Halfords Group Plc · LSE:HFD
Halfords — H1 FY23 Earnings Presentation
60 slides from Halfords's earnings presentation, Nov 23, 2022
Slide 1: FY23 Interim Results
FY23 Interim Results Halfords Group PLC 23rd November 2022 1
Slide 2: Agenda
Agenda Financial Performance Jo Hartley Business & Strategic Update Graham Stapleton Q&A 2 Classification: Restricted
Slide 3: Financial Performance
FINANCIAL PERFORMANCE Jo Hartley 3 Classification: Restricted
Slide 4: Basis of financial information
Basis of financial information • Covers the 26-week period from 2 April 2022 to 30 September 2022 • All comparators are on a three-year basis unless otherwise stated • All figures are post IFRS 16 unless otherwise stated 4 Classification: Restricted
Slide 5: Headwinds and structural advantages
The structural advantages resulting from our strategic transformation, coupled with our tactical mitigations, are driving resilience in a challenging economic environment Headwinds Utilities rates Consumer confidence Exchange rates General inflation Mitigation Tactical Freight rates tracking FX and
Slide 6: Profit and cash in-line with expectations, strong revenue performance
Profit and cash in-line with expectations, with strong revenue performance helping to offset cost pressure. Strong Group Gross Margin Challenging Cost Revenue Growth Growth Environment Group LFL Revenue Group Gross Margin Costs as % revenue Growth Yo3Y +13.3% 51.3% 46.8% (+130bps Yo3Y) (+3.0 ppts Yo
Slide 7: Underlying PBT broadly flat versus FY20
Our underlying PBT is broadly flat versus FY20, with our transformational growth and in-year mitigating actions helping to offset the current economic headwinds. H1 FY23 vs. H1 FY20 vs. H1 FY22 +£183m +£70.9m Vs FY20 - Strong revenue growth driven by LFL Revenue £765.7m +31.4% +10.2% growth and Auto
Slide 8: Total revenue driven by Services growth
Total Revenue driven by Services growth - now representing 43% of Group Revenue. H1 Group Revenue Bridge Total Revenue £21m £9m £766m £126m Total -£20m Revenue £47m £583m Product Revenue Product Service Revenue Growth Retail sales densities up £440m Revenue +£194m, +147% +6.9%, with product £451m re
Slide 9: PBT bridge vs FY20
Versus FY20, PBT is broadly flat despite significant cost inflation. H1 Group Underlying PBT Bridge vs FY20 £12.0m £3.5m £8.7m £4.6m -£2.0m £30.2m £29.0m -£28.0m 9
Slide 10: PBT bridge vs FY22 and cost headwinds
Versus FY22, we’ve seen over £30m of cost headwinds. We’ve been able to partially offset some of this through tactical and strategic mitigation. H1 Group Underlying PBT Bridge vs FY22 • Retail sales -6% LFL vs FY22, driven largely by strong comparator as the UK emerged from COVID. • Retail H1 FY22 w
Slide 11: Autocentres
AUTOCENTRES 11 Classification: Restricted
Slide 12: Autocentres revenue growth driven by LFL and acquisitions
Autocentres revenue growth driven by LFL business and acquisitions. EBIT is up year-on-year, pre one-offs. H1 Autocentres EBIT vs FY22 H1 FY23 vs. FY20 vs. FY22 -£1.3m +220.7% Yo3Y +69.9% YoY Revenue £265.2m -£0.5m +30.0% 3LFL +14.3% LFL £3.7m Reversal of £(1.8)m of FY22 one-offs -£2.0m £2.1m £2.0m
Slide 13: Autocentres EBIT weighted towards H2
Autocentres EBIT weighted heavily towards H2, following government initiated MOT 6-month deferral in 2020. Industry MOT Volumes 5.0m 2019 2022 4.0m 3.0m 2.0m Apr May Jun Jul Aug Sep • During COVID, the Government deferred MOTs due between April 2020 and July 2020, meaning they fell between October 2
Slide 14: Retail
RETAIL 14 Classification: Restricted
Slide 15: Retail resilient revenue, inflation impacts profitability
Retail has seen a resilient revenue performance but inflation has impacted overall profitability. Gross Margin Improvement H1 FY23 vs. FY20 vs. FY22 0.7% +0.1% Yo3Y -7.1% YoY 1.1% Revenue £500.5m +10.4% 3LFL -6.0% LFL 0.3% 1.1% +3.7% Yo3Y -2.4% YoY Motoring £297.3m +10.2% 3LFL -1.5% LFL 50.2% -4.4%
Slide 16: FX & Freight
FX & FREIGHT 16 Classification: Restricted
Slide 17: Reduced reliance on USD purchases; FX hedged for FY23
Strategy reduces reliance on USD denominated purchases. FX hedged for FY23, but will be a headwind in FY24 Group COGS purchased in Dollars • 70% 260 $ COGS % of COGS Growing Services business results in $ denominated goods becoming a proportionately smaller part of the Group. 60% 240 • 220 50% Purch
Slide 18: Competitive freight rates
We continue to use our scale to ensure we have access to competitive freight rates. • FY21 through H1 FY23 freight rates were below spot rates. • As spot rates have eased we have renegotiated to ensure we remain on competitive rates. • Possible continued rate reduction into FY24 18000 16000 14000 Ha
Slide 19: Group Operating Costs
GROUP OPERATING COSTS 19 Classification: Restricted
Slide 20: Operating cost breakdown and inflation mitigation
Although many aspects of our cost base are seeing inflationary pressures, we have opportunities to mitigate or manage the impacts. FY23 H1 Group Operating Cost Breakdown Utilities - £7m Other - £28m Warehousing & Distribution - £29m • FY23 is seeing significant and unavoidable exposure to inflationa
Slide 21: Utilities fully bought for FY23
Utilities for FY23 is fully bought with nil YOY impact. Looking forward FY24 will see a headwind but the market remains unpredictable. • FY23 requirement fully bought during FY22 with no YOY impact due to our purchasing strategy. • Looking ahead c.50% of FY24 consumption purchased • Group continues
Slide 22: Cost and efficiency savings exceeding target
With a continued focus on cost and efficiency, we have already saved £10m through H1 and expect to deliver over £20m for the full year, exceeding our target of £15m. Organisation Design Support Costs c.£2m H1 savings c.£5m H1 savings Property Costs Continued Cost Culture c.£1m H1 savings c.£2m H1 sa
Slide 23: FY24 risks and opportunities
FY24 presents us with both risks and opportunities. We continue to focus on the areas that are within our control to mitigate the things that aren’t. FX National Minimum / Living Wage Utilities Consumer confidence? Consolidation of competitor set COGS/ Commodity prices Acquisition maturity Freight G
Slide 24: Cash & Balance Sheet
CASH & BALANCE SHEET 24 Classification: Restricted
Slide 25: Continued strong cash position; H1 cashflow bridge
Continued strong cash position, allowing investment in the business and returns to shareholders. H1 Cashflow Bridge FY22 Y/E to FY23 £57.6m -£25.5m £23.7m £5.4m -£43.2m -£12.9m -£13.0m £46.1m -£5.9m £32.3m 25 Classification: Restricted
Slide 26: Cash generative and well placed in uncertainty
The Group continues to be cash generative and well placed to succeed during economic uncertainty. 1. £32.3m of net cash (pre IFRS 16 lease debt) and continued capital discipline. 2. £180m debt facility which has been extended until December 2025. 3. Retail stock well manged with volumes down on FY22
Slide 27: Full year PBT expected towards lower end of £65-75m
Full year PBT expected towards the lower end of our £65-75m range. Even the bottom of that range represents +16% growth versus our last “normal” year. £75m Guided Range - Despite unprecedented levels of cost £65m inflation and consumer confidence in +16% FY22, our guided range represents double digi
Slide 28: Business & Strategic Update
BUSINESS & STRATEGIC UPDATE Graham Stapleton 28 Classification: Restricted
Slide 29: The strategy set out in 2019 continues to be right
The strategy we set out in 2019 continues to be the right one. … Our transformation is ahead of plan. “Evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns.” 29
Slide 30: Advantages of growing in Services, Motoring and B2B
The advantages of growing our presence in these areas remains significant. Unique advantage Deeper longer-term More needs-based, Opportunity to consolidate over online rivals relationships with customers less discretionary fragmented market Services Lower working Less FX Higher operating Opportunity
Slide 31: H1 results show growing, motoring services focus
Our H1 results demonstrate a growing business, that is increasingly focused on motoring services, with a greater emphasis on B2B revenue streams. FY20 FY22 FY23 H1 Revenue £1.1bn £1.4bn £0.77bn (+19.9%) (+10.2%) Revenue from Services 26% 39% 43% £0.3bn £0.5bn £0.3bn Revenue from Motoring 65% 70% 75%
Slide 32: Growth in service-related sales
We’ve delivered growth in service-related sales year-upon-year – through both acquisition and organic growth. Acquisition Timeline 70 Consumer Oct FY20 Vans Group Service-related Revenue - trend 600 45% 60 Garages 550 531 Nov FY20 100 Commercial Vans 500 43% 40% 450 % of Group Revenue 39% 35% 400 35
Slide 33: Growing resilient B2B revenue
At the same time, we’ve ensured our revenue is increasingly resilient through growing our presence in the more predictable and recurring B2B markets. Software as a Service Group B2B Revenue 425 28% 26% 375 Fleet Services 325 % of Group Revenue £300m 23% 275 £231m 18% Cycle 2 Work 225 20% £201m B2B 1
Slide 34: Strategic progress in FY23
The strategic progress so far in FY23 has moved the dial on all parts of the strategy Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 34
Slide 35: Strategic progress in FY23
Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 35
Slide 36: Lodge Tyre acquisition aligned to strategic growth areas
The Lodge Tyre acquisition was perfectly aligned to these strategic growth areas Strategic Rationale 100% 100% >90% B2B Motoring Services “Evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns.” 36 Clas
Slide 37: UK's largest Commercial Tyre Provider
Lodge Tyre, when added to Universal and McConechy’s, has made us the UK’s largest Commercial Tyre Provider. • Lodge completes full UK coverage of commercial vehicle tyre & service market. • Adds 240 Commercial Vans, taking Halfords total to 440. • Adds 50 garages, taking Halfords total to 656. • Sig
Slide 38: Autocentres B2B commercial offering
Our Autocentre business offers significant potential to grow it’s B2B commercial offering by bringing together our three commercial brands Consumer Garages and Vans Commercial Garages and Vans Key Customer Facing Brands Type of Services offered Service, Maintenance, Repair, Tyres, Service, Maintenan
Slide 39: Group service-related sales growth
We’ve transformed our Group service-related sales through a combination of organic growth and acquisition, in both consumer and commercial motoring services. Group Service-related Revenue Growth Total c.£800m £177m Consumer £613m £252m £108m Total £268m Consumer £253m Commercial £192m FY18 Services
Slide 40: Service-related sales nearly half of Group revenue
With a full year of Lodge added, service-related sales represent nearly half of Group revenue. FY20 FY22 FY23 Including H1 Lodge* Revenue from Services 26% 39% 43% 48% Revenue from Motoring 65% 70% 75% 77% Revenue from B2B 15% 20% 26%** 22% Fixed and Mobile Locations 918 1,451 c.1,453 c.1,750 (371 G
Slide 41: Strategic progress
Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 41
Slide 42: Avayler proprietary software business
is our unique industry leading proprietary software business Value Drivers: 1. Resilient, contracted B2B revenue 2. Higher operating margin, through leveraging existing investments 3. Natural FX rate hedge 4. Large market opportunity 5. Strengthens relationships with strategic customers. 42 Classifi
Slide 43: Avayler signs third client in Europe, Mobivia
has signed a third, market leading client in Europe, in Mobivia Grow - Third international client signed in ATU, part - ATU’s move into the mobile space has been of Mobivia – a large international business supported by the success of the Halfords Mobile with a portfolio of 9 mobility businesses Expe
Slide 44: Strategic progress
Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 44
Slide 45: National synergies on track
National synergies are on track to deliver business case, but underlying tyre market remains down on pre-COVID levels. National Business Case Synergies 20m Year 3 EBITDA Synergies (£) Year 2 15m 10m Year 1 5m 0m • Synergies are on plan, focused around procurement synergies and productivity. o Our ga
Slide 46: Strategic progress
Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 46
Slide 47: Motoring Loyalty Club launched March 2022
We launched our unique Motoring Loyalty club in March 2022 – providing the platform for future growth. • Motoring Club offers exclusive benefits to members • Two membership tiers: ➢ Premium subscription based ➢ Free to join • Digitally enabled with rich data collection allowing us to personalise and
Slide 48: Over 1 million Motoring Club customers expected
We will have well over 1 million customers signed up to our Motoring Club this year • Over 980k members year-to-date, versus a full year target of 500k – 1 million. • Full year premium target of 50k to 100k achieved with over 64k year-to-date. 1,20 0.00 Sign ups by Period 984k 1,000k 1,00 0.00 800 .
Slide 49: Motoring Club driving customer behaviour change
The Motoring Club is driving a step change in customer behaviour, increasing cross shop and attracting new customers to the Group. New Customers to Group ➢ Of the club members, 82% are new to Autocentres. 230k Cross Shop ➢ Loyalty member cross shop % (company average is 4.3%). 15% MOT Bookings ➢ New
Slide 50: Club members shop more frequently
Both free and subscription club members shop more frequently with us creating more valuable relationships vs non members. Customer Subscription Shop Average Spend Customer Revenue Uplift Revenue Vs Type Revenue Frequency per visit* numbers per Customer Non Loyalty 1.6x £47 £0 Non Member 2.6x £44 £0
Slide 51: Strategic progress
Lodge National Tyres Fusion rollout Avayler contract Motoring Club Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 51
Slide 52: Fusion programme rollout
We continue to rollout the most capital efficient aspects of our Fusion programme • Solution selling Training completed by over 95% of Retail colleagues and almost 90% of our Garage managers • Car park referral managers Now in place in 17 towns, with a target of 30 towns by the end of this financial
Slide 53: Transition from Retailer to Services business
Our transformation means we have transitioned from Retailer into Services-business. Lodge National Tyres Avayler contract Motoring Club Fusion rollout Acquisition Integration ✓ ✓ ✓ ✓ ✓ Services ✓ ✓ Motoring ✓ ✓ ✓ ✓ ✓ ✓ B2B ✓ ✓ ✓ ✓ ✓ Returns Higher 53
Slide 54: Service-related sales expected over half of Group in FY24
During FY24 we expect service-related sales to make up more than half of the Group. 50% + 48% 43% 39% 29% 26% 24% 24% FY18 FY19 FY20 FY21 FY22 FY23 (H1) Pro-forma FY24 (Lodge annualised) 54
Slide 55: Transformation to super-specialist services business
Our transformation has delivered growth in our areas of strategic importance, creating a super-specialist services business with more resilient, recurring revenue streams. Key: c.£1.6bn Recurring revenue Services revenue £1.1bn Product revenue Any discretionary spend shaded white FY18 Now Future 55
Slide 56: Q&A
Q&A 56 Classification: Restricted
Slide 57: Appendix
APPENDIX 57 Classification: Restricted
Slide 58: Cash position remains strong, RCF extended
Our cash position remains strong and our RCF has been extended until the end of 2025. H1 FY23 H1 FY22 YoY Profit After Tax 30.0 53.2 -22.7 Depreciation, Amortisation & Loss on Disposal of Assets 57.0 54.0 3.0 Working Capital -2.7 -20.2 17.5 Taxation -5.9 6.3 -12.2 Net Finance Costs 5.4 5.8 -0.4 Prov
Slide 59: Net debt and leverage within targets
Net debt increase reflects leases associated with National with underlying H1 cash position positive. We remain within our leverage targets. Net Debt £m Net Debt:EBITDA Includes National lease debt of £68m Range 2.3x with M&A 344.9 1.80 2.00 277.3 1.8x FY23 estimate FY23 estimate post Lodge H1 FY23
Slide 60: Interim dividend of 3.00p per share declared
Declared interim dividend of 3.00p per share, with capital allocation priorities and guidance unchanged. Capital Allocation Priorities Maintaining a prudent Dividend per Share balance sheet Investment for growth 6.00 Final M&A focused on Autocentres 5.00 6.18 Final 3.00 Interim Interim Interim 3.00