Halfords Regulatory News (HFD)

8 Jun 2006 07:00

Halfords Group PLC08 June 2006 8 June 2006 Halfords Group Plc Preliminary Results Announcement Halfords Group plc, the UK's leading auto, leisure and cycling productsretailer, announces its Preliminary Results for the 52 weeks ended 31 March2006. Financial Highlights • Revenue £681.7m up 8.5%, (2005: £628.4m) • Like-for-like sales up 6.1% • Operating profit £89.1m (2005: £89.3m) • Pre-tax profit £77.0m up 3.6% (2005: £74.3m) • Basic earnings per share 23.6p (2005: 23.7p) • Net debt, excluding finance leases, down £8.4m to £160.7m • The Board is recommending a final dividend of 8.75p, making a total of 12.75p per ordinary share, up 6.3% Business Highlights • Strong growth in cycles and in-car technology products • 408 stores with 18 new store openings, including 3 relocations • Mezzanines now in half of the superstores including 100 stores in the supermezzanine format • The Republic of Ireland store opening plan accelerated and a 3-store trial planned for Central Europe in Spring 2007 • Share buy-back returning up to £50m to shareholders over the next two years, while maintaining a strong financial position to allow continued investment. Commenting on the results, Ian McLeod, Chief Executive, said:"Halfords has continued to grow sales and cash margin in a challenging tradingenvironment. During the year we have strengthened Halfords market-leadingpositions in needs-driven car maintenance products and cycling while becomingthe destination store for in-car technology. The significant year-on-year growthof in-car technology has generated a change in the sales mix, which has resultedin a 260 basis points dilution in the gross profit percentage. During thenine-week period since the year-end the level of gross profit percentagedilution has reduced significantly, a trend we expect to see continue. Duringthe same period sales have grown by 10.5%, like-for-like sales are up 7.3% andunderlying like-for-like sales are encouraging at 3.2%, excluding Easter. Thecombination of these factors therefore provide us with confidence in our futuretrading prospects." Enquiries: Halfords Group plcIan McLeod, Chief Executive 01527 513276Nick Carter, Finance Director 01527 513276Tony Newbould, Investor Relations 01527 513113 Gainsborough CommunicationsAndy Cornelius 0207 190 1703Julian Walker 0207 190 1705 Halfords Group plc Halfords is the UK's leading auto, leisure and cycling products retailer, with408 stores and 10,000 employees. The Group sells 11,000 different product lines ranging from car parts and cyclesthrough to the latest in-car technology, alloy wheels, child seats, roof boxesand the latest outdoor leisure and camping equipment. Halfords' own brandsinclude Ripspeed, for car enhancement, and Bikehut, for cycles and cyclingaccessories, including the Apollo and Carrera brands. Stores offer a "We'll fitit" service for car parts, child seats, satellite navigation and in-carentertainment systems and a "We'll repair it" service for cycles. In addition to the corporate website, www.halfordscompany.com, Halfords operatesan online retail website, which can be found at www.halfords.com. Halfords was established in 1892, floated on the London Stock Exchange in June2004 and is a FTSE 250 company. Cautionary Statement This report contains certain forward-looking statements with respect to thefinancial condition, results of operations, and businesses of Halfords Groupplc. These statements and forecasts involve risk, uncertainty and assumptionsbecause they relate to events and depend upon circumstances that will occur inthe future. There are a number of factors which could cause actual results ordevelopments to differ materially from those expressed or implied by theseforward-looking statements. These forward-looking statements are made only as atthe date of this announcement. Nothing in this announcement should be construedas a profit forecast. Except as required by law, Halfords Group plc has noobligation to update the forward-looking statements or to correct anyinaccuracies therein. Chief Executive's Review Introduction At Halfords we have been acutely aware of the changes in retail dynamics overthe past year as consumers become more selective, particularly when it comes tohigh-ticket discretionary expenditure. Although Halfords is not immune to sucheconomic changes, the historic resilience of the business has again beendemonstrated in the financial year to 31 March 2006, which is our 18th year ofconsecutive sales growth. Revenue for the year to 31 March 2006 was £681.7m (2005: £628.4m), which was8.5% ahead of the prior year and 6.1% ahead on a like-for-like basis. Pre-taxprofit was up 3.6% at £77.0m (2005: £74.3m). During the year we have continued to benefit from the competitive advantage ofour strong market position in each of the key categories in which we operate. InCycling, we provide one in three bikes sold in the UK; we are the market leaderin car parts supply and enjoy similar status among consumers searching forin-car technology solutions. This position provides us with unique defensive characteristics given our scalethrough 408 stores within the UK and Republic of Ireland. Our range, where weare store of first choice in each category, and the needs-driven nature of ourcore offer, also provides us with some protection from economic cycles andchanges in consumer behaviour. Our sales performance has been particularly pleasing, given the fact that theprior year had the benefit of two Easter periods, whereas the year to 31 March2006 included no Easter trading opportunity. Although not as dependent on Easteras other retailers, sales during the Easter period are of sufficient weightwithin a financial year as to be material. In addition, a key contribution to our sales growth has been our success ofin-car technology. These products provide us with strong cash margin per unitgiven their retail price position, albeit the below average gross marginpercentage has precipitated a dilution in this performance metric. However,given consumers' acceptance of in-car technology as a growth segment of theirdiscretionary spend, we have ensured that Halfords is well placed to respond tothis demand and have successfully grown sales in this category. Further growthis anticipated in the future, but is unlikely to be at the rate of increaseexperienced in the latter part of the period. Over the last two years we have continued to focus our strategy on four keyareas: •Investing in the store portfolio •Leveraging the Halfords brand •Improving the supply chain •Marketing the Halfords proposition Investing in the store portfolio Halfords traded from 408 stores throughout the UK and Republic of Ireland at theend of the 2006 financial year, opening 18 new stores during the period. Weexpect to open a further 20 stores in the UK and Republic of Ireland during thecurrent year and we still see the potential for up to 150 more stores, in thesemarkets, across our different formats. Supermezzanine Of the 18 new stores opened, nine were in our Supermezzanine format, whichallows us to trade from an additional floor level, offering up to 40% extrasales space within our stores. At 31 March 2006 we had a total of 100Supermezzanine stores trading, through a combination of new store developmentand conversion of stores within the existing Halfords estate. The developmentprogramme will continue next year, with a combination of new store andconversion activity. By adding the Supermezzanine level we increase the range of products we offer,improve category segmentation and are able to merchandise the products moreclearly, creating an even more customer-friendly shopping environment. Thisopportunity has been particularly important in more effectively marketing oursub-brands of Ripspeed and Bikehut. By trading on two floors we can also givegreater exposure and presence to our Travel, Touring and Active Leisure ranges. During the year, we also introduced two further store format programmes: •Neighbourhood stores •A low cost space rebalance programme for existing stores Development of neighbourhood stores The Halfords portfolio polarises between our 32 high street "Metro" stores ofapproximately 2,000 sq ft and our mainstream superstore format ranging from8,000 sq ft to 12,000 sq ft located primarily on out of town retail parks. However, we have identified a further opportunity to meet the needs of consumerslocated within smaller catchments, such as market towns or urban infill areas,and have developed a new Neighbourhood format in these locations of between3,000 sq ft and 5,000 sq feet in size. These stores carry the full Halfordsoffer but with a smaller range breadth; where products are not availableimmediately, they can be sourced by customers through the Halfords website orthe nearest larger store. Space rebalancing programme Using the lessons learned from the Supermezzanine programme, we have carried outa major review of the effective use of space by improving product display andadjacency within our stores. This is particularly relevant where aSupermezzanine conversion would either be impractical due to physicalconstraints or return on capital would be compromised due to prohibitive storedevelopment costs. As a result, we have developed a new store layout, which improves the display ofour Ripspeed and Bikehut sub brands, projects Car Enhancement to better reflectits increasing prominence, and provides more space and better visibility for newcategories such as Active Leisure. We are encouraged by the initial results of the space rebalancing trials, whichwill now be rolled out to a further 20 stores during this year. International At the start of the financial year, Halfords had three stores trading in theRepublic of Ireland, around the Dublin area, which performed ahead ofexpectations, indicating that the Halfords brand has been well received withinthis market. At 31 March 2006 the Company had a total of eight stores trading inthe Republic of Ireland and we have subsequently secured sites in a further ninelocations. We now estimate that there is the potential for up to 20 stores in the Republicof Ireland and will continue to seek further site opportunities this year. Our success in the Republic of Ireland has provided further confidence in theability of the Halfords offer to trade successfully overseas. Extensive marketand operational feasibility reviews support Halfords increasing itsinternational presence and, in order that any expansion risk is limited, ourintention is to pilot three stores within the Czech Republic during the Springof 2007. Leveraging the Halfords brand Car Maintenance With more than a quarter of the Company's sales, Car Maintenance continues torepresent an integral element of the Halfords offer and has demonstrated itsresilience to changes to the economic environment. With unrivalled accessibilityto more than three million car parts, industry-leading availability and asubstantial range in our stores across the country, we remain the largest carparts retailer in the UK and store of first choice for the consumer. Approximately 33 million cars represent the UK car parc and our range coversalmost all parts for this population and, given the inevitability that car partswill fail, the search for replacement parts becomes a needs-driven, rather thandiscretionary, purchase. The needs-driven nature of the market provides steadybusiness throughout the year and provides Halfords with a resilient andsignificant sales base as the economic climate changes. Our market strength andbreadth of offer has enabled us to continue to grow parts sales during the yeardespite the consumer downturn and the mild weather conditions at the start of2006. Car Enhancement Halfords cemented its position as the market leader for in-car technology andcar enhancement products during the year. In-car audio, which includes the CD audio aftermarket, continues to be the mostsignificant consumer segment within car enhancement and grew further last year.CD audio is fitted as standard to most vehicles now, but the aftermarket alsoremains strong. The average car on the road is about seven years old andapproximately half of the car parc do not yet have a CD player fitted. Our car enhancement ranges are marketed through our Ripspeed sub-brand, whichhas built strong credibility with its target market of young car enthusiasts.This has been achieved through a combination of a strong in-store presence,particularly in Supermezzanine stores, external advertising in specialist pressand Ripspeed sponsorship support for car enhancement national events. In-car electronics has been an exception to the broader consumer trend ofdiscretionary spend reduction. Falling retail prices over the last 18 monthshave made such products much more affordable. For instance, satellite navigationdevices now retail at approximately one-third of the average price of two yearsago, thus bridging the gap between desirability and affordability. Similar pricedeflation has occurred for entertainment systems such as in-car DVD players.This has broadened the market appeal for such items, where sales grewsubstantially particularly during the Christmas period. We have enjoyed significant sales success in this category this year. Thoughactual cash profitability per unit is strong, the percentage margin is below thecompany average, which impacted our percentage margin, particularly in thesecond half of the year. Finally, our collaboration with Autobacs of Japan has provided an opportunity tobring certain products to market faster than would otherwise have been possible.A range of Japanese car accessories was piloted early in the year and, followingtheir sales success, have been extended into all Halfords superstores. Leisure The Leisure category represents a third of the Company's total sales and duringthe year we continued to grow sales and profitability, predominantly driven byour success in cycling, where we now sell one in three bikes in the UK.During the year, we successfully re-launched both our Apollo cycle brand and ourCarrera premium brand. Apollo is now the best selling cycle brand in the UK andCarrera the best selling premium brand. We also received a gold award for theCarrera Kraken model from "What Mountain Bike" magazine. These cycle ranges area good example of our ability to successfully source directly from the Far East.Cost prices have improved but so has the quality and specification of individualcycle models as we have had direct influence, through our sourcing team, on thefinal specification to be included. This allows us to provide quality bikes,which deliver both competitive retail prices and improved buying margins. The further roll out of the supermezzanine format has helped drive awareness ofthe Bikehut sub-brand. Bikehut sub-shops are now in place in 339 superstoresacross the country. Each includes a bike workshop, which adds credibility to theBikehut sub-brand as a specialist cycle retailer. As our share of the marketincreases the gap between Halfords and the competition grows further,illustrated by the fact that for the whole of 2005 more consumers purchased abike from Halfords than from all the independent cycle retailers added together. In October 2005 we introduced our Bike Care Maintenance Plan, encouragingcustomers to maintain their bikes regularly and cost-effectively by allowingHalfords to carry out the work. The enthusiasm and skill of our colleagues inthis area has driven strong sales growth in our bike maintenance and servicingbusiness. A bike repair training programme was conducted across all stores,supported by the Bicycle Association, to ensure the necessary skills wereavailable in stores to provide this service consistently. The introduction of the Bikehut sub-brand into premium cycle accessories hasalso been well received by consumers who are looking for high qualityaccessories at competitive prices. It is the fastest growing brand within ouraccessories range and to date has exceeded our internal expectations. TheBikehut accessory sub-brand has subsequently won a gold award from "CyclingPlus" magazine in its first year of national availability. We plan to continuethis success with the introduction of new ranges for 2006, which will includehelmets, mudguards, luggage and clothing. The new Carrera cycles have also proved popular with customers participating inthe government-sponsored "Cycle2work" scheme. This scheme allows employers theopportunity to offer interest free loans to their employees to buy a bike andthey are able to claim tax relief against the price of the purchase. This isdesigned as an incentive to motivate the public to take more exercise and isgrowing in popularity as an employment initiative. Given our scale and nationalstore coverage Halfords is the largest provider of this facility. The performance of Leisure was adversely affected by a disappointingyear-on-year performance within Travel Solutions. Roof carrying equipment suchas roof boxes, which are high-ticket items, were more susceptible todiscretionary spend decisions. We have made changes to our range and pricestructures for the current financial year, which gives us confidence that we canimprove performance for the forthcoming season. The performance this year of our camping range was not as strong as anticipatedgiven the success in the previous year, after it had been rolled out to allstores. For the forthcoming season, considerable effort has taken place toensure that our sourcing, range, pricing and marketing drive stimulates strongerconsumer awareness and purchasing of our offer. Financial services Towards the end of the financial year, Halfords launched a range of financialservices, primarily targeting the motorist. Consumers now have the opportunityto purchase breakdown insurance, car insurance, bike insurance, travel insuranceand even pet insurance through a range of products marketed under the Halfordsbrand. We have also introduced personal car leasing to complement the financialservices offer. halfords.com Prior to the Christmas period, the Halfords website was re-launched, to broadenthe opportunity for greater levels of product purchase, ease of navigation andfacilitate greater levels of conversion. Sales have increased by 250% since there-launch, making halfords.com our highest turnover 'store' and the second mostvisited sports and leisure website in the UK. Site visits have grown to 150,000visitors per week. Sales conversion is also ahead and we are targeting furtherimprovement this year. Improving the supply chain Our stated strategy has been to increase the level of product delivered fromoutside the UK and sourced directly by Halfords without the cost of third partyagents. The objective has been to improve cost prices, which can then beutilised to improve profitability, improve quality or improve retail prices toincrease competitiveness. Two years ago, our penetration of foreign direct sourcing was 7% of purchasesand our target was to grow this penetration to 20% in the medium term. At theend of this financial year, penetration has improved significantly and we aretherefore confident of achieving our target ahead of schedule, and seeingfurther cost price benefits flow accordingly. We have achieved most success within Cycling, but we have also increased foreigndirect sourcing within Car Maintenance, Car Enhancement and Active Leisure.Initially, we believed that electronics would be an unlikely addition, but ourgrowth in expertise in this area has enabled us to develop an entry price pointCD audio, combined car DVD and CD player and satellite navigation under oursub-brands of Sendai, Ripspeed and Navsure respectively. These will be on saleduring summer 2006. The growth in direct sourcing has been underpinned by changes in the in-boundsupply chain process and infrastructure. These changes have included usingadditional Far East ports to access greater capacity. As well as allowingconsolidation of stock from multiple suppliers it also improves container filllevels and stock flow into the UK. A renewed partnership with Maersk Logisticsand greater use of their trading systems has improved management of the flow ofcontainerised stock, particularly during peak trading periods. We will takeadvantage of further systems developments from Maersk through greaterintegration with Halfords SAP supply chain management tools. This yearrepresented the first full year of operation of the new warehouse managementsystem within three sites, without any service issues occurring. The outsourced store delivery fleet and operations were put out to tender during2006 and the contract was awarded to DHL/Exel during the third quarter. Benefitswere seen immediately, with stock flow to stores during peak trading periodsimproving year-on-year. The delivery fleet was also equipped with satellitetracking and central route scheduling software has also been implemented tofurther improve service levels to stores. These changes and new partnerships provide a platform for continuous improvementin the logistics operations over the coming years. Business systems Completion of the installation of retail systems from SAP and warehouse systemsfrom Manhattan Associates at the start of the financial year were well managedand had no adverse service or cost impact on the business. The scale of thechanges implemented has been significant as all central finance, human resource,merchandising, planning and supply chain systems were replaced and new ways ofworking adopted. Despite these changes, year-on-year in store availabilityimproved and the successful support delivered during key trading periods on thenew systems means we are confident of more benefits in the future. The next stage of the business systems strategy is a two-year programme toreplace the hardware (including till systems) and software within stores at aninvestment of £8.5m. In preparation for this next phase of development we havetrained over 800 colleagues on store stock file accuracy processes, the benefitsof which we expect to flow into next year. Marketing the Halfords proposition Halfords continues to push forward with its service programme under the "We'llfit it" marketing umbrella. We actively market this service through press and TVadvertising. We completed more than one million fitting jobs during the year,ranging from wiper blades to parking sensors and audio units, with the supportof trained in-store colleagues. As well as increasing our advertising spend year on year, we also changed theemphasis of featured product to reflect the changes in consumer interest whichhave been identified. In addition, different communication channels weretargeted to ensure the greatest return on our external marketing investment.Bikes and in-car technology featured heavily within our TV advertising, with allcategories featured in black and white press throughout the year, or colourpress inserts to coincide with key trading periods. Specialist press was alsoutilised to support promotional offers or drive new product awareness in areassuch as Car Maintenance and Cycling. "We'll fit it" As well as the regular fitting services we provide, it is essential that wecontinually update the skill set of colleagues to service demand as we developnew categories. A key differentiator when buying in-car electronics at Halfords,for example, is our ability to fit products on site. iPod connectivity andparking sensors are sold as a fitted package given their complexity, making suchstrong offers difficult for competitors to copy with any degree of scale. The "Drive away with it working" and "Free setup and demo" marketing messagesalso proved to be effective in securing both interest and consumer purchase ofsatellite navigation systems. The knowledge base within stores is critical and we therefore continue toemphasise development training for deputy managers to support successionplanning and product-based training for retail colleagues. Last year we trainedapproximately 500 colleagues as hardwire electronics fitters and more than 2,000colleagues on satellite navigation product knowledge and we adopted amanufacturer-run training programme for child seat fitters that has included afurther 1,600 colleagues across the country. With pressure on costs it is important that our in-store resource is scheduledefficiently. Retail productivity has therefore improved as we continue to pursueour policy of driving increased flexibility within store teams using moreappropriate contracts and continuing to match colleague rotas to our customerneeds. This year we have identified store and product group specific rotas thathave resulted in appropriate cost savings. This has been achieved through acombination of improved data provision from our new SAP Business Warehouse andan external work-study analysis. We expect to reap further benefits from thisapproach in the year ahead. Outlook This has clearly been a tough year for retailers in general; an environmentwhich is likely to continue into the current year. Our results continue todemonstrate a level of resilience to such conditions. During the year we havecontinued to use our competitive advantage of range, scale and service in orderto improve the consumer offer. Our product portfolio includes needs-driven purchases of core car maintenanceproducts, where our range and scale provide us with strong defensivecharacteristics in this sector and our "We'll fit it" service programmes provideus with genuine competitive advantage. The success of our supply chain initiatives, our store development plans, aswell as our product and service changes, provides reassurance that our strategyis working. We have a trading approach which proactively seeks out new opportunities andseizes the initiative wherever possible. A clear example of this has been ourability to develop the in-car technology business to the point where we areclear market leaders. During the forthcoming financial year we expect to further push our marketadvantage in key categories as well as redressing any shortfalls experienced in2006. We have developed new range and pricing strategies within our leisurecategories and will continue to drive momentum in core categories to press homeour competitive advantage. Our gross profit percentage dilution has been a direct result of the changingsales mix in the business following the success of in-car technology. Whilst weexpect further growth in this category in the forthcoming year, we do not expectit to have a similar significant impact on our overall sales mix. Our strategy remains focused and our ability to remain relatively resilient inthe light of economic change remains evident. This gives us confidence that wecan continue to deliver further positive results for our shareholders as wecontinue to drive the Halfords business forward in the forthcoming year. Finance Director's Report International Financial Reporting Standards The consolidated financial statements of Halfords Group plc are now prepared inaccordance with International Financial Reporting Standards ("IFRS") andInternational Financial Reporting Interpretation Committee ("IFRIC")interpretations, that are endorsed by the European Union and with those parts ofthe Companies Act 1985 applicable to those companies reporting under IFRS. TheGroup had previously reported under UK GAAP. The date of transition to IFRS was 3 April 2004, which is the beginning of thecomparative period for the year ended 31 March 2006. The Group has applied IFRS1 "First time adoption of International Financial Reporting Standards" and haselected to use the following exemptions: •IFRS 3 "Business combinations" has not been applied retrospectively to business combinations that occurred before 3 April 2004. •Share based payment exemption. The Group has applied IFRS 2 "Share-based payment" from 3 April 2004 to those options that were issued after 7 November 2002 but had not vested by 2 April 2005. •Comparative information has not been restated for IAS 32 "Financial Instruments: disclosure and presentation" and IAS 39 "Financial Instruments: recognition and measurement" for the first year of transition. The introduction of IFRS has no impact upon either the operational capability ofthe business or its cash flow. Operating result Group sales increased by 8.5% to £681.7m (2005: £628.4m), with like-for-likesales growth increasing by 6.1%. Gross profit increased by 3.1% to £346.7m(2005: £336.4m). A 260 basis points dilution in gross profit percentage hasresulted from the strength in the in-car technology category. Good cost controland operations management has resulted in total operating expenses as apercentage of sales falling to 37.8% from 39.3% in the prior year. Operatingprofit at £89.1m compares to £89.3m last year. Finance costs decreased by £2.9mto £12.5m (2005: £15.4m). Profit before tax was £77.0m, compared with £74.3m inthe prior year, an increase of 3.6%. Operating leases All the Group's stores are held under operating leases, the majority of whichare on standard lease terms, typically with a 15-year term at inception. TheGroup has a total commitment under non-cancellable operating leases of £795.3m(2005: £783.7m). Landlord contributions Halfords has established an attractive out of town store portfolio, which theproperty team actively manage to maximise valuation creation through generatingcash, making profits, and reducing the ongoing rental charge. During the yearcontributions were received from landlords as a result of either relocations ordownsize through the return of former service centre space, occupied by theAutomobile Association ("AA"). The potential for further contributions fromthese activities is ongoing. Contributions from these activities totalling £6.9m(2005: £2.5m) were received from landlords during the year in relation to 15locations (2005: 6 locations). Taxation The taxation charge on profit for the financial year was £23.4m (2005: £23.2m)resulting in a full year effective tax rate of 30.4% (2005: 31.2%) applied toprofit before tax. The underlying tax charge remains at 31.9%, principally due to thenon-deductibility of depreciation charged on capital expenditure in respect ofmezzanine floors and other store infrastructure. The lower than expected taxrate in this financial period is due to the progression of the agreement ofprior year tax computations. Earnings per share Basic earnings per share were 23.6p (2005: 23.7p). The weighted number of sharesin issue during the year was 227.1m (2005: 215.6m) and it should be noted thatin the comparative year the figure was impacted by the London Stock Marketflotation during that year. Capital expenditure Capital investment in the period totalled £27.8m, compared with £27.7m in theprior year. This included spend of £11.1m on new store and relocation investmentand £10.7m on the store conversion programme. Other capital expenditure includedthe investment in head office IT systems, which is now largely complete.Depreciation and amortisation has increased during the year by £3.0m to £21.5m(2005: £18.5m) reflecting the ongoing investment in the store portfolio andinfrastructure. Working capital During the year, the Company experienced a working capital outflow of £11.5mcompared to a £3.6m inflow in the prior year. Inventories increased by 17.5% to£127.2m (2005: £108.3m) reflecting underlying increases in stock to supportsales growth and specifically into the faster growing technology areas. Duringthe fourth quarter of the financial year the business built stock ahead ofEaster trading, which fell in April, notably in the areas of cycles and in-cartechnology. Cash flow, net debt and capital structure The Group continues to demonstrate that it is a strong driver of cash and duringthe year generated an operating cash inflow of £100.9m (2005: £117.0m). Total net debt at 31 March 2006 was £173.7m (2005: £182.4m) and underlying netdebt (total net debt excluding finance leases) was £160.7m (2005: £169.1m), areduction of £8.4m on the prior year. In the short to medium term the Group considers that a level of net debt at£180m generates an optimal level of gearing. Dividend and share buy-back The Board is recommending a final dividend of 8.75p per share in addition to the4.0p per share interim dividend already paid, bringing the total dividend forthe year to 12.75p per share. Subject to shareholder approval at the Annual General Meeting on 2 August 2006,the final dividend will be paid on 14 August 2006 to shareholders on theregister at the close of business on 16 June 2006. Shares will be quoted exdividend from 14 June 2006. The Board is today announcing its intention, over the next two years, tobuy-back up to £50m of its own shares. This programme recognises the highly cashgenerative nature of our business and management's commitment to improving totalshareholder returns. With our strong cash generative business model we are able to undertake thebuy-back whilst maintaining sufficient flexibility to invest in our storeopening and re-fit programme and other opportunities as they might arise. Inaddition to further improving the Group's capital efficiency, this sharebuy-back enables shareholders to have greater participation in the strong cashflows generated by our business. Consolidated Income Statement For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 Notes £m £m Revenue 681.7 628.4Cost of sales (335.0) (292.0)_______________________________________________________________________________Gross profit 346.7 336.4Operating expenses (257.6) (247.1)_______________________________________________________________________________Operating profit 2 89.1 89.3Finance costs 3 (12.5) (15.4)Finance income 3 0.4 0.4_______________________________________________________________________________Profit before tax 77.0 74.3Taxation 4 (23.4) (23.2)_______________________________________________________________________________Profit attributable toequity shareholders 53.6 51.1_______________________________________________________________________________ _______________________________________________________________________________Earnings per shareBasic 6 23.6p 23.7p_______________________________________________________________________________ All results relate to continuing operations of the Group. Consolidated Balance Sheet 31 March 2006 1 April 2005 £m £mAssetsNon-current assetsGoodwill 253.1 253.1Intangible assets 5.7 6.2Property, plant and equipment 104.1 97.8_______________________________________________________________________________ 362.9 357.1 Current assetsInventories 127.2 108.3Trade and other receivables 29.4 23.6Derivative financial instruments 1.2 -Cash and cash equivalents 1.5 1.1_______________________________________________________________________________ 159.3 133.0_______________________________________________________________________________ Total assets 522.2 490.1 LiabilitiesCurrent liabilities Borrowings (63.5) (52.2)Trade and other payables (101.9) (99.3)Current tax liabilities (13.1) (13.3)Provisions (1.2) (1.6)_______________________________________________________________________________ (179.7) (166.4) Net current liabilities (20.4) (33.4) Non-current liabilitiesBorrowings (111.7) (131.3)Derivative financial instruments (2.1) -Deferred tax liabilities (3.5) (5.1)Accruals and deferred income (22.7) (11.6)_______________________________________________________________________________ (140.0) (148.0)_______________________________________________________________________________Total liabilities (319.7) (314.4)_______________________________________________________________________________Net assets 202.5 175.7_______________________________________________________________________________ Shareholders' equity Share capital 2.3 2.3Share premium account 133.2 132.9Hedging reserve (0.8) -Retained earnings 67.8 40.5_______________________________________________________________________________Total equity 202.5 175.7_______________________________________________________________________________ Consolidated Statement of Changes in Shareholders' Equity Share Share Hedging reserve Retained Total capital premium earnings equity £m £m £m £m £m_______________________________________________________________________________Balance at 2 April 2004 - 0.1 - (7.3) (7.2) Profit for the period - - - 51.1 51.1Shares issued 2.3 134.6 - - 136.9Bonus issue in respectof - (1.8) - - (1.8)ordinary sharesMovement arising fromthe - - - 4.2 4.2issue of share optionsEmployee share options - - - 1.0 1.0Dividends - - - (8.5) (8.5)_______________________________________________________________________________Balance at 1 April 2005 2.3 132.9 - 40.5 175.7_______________________________________________________________________________ Balance at 1 April 2005as previously reported 2.3 132.9 - 40.5 175.7 Application of IAS 39 -Fair value at openingbalance sheet - - (2.9) - (2.9)_______________________________________________________________________________ Balance at 1 April 2005restated 2.3 132.9 (2.9) 40.5 172.8 Profit for the period - - - 53.6 53.6Shares issued - 0.3 - - 0.3Cash flow hedges:Fair value gains in theperiod - - 3.2 - 3.2Transfers to inventory - (0.8) - (0.8)Transfers to net profit - (0.3) - (0.3)Employee share options - - - 1.3 1.3Deferred tax onemployee - - - 0.4 0.4share optionsDividends - - - (28.0) (28.0)_______________________________________________________________________________Balance at 31 March 2006 2.3 133.2 (0.8) 67.8 202.5_______________________________________________________________________________ Consolidated Cash Flow Statement For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 Notes £m £m______________________________________________________________________________ Cash flows from operating activitiesCash generated from operations 7 100.9 117.0Finance income received 0.4 0.4Finance costs paid (11.0) (12.5)Cost of forward foreign exchange contracts (0.9) -Taxation paid (24.8) (20.1)_______________________________________________________________________________Net cash from operating activities 64.6 84.8_______________________________________________________________________________ Cash flows from investing activitiesPurchase of intangible assets (1.4) (4.3)Purchase of property, plant and equipment (26.1) (23.3)_______________________________________________________________________________Net cash used in investing activities (27.5) (27.6)_______________________________________________________________________________ Cash flows from financing activitiesNet proceeds from issue of ordinary sharecapital 0.3 135.1Repayment of borrowings 9 (12.0) (217.6)Finance lease principal payments 9 (0.3) (0.2)Dividends paid to shareholders (28.0) (8.5)_______________________________________________________________________________Net cash used in financing activities (40.0) (91.2)_______________________________________________________________________________ Net decrease in cash and bank overdrafts 8 (2.9) (34.0)Cash and bank overdrafts at beginning ofperiod (15.5) 18.5_______________________________________________________________________________Cash and bank overdrafts at the end of theperiod 8 (18.4) (15.5)_______________________________________________________________________________ Notes to the preliminary results 1. Accounting policies The consolidated financial statements of Halfords Group plc are now prepared inaccordance with International Financial Reporting Standards ("IFRS") andInternational Financial Reporting Interpretation Committee ("IFRIC")interpretations, that are endorsed by the European Union and with those parts ofthe Companies Act 1985 applicable to those companies reporting under IFRS. TheGroup had previously reported under UK GAAP. The date of transition to IFRS was 3 April 2004, which is the beginning of thecomparative period for the 52 weeks to 31 March 2006. The Group has applied IFRS1 "First time adoption of International Financial Reporting Standards" and haselected to use the following exemptions: •IFRS 3 "Business combinations" has not been applied retrospectively to business combinations that occurred before 3 April 2004. •Share based payment exemption. It has applied IFRS 2 "Share-based payment" from 3 April 2004 to those options that were issued after 7 November 2002 but had not vested by 2 April 2005. •Comparative information has not been restated for IAS 32 "Financial Instruments: disclosure and presentation" and IAS 39 "Financial Instruments: recognition and measurement" for the first year of transition. 2. Operating profit _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________ Operating profit is arrived at after charging/ (crediting): Operating lease rentals: - plant and machinery 0.8 0.9 - property rents 66.3 60.2 - rentals receivable under operating leases (10.7) (10.1) - landlord contributions (6.9) (2.5) Loss on disposal of property, plant and equipment 0.5 0.4 Amortisation of intangible assets 1.9 1.1 Depreciation of - owned property, plant and equipment 18.9 16.7 - assets held under finance leases 0.7 0.7 Net foreign exchange gains (2.0) (1.9) Auditors' remuneration: - audit fees 0.2 0.2 - non-audit services 0.3 0.3_______________________________________________________________________________ 3.Net finance costs _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________ Finance costs:Bank borrowings (9.7) (12.4)Premium on deep discount bond - (1.5)Amortisation of issue costs on loans and deepdiscount bonds (0.7) (0.8)Commitment and guarantee fees (0.3) (0.4)Cost of forward foreign exchange contracts (0.9) -Interest payable on finance leases (0.9) (0.8)_______________________________________________________________________________Finance costs before non-recurring items (12.5) (15.9)Non-recurring amortisation of issue costs onloans and deep discounted bonds1 - (1.7)Non-recurring swap close out2 - 2.2_______________________________________________________________________________Finance costs (12.5) (15.4) Finance income: Bank and similar interest 0.4 0.4_______________________________________________________________________________Net finance costs (12.1) (15.0)_______________________________________________________________________________ Notes: 1. At IPO, on 8 June 2004, Halfords Group plc redeemed and replaced all ofits existing borrowings. As a consequence, a charge of £1.7m was made in respectof accelerated amortisation of the issue costs associated with these borrowings. 2. On repayment of the existing borrowings, the Group hedged its newborrowing facilities during the 52 weeks to 1 April 2005 using new interest rateswaps and received £2.2m of exceptional income on the termination of theexisting interest rate swaps. 4. Taxation _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________Current taxationUK corporation tax charge for the period 25.8 23.6Adjustment in respect of prior periods (1.2) (0.3)_______________________________________________________________________________ 24.6 23.3Deferred taxationOrigination and reversal of timing differences (1.2) (0.1)_______________________________________________________________________________ 23.4 23.2_______________________________________________________________________________ The current tax charge is reconciled with the standard rate of UK corporationtax as follows: _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________Profit before tax 77.0 74.3_______________________________________________________________________________UK corporation tax at standard rate of 30.0%(2005: 30%) 23.1 22.3Factors affecting the charge for the period:Depreciation on expenditure not eligible fortax relief 1.1 1.1Deduction for employee share options - (0.4)Other disallowable expenses 0.4 0.5Adjustment in respect of prior periods (1.2) (0.3)_______________________________________________________________________________Total tax charge for the period 23.4 23.2_______________________________________________________________________________ 5.Dividends _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________Equity - OrdinaryFinal for the 52 weeks to 1 April 2005 - paid8.3p (2005: £nil) 18.9 -Interim - paid 4.0p (2005: 3.7p) 9.1 8.5_______________________________________________________________________________ 28.0 8.5_______________________________________________________________________________ In addition, the Directors are proposing a final dividend in respect of thefinancial year ended 31 March 2006 of 8.75p, which will absorb an estimated£19.9m of shareholders' funds. The dividend will be paid on 14 August 2006 toshareholders who are on the Register of Members on 16 June 2006. 6. Earnings per share Basic earnings per share are calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period. The weighted average number of shares excludes shares held byan Employee Benefit Trust and has been adjusted for the issue of shares duringthe year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's ordinary sharesduring the 52 weeks to 31 March 2006. _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 m m_______________________________________________________________________________Weighted average number of shares in issue 228.0 216.5 Less: shares held by Employee Benefit Trust (0.9) (0.9)_______________________________________________________________________________Weighted average number of shares forcalculating basic earnings per share 227.1 215.6Weighted average number of dilutive shares 0.2 0.1_______________________________________________________________________________Total number of shares for calculating dilutedearnings per share 227.3 215.7_______________________________________________________________________________ _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________Earnings attributable to equity shareholders 53.6 51.1_______________________________________________________________________________ Earnings per share is calculated as follows:_______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005_______________________________________________________________________________Basic earnings per ordinary share 23.6p 23.7p Diluted earnings per ordinary share 23.6p 23.7p_______________________________________________________________________________ 7. Cash generated from operations _______________________________________________________________________________For the period 52 weeks to 52 weeks to 31 March 2006 1 April 2005 £m £m_______________________________________________________________________________Operating profit 89.1 89.3Depreciation - property, plant and equipment 19.6 17.4Amortisation - intangible assets 1.9 1.1Loss on sale of property, plant and equipment 0.5 0.4Non cash charge for employee share schemes - 4.2Share option scheme charges 1.3 1.0Increase in inventories (18.9) (3.8)Increase in debtors (5.8) (0.1)Increase in creditors 13.2 7.5_______________________________________________________________________________ 100.9 117.0_______________________________________________________________________________ 8. Analysis of movements in the Group's net debt in the period _______________________________________________________________________________ At Cash flow Other non cash At changes 1 April 2005 31 March 2006 £m £m £m £m_______________________________________________________________________________Cash in hand and at bank 1.1 0.4 - 1.5Bank overdraft (16.6) (3.3) - (19.9)_______________________________________________________________________________ (15.5) (2.9) - (18.4)Debt due within one year (35.3) 12.0 (20.0) (43.3)Debt due after one year (118.3) - 19.3 (99.0)_______________________________________________________________________________Total net debt excludingfinance leases (169.1) 9.1 (0.7) (160.7) Finance leases duewithin one year (0.3) 0.3 (0.3) (0.3)Finance lease due afterone year (13.0) - 0.3 (12.7)_______________________________________________________________________________ Total finance leases (13.3) 0.3 - (13.0)_______________________________________________________________________________Total net debt (182.4) 9.4 (0.7) (173.7)_______________________________________________________________________________ Non-cash changes relate to finance costs of £0.7m in relation to theamortisation of capitalised debt issue costs. 9. Movement in borrowings_______________________________________________________________________________ 52 weeks to 31 March 2006 £m_______________________________________________________________________________ Debt due within 1 year:Unsecured bank loans 12.0Finance lease principal payments 0.3_______________________________________________________________________________Cash outflow 12.3_______________________________________________________________________________ The total debt cash outflow consists of £12.0m net repayment of borrowings and£0.3m repayment of finance lease obligations, offset by an increase inoverdrafts of £3.3m. 10. Other information These results for the 52 weeks to 31 March 2006 together with the correspondingamounts for the 52 weeks to 1 April 2005 are extracts from the Group AnnualReport and Accounts and do not constitute statutory accounts within the meaningof section 240 of the Companies Act 1985 (as amended). The Group Annual Report and Accounts for the 52 weeks to 31 March 2006, on whichthe auditors have issued a report that does not contain a statement undersection 237(2) or (3) of the Companies Act 1985, will be posted to shareholdersby 23 June 2006 and will be delivered to the Registrar of Companies in duecourse. Copies will be available from The Company Secretary, Halfords Group plc,Icknield Street Drive, Washford West, Redditch, Worcestershire, B98 0DE. The Annual General Meeting will be held at the Holiday Inn Hotel, Bridgefoot,Stratford upon Avon, Warwickshire CV37 6YR at 12.30 pm on Wednesday, 2 August2006. This information is provided by RNS The company news service from the London Stock Exchange