Chairman's Statement

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"The key to the success of Halfords is, and will continue to be, our service ethic and our service offerings backed up by the very best product ranges."

Dennis Millard

Chairman

This has been a challenging year for the UK consumer and Halfords was not immune to this difficult trading environment. Our customers have tightened their purse strings in response to increased taxes, an uncertain employment landscape and a lack of confidence in the face of recessionary conditions for much of the year. Our automotive customers were particularly hard hit by continued rises in fuel prices to unprecedented levels and by further increases in motor insurance which, in turn, was reflected by a decrease in miles driven in the UK. There were, however, some bright spots and we made good progress in our key growth areas, Car Maintenance parts fitting, Autocentres and Cycling, where the market continued to grow as more people recognised both the pleasure and beneficial health aspects of cycling.

Against this backdrop, Group revenue declined by 0.8% with Retail down 2.3%, partly offset by strong growth from Autocentres where revenue grew by 12.9%. An adverse mix effect and input cost pressures for Retail and an increase in lower margin tyre sales by Autocentres resulted in an overall 100 basis point decrease in the Group's gross margin. Our Retail cost base was closely managed but upward pressure on occupation, staffing and support costs, albeit mitigated by lower warehouse and distribution costs, resulted in a 3.6% rise in operating costs, whereas those of Autocentres rose in line with revenue growth. As a result, Group underlying profit before tax was down 26.6% to £92.2m.

A pleasing feature of the year was the Group's continued robust cash flow performance with free cash flow, before dividends and capital transactions, of £70.4m being generated. This enabled the Board to recommend an unchanged final dividend of 14.0 pence per share which would amount to 22.0 pence for the year, 1.53 times covered by earnings per share of 33.7 pence and 1.6 times by free cash flow. In addition, a share buyback programme was initiated in April 2011 with £62.3m being outlaid in the period. In total, £106.5m was returned to shareholders in the period and, with a Net Debt:EBITDA ratio of 1.1 at 30 March 2012, the Group's financial position remains sound.

During the year, management embarked upon a deep and wide-ranging review of the business, its strengths, weaknesses, opportunities and threats. The Board has been an integral part of this process; contributing, challenging and supporting the output. The resultant vision for Halfords to "Help and Inspire our Customers with their Life on the Move" is underpinned by three pillars of the strategy:

  • the Friend of the Motorist
  • the Best Cycle Shop in Town
  • the Starting Point for Great Getaways

The underlying shift in emphasis of the strategy is recognition of the changes in customer preferences and the opportunities it presents for Halfords. The strategy plays to the strengths of Halfords, recognises and addresses the opportunities and challenges and underscores the uniqueness of the Group's range of products and services, its heritage and strong brand. Importantly, it sets out a clear direction of travel for all of our stakeholders. The strategy will seek to accelerate the transition of Halfords from a "traditional retailer to a contemporary provider of products and services".

Targeted investments in the key enablers of the strategy — our Retail store and Autocentre portfolio, IT and operating systems, web offerings, marketing and, most importantly, in our people — have been and are being mapped out and will commence in the year ahead. However, the transition will unfold more fully over the years ahead to ensure that we have a business that is fit for purpose for many, many years to come.

The backbone of the business and the key to the success of Halfords is, and will continue to be, our service ethic and our service offerings, backed by the very best product ranges. We will be relentless in our pursuit of service excellence and the mantras "Helpful" and "Trust". Without this, our strategy and customer proposition will not resonate with our customers. Management will strive to ensure that every member of the Halfords Group is attuned to this message. I am sure that the 12,000 colleagues in our Retail and Autocentres businesses and Head Office will rise to the challenge. In this regard, the Board thanks them for their dedication in this difficult trading year and is confident that they will continue to focus on delivery of the very best products and services to our customers.

This year, our Chief Executive, David Wild, set out to build a management team of contemporary skills and experience that would be best suited to face the challenges ahead. He has succeeded in doing so and the Board would like to thank David and his team for managing a difficult trading environment with some skill whilst dedicating much time and effort to crafting the strategy and plans for the future. Lastly, I would like to thank my Board colleagues for their support and for their passion to help Halfords achieve the very best for its shareholders.

Since the beginning of the year, economic conditions have remained difficult and the uncertain and worrying situation in the Eurozone has cast a cloud over the UK economy. In addition, the record rains in April and early May have dampened the normal early spring spending on Leisure products which has affected our business. Nevertheless, we believe that our colleagues will be able to meet the inevitable challenges in the year ahead and that the execution of our strategy means Halfords is in good stead to grow the business in the years thereafter.

Dennis Millard
Chairman
30 May 2012

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