Halfords Group Plc · LSE:HFD
Halfords — Investor Day (April 2023)
181 slides from Halfords's investor day presentation, Apr 18, 2023
Slide 1: Capital Markets Day 2023: Leveraging Our Platform
CAPITAL MARKETS DAY 2023 LEVERAGING OUR PLATFORM 1
Slide 2: Welcome
Welcome Graham Stapleton Group Chief Executive Officer 2
Slide 3: Let's meet today's presenters
Let’s meet today’s presenters… 3
Slide 4: Jo Hartley
Jo Hartley Group Chief Financial Officer 4
Slide 5: Karen Bellairs
Karen Bellairs Group Chief Customer & Commercial Officer 5
Slide 6: Rob Keates
Rob Keates Group Chief Operating Officer 6
Slide 7: Chris McShane
Chris McShane Director, Avayler 7
Slide 8: Today's Agenda
Today’s Agenda 1 2 3 4 5 Our journey Mid-term plan: Mid-to-long-term Avayler Summary since 2018 leveraging the plan: further and Q&A platform transformation 8
Slide 9: Capital Markets Day 2023
CAPITAL MARKETS DAY 2023 LEVERAGING OUR PLATFORM 9
Slide 10: Underlying PBT forecast to grow to £90m-£110m over the mid-term, £130-150m mid-to-long-term
Underlying PBT forecast to grow to £90m-£110m over the mid-term, and to £130-150m in the mid-to-long-term with positive free cashflow throughout the period c.£130-150m PBT £2.2bn sales 6.5% operating margin Positive free cash flow c.£90-110m PBT generation Growth in ROCE >20% £1.9bn sales Gross marg
Slide 11: Our journey since 2018
1 2 3 4 5 Our journey since 2018 11
Slide 12: In 2018 Halfords was a store and industry-focused, traditional retailer
In 2018 Halfords was a store and industry-focused, traditional retailer Predominantly a products business Small B2B and commercial business 2018 76% Products 88% Consumer Predominantly a retail products mix in 2018 business with a low services mix 24% services mix* 12% A small B2B and commercial B2B
Slide 13: Our new purpose
After significant customer, competitor, and market research, we set out our new purpose… ‘‘ To inspire and support a lifetime of motoring and cycling. ‘‘ 13
Slide 14: We have a clear strategy that we are delivering
We have a clear strategy that we are delivering… ‘‘ To evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns. ‘‘ 14
Slide 15: Our strategy was designed to drive more compelling financial returns
Our strategy was designed to drive more compelling financial returns Reminder of the 2019 segment bubble chart Autocentres Retail Motoring Market Opportunity Mainstream Cycling Products Services B2B Motoring Products Performance Retail Cycling Cycling Services ROIC Bubble sizes are indicative of sca
Slide 16: We have transformed the way customers shop for Halfords products and services
Since 2018, we have transformed the way customers are able to shop for Halfords products and services 2018 Today One Halfords Group website Halfords Autocentre website Halfords Mobile Expert website .com Halfords Retail website 16
Slide 17: We have changed our channel mix and halved drivetime for services
We have significantly changed our channel mix and halved drivetime for services 2018 Today 476 Stores 3 Vans 737 Vans 394 Stores 317 Garages 650 Garages 796 service locations 1,781 service locations 30-minute drivetime Under 20-minute drivetime 17
Slide 18: We are the UK's biggest motoring and cycling services provider
We are the UK’s biggest motoring and cycling services provider 2018 Today 7m service jobs 10m+ service jobs Consumer Garages Consumer Mobile Garages Retail Commercial Stores Retail Stores 18
Slide 19: Unique, own-brand product innovation
Unique, own-brand product innovation Multiple awards for our own-brand propositions Biggest… Largest… Fastest... One of the UK’s Apollo and One of the fastest biggest engine Carrera are two of growing budget oil brands the UK’s largest bike Own-brand tyres brands in the UK 19
Slide 20: Our data platform lets us know customers' cars and bikes better
Having invested in our data platform, we can get to know our customers’ cars and bikes better than they do Collecting customer and vehicle data cross-channel Analysing data In a garage Online Single Customer View CRM On a van In a car park In a store Group Data Platform 20
Slide 21: Our customer and data strategy is delivering
Our customer and data strategy is delivering Known Customers Net Promoter Score 2019: 7.2m 2019: 62.9 Today: 30m Today: 69.1 Vehicle Records 2019: 0.9m Today: 16m 21
Slide 22: Track record of a more cost-effective and efficient business since 2018
We have a track record of delivering a more cost-effective and efficient business since 2018 £20m savings From retail rent and rates savings, closing over 80 retail stores. +7% sales densities >£10m >£30m saving savings From restructure and Through our “goods not for organisational re-sale” efficien
Slide 23: We have significantly grown revenue in the more profitable parts of the business
We have significantly grown our revenue, particularly in the more profitable parts of our business FY19 FY23 Group Revenue £1.1bn c.£1.6bn Revenue from Services 24% of Group c.47% of Group Revenue from Motoring 66% of Group c.77% of Group Revenue from B2B 12% of Group c.22% of Group 23
Slide 24: Autocentres and B2B now a more significant proportion of the Group
Autocentres and B2B now represent a more significant proportion of the Group Autocentres Retail Motoring Market Opportunity Mainstream Cycling Services Products Motoring Products B2B Performance Retail Cycling Cycling Services Bubble sizes are indicative of scale of business ROIC 24
Slide 25: We have created a much more resilient operating platform
We have created a much more resilient operating platform FY19: 12% % of B2B revenue FY23: 22% FY19: 49% % of needs-based revenue FY23: 62% FY19: 35% % of Group COGS bought in USD $ FY23: 23% 25
Slide 26: A reminder of the key messages
A reminder of the key messages….. 1 2 3 We have increased A combination of core There is potential for revenues by 40% and market recovery, and further significant more than doubled the leveraging our transformation in the size of our B2B and investments and mid-to-long-term, services business. plat
Slide 27: The next phase of our plan will leverage our platform
The next phase of our plan will leverage our platform – with a focus on operating margin and return on capital Mid-to- 2018 FY19 – FY23 Mid-term long-term Establish the Building and Leveraging Further strategy executing via our the platform transformation unique platform 27
Slide 28: Mid-term plan: leveraging the platform
1 2 3 4 5 Mid-term plan: leveraging the platform 28
Slide 29: Our mid-term plan – leveraging the platform
Our mid-term plan – leveraging the platform Jo Hartley Group Chief Financial Officer 29
Slide 30: It has never been harder to forecast
It has never been harder to forecast... The recent Monetary Policy Report highlighted how uncertain the macro-economic environment remains. Forecasting, therefore, remains particularly challenging. 1 2 3 Note: all references to FY23 should be taken as indicative and are not a “pre-close”. All refere
Slide 31: Forecast mid-term growth is supported by external forecasts
Forecast mid-term growth is supported by external forecasts of how markets will behave and factors that are more within our control British GIPA & Cost-saving Cycling GFK SMMT data plans Association Used to quantify motoring product and tyre market Used for motoring product, motoring Supported by st
Slide 32: Growth since FY20 offset by exceptional cost and market headwinds
Our significant growth since FY20 has been offset by exceptional cost and market headwinds Strategic Cost inflation transformation Cost efficiency & business optimisation Consumer confidence / Market share market decline & trading FY20 FY23 £55.9m £50-£60m Underlying PBT Underlying PBT (Reported) (G
Slide 33: Underlying PBT forecast to grow to £90m-£110m over the mid-term
Underlying PBT forecast to grow to £90m-£110m over the mid-term Group PBT Bridge - FY23 to mid-term Group Revenue c.£1.6bn Group Revenue c.£1.9bn Operating Margin c.3-4% Operating Margin c.5.5% £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cost & Efficiency Le
Slide 34: Capital expenditure expected to fall from FY22 and FY23 peaks
Looking forward, capital expenditure is expected to fall from the transformational peaks in FY22 and FY23 £112m c.£85m Other Capex Acquisition c.£50m-£60m per annum £46m £42m FY20 FY21 FY22 FY23 Mid-term average Total Capex as a % of Revenue 4.0% 3.2% 8.1% c.5.3% c.3.0% 34
Slide 35: We expect strong cash generation in the mid-term
We expect strong cash generation in the mid-term Free cash flow* (£m) Net Debt/(Cash) : EBITDA - pre-lease debt £45-55m (0.3)x (0.3)x c.£40m FY21-FY23 (average) Mid-term (average) FY21-FY23 (average) Mid-term (average) (Cash flow before dividends and acquisition expenditure) 35
Slide 36: ROCE is expected to reach over 15% in the mid-term
ROCE is expected to reach over 15% in the mid-term • Inflationary and consumer headwinds drive FY23 decline • Mid-term focus on • There was underlying growth excluding these optimisation and leveraging the factors Profit > 15% platform will see a normalised stronger ROCE ROCE c.12% c.10% FY20 FY23 M
Slide 37: Market recovery and market share growth
Market recovery and market share growth Group PBT Bridge - FY23 to mid-term £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cost & Efficiency Leveraging Value Acquisition Mid-term PBT Recovery from Data Synergy Growth PBT 37
Slide 38: Cycling and consumer tyre markets remain depressed compared to pre-COVID
The cycling and consumer tyre markets remain significantly depressed compared to pre-COVID Retail Autocentres Retail Motoring Cycling Consumer Tyres Motoring Servicing Market Size c.£4bn c.£1.2bn c.£2.2bn c.£9bn Market Volumes vs pre-COVID Broadly flat c.-24% c.-14% c.+4% Approximate Volume Share c.
Slide 39: c.£17m of profit growth as markets recover
We expect c.£17m of profit growth as markets recover Motoring Tyres Products + c.£6m + c.£6m Cycling + c.£5m 39
Slide 40: Motoring products market growth to deliver c.£6m profit
Modest growth in the motoring products market forecast to deliver c.£6m profit growth in the mid-term Today Mid-term +£6m profit* Broadly flat c.+2% Market Volumes (vs. pre-COVID) (vs. pre-COVID) Market Overall market grows +2% vs pre-COVID levels by the mid-term. GIPA indicates the car parc ages fr
Slide 41: Cycling market is in a deep depression but forecast to recover
The cycling market is currently experiencing a deep depression. External forecasts indicate it will materially recover. Bike Market Volume (m units) 3.06 2.79 2.44 2.48 2.20 2.01 1.99 3.1 2.8 2.4 2.5 2.0 2.0 2.2 >20% down vs FY20 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY23 expected to be >20% below FY20
Slide 42: Cycling volumes declined while prices increased materially
Cycling volumes have declined vs FY20 while prices have increased materially. Looking forward we expect market recovery will require some price deflation. FY21 FY22 FY23 Mid-term Demand peaks through Demand normalises, Further price increases Prices decrease as COVID, prices rise due to prices conti
Slide 43: Cycling market recovery to drive c.£5m profit growth
Recovery in the cycling market is expected to drive c.£5m profit growth in the mid-term Today Mid-term c.-24% +£5m profit* c.-10% Market Volumes (vs. pre-COVID) (vs. pre-COVID) Price investment drives volume growth across the market. *Sensitivity - every 1ppt market change equal to approximately +/-
Slide 44: Consumer tyre market is in a deep depression but forecast to recover
The consumer tyre market is currently experiencing a deep depression. External forecasts indicate it will materially recover. Tyre Market Volume (m units) 31.7 30.6 28.6 27.3 27.1 27.2 27.9 37.1 27.3 27.1 27.2 27.9 28.6 29.7 -14% vs FY20 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY23 expected to be -14% be
Slide 45: Consumer tyre volumes remain below pre-COVID levels
Consumer tyre volumes have remained consistently below pre-COVID levels. Since FY20 there has been significant retail price inflation. Some market deflation is assumed to drive mid-term volume recovery. FY21 – FY23 Mid-term Mid-term Volumes suppressed as miles driven falls post-COVID and customers d
Slide 46: Consumer tyre market recovery to drive c.£6m profit growth
Recovery in the consumer tyre market is expected to drive c.£6m of profit growth in the mid-term Today Mid-term +£6m profit* c.-14% c.-3% Market Volumes (vs. pre-COVID) (vs. pre-COVID) Market recovers to -3% vs pre-COVID in the mid-term Based on GIPA forecast of miles travelled reaching 97% of pre-C
Slide 47: Resilient motoring servicing market expected to stay broadly flat
The resilient motoring servicing market is expected to stay broadly flat Today Mid-term +nil profit* c.+4% Market Volumes Broadly flat (vs. pre-COVID) SMMT forecast the car parc to remain broadly flat in the mid-term. *Sensitivity - every 1ppt market change equal to approximately +/-£1m profit Sourc
Slide 48: A further c.£22m of profit growth from volume market share gains
A further c.£22m of profit growth is expected from volume market share gains Cycling + c.£2m Motoring Products Motoring Servicing + c.£10m + c.£5m Tyres + c.£5m 48
Slide 49: Motoring products market share growth to deliver c.£10m
Market share growth in motoring products is forecast to deliver c.£10m profit growth in the mid-term Today Mid-term Share Gains From +£10m profit* General Retailers ✓ Market Share c.41.8% c.+43% Online Retailers ✓✓ Market Share Drivers Improved personalisation and CRM, supported by Motoring Club, dr
Slide 50: Cycling market share growth to deliver £2m profit
Cycling market share growth is forecast to deliver £2m profit growth in the mid-term Share Gains From Today Mid-term Independents ✓✓ Market Share c.37% +£2m profit* c.39% Generalists ✓ Mid Market ✓ Improved personalisation and CRM drives Market Share Drivers greater spend and visit frequency. Range
Slide 51: Consumer tyre market share growth to deliver £5m profit
Consumer tyre market share growth is forecast to deliver £5m of profit growth in the mid-term Today Mid-term Share Gains From +£5m profit* National Garage Chains ✓ Volume Market Share c.9.5% c.11% Local Garages ✓✓ Data and personalisation expands customer Market Share Drivers base, supported by Moto
Slide 52: Motoring servicing share growth to deliver £5m profit
Share growth in the resilient motoring servicing market is forecast to deliver £5m profit growth Today Mid-term Share Gains From +£5m profit* Local Garages ✓ Market Share c.3.5% c.3.8% Market Share Drivers Demand growth driven by rewarding loyalty through Motoring Club, car park referrals from retai
Slide 53: £39m profit growth from market recovery and market share
£39m of profit growth expected from externally forecast market recovery, and increasing market share Market Recovery - +£17m profit growth Market Share - +£22m profit growth Cycling Motoring + c.£2m Motoring Tyres Products Products + c.£6m + c.£6m + c.£10m Motoring Servicing + c.£5m Cycling Tyres +
Slide 54: Cost and efficiency
Cost and efficiency Group PBT Bridge - FY23 to mid-term £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cost & Efficiency Leveraging Value Acquisition Mid-term PBT Recovery from Data Synergy Growth PBT *FY23 as per current guidance 54
Slide 55: Cost efficiencies more than offset inflation over the mid-term
Cost efficiencies more than offset inflation over the mid-term +£5m £15m £6m £46m £30m Cost Inflation Product Cost Property Other Support Cost Mid-term Reduction Savings Cost Inflation c.£46m Cost & Efficiency c.£51m 55
Slide 56: We expect c.£46m of cost increase in the mid-term
We expect c.£46m of cost increase in the mid-term… FX Rate Utilities Wages Freight Assumed at $1.23 Broadly back to 4% average per Assumed -20% throughout plan FY22 levels annum vs FY23 reduction vs FY23 56
Slide 57: Offset by c.£51m of cost savings
…offset by c.£51m of cost savings Product cost Retail Other efficiency reduction property savings programmes c. 3.5% cost Up to 20 closures Support costs, org of goods 10% saving on lease design, W&D, store and renewals garage costs 57
Slide 58: Product costs are the largest part of the cost base
Product costs represent the largest part of the cost base and the most significant opportunity looking forward £0.85bn Group Cost of Goods Sold 400+ (excluding freight, FX held constant) £0.75bn Suppliers £0.55bn £0.55bn £0.8bn+ Spend p.a. +13% growth +6% Product cost inflation vs FY21 FY18 FY20 FY2
Slide 59: Group-wide better-buying programme in place to deliver savings
An externally supported group-wide better-buying programme is in place to deliver targeted savings Strategic Supplier Partnerships Partnering with key suppliers over the long-term to drive: Top 20 suppliers represent • Growth and value – more for more 50% of the cost of goods • Innovation and creati
Slide 60: Better-buying programme: own-brand growth and group-buying synergies
An externally supported group-wide better-buying program is in place to deliver targeted savings Own-Brand Growth Targeted increases in own-brand penetration, delivering Own-brand margins lower COGS and higher margin through: >2%pts higher due to • Increasing the proportion of goods sourced directly
Slide 61: Reasons to believe in opportunity to reduce cost of goods
Compelling reasons to believe in significant opportunity to reduce the cost of goods that we sell Data-enabled better-buying program underway, supported by 3rd party consultants £30m Targeted reduction over mid-term Negotiations strengthened as Halfords offers suppliers unparalleled growth opportuni
Slide 62: Freight markets forecast to normalise close to pre-COVID levels
Freight markets are forecast to normalise close to pre-COVID levels Market Spot Rate Halfords Rate 62
Slide 63: We expect to maintain gross margin % over the mid-term
We expect to maintain gross margin % over the mid-term Group Gross Margin (%) Bridge - FY23 to mid-term Group Gross Margin (%) Bridge - FY23 mid-term Group Cycling prices post-COVID have increased, Gross Margin driving market volumes down – price Group c.50% investment assumed to drive market growth
Slide 64: £6m of savings from reducing retail store rent
£6m of savings from reducing the rent of our retail store portfolio Stores FY18 FY23 Mid-Term Locations 480 c.394 c.380 Lease Renewals p.a. c.40 c.45 Average Saving (%) c.-15% c.-10% Average Lease Length >5.7yrs c.3yrs c.<3yrs Retail portfolio costs will be reduced through lease renewals and/or clos
Slide 65: Strong track record of over-delivering on cost and efficiency targets
Our strong track record of over-delivering on cost and efficiency targets means we’re well placed for the mid-term Central Support Costs Rationalisation of GNFR supplier base Introduction of Group Data Platform and related efficiencies Consolidation and efficiencies in organisational design Optimisa
Slide 66: Cost and market assumptions drive >£40m of profit growth
Our cost and market assumptions drive >£40m of profit growth in the mid-term Group PBT Bridge - FY23 to mid-term Group Revenue c. £1.6bn Group Revenue c. £1.9bn Operating Margin c. 3-4% Operating Margin c. 5.5% £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cos
Slide 67: Mid-term plan: leveraging the platform - summary
Mid-term plan: leveraging the platform - summary 1 2 3 FY23 & FY24 expected Capex expected to fall Investment returns profit suppressed by to £50-60m per annum have been suppressed market and inflationary in the mid-term (c.3% by current market and headwinds. of revenue). inflationary pressures. Mid
Slide 68: Leveraging data and lifetime value
Leveraging data and lifetime value Karen Bellairs Group Chief Customer & Commercial Officer 68
Slide 69: Value of data and lifetime on mid-term performance
The value that data and lifetime is expected to have on our mid-term performance Group PBT Bridge - FY23 to mid-term Group Revenue c. £1.6bn Group Revenue c. £1.9bn Operating Margin c. 3-4% Operating Margin c. 5.5% £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation
Slide 70: Sophisticated data collection from customers and their vehicles
Sophisticated data collection with multiple feeds from our customers and their vehicles 70
Slide 71: Sophisticated data collection from customers and their vehicles
Sophisticated data collection with multiple feeds from our customers and their vehicles 71 71
Slide 72: How we collect our data is diverse and unique
How we collect our data is diverse and unique Capturing the sheer volume and scale of customers to our stores and website Web: 131m annual visits Retail stores: 31.5m annual transactions 72
Slide 73: How we collect our data is diverse and unique
How we collect our data is diverse and unique Investment in infrastructure systems and software to enable collection, including our own technology 73
Slide 74: Quality of data from inside customers' cars differentiates us
How we collect our data is diverse and unique The unrivalled quality of data captured from being inside customers' cars differentiates us from our competitors Garages & mobile vans: 5m annual service jobs Retail car parks: 3.8m annual service jobs 74
Slide 75: 35m vehicle records checked, 16m registration numbers
How we collect our data is diverse and unique 35m vehicle records checked 16m vehicle registration numbers Nearly half the U.K. car parc. 75
Slide 76: Growth in data collection over the past 5 years
The growth in data collection over the past 5 years has been truly transformative Vehicle registration numbers Email records 2019: 0.9m 2019: 7.1m Today: 16m Today: 14.7m Visible customers Sales linked to customer records 2019: 7.2m 2019: 18% Today: 30m Today: 76% 76
Slide 77: Advancing analytics capability and data science
Our advancing analytics capability and data science transforms this unique data Data science and analytics 77
Slide 78: Intelligence and personalisation across customer touchpoints
Powering intelligence and personalisation across our customer touchpoints MOT reminder email Cycling product Halfords Mobile Tyre web Weather personalisation recommender Expert email personalisation email 78
Slide 79: Personalised experiences are growing significant value
Using data to create personalised experiences is growing significant value for the Group 1.5x £282m Increase in conversion CRM sales v £60m FY19 of web pages 1.5x 2.4x Spend per customer Spend per customer with opt-in and VRN with opt-in* capture* *vs email only 79
Slide 80: Growing lifetime value is key to our strategy
Growing lifetime value is key to our strategy, and we have both headroom to grow and confidence in the prize Non-loyal c.6 x spend Loyal customers <£81 shoppers >£470 43% of customers 11% of customers Non-loyal customer = customers Loyal shopper = multi year, multi category transacting once in a sin
Slide 81: Video
Video
Slide 82: Value of data and lifetime on mid-term performance
The value that data and lifetime will have on our mid-term performance Group PBT Bridge - FY23 to mid-term Group Revenue c. £1.6bn Group Revenue c. £1.9bn Operating Margin c. 3-4% Operating Margin c. 5.5% £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cost & Ef
Slide 83: Leveraging data to unlock an incremental £8m PBT
Leveraging data over the mid-term is expected to unlock a discreet and incremental £8m PBT New Data Monetisation Income Reduced Customer Acquisition Spend New Motoring and Cycling Subscription Products 83
Slide 84: Club Membership will unlock lower acquisition costs
Club Membership will unlock lower acquisition costs for the Group From… Spending on expensive traditional advertising To… Using Halfords stores & website to refer such as outdoor and paid Google listings. customers to our garage services business through the Motoring Club. Higher cost per acquisitio
Slide 85: New monetisation income from our unique data platform
A new monetisation income from leveraging our unique data platform Halfords Core 85
Slide 86: A roadmap for future subscription propositions
A roadmap for future subscription propositions Motoring Cycle care consumables service Cycling Club 86
Slide 87: A case study: Motoring Club
A case study: Motoring Club 87
Slide 88: In its first year, Motoring Club is delivering strong results
In its first year, Motoring Club is Members New to Halfords Group delivering strong results New Customers 27% 1.7m New 7.4% Existing Customers Highly engaged and younger Paid subscription 73% members customers mix Members New to Garage Services Existing Customers +4pts 15% 20% Record NPS cross-shop
Slide 89: Tangible benefits from valuable Motoring Club members
We are enjoying tangible benefits from valuable Motoring Club members Customer Subscription Average Spend Customer Revenue Uplift Revenue Vs Shop Frequency Type Revenue per Visit* Numbers per Customer Non-Loyalty 2.1x £36 Non-Member £0 3.2x £44 +£98.8m Free Member £0 1.58m £63 5.1x £65 116k £245 +£3
Slide 90: High ambitions for future membership growth
We have high ambitions for future membership growth Now Mid-term 1.7m members 4-6m members 7.4% subscription 8-10% subscription 90
Slide 91: Data and lifetime summary
Data and lifetime summary 1 2 3 Incremental £8m PBT We have built a Unique Driving breadth of shop Data Platform. and multi-year retention from reducing cost per from personalisation acquisition, monetisation drives value. and subscriptions. With 30m visible customers, and 16m Motoring Club is a cas
Slide 92: Leveraging garage services
Leveraging garage services Rob Keates Group Chief Operating Officer 92
Slide 93: Key headlines
Key headlines 1 2 3 Grow garage services annual EBIT to £13m Driveutilisation in Of this profit growth both acquired and existing £40-50m delivered from synergy garages, underpinning in the mid-term. growth in National and profitable market share Lodge acquisitions. growth. 93
Slide 94: Garage services at the centre of our strategy
Our garage services business is at the very centre of our strategy ‘‘ To evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns. ‘‘ 94
Slide 95: We have transformed our autocentres business over four years
We have transformed our autocentres business over the last four years Original Core Autocentre Model New Core Autocentre Model Paper-based systems Digital platform - Avayler Decentralised buying Centralised, aggregated buying Autonomous and separate business Integrated into the Halfords Group single
Slide 96: Proven blueprint for profit growth in core autocentres
In our core Halfords autocentres business, we have a proven blueprint for profit growth FY18 FY22 316 garages 306 garages Sales £158m £196m Margin £45.6m £55.8m Costs £41.5m £44.4m Costs % 26.3% 22.7% EBIT £4.1m £11.3m EBIT % 2.6% 5.8% 96
Slide 97: Ambition to grow garage services to £40-50m EBIT
Our ambition is to grow garage services to £40-50m EBIT in the mid-term, with an operating margin of 6%+ Garage Services EBIT (£m) £40-50m 6%+ 97
Slide 98: Garage services to benefit from key pillars of mid-term plan
Garage services are expected to benefit from the key pillars of the mid-term plan Garage Services EBIT (£m) £40-50m Benefits both underlying and acquired businesses 6%+ 98
Slide 99: £13m from acquisition synergy growth
We will first focus on the £13m we are expecting to be contributed from our acquisition synergy growth over the mid-term Garage Services EBIT (£m) £40-50m £13m Leveraging the strong core 6%+ Autocentres model created 99
Slide 100: Key headlines
Key headlines 1 2 3 Grow garage services annual EBIT to £13m Driveutilisation in Of this profit growth both acquired and existing £40-50m delivered from synergy garages, underpinning in the mid-term. growth in National and profitable market share Lodge acquisitions. growth. 100
Slide 101: How our acquisitions will create value
We have a clear vision on how we believe our acquisitions will create value National Leverage Grow coverage core Expand scale - reduced Autocentres capabilities drivetime platform Increasing our scale is Creating more Implementing our Expanding our expected to create convenience operating model and
Slide 102: Series of strategic acquisitions completed
To achieve growth we have successfully completed a Garages: 650 series of strategic acquisitions Vans: 737 Acquisition of National Tyres Acquisition of FY23 Lodge Tyre FY22 Acquisition of Tyres On The Drive, & Acquisition of McConechy’s Universal Tyre FY21 Halfords Mobile FY20 Expert launched FY18 G
Slide 103: Delivering against the acquisition business case
We expect to deliver against the acquisition business case in the mid-to-long-term 1 Acquisition business case 2 Current progress 3 Updated forecast “Our base case expected EBITDA Delivery of the acquisition for National in the first full year.., Objective Status business case will be achieved, assu
Slide 104: Synergy plan on track with over £6m of benefit
Our synergy plan is on track and has delivered over £6m of benefit, in line with our original plan Key successes FY23 Mid-to-long term Value area Synergy plan Progress synergy delivered synergy value Tyre & parts economies of scale £5m+ 128,000 Grow scale Halfords to use Viking network Annualised sa
Slide 105: Initiatives for National to drive recovery
We also have a range of initiatives for National to drive the recovery of the underlying business Market recovery Market share Cost initiatives Data 1. Recovery of market from - 1. Increase SMR growth & 1. Further GFR & GNFR 1. Rollout of Halfords -14% in FY23 to c.-3% pre- install more MOT lanes te
Slide 106: Lodge performance in line with business case
Lodge performance in-line with business case, with the commercial tyre market proving resilient Replace and manage tyres on large 1 The commercial vehicles Total market value >£800m Market Primarily a B2B market serviced by mobile technicians 2 Commercial tyre UK market leader Combined and consolida
Slide 107: Synergy plans on track, £13m anticipated in mid-term
In summary our synergy plans are on track, with £13m anticipated in the mid-term 1 National 2 Lodge tyre 3 Combined outlook c.£6m synergies delivered in FY23 Synergy plan on track (FY23 c.£13m of additional synergy acquisition) growth in mid term c.£10m additional synergy growth in mid-term c.£3m of
Slide 108: Key headlines
Key headlines 1 Grow garage services 2 3 annual EBIT to £13m Driveutilisation in Of this profit growth both acquired and existing £40-50m delivered from synergy garages, underpinning in the mid-term. growth in National and profitable market share Lodge acquisitions. growth. 108
Slide 109: Utilisation underpins profit growth
Utilisation underpins the profit growth driven by cost savings and market share increases Garage Services EBIT (£m) £40-50m 6%+ 109
Slide 110: Local utilisation as core driver of profit growth
We are focused on local utilisation as a core driver of profit growth in both our acquired and existing garages Converted demand Supply of labour Utilisation Amount of time Technicians Increasing utilisation spent on jobs completed drives revenue through total hours available in garages same cost ba
Slide 111: Utilisation measured at garage level
Utilisation drives profit performance, and we can measure at a garage level to enable local-level plans focused on capacity and demand Lower utilisation Higher utilisation Grow local demand to increase profit Grow local capacity to increase profit Utilisation by individual garage 111
Slide 112: Platform enables local capacity and demand growth
Our platform gives us a unique ability to execute capacity and demand growth at a local level New Halfords localised model Traditional garage business Creating Creating local demand National advertising and acquisition. Local referrals from store to garage demand Local dynamic price promotion Nation
Slide 113: Leveraging garage services - summary
Leveraging garage services - summary 1 Grow garage services 2 3 annual EBIT to £13m Driveutilisation in Of this profit growth both acquired and existing £40-50m delivered from synergy garages, underpinning in the mid-term. growth in National and profitable market share Lodge acquisitions. growth. 11
Slide 114: Summary: Our mid-term plan
Summary: Our mid-term plan – leveraging the platform Graham Stapleton Group Chief Executive Officer 114
Slide 115: Mid-term plan is compelling and built on clear assumptions
Our mid-term plan is compelling and built on clear assumptions Mid-to- 2018 FY19 – FY23 Mid-term long-term Establish the Building and Leveraging the Further strategy executing via our platform transformation unique platform 115
Slide 116: Leveraging our platform will deliver strong returns in the mid-term
Leveraging our current platform will deliver strong returns in the mid-term Group PBT Bridge - FY23 to mid-term Group Revenue c.£1.6bn Group Revenue c.£1.9bn Operating Margin c.3-4% Operating Margin c.5.5% £110m £13m £8m £90m £22m -£46m £51m £60m £17m £50m FY23 Market Market Share Inflation Cost & E
Slide 117: Capex expected to fall in the mid-term
Leveraging our current platform will deliver strong returns in the mid-term £112m c.£85m Other Capex Acquisition c.£50m-£60m per annum £46m £42m FY20 FY21 FY22 FY23 Mid-term average Total Capex as a % of Revenue 4.0% 3.2% 8.1% c.5.3% c.3.0% 117
Slide 118: ROCE to exceed 15% in the mid-term
Leveraging our current platform will deliver strong returns in the mid-term • Inflationary and consumer headwinds drive FY23 decline • Mid-term focus on • There was underlying growth excluding these optimisation and leveraging the factors Profit > 15% platform will see a normalised stronger ROCE ROC
Slide 119: Attractive investment case in the mid-term
We believe Halfords represents an attractive investment case in the mid-term A trusted Market Well invested Data driving Differentiated Resilient brand leading platform to growth in operating services and business with leverage revenue model commercial strong business fundamentals A bra nd with Wel
Slide 120: Mid-to-long-term plan: further transformation
1 2 3 4 5 Mid-to-long-term plan: further transformation 120
Slide 121: Platform lends itself to more opportunity in the mid-to-longer term
The business and platform we have created lends itself to even more significant opportunity in the mid-to-longer term c.£130-150m PBT • £2.2bn sales c.£90-110m • • 6.5% operating margin >20% ROCE PBT • Positive free cash flow • £1.9bn sales Further market Strategic • 5.5% operating margin recovery,
Slide 122: Research highlights trends important to customers
Research has highlighted trends that are important to our customers Customers are looking for ultimate Customers want convenience and to access products and convenience services at a time and location to suit them. Many customers do not have the time, desire “Do It For Me” or know-how to carry out r
Slide 123: Well placed to capitalise on key market trends
Halfords are well placed to capitalise on the key market trends As the UK moves to more sustainable modes of Transition to electric transport, all forms of electric mobility are increasing. The age of the UK car parc is increasing from 7.9 Changing UK years in 2019 to a forecast 9.7 years in 2026. I
Slide 124: Electric car, traditional mechanical car
Electric car Traditional mechanical car 124
Slide 125: Well placed to capitalise on key market trends
Halfords are well placed to capitalise on the key market trends As the UK moves to more sustainable modes of Transition to electric transport, all forms of electric mobility are increasing. The age of the UK car parc is increasing from 7.9 Changing UK years in 2019 to a forecast 9.7 years in 2026. I
Slide 126: Three key areas of opportunity in the longer term
Three key areas of opportunity in the longer term 1 2 3 The UK’s one- The UK’s servicing A unique local stop-shop for destination for all motoring and motoring types of electric cycling offer. ownership. transport. 126
Slide 127: The UK's one-stop-shop for motoring ownership
The platform we have created enables us to expand into more areas of the motoring market - something customers both want and expect from us 1The UK’s one-stop-shop 2 The UK’s servicing 3 A unique local motoring for motoring ownership. destination for all and cycling offer. types of electric transpor
Slide 128: Customers must interact with multiple businesses to operate their cars
Customers today must interact with multiple businesses to operate their cars. This adds both complexity and cost to the customer journey. A customer's Who they have ownership journey What a customer has to do Annual cost (£)* to do it with On day one, to Car leasing £2,800-£4,600 drive away Car insu
Slide 129: Customers must interact with multiple businesses to operate their cars
Customers today must interact with multiple businesses to operate their cars. This adds both complexity and cost to the customer journey A customer's Who they have ownership journey What a customer has to do Annual cost (£)* to do it with On day one, to Car leasing £2,800-£4,600 drive away Car insur
Slide 130: Customers like the one-stop-shop concept
Customers like the concept of a ‘one-stop-shop' for motoring and believe the Halfords brand is a good fit 75% of customers found the proposition of a ‘one-stop-shop’ appealing. ‘‘ A brand that provides a range of products and services to meet all of your motoring needs. Majority ‘‘ of customers saw
Slide 131: Motoring market is fragmented, disjointed and confusing
The motoring market is fragmented, disjointed and confusing for customers Insurance Servicing Insurance Warranties MOTs Breakdown Tyres Accessories Repairs Fitting 131
Slide 132: One-stop-shop for all vehicle ownership needs
In the future, we intend to provide products and services that provide a one-stop-shop for all vehicle ownership needs Insurance Servicing Insurance Warranties MOTs Breakdown Tyres Accessories Repairs Fitting 132
Slide 133: Addressable motoring market from £15bn to £28bn
£3.5bn ‘‘ We believe Halfords can support motoring customers £0.4bn Pass-through insurance Warranty market throughout their vehicle market ownership – broadly doubling our addressable motoring market. From £15bn to £28bn. ‘‘ £1.8bn £3.2bn Breakdown market Body repair market 133
Slide 134: We cover all aspects of bike ownership
We cover all aspects of bike ownership… 135
Slide 135: Using Motoring Club to drive revenue through new categories
‘‘ Using Motoring Club to drive future revenue through new ‘one-stop- shop’ categories. ‘‘ 136
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Slide 137: One-stop-shop unlocks significant value
‘One-stop-shop’ unlocks significant value £ Economies Better Increases our of scale leverage fixed brand costs relevance and even greater Enables us to better and proportion of relevance to supply leverage the fixed services, recurring and partners. costs and investments predictable revenue. we have
Slide 138: Market-leading position in servicing of electric mobility
Next, is establishing a market-leading position in the servicing of electric mobility 1The UK’s one-stop-shop 2 The UK’s servicing 3 A unique local motoring for motoring ownership. destination for all and cycling offer. types of electric transport. 139
Slide 139: Scale, capability and expertise for servicing electric mobility
We already have significant scale, capability and expertise for servicing electric mobility Scale Capability Operational UK’s biggest 2,000 trained technicians Infrastructure electric/hybrid servicing For e-servicing, maintenance Diagnostic software and network. & repair. equipment for the majority
Slide 140: Ambition to build a market-leading position
Our mid-to-long-term ambition to build a market-leading position is clear Resource and Mobile Servicing e-Bike & Halfords Brand Capability e-Scooter As the used EV car parc We intend to leverage We plan to increase capabilities, offering Retailer increases, we aim to build a Halfords brand position
Slide 141: Electric car parc will age to present an independent servicing aftermarket
In the mid-to-long-term, we believe the electric car parc will have aged enough to present a scaled independent servicing aftermarket UK car parc 142
Slide 142: Project Fusion: value of town-based shopping
Through Project Fusion, we have learnt the value of town-based shopping for both our customers and our business 1 2 3 The UK’s one-stop- The UK’s servicing A unique local shop for motoring destination for all motoring and ownership. electric mobility. cycling offer. 143
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Slide 144: Fusion capital-efficient elements rolled out to 50 towns
In FY23 we rolled out the most capital-efficient parts of Fusion to 50 towns in our estate Upgrading the retail car park Solution selling service provision and introducing a referral model 145
Slide 145: Opportunity for a Fusion town experience in more than half of locations
We believe there is an opportunity for a Fusion town experience in more than half of our locations across the UK FY22 Today Mid-term Mid-to-long-term Fusion town concept tested in Capital-efficient elements of Capital-efficient elements 50 of our towns expected to become Halifax and Colchester. Fusi
Slide 146: Consumer channels to play more distinct roles
In the mid-to-long-term, our consumer channels are expected to play even more distinct roles and offer even greater servicing convenience 350 Stores >800 Garages >800 Vans A reduction in the estate is Our current garage estate already anticipated, with the remaining serves 90% of the population To e
Slide 147: Mid-to-long-term capex forecast to increase to £90-110m
In the mid-to-long-term, capital expenditure is forecast to increase to £90m- £110m per annum - as we invest in Fusion Lite and further garage openings c.£90-110m £112m per annum c.£85m Other Capex Acquisition c.£50m-£60m per annum £46m £110m £42m FY20 FY21 FY22 FY23 Mid-term average Mid-to-long-ter
Slide 148: Positive free cash flow in the mid-to-long-term
Despite our increase in capital expenditure, we will continue to generate positive free cash flow in the mid-to-long-term Free cash flow (£m) Net Debt/(Cash): EBITDA – pre-lease debt £55-65m £45-55m (0.4)x C.£40m (0.3)x (0.3)x FY21-FY23 (average) Mid-term (average) Mid-to-long-term FY21-FY23 (averag
Slide 149: Relentless focus on cost and support for colleagues
Our strategy continues to be underpinned by a relentless focus on cost, and support for our outstanding colleagues Cost and efficiency Our colleagues Outsourcing Rewarding and retaining our existing talent Automation and Artificial Intelligence and their skills and expertise Strategic review of supp
Slide 150: Strategic opportunities expected to deliver further growth
The mid-to-long-term strategic opportunities are expected to deliver further growth c.£130-150m PBT • £2.2bn sales c.£90-110m • 6.5% operating PBT margin • £1.9bn sales One-stop- shop Electric mobility Town-based approach to Further market recovery, • 5.5% operating our channels share gains and cost
Slide 151: Further transformation opportunities to create shareholder value
We are clear that there are further transformation opportunities that will create additional shareholder value Mid-to- 2018 FY19 – FY23 Mid-term long-term Establish the Building and Leveraging the Further strategy executing via our platform transformation unique platform 152
Slide 152: Avayler
1 2 3 4 5 Avayler 153
Slide 153: Introducing Avayler, Halfords' SaaS business
Introducing Avayler Halfords’ SaaS business Chris McShane Director, Avayler 154
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Slide 155: What is Avayler?
What is Avayler? Customer Centric Service Management Software – Built from Halfords Autocentre PACE & Tyres on the Drive Technology Our mission is to help ambitious businesses put their customers at the heart of their operations by digitalising service delivery, optimising processes and facilitating
Slide 156: Challenges in the automotive service industry Avayler can help solve
The automotive service/aftermarket industry faces many challenges and market forces that Avayler can help solve Slow progression to digitalisation Customers Colleagues Operations Mistrust Capacity / Resourcing Profitability Challenges • Customers worry about overpaying • Lack of skilled technicians
Slide 157: Halfords end-to-end in-house platform
Halfords creates compelling customer experience and delivers operational excellence with an end-to-end, developed in-house platform 01 Halfords.com eCommerce Platform (The online Customer Journey) Offers customers the ability to omni-channel shop for and book automotive services Mobile Garages Retai
Slide 158: Avayler is born from Halfords technology
Avayler is born from Halfords technology Customer eCommerce Platform (can integrate into any customers' front end online customer journey) Avayler Avayler Hub Avayler Automotive & MobilePro & HubPro for Retail From Halfords IT to Avayler Software 159
Slide 159: Avayler's unique selling points
Avayler’s unique selling points make the solution highly attractive to large automotive service businesses Industry Unique Selling Points Built By Operators Omni-Channel (In the Automotive Industry) The only solution on the market that manages Avayler was built by a garage & automotive & optimises a
Slide 160: Automotive software competitive landscape
The automotive software competitive landscape is disparate, where Avayler is an omni-channel end-to-end solution Avayler enables the automotive service journey end-to-end with touchpoints across all automotive operational technologies Automotive Order Automotive Front of Management Garage Digital Ve
Slide 161: The Market Opportunity
The Market Opportunity And why we are well placed to deliver it 162
Slide 162: Over 500,000 automotive repairers in EU, US and UK
Over 500,000 automotive repairers in EU, US and UK alone provide significant Data prov isioned for Av ayler by: market opportunity for Avayler Further expansion opportunities in other automotive territories United States United Kingdom Total Automotive Repairers: Total Automotive Repairers: 278,532
Slide 163: Economic Model Growth Plan
Economic Model Growth Plan And why it is accretive to Halfords 164
Slide 164: Targeted enterprise sales strategy and pipeline
Avayler’s targeted enterprise sales strategy ensures large client wins Avayler Advanced Pipeline of Enterprise Clients Enterprise clients of >£250m turnover & >300 garages 25 Number of Clients 20 English Speaking Territories & Existing Relationships 15 10 Land and Expand Strategy, Clients with Exist
Slide 165: Avayler economic model brings recurring and profitable revenue
Avayler economic model brings Halfords committed, recurring & profitable revenue Long Term Contracts Monthly Per Van/Garage Fee Fixed Set Up & Configuration Minimum Commit t ed 3+ years or Per Transaction Fee Fees Revenues Committed Revenue Additional / Optional Revenue License Revenues Configuratio
Slide 166: Why are we ringfencing our software business?
Why are we ringfencing our software business? Enable entrepreneurial start Create optionality for future Talk to shareholders Create innovative up business mentality. investment potential. more effectively. and distinct software culture. Ring fence investment to Attract the best Report Avayler finan
Slide 167: Avayler forecast to deliver significant value to Halfords
Avayler is forecast to deliver significant value to Halfords in the mid to long term Avayler mid to long term forecast Metric FY23 FY24 (in forecast) Mid-term Mid-to-long-term Annual Recurring Rev enue (ARR) c£2m £5-6m £14-20m £25-35m EBIT £- £(2-3)m £2-4m £5-8m EBIT Margin % 0% (20)-(40)% 15-20% 20
Slide 168: Avayler positioned to add significant value to Halfords Group
Avayler positioned to add significant value to Halfords Group Halfords have invested Avayler now has major With strong Annual significant capital in clients across the US and Recurring Revenue developing an industry Europe and an advanced (ARR), high operating leading automotive pipeline of enterpri
Slide 169: Closing Video
GREG BELL PRES)! BENET, TERE .PeREO:s
Slide 170: Summary and Q&A
1 2 3 4 55 Summary and Q&A 171
Slide 171: Summary
Summary Graham Stapleton Group Chief Executive Officer 172
Slide 172: Financial aspirations for the mid-to-long term
We have a clear set of financial aspirations for the mid-to-long term… FY23 Mid-term Mid-to-long-term Group revenue £1.6bn £1.9bn £2.2bn PBT £50-60m £90-110m £130-150m Operating margin (%) c.3-4% c.5.5% c.6.5% Capex including M&A (average per annum) c.£85m £50-60m £90-110m ROCE (%) c.10% >15% >20% F
Slide 173: Updated capital allocation priorities
Updated capital allocation priorities Capital allocation priorities FY23 full year dividend intended to be 10p per share Maintaining a prudent balance sheet FY23 dividend intended to be Dividend policy going forward 10p per share (3p + 7p). targets dividend cover of 1.5x- 2.5x (based on underlying T
Slide 174: Investment case for the mid-to-long-term
The investment case for the mid-to-long-term reflects further exciting growth opportunities as we continue our transformation AA trusted trusted Market Market leading Well Well invested invested Data driving Differentiated Differentiated Resilient Resilient Avayler – a brand brand leading business w
Slide 175: Summary
Summary Since 2018 we have We plan to deliver There is significant increased revenues £1.9bn of revenue, scope for further by 40% and £90-£110m PBT, transformation in doubled the size of and 5.5% operating the mid-to-long- our B2B services term by unlocking margin in the business. the full potential
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Slide 177: Halfords
halfords
Slide 178: Contact and Newsflow
Contact and Newsflow For further information, please go to www.halfordscompany.com or contact: Andy Lynch Head of Investor Relations and Corporate Finance andrew.lynch@halfords.co.uk 179
Slide 179: Appendix
Appendix 180
Slide 180: Cautionary statements
Cautionary statements This presentation is provided for information only and is solely for use at the Halfords Group plc (“Halfords”) Capital Markets Day held on 18 April 2023. It does not contain all of the information that is material to an investor. Nothing contained in this presentation is inten
Slide 181: Glossary of Terms
Glossary of Terms Term Used Meaning “Free cash flow” Cash flow before dividends and acquisition expenditure “Return on Capital Employed” or “ROCE” Return on capital employed defined as underlying EBIT / capital employed (including goodwill, pre-IFRS16) “Gross Margin” Sales, less cost of goods sold (