Halfords Group Plc · LSE:HFD
Halfords — J.P. Morgan London Small/Mid Cap Conference 2016
53 slides from Halfords's conference presentation, September 2016
Slide 1: Halfords Group plc
Halfords Group plc J.P. Morgan London Small/Mid Cap Conference 2016
Slide 2: Highlights
Highlights Introduction to Halfords and the markets it operates in Page 3 Moving Up A Gear strategy Page 12 FY16 performance Page 30 Financial guidance Page 37 Appendices Page 41 2
Slide 3: Introduction to Halfords and the markets it operates in
Introduction to Halfords and the markets it operates in 3
Slide 4: Halfords Group
Halfords Group The UK’s leading retailer of motoring, cycling and leisure products and a leading independent operator in garage servicing and auto repair FY16: £869m 462 main chain sales, £106m stores across the UK and ROI RETAIL EBITDA 12 Cycle c.8,000 Republic and 4 colleagues Tredz shops FY16 EBI
Slide 5: Halfords Group Revenue Split
Halfords Group Revenue Split Car Car Travel Autocentres Cycling Maintenance Enhancement Solutions 55% 15% 30% 70% cycling motoring 5
Slide 6: Halfords Retail Categories
Halfords Retail Categories CAR CAR TRAVEL CYCLING MAINTENANCE ENHANCEMENT SOLUTIONS below Retail average the highest-margin the lowest-margin the average-margin margin category category category Includes 3Bs Includes sat nav Includes child- Includes cycles, (bulbs, blades & GPS, audio, DAB safety se
Slide 7: Halfords Retail
Halfords Retail 80% 85% 98% 90% of customers of cycling of Retail stores of online want advice or customers are profitable purchases are service with also buy from collected in their purchase motoring store Service-led retailer Stores are an asset High cross shop between motoring and cycling 7
Slide 8: Motoring market
Motoring market Car parts, accessories, Car servicing & consumables aftercare and technology c. £7bn c. £9bn 3% annual 2% annual growth growth over last 3 years over last 3 years Note: Market size represents annual sales and the growth rates are in respect of 2012-2015 Source: Halfords estimates 8
Slide 9: Motoring market share
Motoring market share Other Grocers, discounters and online retailers Independent garages, chains and specialists Independent garages, chains and specialists Halfords Retail Halfords Autocentres Car parts, Car servicing accessories, and aftercare consumables and technology Source: Halfords estimates
Slide 10: Motoring market indicators
Motoring market indicators Source: Department for Transport National Statistics, BCA Used Car Market Report, SMMT 10
Slide 11: Cycling market
Cycling market Note: Market size figures are annual market sales including VAT Source: Halfords estimates 11
Slide 12: Moving Up A Gear Strategy
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Slide 13: Moving Up A Gear strategy
Moving Up A Gear strategy Putting Customers in Service in our Building on our the Driving Seat DNA Uniqueness Better Shopping Fit for the Future Experience Infrastructure 13
Slide 14: Putting Customers in the Driving Seat
Putting Customers in the Driving Seat 25% of Retail sales now matched to customers (vs. 3% last year) Email campaigns increasingly tailored to customers Using opening price points to improve value perception New brand positioning: For Life’s Journeys 14
Slide 15: Putting Customers in the Driving Seat
Putting Customers in the Driving Seat 15
Slide 16: Service in our DNA
Service in our DNA Customer service metrics improved significantly New services introduced People measures improved Full time colleagues Gears Training Colleague turnover Gear 1 Gear 2 Gear 3 50% 38% 36% 25% 99% 72% c. 600 FY13 FY16 FY13 FY16 16
Slide 17: Service in our DNA
Service in our DNA Placed 18th in the Sunday Times Best Big Companies to Work For Winner of the Mainstream Retailer of the Year category in the BikeBiz Awards 2015 Winner of Best Partnership in the Community – National CSR Awards 17
Slide 18: Building on our Uniqueness
Building on our Uniqueness 18
Slide 19: Building on our Uniqueness
Building on our Uniqueness Orla Kiely cycling and leisure range launched in May 2016 19
Slide 20: Building on our Uniqueness
Building on our Uniqueness Wiggins range of bikes for toddlers to teenagers launched online and in store in July 2016 20
Slide 21: Building on our Uniqueness
Building on our Uniqueness Trott range of limited edition performance bikes for women launched in stores and online in July 2016 21
Slide 22: Better Shopping Experience: Store of the Future
Better Shopping Experience: Store of the Future Builds upon previous refresh design success Leverages technology for colleagues and customers Supports our service proposition Reflects new brand look and feel 22
Slide 23: Fit for the Future Infrastructure
Fit for the Future Infrastructure Good progress in IT application development 25 lease renegotiations and 3 relocations / right-sizes in FY16 23
Slide 24: Fit for the Future Infrastructure
Fit for the Future Infrastructure 3-day a week deliveries to store working well Long-term supply chain requirements reviewed Supply chain infrastructure to be developed to enable growth… …but no significant change to on-going opex or capex guidance 24
Slide 25: Autocentres
Autocentres Be First Choice for Give a Service that Motorists Customers Come Back For Run a Grand Prix Leverage the Halfords Operation That We Are Brand and Group Proud Of Capabilities 25
Slide 26: Autocentres
Autocentres 11 centres opened and 24 refreshed in FY16 Online booking revenue up 19% in FY16 Introduced more customer- focused opening hours Training and people investments 26
Slide 27: Tredz and Wheelies
Tredz and Wheelies Acquired in May 2016 for £18.4m plus deferred consideration Online UK-wide retailer of premium bikes and PACs, trading as Tredz UK’s largest provider of bike replacement for insurers, trading as Wheelies Combined sales of £32m* and EBITDA of £2.4m*. Initial consideration of £18.4m
Slide 28: Cycle Republic
Cycle Republic First store opened in December 2014 12 stores now open, 7 of which are in London 0.5% of Group sales in FY16 Transactional website launched in August 2016 Total store & online capex for FY15 to FY17 of around £5m (4% of Group capex in the same period) 28
Slide 29: Cycle Republic
Cycle Republic Cycle Tredz & Halfords Republic Wheelies ATV of Bikes ATV of PACs 29
Slide 30: FY16 performance
FY16 performance 30
Slide 31: Highlights
Highlights Solid service-led sales performance Market share in Retail motoring and cycling grew overall Confident in long-term growth prospects for cycling Strong improvements in customer and colleague metrics 3-day-a-week deliveries to stores working well 31
Slide 32: Group Income Statement
Group Income Statement FY16 FY15 Change £m £m Revenue 1,021.5 1,004.9 +1.7% Gross Profit 543.1 535.1 +1.5% Operating Costs (458.6) (450.5) +1.8% EBIT 84.5 84.6 -0.1% EBIT Margin % 8.3% 8.4% -13bps EBITDA 114.6 109.9 +4.3% EBITDA Margin % 11.2% 10.9% +28bps Net Finance Costs (3.0) (3.5) -14.3% PROFIT
Slide 33: Retail Income Statement
Retail Income Statement FY16 FY15 Change £m £m Revenue 868.5 857.9 +1.2% Gross Profit 444.8 442.0 +0.6% Gross Margin 51.2% 51.5% -30 bps Operating Costs (363.0) (359.3) +1.0% EBIT 81.8 82.7 -1.1% EBIT Margin 9.4% 9.6% -18bps EBITDA 106.0 102.4 +3.5% EBITDA Margin 12.2% 11.9% +30bps Notes: All number
Slide 34: Retail Operating Costs
Retail Operating Costs FY16 FY15 Change £m £m Store Staffing 103.0 99.7 +3.3% Store Occupancy 138.3 139.3 -0.7% Warehouse & Distribution 45.7 43.5 +5.0% Support Costs 76.0 76.8 -1.0% Total 363.0 359.3 +1.0% Depreciation / Amortisation 24.2 19.7 +22.8% Rent* 86.1 87.4 -1.5% *Net of sublet income 34
Slide 35: Autocentres Income Statement
Autocentres Income Statement FY16 FY15 Change £m £m Revenue 153.0 147.0 +4.1% LFL% +2.5% +5.3% Gross Profit 98.3 93.1 +5.6% Gross Margin 64.3% 63.3% +90 bps Operating Costs (94.5) (89.3) +5.8% EBIT 3.8 3.8 - EBIT Margin 2.5% 2.6% -12bps EBITDA 8.6 7.6 +13.2% EBITDA Margin 5.6% 5.2% +36bps 35
Slide 36: Cash Flow and Net Debt
Cash Flow and Net Debt FY16 FY15 £m £m Group Underlying EBITDA 114.6 113.3 Working capital (11.2) 25.3 Capex (38.5) (39.6) Finance costs and tax (19.4) (20.2) Acquisition - (14.0) Dividend (32.4) (28.4) Other 0.8 1.4 Reduction in Net Debt 13.9 37.8 Note: FY15 numbers are in respect of the 53 week pe
Slide 37: Financial Targets and Capital Allocation
Financial Targets and Capital Allocation 37
Slide 38: Financial Targets
Financial Targets 1 Grow sales faster than the market* 2 Group EBITDA margin broadly flat over the next few years** 3 Grow the dividend every year with 2x cover on average over time 4 Net Debt target of 1x EBITDA with a range up to 1.5x * Halfords principally operates in two markets: motoring and cy
Slide 39: Capital Allocation Priorities
Capital Allocation Priorities Pre-conditions of maintaining a strong balance sheet and operating in line with the debt framework 1 Investment for growth 2 Pay and grow the dividend 3 Appropriate M&A 4 Surplus cash returned to shareholders 39
Slide 40: FY17 Capital Expenditure
FY17 Capital Expenditure Capital expenditure circa £45m Retail refreshes Cycle Republic stores and website Autocentre openings and refreshes Distribution and IT improvements, especially EPOS and a resource planning system 40
Slide 41: Appendices
Appendices halfords
Slide 42: Retail LFLs
Retail LFLs 9.9 8.8 7.9 7.5 6.6 6.8 5.9 5.7 4.6 3.5 3.1 1.1 0.4 0.3 0.0 (1.1) (2.1) (2.3) (0.6) (2.8) (4.9) (4.8) (6.6) (6.8) (7.5) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY11 FY11 FY11 FY11 FY12 FY12 FY12 FY12 FY13 FY13 FY13 FY13 FY14 FY14 FY14 FY14 FY15 FY15 FY1
Slide 43: Retail LFLs
Retail LFLs Cycling LFL 41.6% Car Maintenance LFL 148% 11.8% 1.2% 2.0% 1.1% 1.9% 1.9% 9.6% -8.8% 78% 0: 0.1% ai | a2 as| aa at | a2 | as | as ai | a2 as| aa at | a2 | as | as Qi at |a2| as as at | a2 | a3 | a4 at | a2 | a3 | a4 at | a2 | a3 | a4 a FY13 FY14 FY15, FY16 FY17| FY13, FY14 FY15 FY16 FY17
Slide 44: Group Components FY16 and FY15
Group Components Retail Autocentres Amortisation Group FY16 £m £m £m £m Revenue 868.5 153.0 - 1021.5 Gross Profit 444.8 98.3 - 543.1 Operating Costs (363.0) (94.5) (1.1) (458.6) EBIT 81.8 3.8 (1.1) 84.5 EBITDA 106.0 8.6 - 114.6 Retail Autocentres Amortisation Group FY15 £m £m £m £m Revenue 857.9 147
Slide 45: Group Balance Sheet
Group Balance Sheet FY16 FY15 YOY Change £m £m £m Goodwill and Intangible Assets 362.9 356.8 +6.1 +1.7% Property, Plant & Equipment 107.3 103.8 +3.5 +3.4% Derivative Financial 4.2 3.8 +0.4 +10.5% Instruments Net Working Capital 36.1 27.6 +8.5 +30.8% Net Debt (47.9) (61.8) -13.9 -22.5% Other Creditor
Slide 46: Cash flow and Net Debt
Cash flow and Net Debt Operating Cashflow £m Free Cashflow £m Net Debt £m EBIT 82.8 Operating Cashflow 103.7 Opening Net Debt (61.8) Depreciation/ Amortisation/ 30.5 Capital Expenditure (38.5) Free Cashflow 45.4 Loss On Disposal Employee Share Scheme 3.0 Net Finance Costs (2.2) Dividends (32.4) Work
Slide 47: Retail in-store services
Retail in-store services Motoring checks / Motoring fitting Cycling top-ups 3Bs for cars/vans Summer Service and repair Roof box / cycle Winter Accessory fitting carriers Audio Oil Free build Dash cams Number plates 2Bs for motorbikes Windscreen chip repair 47
Slide 48: Bike brands available in Halfords and Cycle Republic
Bike brands available in Halfords and Cycle Republic Cycle Republic Halfords only Halfords and Cycle Republic only Own brands c.90% of cycle revenue Third party brands c.10% of cycle revenue 48
Slide 49: Retail Portfolio – FY16 space
Retail Portfolio – FY16 space Average Total Trading Space, Average Average Average Lease- Ground Floor Mezzanine able Space including Mezzanine Trading Space Trading Space (sq.ft) (sq.ft) (sq.ft) (sq.ft) 9,121 8,120 6,429 3,092 Notes: 1) Excluding Cycle Republic 2) Ground floor only, including back
Slide 50: Retail Portfolio – Lease Expiries
Retail Portfolio – Lease Expiries Expiries 1 FY16 and earlier 27 FY17 14 FY18 15 FY19 24 FY20 41 Total expiries by end FY20 121 Average remaining lease length: 6.4 years Notes: 1) At 1 April 2016 there were 27 leases that had already expired that were yet to be renegotiated 50
Slide 51: Autocentres Portfolio
Autocentres Portfolio Centres Acquired 223 FY11 230 FY12 250 FY13 283 FY14 303 FY15 305 FY16 314 Average remaining lease length: 6.7 years 51
Slide 52: 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 oper
Slide 53: Contact and Newsflow
Contact and Newsflow For further information, please go to www.halfordscompany.com or contact Adam Phillips Corporate Finance & Investor Relations Director adam.phillips@halfords.co.uk Landline: +44 (0)1527 513 113 Mobile: +44 (0)7703 890142 53
Halfords Group — J.P. Morgan London Small/Mid Cap Conference 2016 on 6ix