Halfords Group PLC: Interim results: Financials -4-

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We do not expect the extreme levels of inflation seen in the spot freight markets to continue, and we expect supply and demand in labor markets to stabilize, but some inflationary aspects of fiscal year 23 are already known, including national insurance, the national minimum wage and energy costs. . We are confident that our established efficiency workflows and hedging policies will, in part, mitigate some of these costs. We also see positive aspects for the future; the currency and rental markets are more favorable, the supply of bicycles is expected to stabilize and our initiatives from FY22 will start to gain momentum, thus contributing to the growth in sales.

As a company, we confidently look forward to another period of transformation and strength. We have built a stronger and more efficient business focused on more resilient revenue streams in markets with opportunities to significantly increase our market share. Having said that, operational agility is also a term that we have used repeatedly over the past 18 months and it is an approach that we now take consistently in our operation.

Graham Stapleton President and CEO, November 9, 2021

Halfords Plc Group

Chief Financial Officer Report

Halfords Group plc (“the Group” or “Group”)

Segments to be declared

Halfords Group operates through two business segments to present:

– Retail, operating in both the UK and the Republic of Ireland; and

– Autocentres, operating only in the UK.

All references to Retail represent the consolidation of the activities of Halfords (“Halfords Retail”) and Cycle Republic, Boardman Bikes Limited and Boardman International Limited (together, “Boardman Bikes”), and Performance Cycling Limited (together, “Tredz and Wheelies”) business entities. All references to Autocentres represent the consolidation of the Autocentres, McConechy’s and Universal business entities. All references to the Group represent the consolidation of the Retail and Autocentres segments.

The accounting period “S1 FY22” represents the trades for the 26 weeks on October 1, 2021 (“the period”). The comparative periods “S1 FY21” and “S1 FY20” represent the trades for the 26 weeks up to October 2, 2020 (“the previous period”) and up to September 27, 2019 respectively.

In order to better understand the underlying performances, comparisons of operational performances (turnover, margin, profitability) will be carried out against FY20, ie over 2 years. Last year’s disruption (FY21) due to COVID-19 means one-year comparators are, in some cases, more difficult to interpret. All figures shown are after IFRS16, unless otherwise indicated. Group financial results

                                                    Change                      Change 
                                    H1 FY22 H1 FY20                     H1 FY21 
                                                    H1 FY 20 to H1 FY22         H1 FY21 to H1 FY22 
                                    GBPm      GBPm      (%)                 GBPm      (%) 
Group Revenue                       694.8   582.7   19.2%               638.9   8.7% 
Group Gross Profit                  359.4   291.7   23.2%               315.8   13.8% 
 
Underlying EBIT                     63.7    36.8    73.1%               63.7    0.0% 
Underlying EBITDA                   115.7   90.8    27.4%               115.5   0.2% 
 
Net Finance Costs                   (5.8)   (6.6)   (12.1%)             (7.9)   (26.6%) 
 
Underlying Profit Before Tax        57.9    30.2    91.7%               55.8    3.8% 
Net non-underlying items            6.4     (2.7)   -                   (0.4)   - 
Profit Before Tax                   64.3    27.5    133.8%              55.4    16.1% 
Underlying Basic Earnings per Share 24.0p   12.2p   96.7%               23.0p   4.3% 

Group revenue in H1 FY22 of £ 694.8m, up 19.2% from H1 FY20, includes Retail revenue of £ 538.7m and revenue Autocentres of £ 156.1m. This compares to Group S1 FY20 revenue of £ 582.7million, which included retail revenues of £ 500.0million and autocentres revenue of £ 82.7million. sterling. Group gross margin of £ 359.4m (S1 FY20: £ 291.7m) represented 51.7% of Group revenue (S1 FY20: 50.1%), reflecting a Retail plus gross margin strong 50.6% offset by a drop in Autocentres gross margin of 13% points to 55.6%. The latter was driven by previous acquisitions of McConechy’s, Tires on the Drive and Universal, with a mix of lower margin B2B sales and tire sales resulting in lower gross margin levels.

Total operating costs before underlying items were 16.0% above S1 FY20 at £ 295.7m (S1 FY20: £ 254.9m) of which Retail included £ 211.4m. GBP (S1 FY20: GBP 201.1 million), Autocentres GBP 83.1 million (S1 FY20: GBP 52.7 million) and unallocated costs GBP 1.2 million (S1 FY20: 1, £ 1million), while the business rate relief amounted to £ 9.2million. The significant increase in operating costs within Autocentres primarily reflects costs within the acquired businesses. Unallocated costs represent amortization charges relating to intangible assets acquired through business combinations, namely the acquisition of Autocentres in February 2010, Boardman Bikes in June 2014, Tredz and Wheelies in May 2016, McConechy’s in November 2019 and Universal in March 2021, resulting in the consolidation of the Group.

The Group’s underlying EBITDA increased 27.4% from H1 FY20 to £ 115.7 million (S1 FY20: £ 90.8 million), while net finance costs amounted to 5 , £ 8 million (S1 FY20: £ 6.6 million).

Underlying profit before tax for the period increased 91.7% compared to S1 FY20 to GBP 57.9 million (S1 FY20: GBP 30.2 million). The £ 6.4million non-underlying credit during the period (S1 FY20: GBP 2.7million debit) was primarily related to the release of previous non-rental costs, whereby the properties to which they relate have since been reassigned.

After non-underlying items, the Group’s pre-tax profit amounted to £ 64.3 million (S1 FY20: £ 27.5 million).

Retail

                        H1 FY22 H1 FY20 Change H1 FY21 Change 
                        GBPm      GBPm      (%)    GBPm      (%) 
Revenue                 538.7   500.0   7.7%   524.2   2.8% 
Gross Profit            272.6   235.0   16.0%  245.7   10.9% 
Gross Margin            50.6%   47.0%   7.7%   46.9%   8.0% 
Operating Costs         (211.4) (201.1) 5.1%   (185.4) 14.0% 
Underlying EBIT         61.2    33.9    80.5%  60.3    1.5% 
Non-underlying items    6.4     (2.5)   -      (0.1)   - 
EBIT                    67.6    31.4    115.3% 60.2    12.3% 
                        102.3 
Underlying EBITDA               80.0    27.9%  101.9   0.4% 
 

Retail revenue of £ 538.7m reflects year-over-year LFL growth of + 7.0% and two-year LFL growth of + 17.8%.

Please refer to the review of retail operations in the CEO statement for further comments on business performance during the period. Sales at constant scope and the total sales mix for the Retail activity are broken down by category below:

                         H1 FY22-20 
              H1 FY22-21            H1 FY22             H1 FY20             H1 FY21 
                         LFL (%) 
              LFL (%)               Total sales mix (%) Total sales mix (%) Total sales mix (%) 
 
Motoring      41.0       11.9       56.7                57.5                42.5 
Cycling       -20.5      25.3       43.3                42.5                57.5 
Total         7.0        17.8       100.0               100.0               100.0 

Retail gross profit of £ 272.6m (S1 FY20: £ 235.0m) represented 50.6% of sales, up on previous years (S1 FY21: 46.9 %, S1 FY20: 47.0%). This reflected several factors, including favorable purchasing conditions, streamlining of components, more effective promotional pricing in the cycling category and an increase in sales in higher margin automotive categories compared to cycling during the year. 21.

The table below shows the average exchange rate reflected in the cost of sales, as well as the movement from year to year.

                                                 H1 FY20 H1 FY21 H1 FY22 
 
                                                 USD       USD       USD 
Average USD: GBP rate reflected in cost of sales USD1.33   USD1.30   USD1.32 

Retail operating costs before underlying items increased 14.0% from S1 FY21 and 5.1% from S1 FY20 to £ 211.4m (S1 FY21: 185, £ 4m and S1 FY20: £ 201.1m). The 5.1% increase in costs over 2 years is due to the higher volume variable costs required to achieve the 17.8% LFL% sales growth, including payroll costs, of warehouse and distribution and marketing; and investing in support costs as part of our transformation programs, including contact center centralization, improving IT capabilities and training colleagues. This investment is offset by cost savings associated with closing several stores and implementing strong sourcing principles. The 14.0% increase over the first half of FY21 is mainly due to last year’s government support for £ 7.9million holidays and corporate rate relief from £ 16.5million over no holiday income and £ 7.9million in corporate rate relief in fiscal 22 first half. The leave income in the first half of fiscal 21 was then repaid in the second half of last year.

Autocentres

                        H1 FY22 H1 FY20 Change  H1 FY21 Change 
                        GBPm      GBPm      (%)     GBPm      (%) 
Revenue                 156.1   82.7    88.8%   114.7   36.1% 
Gross Profit            86.8    56.7    53.1%   69.5    24.9% 
Gross Margin            55.6%   68.6%   (18.9%) 60.6%   (8.2%) 
Operating Costs         (83.1)  (52.7)  57.7%   (64.8)  28.2% 
Underlying EBIT         3.7     4.0     (7.5)%  4.7     (21.3)% 
Non-underlying items    -       (0.2)           (0.3) 
EBIT                    3.7     3.8     (2.6)%  4.4     (15.9)% 
Underlying EBITDA       13.4    11.0    21.8%   13.0    3.1% 

Autocentres generated total revenue of £ 156.1million (S1 FY20: £ 82.7million), an increase of 88.8% over S1 FY20, with an increase in LFL over one year of 19.3% and LFL growth over two years of 15.5%.

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November 10, 2021 02:00 ET (07:00 GMT)


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