Slide 1: FY16 Interim Results and Strategy Update
FY16 INTERIM RESULTS AND STRATEGY UPDATE
Slide 2: Introduction
Introduction Jill McDonald H1 Performance Jonny Mason Business Review and Strategy Update Jill McDonald Financial Considerations Jonny Mason Questions 2
Slide 3: H1 Performance Summary
H1 Performance Summary Connectivity and In-store service income Car Parts dash cams Transition to Cycling 3-day-a-week deliveries 3
Slide 4: H1 Performance
H1 Performance Jonny Mason Chief Financial Officer 44
Slide 5: Group Income Statement
Group Income Statement H1 FY16 £m H1 FY15 £m Change Revenue 533.5 524.1 +1.8% Gross Profit 279.2 274.7 +1.6% Operating Costs (231.2) (223.5) +3.5% EBIT 47.9 51.2 -6.4% EBIT Margin % 9.0% 9.8% EBITDA 62.3 63.6 -1.9% EBITDA Margin % 11.7% 12.1% Net Finance Costs (1.5) (1.8) PROFIT BEFORE TAX 46.4 49.4
Slide 6: Retail Income Statement
Retail Income Statement H1 FY16 £m H1 FY15 £m Change Revenue 458.0 451.9 +1.3% Gross Profit 230.4 228.6 +0.8% Gross Margin 50.3% 50.6% -29 bps Operating Costs (183.5) (178.4) +2.8% EBIT 46.9 50.2 -6.6% EBIT Margin 10.2% 11.1% EBITDA 58.4 60.2 -2.7% EBITDA Margin 12.8% 13.3% Notes: All numbers are pr
Slide 7: H1 FY16 Retail Revenues
H1 FY16 Retail Revenues Total Retail Q1 LFL % Q2 LFL % H1 LFL % Cycling +2.0 -7.6 -2.9 Car Maintenance +5.9 +7.1 +6.5 Car Enhancement -0.3 +1.5 +0.6 Travel Solutions +9.2 +1.1 +4.7 Total +3.5 -0.6 +1.4 Online Retail sales grew by 0.9% and represented 12.1% of sales. 90% of sales were collected in st
Slide 8: Cycling sales in Q2
Cycling sales in Q2 Q2 Cycling sales value year-on-year FY16 vs FY15 MOVINGUP agear Early July (2 weeks) Mid July to mid August (4 weeks) Late August (2 weeks) September (5 weeks)
Slide 9: Gross Margin % Influences
Gross Margin % Influences Cycling promotional activity and discounts Third-party brands Premium Bikes Strong Car Maintenance sales In-store services 9
Slide 10: Retail Operating Costs
Retail Operating Costs H1 FY16 £m H1 FY15 £m Change Store Staffing 52.1 49.2 +5.8% Store Occupancy 69.8 68.6 +1.7% Warehouse & Distribution 24.5 19.7 +24.4% Support Costs 37.1 40.9 -9.3% Total 183.5 178.4 +2.8% Depreciation / Amortisation 11.5 10.0 +15.0% Rent* 42.9 42.9 - *Net of sublet income 10
Slide 11: Autocentres Income Statement
Autocentres Income Statement H1 FY16 £m H1 FY15 £m Change Revenue 75.5 72.2 +4.6% LFL% +3.3% Gross Profit 48.8 46.1 +5.9% Gross Margin 64.6% 63.8% +76 bps Operating Costs (47.2) (44.5) +6.0% EBIT 1.6 1.6 +0.5% EBIT Margin 2.1% 2.2% EBITDA 3.9 3.4 +12.1% EBITDA Margin 5.2% 4.7% 11
Slide 12: Cashflow and Net Debt
Cashflow and Net Debt Operating Cashflow £m Free Cashflow £m Net Debt £m Operating EBIT 47.9 47.4 Opening Net Debt (61.8) Cashflow Depreciation/ Capital Amortisation/ 14.5 (17.5) Free Cashflow 19.5 Expenditure Loss On Disposal Employee Share 1.1 Net Finance Costs (0.8) Dividends (21.4) Scheme Workin
Slide 13: FY16 Full Year Guidance
FY16 Full Year Guidance Updated Previous Cycle Republic share of c. 0.5 % c. 1% Retail sales growth* Retail Gross Margin A decline of 25-75bps A decline of 25-75bps Retail Operating Costs 2.5 – 3.5% 4-5% Retail Capital Expenditure c. £40m c. £45m Low double-digit % Low double-digit % Autocentres EBI
Slide 14: Strategy Update
Strategy Update Jill McDonald Chief Executive 14
Slide 15: Introduction
Introduction 15
Slide 16: What I'll cover today
What I’ll cover today • Market context • Business Review • “Moving Up a Gear” • The 5 Strategic Pillars • Summary 16
Slide 17: Halfords' Revenue Split
Halfords’ Revenue Split Car Car Travel Autocentres Cycling Maintenance Enhancement Solutions 55% 15% 30% 70% cycling motoring 17
Slide 18: Market context - motoring
Market context - motoring 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 est
Slide 19: Market context - motoring
Market context - motoring Source: Department for Transport National Statistics, BCA Used Car Market Report, SMMT 19
Slide 20: Market context - motoring
Market context - motoring Car parts, Car servicing and accessories, aftercare consumables and technology Source: Halfords estimates 20
Slide 21: Market context - cycling
Market context - cycling Note: Market size figures are annual market sales including VAT Source: Halfords estimates 21
Slide 22: Market context - Cycling
Market context - Cycling Two years of exceptional growth due to: • Recovery in disposable income • Rising awareness • Government infrastructure • Cycle to Work scheme • Warm, sunny summers 22
Slide 23: Market context - cycling
Market context - cycling Leisure Commuting Fitness / competitor c. 50% c. 25% c. 25% of participants of participants of participants Source: Halfords research 23
Slide 24: Market context - Cycling
Market context - Cycling Future growth drivers: • Increased pool of cyclists • Higher engagement levels • Participation still low: large scope for new entrants • Increased government spend on infrastructure • Female participation 24
Slide 25: Business review: Strengths
Business review: Strengths • Well-known brand • Reputation for quality • Market leaders • High motoring and cycling cross shop • Specialist retailer • Service proposition • Stores are an asset 25
Slide 26: Business review: Market opportunities
Business review: Market opportunities • Market share headroom in cycling and motoring • More cars, increasing complexity and new technology • Unfulfilled potential in PACs 26
Slide 27: Business review: Customer opportunities
Business review: Customer opportunities Opportunity to improve lifetime customer value 27
Slide 28: Business review: Customer opportunities
Business review: Customer opportunities • Awareness of the categories we serve • Consideration amongst younger customers • Increasing conversion to purchase • Innovation and newness 28
Slide 29: Business review: Infrastructure opportunities
Business review: Infrastructure opportunities 29
Slide 30: Business review: Watch outs
Business review: Watch outs • Competitors − Fulfilment − Price • Changing customer expectations 30
Slide 31: Moving Up a Gear
MOVINGUP agear
Slide 32: 5 Strategic Pillars for Retail
5 Strategic Pillars for Retail Putting Customers Service in Building on in the Driving Seat our DNA our Uniqueness Better Shopping Fit for Future Experience Infrastructure 32
Slide 33: Putting Customers in the Driving Seat
Putting Customers in the Driving Seat GOAL First choice for customers’ life on the move PURPOSE Committed to making our customers’ journeys better END LINE For life’s journeys 33
Slide 34: Putting Customers in the Driving Seat
Putting Customers in the Driving Seat Single view of customer Maximising lifetime customer value 34
Slide 35: Putting Customers in the Driving Seat
Putting Customers in the Driving Seat 35
Slide 36: Service in our DNA
MOVINGUP agear Service in our DNA
Slide 37: Service in our DNA
Service in our DNA New joiner (over 25) National Living Wage Gear 1 Gear 2 Gear 3 premium premium premium New joiner (25 & under) Starting rate 37
Slide 38: Service in our DNA
Service in our DNA 8% 9% 32% Note: Service-related sales are defined as the income from the sale of fitting and repair services, in motoring and cycling, plus the associated product revenue. 38
Slide 39: Building on our Uniqueness
Building on our Uniqueness 39
Slide 40: Building on our Uniqueness
Building on our Uniqueness 40
Slide 41: Building on our Uniqueness
Building on our Uniqueness 41
Slide 42: Building on our Uniqueness
Building on our Uniqueness 42
Slide 43: Building on our Uniqueness
Building on our Uniqueness 43
Slide 44: Building on our Uniqueness
Building on our Uniqueness 44
Slide 45: Building on our Uniqueness
Building on our Uniqueness 45
Slide 46: Building on our Uniqueness
Building on our Uniqueness 46
Slide 47: Building on our Uniqueness
Building on our Uniqueness 47
Slide 48: Better Shopping Experience
Better Shopping Experience Single view of stock Action taken already: • Delivery time slots • Sunday deliveries • 8pm cut off for orders Improved fulfilment 48
Slide 49: Better Shopping Experience
Better Shopping Experience 49
Slide 50: Better Shopping Experience
Better Shopping Experience 50
Slide 51: Better Shopping Experience
Better Shopping Experience The medium term plan for PACs*: • Transactional Cycle Republic website • Range architecture • Value proposition • Fulfilment offer *PACs = Cycling Parts, Accessories and Clothing 51
Slide 52: Fit for Future Infrastructure
Fit for Future Infrastructure 98% of Halfords Space reduction from right-sizes is Average lease length stores are profitable equivalent to 18 stores since FY13 remaining is 6.7 years No significant change in Halfords store numbers in the medium term 52
Slide 53: Fit for Future Infrastructure
Fit for Future Infrastructure 53
Slide 54: Fit for Future Infrastructure
Fit for Future Infrastructure Last 2 years Looking forward SAP upgrade Labour management tool Halfords.com re-launch Till hardware and software System stabilisation and security CRM solutions Car Parts Direct, eBay and Improved fulfilment capability Marketplace Space planning PCI accreditation e-Gif
Slide 55: Autocentres
MOVINGUP agear Autocentres
Slide 56: 5 Strategic Pillars for Retail
5 Strategic Pillars for Retail Putting Customers Service in Building on in the Driving Seat our DNA our Uniqueness Better Shopping Fit for Future Experience Infrastructure 56
Slide 57: Operational measures
Operational measures 1 Proportion of trained colleagues 2 Service-related sales growth 3 Proportion of transactions matched to a customer 4 Store and centre openings and refreshes 5 Online sales as a proportion of total retail sales 6 Customer experience metric (to be published in June 2016) 57
Slide 58: Financial Considerations
Financial Considerations Jonny Mason Chief Financial Officer 58
Slide 59: Capital Expenditure
Capital Expenditure Retail priorities: Average annual • W&D capex £m FY11-13 FY14-16 FY17-19 • IT • Store of the Future • Cycle Republic Retail 15 c. 33 c. 33 Autocentres priorities: • New centre openings Autocentres 5 c. 7 c. 7 • Centre refresh programme • Technology Total 20 c. 40 c. 40 59
Slide 60: Retail Operating Expenditure
Retail Operating Expenditure Priorities: • Training & rewarding colleagues • Leveraging customer insight & data • Meeting customer service & convenience expectations • Brand repositioning 60
Slide 61: Impact of National Living Wage
Impact of National Living Wage Key assumptions: • Gear 1 rises to 20 pence premium above Living Wage • Increase Gear 2 and retain Gear 3 premiums • Retain location premiums • Increase lower band of management salaries • Living wage increases evenly by 45p from April 2016, reaching £9.00 by 2020 * Ca
Slide 62: Financial Targets
Financial Targets Grow sales faster than the market Group EBITDA margin broadly flat over the next few years Grow the dividend every year with 2 times cover on average over time Debt framework (to be published in June 2016) 62
Slide 63: Capital Allocation Priorities
Capital Allocation Priorities Pre-conditions of maintaining a strong balance sheet and operating in line with a debt target* Investment for growth Pay and grow the dividend Surplus cash returned to shareholders * Debt target to be published with the Preliminary results in June 2016 63
Slide 64: Summary
Summary Jill McDonald Chief Executive Officer 64
Slide 65: Questions
Questions 65
Slide 66: Appendices
Appendices 66
Slide 67: Financial calendar
MOVINGUP agear Financial calendar June 2016 FY16 Preliminary Results plus update on debt July 2016 framework, Store Q1 FY17 of the Future, new Trading Update customer measure and long-term supply chain review
Slide 68: Group Components
Group Components Retail Autocentres Amortisation Group H1 FY16 £m £m £m £m Revenue 458.0 75.5 - 533.5 Gross Profit 230.4 48.8 - 279.2 Operating Costs (183.5) (47.2) (0.6) (231.2) EBIT 46.9 1.6 (0.6) 47.9 EBITDA 58.4 3.9 - 62.3 Retail Autocentres Amortisation Group H1 FY15 £m £m £m £m Revenue 451.9 7
Slide 69: Group Balance Sheet
Group Balance Sheet H1 FY16 £m H1 FY15 £m YOY £m Change Goodwill and Intangible Assets 358.1 357.6 +0.5 +0.2% Property, Plant & Equipment 107.5 93.2 +14.2 +15.3% Derivative Financial Instruments 0.9 2.1 -1.2 -58.1% Net Working Capital 36.9 27.3 +9.6 +35.1% Net Debt (62.4) (70.3) +8.0 +11.3% Other Cr
Slide 70: Retail Portfolio – FY16 space
Retail Portfolio – FY16 space 1 Notes: 1) Excluding Cycle Republic 2) Ground floor only, including back of house 70
Slide 71: Retail Portfolio – Lease Expiries
Retail Portfolio – Lease Expiries Expiries 1 FY16 and earlier 27 FY17 15 FY18 16 FY19 24 FY20 38 Total expiries by end FY20 120 Average remaining leases (total portfolio): 6.7 years 1) At 2 October 2015 there were 12 leases that expired earlier than FY16 that are yet to be renegotiated 71
Slide 72: Autocentres Portfolio
Autocentres Portfolio Centres Acquired 223 FY11 230 FY12 250 FY13 283 FY14 303 FY15 305 H1 FY16 307 Average remaining leases: 6.9 years 72
Slide 73: Management Incentives
Management Incentives Annual Bonus Performance Share Plan CEO – maximum award 150% base salary – 2/3 in cash with 1/3 deferred in shares Maximum core award 150% base salary for 3 years Features Chief Financial Officer – 100% base salary Performance multiplier of 1.5 x core award for – full bonus in
Slide 74: 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 75: Contact and Newsflow
Contact and Newsflow For further information, please go to www.halfordscompany.com or contact Adam Phillips Head of Investor Relations adam.phillips@halfords.co.uk Landline: +44 (0)1527 513 113 Mobile: +44 (0)7703 890142 Next newsflow: 21 January 2016: Q3 trading update 75 75