Directors' Report

The Directors present their report and the audited financial statements of Halfords Group plc (the "Company") together with its subsidiary undertakings (the "Group") for the period ended 30 March 2012.

Principal Activities

Halfords Group plc is a public limited company incorporated in England with registered number 04457314, and its registered office is at Icknield Street Drive, Washford West, Redditch, Worcestershire, B98 0DE.

The principal activities of the Group are: the retailing of automotive, leisure and cycling products, from 467 retail stores (2011: 466); and Car Servicing and repair from 260 autocentres (2010: 240). The principal activity of the Company is that of a holding company.

Business Review

The Chairman's Statement, and the Business Review, including the Finance Director's Report, provide a review of the business and progress against Key Performance Indicators ("KPIs") during the year, descriptions of possible future developments, and the principal risks and uncertainties facing the Group, and form part of this Directors' Report. Environmental considerations are reviewed within the Corporate Responsibility Report which also forms part of this Directors' Report.

Corporate Governance

The Corporate Governance Report forms part of this Directors' Report.

Profits and Dividends

The Group's results for the year are set out in the Consolidated Income Statement.

The profit before tax on ordinary activities was £94.1m (2011: £118.1m) and the profit after tax amounted to £68.4m (2011: £85.5m).

The Directors propose that a final dividend of 14.0 pence per ordinary share be paid on 3 August 2012 to shareholders whose names are on the register of members at the close of business on 6 July 2012. This payment, together with the interim dividend of 8.0 pence per ordinary share paid on 27 January 2012, makes a total for the year of 22.0 pence per ordinary share. The total final dividend payable to shareholders for the year is estimated to be £27.9m. Computershare Nominees (Channel Islands) Limited, formerly Lloyds TSB Offshore Trust Limited, trustee of the Halfords Employee Share Trust, has waived its entitlement to dividends.

Performance Monitoring

The delivery of the Group's strategic objectives is monitored by the Board through KPIs and the periodic review of various aspects of the Group's operations. The Board considers the KPIs listed are appropriate measures for the delivery of the strategy of the Group and its two divisions — Retail and Autocentres.

Donations

During the year the Group contributed £50,000 (2011: £73,000) to charities in the UK, including donations to BEN, a charity supporting individuals and families linked to the motor industry and associated trades.

The Group's policy is not to make any donations for political purposes. However, the Companies Act 2006 defines the term "donations" very widely and, as a result, certain expenses legitimately incurred as part of the process of talking to Government at all levels and making the Group's position known are now reportable. Although during the year no such expenditure or political donations were made, resolutions were passed at the 2011 Annual General Meeting ("AGM") that provided for limited authority for such expenditure, such authority remaining valid until the earlier of 2 October 2012 or the conclusion of the AGM to be held in 2012, and as such the Company will be asking for this limited authority to be renewed at the AGM to be held on 31 July 2012.

Colleagues

The Board is committed to high standards of customer care and service provision across the business and recognises that the involvement of every colleague in this commitment is critical. In furtherance of this, the Group has established a framework of colleague communications regarding business performance. The Board's ongoing commitment to colleagues' engagement and development is reinforced via training initiatives across the business. Colleague share ownership, facilitated via the availability of a Sharesave Scheme, is encouraged to further strengthen colleagues' participation in the development of the Group's business and aligns our colleagues' interests with those of our shareholders.

The Group is dedicated to the principle of equal opportunity in employment and ensures that no applicant or colleague receives less favourable treatment on grounds such as gender, marital status, race, ethnic origin, religion, disability, sexual orientation, or age, or is disadvantaged by conditions or requirements which cannot be shown to be justified. Fair and equitable employment policies are applied which seek to promote entry into, and progression within, the Group. The basis for all appointments is personal ability and competency relevant to the specific job criteria.

Full and fair consideration is given to employment applications by disabled persons wherever suitable opportunities exist, having regard to their particular aptitudes and abilities. Training and career development support is provided where appropriate. Should a colleague become disabled efforts are made to ensure their continued employment with the Group and retraining provided if necessary.

All Retail and Autocentre colleagues have been notified of the whistle-blowing policy and associated procedure which enables them to report any concerns on matters affecting the Group or their employment, without fear of recrimination. This reduces the risk of things going wrong or of malpractice occurring and remaining unreported. In addition, the Group takes a zero-tolerance approach to matters of discrimination, harassment and bullying in all aspects of its business operations, whether in relation to gender, race, national origin, disability, age, religion, sexual orientation or similar. Appropriate policies and procedures are in place for reporting and dealing with such matters.

Directors

The following persons were Directors of the Company during the period ended 30 March 2012 and at the date of this Annual Report:

Dennis Millard

David Wild

Paul McClenaghan

Andrew Findlay

David Adams

Claudia Arney

Keith Harris

Bill Ronald

In accordance with the Company's Articles of Association and the UK Corporate Governance Code guidelines, all those persons holding positions as Directors of the Company on 30 March 2012 will offer themselves for re-election at the AGM on 31 July 2012.

Directors' Interests

The Directors' interests in shares and options over shares in the Company are shown in the Directors' Remuneration Report.

In line with the requirements of the Companies Act 2006, each Director has notified the Company of any situation in which he or she has, or could have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict). These interests were considered and approved by the Board in accordance with the Company's Articles of Association and each Director informed of the authorisation and the terms on which it was given.

Directors' Indemnities

During the year the Company maintained liability insurance for its Directors and officers. The Directors of the Company, and the Directors of each of the Company's subsidiaries, have the benefit of an indemnity provision in the Company's Articles of Association. The indemnity provision, which is a qualifying third-party indemnity provision as defined by section 236 of the Companies Act 2006, has been in force throughout the year.

Directors' Responsibilities

The Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements can be found here.

Disclosure of Information to Auditors

The Directors of the Group have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any information needed by the Group's Auditors in connection with preparing their report and to establish that the Auditors are aware of that information and so far as the Directors are aware there is no such information of which the Group's Auditors are unaware. The Directors are responsible for maintaining the integrity of financial information which includes the Annual Report, together with other financial statements, presentations and announcements on the Company's Corporate and IR website. Legislation in the UK concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Supplier Payment Policy

The Group does not follow any formal code or standard on payment practice, but agrees terms and conditions for its business transactions when orders for goods and services are placed, and includes the relevant terms in contracts, where appropriate. These arrangements are adhered to when making payments, subject to the terms and conditions being met by suppliers. The number of trade creditor days outstanding at the period end for the Group was 59 days (2011: 59 days). The Company is a holding company and had no trade creditors at the end of the period ended 30 March 2012.

Contractual or Other Arrangements

The Directors consider that there are no contractual or other arrangements, such as those with major suppliers, which are likely to influence, directly or indirectly, the performance of the business and its value.

Financial Instruments

The financial risk management objectives and policies of the Company including interest rate, currency and credit risk are highlighted in note 19 of the Company's Financial Statements.

Major Shareholders

At 31 March 2012, the Company's register of substantial shareholdings showed the following interests in three per cent or more of the Company's issued ordinary shares:

Holder Number of
shares
% of Issued
share capital
Capital Research Global Investors 16,947,573 8.50
Artemis Fund Managers 10,746,755 5.39
Invesco Trimark 7,696,192 3.86
Legal & General Investment Management 7,117,981 3.57
M & G Investments 7,775,945 3.90

The Takeover Directive

All ordinary shares rank equally with respect to voting rights and the rights to receive dividends. Shares acquired through Company share schemes and plans rank pari passu with the shares in issue and have no special rights.

The holders of ordinary shares are entitled to receive the Company's Annual Report and Financial Statements; to attend and speak at general meetings of the Company; to appoint proxies; and to exercise voting rights.

There are no restrictions on transfer or limitations on the holding of any class of shares and no requirements for prior approval of any transfers. None of the shares carry any special rights with regard to control of the Company.

There are no known arrangements under which the financial rights are held by a person other than the holder of the shares and no known agreements on restrictions on share transfers or on voting rights.

The rules about the appointment and replacement of Directors are contained in the Company's Articles of Association. In accordance with the Company's Articles of Association and the UK Corporate Governance Code, all Directors of the Company stand for re-election on an annual basis.

Changes to the Company's Articles of Association must be approved by the shareholders in accordance with the legislation in force from time to time.

The Company does not have agreements with any Director or employee that would provide compensation for loss of office or employment resulting from a takeover except that provisions of the Company's share schemes and plan may cause options and awards granted to Directors and employees under such schemes and plans to vest on a takeover.

The Company has term and revolving credit facilities and under the terms of these facilities, the Company is required, in the event of a change of control, to give notification to the facility agent and if so required by the majority lenders the facilities may be cancelled.

Authority to Purchase Shares

At the 2011 AGM, shareholders approved a special resolution authorising the Company to purchase a maximum of 20,583,992 shares, representing 10% of the Company's issued share capital at 22 June 2011, such authority expiring at the conclusion of the AGM to be held in 2012. The Directors intend to optimise the Group's balance sheet to enhance shareholder returns and on 7 April 2011 commenced a £75m share buyback programme. In the period ended 30 March 2012, the Company purchased 18,084,133 shares as part of this buyback programme (2011: Nil), representing a nominal value of £180,841 (2011: £Nil), representing 9.0% of the Company's issued share capital as at 30 March 2012. The aggregate consideration (excluding stamp duty) paid for its shares was £62.3m.

Auditors

At the 2011 AGM, KPMG Audit Plc was appointed as the Company's Auditors. KPMG Audit Plc has indicated its willingness to accept reappointment as Auditors of the Company. A resolution proposing its reappointment is contained in the Notice of the AGM and will be put to shareholders at the meeting.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Finance Director's Report. In addition, note 19 to the Group Financial Statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

With effect from 5 November 2010 the Group secured a four-year £300m revolving credit facility (extendable by a further year) and at 30 March 2012 the Group had undrawn borrowing facilities of £160m (1 April 2011: £211m). The Group's previous and current committed borrowing facilities contain certain financial covenants, which have been met throughout the period.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its borrowing facilities and covenants for the foreseeable future. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the uncertain economic outlook.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, hence they continue to adopt the going concern basis of accounting in preparing the Financial Statements.

Annual General Meeting

The AGM will be held at the Hyatt Regency Hotel, Bridge Road, Birmingham, B1 2JZ. The notice of the AGM and explanatory notes regarding the special business to be put to the meeting will be set out in a separate circular to shareholders.

By order of the Board

Alex Henderson
Company Secretary
30 May 2012

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