Dividend Dividend pence per share (p) 14.18 12.00 8.00 6.18 Interim FY20 Final FY20 Full Year Full Year FY20 FY21
Slide 51: Financial Guidance
51 Financial Guidance Profit Cash Flow • Re-confirm FY20 (pre-IFRS 16, 52-week) PBT • H2 FY20 Cash Flow impacted by additional guidance £50m - £55m capital / acquisition costs (c.£11m) + additional restructuring costs (c.£2m - £3m) Capex FY21 Profit • FY20: Additional c.£11m (including acquisition)
Slide 52: Summary: Today and Future
52 Summary Today Future “A low financial return consumer “A consumer and B2B services-focused products-focused business, with an business, with a greater emphasis on equal emphasis on motoring and cycling” motoring, generating higher and more sustainable financial returns.”
Slide 53: Appendices
53 halfords APPENDICES
Slide 54: Appendix 1 - IFRS 16
54 Appendix 1 - IFRS 16 Income statement impact - The Group has initially applied IFRS 16 at 30 March Rent £45.9m 2019 Depreciation (£36.2m) - A right-of-use lease asset and a lease liability is included on the balance sheet, and depreciation and interest has been charged to the income statement Ope
Slide 55: Appendix 2 - Group Financial Overview post-IFRS 16
55 Appendix 2 - Group Financial Overview post-IFRS 16 -2.9% YoY Revenue £582.7m -2.4% LFL Gross Profit 50.1% +70 bps Operating costs* £254.9m -3.5% YoY Underlying PBT* £30.2m -1.0% YoY Basic Underlying EPS* 12.2p -1.6% YoY Free Cash Flow** £44.2m +29.2% YoY Note: * numbers are reflected on a post-IF
Slide 56: Appendix 3 - Capital Allocation Priorities
56 Appendix 3 - Capital Allocation Priorities 1 Maintaining a prudent balance sheet 2 Investment for growth 3 Maintain the ordinary dividend 4 Appropriate M&A 5 Surplus cash returned to shareholders
Slide 57: Contact and Newsflow
57 Contact and Newsflow For further information, please go to www.halfordscompany.com or contact: Neil Ferris Corporate Finance Director neil.ferris@halfords.co.uk Mobile: +44 (0)7483 360675 Next newsflow: 16th January 2020: FY20 Q3 trading update