Interim Results
Halfords Group PLC
22 November 2007
22 November 2007
HALFORDS GROUP PLC ('HALFORDS')
CONTINUED GROWTH IN ALL KEY CATEGORIES AND TRADING IN LINE WITH EXPECTATIONS
Halfords, the UK's leading auto, leisure and cycling products retailer,
announces its interim results for the 26 weeks to 28 September 2007.
Financial Highlights
• Revenue £400.7m up 8.5% (2006: £369.2m)
• Like-for-like sales up 5.5%
• Operating profit £52.6m up 8.5% (2006: £48.5m)
• Profit before tax £47.6m up 16.4% (2006: £40.9m)
• Profit before tax and exceptional items £47.6m up 9.4% (2006: £43.5m)
• Basic earnings per share 15.3p up 20.5% (2006: 12.7p)
• Basic earnings per share before exceptional items 15.3p up 13.3%
(2006: 13.5p).
• Interim dividend 4.75p up 9.2% (2006: 4.35p)
Business Highlights
• Continued growth in all key categories
• Gross Profit at 50.9%, broadly flat year-on-year
• 10 new store openings during the period
• Bikehut and Czech Republic stores trading in line with management
expectations and further store openings remain on track
Commenting on the results, Ian McLeod, Chief Executive, said:
'Halfords continues to grow sales in all of its key categories, maintaining the
long-term momentum in the business. Our market-leading positions in leisure,
in-car technology and car maintenance, together with our high levels of service
and store opening programme continue to differentiate Halfords within the retail
sector. Trading in the seven weeks since the half-year end is in line with our
expectations and, whilst acknowledging a challenging retail environment, we
remain confident in our second half performance.'
Enquiries:
Halfords Group plc (www.halfordscompany.co.uk)
Tony Newbould, Investor Relations +44 (0)7753 809522 (on the day)
+44 (0)1527 513113 (thereafter)
Hogarth Partnership
Julian Walker, James Longfield +44 (0) 207 357 9477
Notes to Editors
Halfords
www.halfords.co.uk
Established in 1892 as F.W. Rushbrooke and subsequently renamed Halfords in
1907, the Company was floated on the London Stock Exchange in June 2004. The
Group employs in excess of 10,500 staff and sells 11,000 different product
lines, ranging from car parts and cycles through to the latest in-car
technology, alloy wheels, child seats, roof boxes and outdoor leisure and
camping equipment. Halfords' own brands include Ripspeed, for car enhancement,
Bikehut, for cycles and cycling accessories, including the Apollo and Carrera
brands and Urban Escape for its premium range of camping equipment. Operating
from 433 stores, including two stores in the Czech Republic, 17 smaller format,
neighbourhood stores and two standalone Bikehuts (located in Brighton and
Putney), Halfords offers a 'we fit' service for car parts, child seats,
satellite navigation and in-car entertainment systems, and a 'we repair' service
for cycles.
Cautionary Statement
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, and businesses of Halfords Group
plc. These statements and forecasts involve risk, uncertainty and assumptions
because they relate to events and depend upon circumstances that will occur in
the future. There are a number of factors which could cause actual results or
developments to differ materially from those expressed or implied by these
forward-looking statements. These forward-looking statements are made only as
at the date of this announcement. Nothing in this announcement should be
construed as a profit forecast. Except as required by law, Halfords Group plc
has no obligation to update the forward-looking statements or to correct any
inaccuracies therein.
Overview
This first six months of the year saw a solid trading performance with a
consistent level of underlying growth that has seen growth in all of the key
categories. Gross margin is broadly flat year-on-year and with cost growth
managed in line with sales, profit before tax and exceptional charges as a
percent of sales at 11.9% compares to 11.8% last year.
Summary of Group Results
Unaudited 26 weeks to
28 September 2007 29 September 2006 Change
%
Revenue (£m) 400.7 369.2 8.5%
Gross profit (£m) 204.0 188.4 8.3%
Operating profit (£m) 52.6 48.5 8.5%
Operating profit % 13.1% 13.1%
Profit before tax and exceptional items (£m) 47.6 43.5 9.4%
Exceptional finance costs1(£m) - (2.6)
Profit before tax (£m) 47.6 40.9 16.4%
Basic earnings per share before exceptional items 15.3 pence 13.5 pence 13.3%
Basic earnings per share 15.3 pence 12.7 pence 20.5%
Note: 1. The exceptional finance costs in the prior year are detailed in Note 5
to the Interim Report.
Financial Review
Income Statement
Revenue for 26 weeks to 28 September 2007 was £400.7m (2006: 369.2m) an increase
of 8.5% on the comparable period last year and representing like-for-like sales
increase of 5.5%.
Gross profit at £204.0m (2006: £188.4m) was up 8.3% and gross margin at 50.9% is
broadly flat when compared to the prior year (2006: 51.0%). This performance
reflects the group's continued margin management, the flow-through of Far East
sourcing benefits and sales improvements in higher margin categories.
Operating expenses as a per cent of sales at 37.8% (2006: 37.9%) was broadly in
line with last year and reflects an improvement in the selling and distribution
costs ratio, in part driven by the slowing down of rental inflation. Halfords
seeks to maintain a firm control of support costs in order to manage cost growth
in line with sales, while funding investment in both enhancing our store based
service proposition and growth initiatives. Operating costs within the first
half include the costs associated with opening our first store in Prague, Czech
Republic and the full cost of our Central European management team established
during the second quarter of last year.
Halfords continues to manage its store portfolio to maximise value, Landlord
contributions during the period totalled £1.6m, compared to £1.2m last year and
the group remains in line with the guidance previously given of a full year
contribution at a similar level to the previous financial year (52 weeks to 30
March 2007: £4.5m).
Net finance costs for the half-year were £5.0m. It should be noted that in last
year's comparative figure of £7.6m there were £2.6m of exceptional finance costs
in respect of expenses arising out of the debt re-financing exercise.
Taxation
The taxation charge is based upon an estimated effective tax rate of 29.4%
(2006: 30.1%) on profit for the 52-weeks to 28 March 2008. From April 2008, the
statutory corporation tax rate decreases to 28%.
Balance Sheet and Cash Flow
Total net debt at 28 September 2007 was £173.0m (30 March 2007: £180.0m) and
includes £12.4m (30 March 2007: £12.5m) in respect of the Head Office finance
lease.
The group continues to generate strong net cash flows from operations, which
were £59.4m for the 26 weeks to 28 September 2007 (2006: £60.7m).
Stock levels continue to be well managed. The year-on-year increase of 12.1%
reflects the underlying sales improvement of 8.5%, investment in 10 new stores
and targeted inventory increases to further increase availability in Halfords
core product areas. Stock turn remains in line with management expectation at
2.5 times (2006: 2.6 times).
Capital expenditure during the first half totalled £13.8m (2006: £10.8m) and the
group is forecast to spend approximately £30.0m for the full year (52 weeks to
30 March 2007: £23.9m). The major areas of expenditure during this period have
been £4.6m on new store openings, (2006: £5.2m), and £4.1m (2006: £1.9m) in
respect of the ongoing rollout of our new store systems.
Dividend and Share Buy back
The Board has increased the interim dividend by 9.2% to 4.75 pence per share
(2006: 4.35 pence per share). The dividend will be paid on 9 January 2008 to
shareholders on the register on 30 November 2007.
The share buy-back programme continues to progress. In the period from June
2006 to 28 September 2007 Halfords purchased 12.6m of its own shares at a
consideration of £43.7m, an average of 345.6 pence per share, with 3.5m shares
bought back at a consideration of £13.7m, during the 26 week period to 28
September 2007.
On 28 September 2007 the group announced that it had given an irrevocable
instruction to it's brokers to continue the buy back process during the close
period up to a maximum of £2.0m and this was duly completed on 9 November 2007.
Cumulatively, therefore, 13.1m shares have been bought back at a cost of £45.7m.
Halfords remains strongly cash generative. The Company is committed to both a
progressive dividend policy and continued investment in the growth of the
business, both through organic development and other business development
opportunities as they might arise.
Upon the completion of the current buy back programme, the Board intends to
maintain an efficient capital structure and retain financial flexibility. We
therefore intend, subject to market conditions, to continue to use share buy
backs as a flexible tool in balance sheet management by maintaining key
performance debt ratio indicators, consistent with optimising Halfords' balance
sheet and enhancing shareholder returns. These indicators, the basis for which
are detailed in Note 11 to the Interim Report, being lease adjusted net debt to
EBITDA and fixed charge cover.
Operating Review
Our year-on-year sales increase of 8.5%, particularly when set against equally
strong growth in the prior year, reflects our continuing focus on providing a
differentiated, well promoted, in-store offer supported by the unique service
and fitting proposition of our store based colleagues.
Our trading teams have continued to source and develop improved product ranges
to maintain sales momentum in each category, complemented by the promotion of a
series of compelling consumer offers communicated throughout the year via
national and specialist press as well as dedicated TV advertising. Once again
sales growth has been achieved in all of our three key categories.
Performance in Car Maintenance further demonstrates the resilient foundation
that this needs-driven product area provides our business. Our market leadership
and competitive advantage is clearly demonstrated through continued growth, the
continuation of our wide product range, strong availability and also our ability
to target new consumers through our growing Tradecard operation.
The Car Enhancement market remains vibrant, with Halfords now firmly established
as the UK's number one retailer of in-car technology products. The continued
migration of technology including digital music, DVD, mobile phone connectivity
and satellite navigation to the car provide a firm base for further growth. We
continually reinforce our leading position through range development, including
private label electronics, strong offers and our unique 'Set Up and Demo'
service.
In our Leisure category, the cycle market is enjoying a period of encouraging
growth, through a combination of leisure, environmental, fitness and commuting
needs. During the first six months, we introduced over 100 new models under the
Apollo or Carrera branding. Apollo is now the UK's leading cycle brand and the
product re-launch was timed to coincide with the Easter trading period when we
were able to benefit from the warmer weather compared to April last year.
Our exclusive premium range of Boardman cycles and cycle accessories, developed
in partnership with Chris Boardman OBE, is exceeding our expectations. Initial
sales are very encouraging and the range has benefited from positive reviews by
the specialist press.
Travel Solutions was re-merchandised, re-ranged and re-branded for the start of
the financial year. A Travel and Touring sub-shop was created to provide a
stronger identity to this part of our business, with encouraging results. A
full training programme was also undertaken, in order that colleagues could
respond to customer enquiries with confidence.
In Active Leisure, following the success of Halfords branded standard tent
packs, we introduced a range of premium own brand camping products under the
Urban Escape brand. Broader ranges, innovative packaging and effective
marketing all combined to produce a strong performance from the category.
Store Portfolio
Over the past two years we have developed a number of new store formats to
complement our core supermezzanine format aimed at targeting customers in
specific catchment areas. We remain focused on opening new stores across these
various formats.
During the 26 weeks to 28 September 2007 the group opened 10 new stores,
resulting in 433 stores trading at the half-year end. Of these new stores nine
were superstores, of which seven were in supermezzanine format and one was in
our smaller store 'neighbourhood' format, taking the total of these stores to
16.
Encouragingly, space from new stores continues to contribute positively to
overall sales growth, representing 3.0% (2006: 2.8%) of the first half sales
growth.
We remain committed to enhancing our market-leading position by the introduction
of new stores. We remain on target to open 20 new stores during the current
financial year and believe that there is the opportunity for approximately 120
additional Halfords stores across the UK and the Republic of Ireland.
Halfords.com
Performance from our internet offer continues to improve, with strong growth in
web-site visitors, conversion and sales. The website represents our largest '
store' and is consistently the most visited web-site in our retail segment.
With ongoing investment in our multi-channel proposition we continue to improve
the customer experience on our site. This includes the introduction of more
than 2,500 new product lines over the past year, further improvements to
web-site navigation and the introduction of a 'reserve on-line, collect in-store
' service before Christmas.
Stand-Alone Bikehut
Our Bikehut stand-alone concept was first introduced in November 2006. Building
upon our position as the UK's largest cycle retailer, the concept is clearly
differentiated, in terms of both range and environment from our superstore
offering and is proving appealing to the specialist consumer that it targets.
The results from our initial two pilot stores in Brighton and Putney provide us
with the confidence to increase the number of stores to at least six by the end
of the financial year, of which four will be opened by Christmas. We believe
there is the potential for at least 50 stand-alone Bikehut stores across the
country.
International Expansion
The extent of our progress within the international arena was best evidenced on
29 June 2007, when Halfords opened three stores on the same day in three
countries, trading in three currencies.
Within the Republic of Ireland consumer acceptance for our offer continues to be
extremely positive with new stores generating above average returns on
investment. We opened two further stores during the first half, taking the
total number of stores in Ireland to 14. We believe our smaller 'neighbourhood'
format is ideally suited to the smaller catchments in Ireland and envisage
opening our first neighbourhood store during the second half of the financial
year.
Our first store in the Czech Republic opened, in Prague, in June 2007, and a
second opened on 14 November 2007 also in Prague. A further store will open,
outside Prague, prior to Christmas. Another three stores across the country will
open in 2008 to achieve our extended pilot scale of six stores. Initial trading
is positive, with strong acceptance of our proposition that introduces Halfords
market leading product range and service complemented by a full garage-servicing
offer to the Czech consumer.
Service Proposition
Earlier this year we re-branded our service proposition to more clearly
communicate the wide range of services that we provide. 'we fit' has been
established as an integral element within our advertising, which has helped to
underpin it's growing resonance with the customer and has driven a 10%
year-on-year growth in the number of jobs fitted, which now stands at 1.3m.
Second Half Outlook and Current Trading
With like-for-like sales increasing by 5.5% we are encouraged by Halfords
trading performance during the first 26 weeks of this financial year. Continued
growth across each of our core product categories provides the Group with
further confidence in its trading prospects for the second half.
The innovation and development within our car electronics and accessories ranges
has provided us with an opportunity to capitalise further on the Christmas
market, complimenting the already strong performance of our children's bike
offer during that period. However, our sales growth is not critically dependent
on this quarter, as, typically, sales in each half of the year are broadly the
same.
In the seven weeks since 28 September 2007 Halfords has continued to trade in
line with expectations and we remain on track to be trading from three stores in
the Czech Republic and four Bikehuts by the end of the calendar year.
Principal risks and uncertainties
The Board considers risk assessment, identification of mitigating actions and
internal control to be fundamental to achieving Halfords' strategic corporate
objectives and in the Annual Report 2007 it set out what it considers to be the
principal commercial and financial risks to achieving the group's objectives.
The main areas of potential risk and uncertainty in the balance of the financial
year are those identified below:
Economic and market conditions
The economy is a major influence on consumer spending. Trends in employment,
inflation, taxation, consumer debt levels and interest rates impact consumer
expenditure in discretionary areas. Whilst many of the products that Halfords
sell are non-discretionary in their nature some of these products, such as
children's cycles, face competition from alternative products (such as games
consoles). Halfords reflects the latest independently sourced estimates in its
internal plans.
Competition
The retail industry is highly competitive. The group competes with a wide
variety of retailers of varying sizes and faces competition from UK retailers,
as well as international operators. Failure to compete with competitors on areas
including price, product range, quality and service could have an adverse effect
on the group's financial results.
We aim to have a broad appeal in price, range and store format in a way that
allows us to compete in different markets and to use service as a point of
differentiation in each market segment.
HALFORDS GROUP PLC
Consolidated Income Statement
26 weeks to 28 September 2007
26 weeks to 26 weeks to 52 weeks to
28 September 2007 29 September 2006 30 March 2007
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 400.7 369.2 744.0
Cost of sales (196.7) (180.8) (367.9)
Gross profit 204.0 188.4 376.1
Operating expenses (151.4) (139.9) (282.6)
Operating profit 4 52.6 48.5 93.5
Finance costs 5 (6.4) (8.3) (14.0)
Finance income 5 1.4 0.7 1.4
Profit before tax 47.6 40.9 80.9
Taxation 6 (14.0) (12.3) (23.5)
Profit attributable to equity shareholders 33.6 28.6 57.4
Earnings per share
Basic 8 15.3p 12.7p 25.8p
Diluted 8 15.3p 12.7p 25.6p
A final dividend of 9.50 pence per share for the 52 weeks to 30 March 2007 (8.75
pence per share for the 52 weeks to 31 March 2006) was paid on 1 August 2007.
The directors have approved an interim dividend of 4.75 pence per share in
respect of the 26 weeks to 28 September 2007 (4.35 pence per share for the 26
weeks to 29 September 2006).
HALFORDS GROUP PLC
Consolidated Balance Sheet
As at 28 September 2007
28 September 2007 29 September 2006 30 March 2007
Unaudited Unaudited Audited
Notes £m £m £m
Assets
Non-current assets
Goodwill 9 253.1 253.1 253.1
Other intangible assets 9 5.1 5.0 4.7
Property, plant and equipment 9 110.5 105.2 107.5
Derivative financial
instruments 1.2 - 1.3
369.9 363.3 366.6
Current assets
Inventories 154.4 137.7 141.6
Trade and other receivables 38.0 32.8 32.6
Cash and cash equivalents 69.3 45.2 24.8
261.7 215.7 199.0
Total assets 631.6 579.0 565.6
Liabilities
Current liabilities
Borrowings (50.8) (34.7) (13.3)
Derivative financial
instruments (2.8) (2.0) (2.3)
Trade and other payables (129.7) (113.6) (113.5)
Current tax liabilities (14.4) (13.3) (13.4)
Provisions (1.7) (1.5) (1.6)
(199.4) (165.1) (144.1)
Net current assets 62.3 50.6 54.9
Non-current liabilities
Borrowings (191.5) (191.7) (191.5)
Derivative financial
instruments (0.2) - (0.1)
Deferred tax liabilities (0.3) (2.8) (0.9)
Accruals and deferred income (26.9) (24.5) (25.9)
(218.9) (219.0) (218.4)
Total liabilities (418.3) (384.1) (362.5)
Net assets 213.3 194.9 203.1
Shareholders' equity
Share capital 12 2.2 2.2 2.2
Share premium account 12 145.5 133.2 133.2
Share buy back reserve (2.0) - -
Capital redemption reserve 0.1 0.1 0.1
Retained earnings 67.5 59.4 67.6
Total equity 213.3 194.9 203.1
HALFORDS GROUP PLC
Consolidated Statement of Changes in Shareholders' Equity
26 weeks to 28 September 2007
Retained
Share Share Capital earnings
Share Premium buy back redemption (hedging Retained Total
capital account reserve reserve reserve) earnings equity
£m £m £m £m £m £m £m
Balance at 31 March 2006 2.3 133.2 - - (0.8) 67.8 202.5
Profit for the period - - - - - 28.6 28.6
Purchase of own shares (0.1) - - 0.1 - (16.0) (16.0)
Cash flow hedges (net of
tax):
Fair value losses in the
period - - - - (2.9) - (2.9)
Transfers to inventory - - - - 1.2 - 1.2
Transfers to net profit - - - - 0.5 - 0.5
Employee share options - - - - - 0.7 0.7
Deferred tax on employee
share options - - - - - 0.1 0.1
Dividends - - - - - (19.8) (19.8)
Balance at 29 September 2006 2.2 133.2 - 0.1 (2.0) 61.4 194.9
Retained
Share Share Capital earnings
Share Premium buy back redemption (hedging Retained Total
capital account reserve reserve reserve) earnings equity
£m £m £m £m £m £m £m
Balance at 31 March 2006 2.3 133.2 - - (0.8) 67.8 202.5
Profit for the period - - - - - 57.4 57.4
Purchase of own shares (0.1) - - 0.1 - (30.0) (30.0)
Cash flow hedges (net of
tax):
Fair value losses in the
period - - - - (5.6) - (5.6)
Transfers to inventory - - - - 3.5 - 3.5
Transfers to net profit - - - - 2.3 - 2.3
Employee share options - - - - - 2.1 2.1
Deferred tax on employee
share options - - - - - 0.4 0.4
Dividends - - - - - (29.5) (29.5)
Balance at 30 March 2007 2.2 133.2 - 0.1 (0.6) 68.2 203.1
Profit for the period - - - - - 33.6 33.6
Purchase of own shares - - (2.0) - - (13.7) (15.7)
Shares issued - 12.3 - - - - 12.3
Cash flow hedges (net of
tax):
Fair value losses in the
period - - - - (2.1) - (2.1)
Transfers to inventory - - - - 2.0 - 2.0
Transfers to net profit - - - - 0.3 - 0.3
Employee share options - - - - - 0.6 0.6
Tax on employee share
options - - - - - 0.2 0.2
Dividends - - - - - (21.0) (21.0)
Balance at 28 September 2007 2.2 145.5 (2.0) 0.1 (0.4) 67.9 213.3
HALFORDS GROUP PLC
Consolidated Cash Flow Statement
26 weeks to 28 September 2007
26 weeks to 26 weeks to 52 weeks to
28 September 2007 29 September 2006 30 March 2007
Unaudited Unaudited Audited
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations 10 59.4 60.7 112.6
Finance income received 1.4 0.6 1.0
Finance costs paid (6.0) (6.6) (9.3)
Gain on forward foreign exchange contracts - 0.1 -
Taxation paid (13.4) (12.7) (25.4)
Net cash from operating activities 41.4 42.1 78.9
Cash flows from investing activities
Purchase of intangible assets (0.3) (0.3) (0.7)
Purchase of property, plant and equipment (11.6) (11.7) (23.2)
Net cash used in investing activities (11.9) (12.0) (23.9)
Cash flows from financing activities
Net proceeds from issue of ordinary shares 12.3 - -
Purchase of own shares (13.7) (16.0) (30.0)
Repayment of bank borrowings - (144.0) (144.0)
Proceeds from new bank borrowings - 180.0 180.0
Issue costs of new bank borrowings - (1.0) (1.0)
Finance lease principal payments (0.1) (0.1) (0.3)
Dividends paid to shareholders (21.0) (19.8) (29.5)
Net cash used in financing activities (22.5) (0.9) (24.8)
Net increase in cash and bank overdrafts 11 7.0 29.2 30.2
Cash and bank overdrafts at the beginning of the 11 11.8 (18.4) (18.4)
period
Cash and bank overdrafts at the end of the period 11 18.8 10.8 11.8
HALFORDS GROUP PLC
Notes to Interim Report
26 weeks to 28 September 2007
1. General Information
Halfords Group plc (the 'Company') together with it's subsidiary undertakings
(the 'Group') are retailers of auto, leisure and cycling products.
The Company is a limited liability company incorporated, domiciled and
registered in England and Wales. Its registered office is Icknield Street Drive,
Washford West, Redditch, Worcestershire, B98 ODE.
The Company is listed on the London Stock Exchange.
The condensed interim financial information was approved on 22 November 2007.
2. Basis of Preparation
The condensed interim financial information for the 26 weeks to 28 September
2007 has been prepared in accordance with the Disclosure and Transparency Rules
('DTR') of the Financial Services Authority and with IAS 34 'Interim financial
reporting' as adopted by the European Union. The condensed interim financial
information should be read in conjunction with the 2007 Annual Reports and
Accounts which have been prepared in accordance with IFRSs as adopted by the
European Union.
This condensed interim financial information does not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The
comparative figures for the 52 weeks to 30 March 2007 are derived from the
statutory accounts filed with the Registrar of Companies. The audit report on
the 2007 Annual Reports and Accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain a statement under section 237
of the Companies Act 1985.
The accounting policies set out in the 2007 Annual Reports and Accounts, which
are published on the Halfords Group website (www.halfordscompany.com), have been
consistently applied to the periods presented. The following changes to
accounting standards and interpretations are expected to impact on the Group's
accounting policies as set out below:
IFRS 7 'Financial instruments disclosures' is effective for the 52 weeks to 28
March 2008. As this interim report contains only condensed financial
statements, full IFRS 7 disclosures are not required at this stage. The full
IFRS 7 disclosures including the sensitivity analysis will be given in the 2008
Annual Reports and Accounts.
IFRS 8 'Operating segments' effective for accounting periods beginning on or
after 1 January 2010, will be applicable for the 52 weeks to 1 April 2011.
These amendments to disclosure requirements will have no effect on the Group's
reported results.
3. Segmental Reporting
The Group has one main business segment, which is retail, and one main
geographical segment, which is the United Kingdom. The business segment
reporting format reflects the Group's management and internal reporting
structure.
4. Operating Profit
The following item has been credited to the operating profit during the 26 weeks
to 28 September 2007:
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
£m £m £m
Landlord contributions (1.6) (1.2) (4.5)
5. Net Finance Costs
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
£m £m £m
Finance costs:
Bank borrowings (5.4) (4.9) (10.0)
Amortisation of issue costs on loans (0.1) (0.3) (0.3)
Commitment and guarantee fees (0.1) (0.1) (0.2)
Cost of forward foreign exchange contracts (0.4) - -
Interest payable on finance leases (0.4) (0.4) (0.9)
Finance costs before exceptional finance costs (6.4) (5.7) (11.4)
Exceptional finance costs:
Accelerated amortisation of issue costs on loansi - (1.5) (1.5)
Swap close out costsii - (1.1) (1.1)
- (2.6) (2.6)
Finance costs (6.4) (8.3) (14.0)
Finance income:
Bank and similar income 1.4 0.6 1.4
Gain on forward exchange contracts - 0.1 -
Finance income 1.4 0.7 1.4
Net finance costs (5.0) (7.6) (12.6)
Exceptional finance costs:
i. On 14 July 2006, the Group replaced its existing borrowings with a
five-year term loan of £180.0m and a revolving credit facility of £120.0m. As a
consequence, a charge of £1.5m was made in respect of the accelerated
amortisation of the issue costs associated with the original borrowings.
The term loan attracts interest rate of LIBOR plus a fixed margin of 0.45%, and
the rate is set bi-annually. An interest rate swap is in place for £70.0m and
mirrors the bi-annual rate setting of the term loan facility. The revolving
credit facility permits further borrowings to a maximum of £120.0m. This
facility matures on 13 July 2011 and drawings under the facility attract
interest at LIBOR plus 0.45%-0.50% dependant upon covenant fulfilment.
ii. On 29 September 2006, the Group closed out its existing interest rate
swap at a cost of £1.1m. On the same date, the interest on the £180.0m term
loan was fixed for a three-month period. The Group entered into a new interest
rate swap for £70.0m commencing on 29 December 2006 for the length of the new
facility.
6. Taxation
The taxation charge in the 26 weeks to 28 September 2007 is based on an
estimated effective tax rate of 29.4% (2006: 30.1%) on profit before tax for the
full year.
The underlying tax charge on trading is 31.4% (2006: 31.4%), principally due to
the non-deductibility of depreciation charged on capital expenditure in respect
of mezzanine floors and other store infrastructure. The lower tax rate of 29.4%
in this financial period is due to the financing structure put in place, as part
of the debt re-finance on 14 July 2006.
7. Dividends
During the period the group paid a final dividend of 9.5 pence per share in
respect of the 52 weeks to 30 March 2007 (8.75 pence per share for the 52 weeks
to 31 March 2006), which absorbed £21.0m of shareholder funds (2006: £19.8m).
The directors have approved an interim dividend of 4.75 pence per share for the
26 weeks to 28 September 2007 (4.35 pence per share for the 26 weeks to 29
September 2006), which equates to £10.5m (2006: £9.7m) and will be paid on 9
January 2008 to those shareholders on the share register at the close of
business on 30 November 2007.
8. Earnings Per Share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue
during the period. The weighted average number of shares excludes shares held by
the Employee Benefit Trust and has been adjusted for the issue/repurchase of
shares during the period.
For diluted earnings per share the weighted average number of ordinary shares in
issue is adjusted to assume conversion of all dilutive potential ordinary
shares. These represent share options granted to employees where the exercise
price is less than the average market price of the Company's ordinary shares
during the 26 weeks to 28 September 2007.
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
Number Number Number
m m m
Weighted average number of shares in issue 220.2 226.2 223.8
Less: shares held by the Employee Benefit Trust (0.9) (0.9) (0.9)
Weighted average number of shares for calculating 219.3 225.3 222.9
basic earnings per share
Weighted average number of dilutive shares options 0.1 0.1 0.9
Total number of shares for calculating diluted 219.4 225.4 223.8
earnings per share
The alternative measure of earnings per share is provided because it reflects
the Group's underlying performance by excluding the effect of exceptional items.
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
£m £m £m
Basic earnings attributable to equity shareholders 33.6 28.6 57.4
Exceptional items:
Finance costs (see note 5) - 2.6 2.6
Tax on exceptional finance costs - (0.8) (0.8)
Underlying earnings before exceptional items 33.6 30.4 59.2
8. Earnings Per Share (Continued)
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
Basic earnings per ordinary share 15.3p 12.7p 25.8p
Diluted earnings per ordinary share 15.3p 12.7p 25.6p
Basic earnings per ordinary share before 15.3p 13.5p 26.6p
exceptional items
Diluted earnings per ordinary share before 15.3p 13.5p 26.5p
exceptional items
9. Capital expenditure - Tangible and Intangible Assets
Unaudited
£m
Net book value at 31 March 2006 362.9
Additions 10.8
Disposals (0.1)
Depreciation, amortisation and impairments and other movements (10.3)
Net book value at 29 September 2006 363.3
Unaudited
£m
Net book value at 30 March 2007 365.3
Additions 13.8
Disposals (0.3)
Depreciation, amortisation and impairments and other movements (10.1)
Net book value at 28 September 2007 368.7
The Group is expected to spend approximately £30.0m for the 52 weeks to 28 March
2008. At the 28 September 2007 the Group had capital expenditure, contracted
but not provided of £2.0m (2006: £1.0m).
10. Cash Generated from Operations
26 weeks to 26 weeks to 52 weeks to
28 September 29 September 30 March
2007 2006 2007
Unaudited Unaudited Audited
£m £m £m
Operating profit 52.6 48.5 93.5
Depreciation - property, plant and equipment 9.2 9.4 19.2
Amortisation - intangible assets 0.9 0.9 1.7
Loss on sale of property, plant and equipment 0.3 0.1 0.2
Share option scheme charges 0.6 0.7 2.1
Fair value loss on derivative financial instruments 0.5 - 0.4
Increase in inventories (12.8) (10.5) (14.4)
Increase in trade and other receivables (5.4) (3.4) (2.8)
Increase in trade other payables 13.4 14.7 12.3
Increase in provisions 0.1 0.3 0.4
Cash generated from operations 59.4 60.7 112.6
11. Analysis of Movements in the Group's Net Debt in the Period
At At
31 March Other non 29 September
2006 Cash flow cash changes 2006
Audited Unaudited Unaudited Unaudited
£m £m £m £m
Cash in hand and at bank 1.5 43.7 - 45.2
Bank overdraft (19.9) (14.5) - (34.4)
(18.4) 29.2 - 10.8
Debt due within one year (43.3) 44.0 (0.7) -
Debt due after one year (99.0) (79.0) (1.1) (179.1)
Total net debt excluding finance leases (160.7) (5.8) (1.8) (168.3)
Finance leases due within one year (0.3) 0.1 (0.1) (0.3)
Finance leases due after one year (12.7) - 0.1 (12.6)
Total finance leases (13.0) 0.1 - (12.9)
Total net debt (173.7) (5.7) (1.8) (181.2)
At At
30 March Other non 28 September
2007 Cash flow cash changes 2007
Audited Unaudited Unaudited Unaudited
£m £m £m £m
Cash in hand and at bank 24.8 44.5 - 69.3
Bank overdraft (13.0) (37.5) - (50.5)
11.8 7.0 - 18.8
Debt due after one year (179.1) - (0.1) (179.2)
Total net debt excluding finance leases (167.3) 7.0 (0.1) (160.4)
Finance leases due within one year (0.3) 0.1 (0.1) (0.3)
Finance leases due after one year (12.4) - 0.1 (12.3)
Total finance leases (12.7) 0.1 - (12.6)
Total net debt (180.0) 7.1 (0.1) (173.0)
Non-cash changes relate to the finance costs of £0.1m (2006: £1.8m) in relation
to the amortisation of capitalised debt issue costs.
The company monitors net debt by using the following debt metrics:
i. Lease adjusted net debt: being net debt and leases
capitalised at eight times, as a multiple of EBITDA plus operating lease
charges.
ii. Fixed charge cover: being EBITDA plus operating lease
charges as a multiple of interest and operating lease charges.
12. Share Capital
Number of Share Share
shares capital premium account
m £m £m
As at 31 March 2006 228.0 2.3 133.2
Purchase of own shares (5.2) (0.1) -
As at 29 September 2006 222.8 2.2 133.2
Number of Share Share
shares capital premium
m £m account
£m
As at 30 March 2007 219.0 2.2 133.2
Shares issued - employee options 4.7 - 12.3
Purchase of own shares (3.5) - -
As at 28 September 2007 220.2 2.2 145.5
During the 26 weeks to 28 September 2007, options exercised by employees
resulted in 4.7m ordinary shares being issued for a total consideration of
£12.3m.
At 28 September 2007, the Company was committed to an agreement to buy back
shares in the closed period. The agreement was capped at £2m. A reserve has
been recognised to account for this obligation.
14. Seasonality
In general, the group's results are not seasonal with revenue in the first half
broadly similar to that of the second, however sales of certain products tend to
fluctuate by season. For example, sales of children's cycles peak in the
Christmas season and sales of adult cycles tend to peak in the summer. It
should be noted that in the 52 weeks to 28 March 2008 there are two Easter
periods.
15. Related Party Transactions
There were no material related party transactions during the 26 weeks to 28
September 2007.
HALFORDS GROUP PLC
Statement of Directors' Responsibilities
26 weeks to 28 September 2007
The directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union and that the
interim management information herein includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
The directors of Halfords Group plc are listed in the 2007 Annual Reports and
Accounts.
By order of the Board
Nick Wharton, Finance Director Ian McLeod, Chief Executive
HALFORDS GROUP PLC
Auditors' Review Report
26 weeks to 28 September 2007
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks to 28 September
2007, which comprises the consolidated income statement, consolidated balance
sheet, consolidated statement of changes in shareholders' equity, consolidated
cash flow statement and related notes. We have read the other information
contained in the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the company for the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the 26 weeks to 28 September 2007 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
22 November 2007
Notes:
a) The maintenance and integrity of the Halfords Group plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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