Halfords Regulatory News (HFD)

7 Jun 2007 07:01

Halfords Group PLC07 June 2007 7 June 2007 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 30 March2007. Financial Highlights • Revenue £744.0m up 9.1%, (2006: £681.7m) • Like-for-like sales up 6.0% (2006: 6.1%) • Operating profit £93.5m (2006: £89.1m) • Profit before tax and exceptional items £83.5m up 8.4% (2006: £77.0m) • Profit before tax £80.9m (2006: £77.0m) • Basic earnings per share before exceptional items 26.6p up 12.7% (2006: 23.6p) • Basic earnings per share 25.8p (2006: 23.6p) • Net debt, including finance leases, £180.0m (2006: £173.7m) • The Board is recommending a final dividend of 9.50p, making a total of 13.85p per ordinary share (2006: 12.75p), up 8.6% • Share buy-back: 9.0m shares purchased for an aggregate consideration of £30m (average price 333.2 pence per share). On target to buy back up to £50m of shares within two years from its announcement on 8 June 2006. Business Highlights • Growth in all key categories of Car Maintenance, Car Enhancement and Leisure • Far East sourcing penetration increased to 20% • Two standalone Bikehut stores opened in Brighton and Putney • Partnership with Chris Boardman to launch new range of Boardman Bikes announced • First Central European store opens in Prague on 29 June 2007 • 424 Halfords stores now trading following 23 new store openings • During the nine-week period since the year-end sales have grown by 12.3%, 9.2% on a like-for-like basis Commenting on the results, Ian McLeod, Chief Executive, said:"These results demonstrate a further year of strong sales growth from Halfords;a positive momentum that has continued into the new financial year. Acombination of sales and margin initiatives across all categories, investment innew stores and new formats, and the delivery of our unique service advantagethrough the hard work of our colleagues, continues to give us confidence inHalfords' growth prospects for the forthcoming financial year." Enquiries:Analysts: Halfords Group plcTony Newbould, Investor Relations Officer 07753 809522Media: College HillAndy Cornelius 0207 457 2822Duncan Murray 0207 457 2823 Notes to Editors: www.halfords.co.ukwww.halfordscompany.co.uk Halfords Group plc Halfords is the UK's leading auto, leisure and cycling products retailer, with426 stores including; 15 smaller format, neighbourhood, stores and twostandalone Bikehuts (located in Brighton and Putney) and employs 10,000 staff.Established in 1892 as F.W. Rushbrooke and subsequently renamed Halfords in1907, the company was floated on the London Stock Exchange in June 2004. TheGroup sells 11,000 different product lines, ranging from car parts and cyclesthrough to the latest in-car technology, alloy wheels, child seats, roof boxesand outdoor leisure and camping equipment. Halfords' own brands include Ripspeed, for car enhancement, and Bikehut, for cycles and cycling accessories,including the Apollo and Carrera brands. Stores offer a "we fit" service for carparts, 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 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 During the financial year, Halfords has continued to deliver further growth,demonstrating strong resilience to both a challenging retail environment andchanging market dynamics through a combination of a differentiated offer, ourunique service proposition and a pro-active trading approach. The essence of Halfords' successful business model lies in our rangedifferentiation and strong defensive characteristics. We are both market leaderand store of first choice in each of our key markets. We have the UK's largestrange of car parts, a third of the UK cycle market and are now clearlyestablished as the UK's leading provider of In-Car Technology solutions. Ourproduct offer is delivered from a portfolio of 426 stores, the significantmajority of which are located in popular retail parks throughout the country. Our breadth of range and scale of stores across the UK and within the Republicof Ireland, are underpinned by the competitive advantage provided by theinformed service and product fitting capability of our store based colleagues.Halfords therefore possesses a combination of characteristics which continue toprovide a strong defence against any material form of scale competition. During the financial year, Halfords has built on its strong performance inprevious years by delivering a year-on-year sales increase of 9.1% whichincludes growth across each of our key categories. As well as maintaining salesmomentum through a similar sales growth profile in each half year, a proactivemanagement of the product mix and supplier base has also enabled us to grow cashmargin and significantly arrest the level of percentage margin dilutionexperienced in the previous financial year. We continue to successfully focus on each of the four key elements of ourbusiness strategy: •Investing in the store portfolio •Leveraging the Halfords brand •Improving the supply chain •Marketing the Halfords service proposition Investing in the store portfolio In recent years our focus has been on reinvesting in the existing store estate,to ensure that our store environment remains contemporary and our customers arepresented with our latest offer. This programme, involving varying degrees ofre-invigoration, is now essentially complete. A combination of investment in our existing stores, often increasing capacitythrough the addition of mezzanine floors, and the opening of new stores hasadded 32% of space to our portfolio since 2001. We believe our market leadingposition can be further enhanced by the development of at least 130 furtherstores across the UK and the Republic of Ireland. Our portfolio investmentemphasis will now move towards a stronger store opening programme. The Halfords Group now has 376 Superstores, with well over half in a mezzanineformat and over 100 stores in a supermezzanine format, which remains our formatof choice. As at 30 March 2007, Halfords Group had a total of 426 storestrading, including two stand-alone Bikehuts. The Halfords re-branding strategy is complete with all stores now in our orangelivery (with the exception of three, which will close this year). We willcontinue to invest in our existing estate through ongoing mezzanineintroduction, complemented by a series of refresher activity and spacerebalancing programmes, to ensure that our current estate continues to benefitfrom improvements in product display and adjacency. 35 such space rebalancestook place last year, with a similar level of activity planned for 2007/08. Most of our store portfolio is located on prime retail parks with A1 consents,where an increasing number of retailers wish to participate. Given ourdestination store status, this additional demand enables us, in certaincircumstances, to readjust our store size (by introducing a mezzanine forexample) or by relocating completely. As this activity frees up incrementalrental space within the park we are able to negotiate contributions fromlandlords to facilitate our portfolio programme. Stores involved in such activity benefit from portfolio investment either as anewly built replacement store or receive an upgrade to the latest footprint.Significantly, each of the stores impacted by these changes in the last twoyears has remained located in its existing retail park, and achieved aboveaverage sales growth following the change. Recognising the quality of our store portfolio and our destination status in theminds of our customers, we would envisage such opportunities continuing at asimilar level for the foreseeable future. Rental inflation has been accelerating in recent years, which has provedchallenging given the inherent cost growth. However, it has become evident thatrental inflation is now decelerating, which will clearly be beneficial at futurerent reviews. New formats We continue to develop new store formats and have focused on two differentconsumer propositions: •Neighbourhood stores •Stand-alone Bikehut Neighbourhood stores Complementing Halfords traditional focus on full offer Superstores, we havedeveloped a smaller store format, known internally as the Neighbourhood store.Stores of this nature typically operate from a retail footprint of 4,000 ft2 andcarry 6,000 product lines compared to 9,000 ft2 and 10,000 lines in aSuperstore. These stores are proving successful in bringing the Halfords brand to smallercatchments, such as Midsummer Norton and Aberdare. The performance of theNeighbourhood stores opened to date has proved encouraging, generating paybackperiods very similar to our current Superstore portfolio. These stores will belocated in either market towns or urban infill sites and we believe there areopportunities to develop about 60 stores in this format in the UK over time. We have opened 15 of these stores to date, with a further six stores planned toopen in the Neighbourhood format in the new financial year. Stand-alone Bikehut Halfords has steadily grown its cycle and cycle accessory business in recentyears and established Bikehut as a credible sub-brand within the market. Our Apollo and Carrera own brand cycles have developed considerably and nowarguably lead the market in terms of value. We have successfully supported theproduct offer with the recruitment and training of specialist colleagues toadvise customers and also build and safety check their bikes for them. Inaddition, Bikehut branded parts and accessories are now established as anauthoritative range of private label products and an accredited cycle repair andfull maintenance programme has also been introduced. This has placed us in a strong position to launch a number of standalonespecialist cycle shops under the Bikehut sub-brand. Our visible commitment tothe premium sector of the market has also attracted a broader range ofspecialist cycling brands to be available in these stores, including Condor, DeRossa, Pashley, Marzocchi, Endura and Gore-Tex. Two initial pilot stores have opened in Brighton (November 2006) and Putney(February 2007) with encouraging results. Compared to our overall market share,we are under represented in the premium cycle market, which is characterised bya fragmented population of independent specialist stores. We are confident wecan compete very effectively and through Bikehut can grow share in this sector. The store look and feel is completely different to a Halfords sub-shop. It has aclear individual identity and a large range which has a 60% difference to oursuperstore offering, in order to appeal to the specialist consumer. We anticipate operating from six stores by the end of this year as an extendedpilot project and assuming success, intend to roll out to approximately 50stores across the country. International developments The Republic of Ireland has been a very successful market entry for Halfordswith above average returns on investment being generated from those storesopened to date. From only two stores trading in January 2005, we are now tradingfrom twelve, with four opening during the current financial year. There is scope for approximately 20 Superstores in total with further potentialprovided by our Neighbourhood format for smaller catchments. Building upon the success and learning from our expansion into the Republic ofIreland in recent years, this year has seen unprecedented levels of activity inpursuing opportunities to take the Halfords brand to new international markets. Our first major step to the internationalisation of the Halfords brand has beenthe establishment of an office in Prague in the Czech Republic, complete with alocal team with retail and buying expertise, supported by functional experts inthe UK. A full product offer has been created for the Central European market, with over10,000 lines evaluated to meet the needs of the local market with productsourced either locally in Central Europe, or through our UK and global supplypartners. A complementary in-country logistics infrastructure has been developedand systems implemented. The first store will open in Prague in the first half of this financial year, tobe followed by two further stores in the third quarter. The combination of ourwide and extensive ranges, high levels of customer service and a fullgarage-servicing offer, will bring a highly differentiated retail proposition tothe Czech market. A programme of site identification and evaluation is underway to take advantageof the growing and attractive market in the Czech Republic and expansion inadjacent territories will follow after evaluation of the pilot stores. Leveraging the Halfords brand The Halfords product portfolio comprises three major categories: Car Maintenance(Car Parts and Servicing Consumables), Car Enhancement (In-Car Technology andPerformance Styling) and Leisure (Cycling, Touring and Camping). Car Maintenance Car Maintenance provides an underlying strength and stability to our business,given the needs-driven nature of the product ranges and we are pleased to seecontinued sales growth in this area. Servicing consumables such as car bulbs, wiper blades, batteries and oilscomprise the significant majority of sales within this category and benefit fromtwo favourable dynamics. Firstly, they inevitably need replacing if the consumerwishes to maintain a legal and reliable vehicle on the road, providing Halfordswith a dependable customer stream given our 'store of first choice' status andbreadth of range. Secondly, these products are non-discretionary, needs-drivenpurchases with low price elasticity. Our comprehensive stock of 3 million car parts (covering approximately 93% ofcars in the UK) and our market leading authority ensures Halfords has the itemsin stock consumers wish to buy. A good example of our range authority is that wecarry over 80 different product lines of oil, acting as a real competitiveadvantage as manufacturers become increasingly specific about the oil that theyrecommend to owners of their marque. Car Enhancement Car Enhancement continued to show growth during the year reflecting anincreasing emphasis, particularly by the younger consumer, on enhancing theinterior as opposed to the exterior of their vehicles. Targeting those customers, we have introduced new and enhanced ranges aimed atbroadening the appeal of our interior accessory offer and have benefited fromencouraging sales growth as a result. The changing dynamics of the in-car electronics market has also had a majorimpact, driven by innovation in technology and an increase in own brandproducts. Our combination of market leading range, knowledgeable colleagues andunique fitting capability ensures that Halfords has the right technologysolution to meet customers' requirements. Reflecting this service advantage,across the total car enhancement category we fitted over 275,000 technologysolutions into our customers' cars. The trend towards digital music devices such as the iPod and MP3 players and thedesire to use these devices in-car has been met with new product ranges beingdeveloped that allow the customer to play their digital music through their carspeakers. This changing technology mix increased average retail prices within this sectorof the market in the second half of the year. Own label mix of business has alsosignificantly increased year on year through the successful introduction of anumber of own brand products, including satellite navigation, in-car DVD and CDplayers. Own brand accounted for over 20% of CD audio sales in the year, drivenby Ripspeed, which is now a top 5 in-car technology brand in its own right. New mobile phone legislation that came into effect at the end of February 2006resulted in strong sales of hands free phone solutions. Motorists caught using amobile phone in their car now risk a three points penalty and a £60 fine.Halfords range of Hands Free Phone Kits covers all solutions from bluetoothearpieces through to professionally, fully fitted hard wire solutions. The satellite navigation market continued to grow strongly during the lasttwelve months and Halfords continues to be the pre-eminent retailer for theseproducts, given our range strength, product knowledge and unique "Set Up andDemo" proposition. We have enjoyed good relations with all key suppliers within this sector and ourimproved forward planning of range activity and marketing has enabled us to bothgrow sales and improve profitability. Industry estimates vary, but a consensuswould place total car parc penetration for satellite navigation at approximately10% of the 33 million cars on the road in the UK, indicating that a combinationof market potential and product innovation will continue to drive growth in thiscategory. Leisure Two thirds of leisure sales are driven from our Cycling category. ThroughApollo, the UK's best selling bike brand and Carrera, the UK's leading premiumcycle brand, our reputation for bikes and cycle accessories continues to beenhanced by the evolution and development of these private label products by ourspecialist cycle team. During the year we continued to serve more customers, with one in three bikesbought in the UK being purchased from Halfords. Further development of ourApollo brand, across a number of consumer segments such as Kids, Junior, BMX,Adult and the recently introduced Folding Bike ranges has been recognised bycustomers who have made Apollo the UK's best selling bike brand. The Carrera range was relaunched in September 2006, with bold new designs andspecifications designed around the needs of the enthusiast cyclist with greaterchoice across Road, Hybrid, Mountain and with more women specific variants. TheCarrera range now includes carbon fibre frame components for the first time anda new All Terrain Mountain Bike - the Banshee X that takes Carrera above the£600 price point for the first time. The new Carrera Subway 1 was awarded 10/10with a Best Buy Award by Cycling Plus Magazine in March 2007. Working in collaboration with GT, a recognised worldwide premium cycle brandbased in the US, a completely new and exclusive range of bikes was designed indirect discussion with Halfords and launched exclusively in our stores inOctober. The response from customers and specialist press has been excellent,with the new GT I Drive 5 XCR voted a test winner and receiving a Gold Award inWhat MTB magazine. All these cycle ranges are good examples of our ability to source directly fromthe Far East with improved cost prices but also improved quality andspecification of individual models as we have a direct influence on the finalspecification. This allows us to provide quality bikes that deliver bothcompetitive retail prices and improved buying margins. The continued roll out of the supermezzanine format has helped supportadditional product and brand choice within Bikehut at Halfords. Bikehut subshopsare now in place in all of our 376 Superstores across the country. Each includesa bike workshop that adds credibility to the Bikehut sub-brand as a specialistbike retailer. An increasing number of customers are recognising the quality ofbikes and service at Halfords, which is why more consumers purchased a bike fromHalfords than from all the independent cycle retailers in the UK added together. The extension of Bikehut from a retail brand to a product brand through a rangeof premium cycle accessories has been well received by customers who are lookingfor high quality accessories at affordable prices. The Bikehut brand is ourfastest growing accessory brand with many products sourced directly throughHalfords Asia which ensures direct control over product design and qualitydelivering competitive retail prices, strong buying margins and exclusivity.Sales of Bikehut accessories are now close to £10m, two years after theirlaunch. On 18 September 2006, legislation was introduced which made it a legalrequirement to place all children under 12 years old or 135 cm in height on abooster seat in a car, as well as wearing a safety belt. Demand for such childseats increased considerably immediately prior to and also post the legislativechange. In anticipation we increased our stocks of these products and reaped thesales benefit of the demand surge as a consequence. Clearly such sales werebeneficial but, placed in context, child travel products still remain arelatively small proportion of our total sales mix. Changes to our travel and camping ranges and managing the price architecturewithin travel products generated encouraging sales growth and improvedprofitability across these product areas. Travel has now been developed as aclearly defined sub-shop within the store in time for 2007 summer period and wewould anticipate the category growth to continue. Within Camping considerable effort was made to source products directly from theFar East that would appeal to the Halfords customer. Family tent packs wereintroduced under the Halfords brand name and sales exceeded our expectations.Equally, the move to private label enhanced profitability. On the back of 2006success, we anticipate further growth in this attractive market and have furtherdeveloped our range for 2007 with the introduction of our Urban Escape premiumcamping range. Improving the supply chain A further key element of the Halfords strategy has been to increase theproportion of product, predominantly private label, which is sourced directlyfrom the Far East. This objective enables our sourcing teams both in the UK andin Asia to exercise far greater influence and control over the specification,quality and functionality of products, often influencing manufacturers in theirown product development strategy, given the level of expertise and marketunderstanding our trading teams possess. A further material benefit is that by sourcing directly and avoiding therequirement to source through agents we also benefit from improved cost prices. Price benefits are either reflected in our margin, or re-invested in price orproduct specification to grow sales and market share or a combination of both.Given the relatively low stock-turn of our product range some of these benefitsagreed with suppliers during the last financial year will continue to flowduring the forthcoming year as the new product becomes available. In June 2004, our sales penetration of product directly sourced from the FarEast was 7%. We set an initial target of 20% penetration within three years andhave now achieved that target ahead of schedule. We now source directly from 8different countries in the Far East. In recent months we have recruited individuals with sourcing expertise inelectronics and as a result we have been able to introduce a series of own brandin-car technology products, including Satellite Navigation, In-car DVD, andIn-car CD players, which also include functionality to play music downloadedonto MP3 hardware (e.g. the iPod). These new product developments, (often market leading) within in-car technology,have supported the early achievement of our penetration target and give usconfidence that we can achieve greater levels of sales penetration in thefuture. Marketing the Halfords proposition Halfords continued to develop its service offering and delivered another strongyear in its fitting and repair services. Almost 1.2 million customersexperienced our professional "we fit" and "we repair" services, an increase of13% over 2006. Further research conducted during the year confirmed the brandenhancement and loyalty-driving qualities of these services, with 70% ofcustomers who had a product fitted by Halfords indicating a likelihood to visitHalfords more often in the future. We continued to invest in store colleague training via the launch of ourtraining stores network with 700 colleagues now capable of hardwire technologyfitting and almost 2,000 trained to professionally and safely install childseats. We also now have over 1,500 colleagues trained to deliver our uniquesatellite navigation "Set up and Demo" service. Sales of our "Bike Care" bikemaintenance and warranty product improved during the year, helping to deliver a25% increase in repair jobs. We also rolled out nationally our unique "Scratch, Chip and Dent" repairservice, where customers can have minor bodywork marks repaired at a fraction ofthe cost of bodyshops, with pleasing levels of early customer uptake. Developing and increasing the level of uptake for our services will remain a keyfocus for us in the coming year as we continue to differentiate ourselves in theretail marketplace. Work was also undertaken during the year to align store team rotas to bettermeet customer demand patterns for our fitting services in order to deliverhigher levels of "on demand" fitting for products such as wiper blades, bulbsand batteries. A monitoring system was implemented within store operations, allowing us tointerrogate current in store rota construction. We have re-engineered storerotas to optimise the percentage of hours available at weekends to meet customerfootfall. All stores achieved their optimum rotas during the second quarter ofthe year and these have been maintained since that time. The consumer trend towards greater levels of on-line usage seen in the retailand broader consumer market was also felt in Halfords with an extremely pleasingperformance from Halfords.com. Significant growth was achieved in websitevisitors, as well as on-line sales and conversion. Improvements in our websitenavigation also help customers more easily research on-line before buying eitheron the site or in store. During the year, we implemented a new e-commerce fulfilment system providingflexibility and scalability for future growth. With the internet continuing toinfluence a growing proportion of retail sales, we will continue to develop oursite to ensure we meet the needs of Halfords' customers. Developments areplanned to further improve our customers' research and shopping experience andwe expect to introduce a "reserve on line, collect in store" service in 2007 aspart of our plans for multi-channel development. Environmental consideration We are naturally aware of the increasing need for all companies to operateresponsibly with regard to their impact on the environment. During the year, wehave put in place a series of initiatives that will, over time, see furtherimprovements and economies generated from Halfords operations. These initiativesinclude: •improved efficiency of our transport fleet •improvements in cardboard re-cycling •improved energy efficiency from stores During the course of the year, through a combination of engine selection on newtractor units, fuel consumption efficiency training for drivers, and moreefficient vehicle loading, we have seen an increase in weight of product carriedper kilometre by 6%. This means that fewer vehicles were required to deliver ourproduct supply requirement to stores and also used less fuel doing so, as fuelefficiency improved by 7%. The cardboard recycling scheme was extended to all stores during the year, suchthat over 95% of all cardboard waste generated is recycled. We have also reducedthe level of waste consigned to land fill year on year by around 35%. Within our stores, a three year plan has been agreed in partnership with theCarbon Trust to reduce store emissions by a further 8% over that period. Outlook The financial year ended 30 March 2007 is the third year since Halfords listedas an independent company and in each of these years we have delivered like forlike sales growth. Active margin management across all categories has arrestedthe margin dilution effect of the previous year and we expect to maintain abroadly neutral margin position in the forthcoming year, generating grossmargins in excess of 50%. Our strategic focus remains to consolidate our position further within our keymarkets, deliver additional growth from new product areas, proactively sourceproduct directly from manufacturers, wherever possible, and enhance our storeportfolio through opening new stores across each of our formats as well asinternationally. We have a disciplined re-investment policy. Following on from the success of ourinvestments in the Republic of Ireland we are on track to develop ourinternational portfolio. Although at an early stage we also see clear potentialfor the success of new formats, such as Neighbourhood and our standalone bikeretailing format, Bikehut. The combination of our category sales and margin initiatives, our space growthand the unique service advantage pursued through the hard work of our colleaguescontinue to give us confidence in Halfords' future prospects and optimism forthe delivery of further growth in the forthcoming year. Finance Director's Report Financial results Group sales for the 52 weeks ended 30 March 2007 were £744.0m (2006: £681.7m),an increase of 9.1% on the comparable period last year and representing alike-for-like sales increase of 6.0%. The absence of an Easter in the 52 weeksended 31 March 2006 has meant that the underlying like-for-like salesperformance was 5.3%. Gross profit at £376.1m (2006: £346.7m) is 50.6% as a percentage of net salesand compares to last year's figure of 50.9%. The 30 basis points ("bps")dilution in gross profit per cent represents a significant improvement on the260 bps dilution reported at the preliminary results last year. With reportedmargin dilution in the first half of the year at 40 bps there was a second halfimprovement, which saw year on year dilution of 20 bps. This improvementreflects active margin management; the flow-through of Far East sourcingbenefits and continued sales growth in higher margin categories. Operating expenses as a percentage of revenue are 20 bps higher than last yearat 38.0% (2006: 37.8%). Continued improvements in store labour productivity anda slow down in rental inflation has been offset by the increase inadministrative expenses driven by the costs associated with the three storeCzech Republic pilot, increased costs of long and short term incentives andlegal costs associated with the Group's capital restructure. Net finance costs for the year excluding exceptional interest were £10.0m (2006:£12.1m). Exceptional finance costs totalling £2.6m were incurred as part of thedebt re-financing exercise. The write-off of previously capitalised loan feesarising from the repayment of the Group's term debt totalled £1.5m and the costof closing out of an interest rate swap was £1.1m. Profit before tax was £80.9m compared with £77.0m in the prior year, an increaseof 5.1%, which rises to a year-on-year increase of 8.4% when excluding theexceptional finance costs noted above. Landlord contributions Halfords actively manages its store portfolio to maximise value creation throughgenerating cash, making profits and increasing the ongoing contribution fromeach store. Halfords high quality portfolio with 60% of its superstores onretail parks with A1 planning consents, together with it's destination statusprovides further potential from these activities and the Group anticipates asimilar level of contributions in the current financial year. Landlordcontributions during the year totalled £4.5m, compared to £6.9m last year. Operating leases All of the Group's stores are occupied under operating leases, the majority ofwhich are on standard lease terms, typically with a 15-year term at inception.The Group has a total commitment under non-cancellable operating leases of £810m(2006: £795m). Taxation The taxation charge on profit for the financial year was £23.5m (2006: £23.4m)resulting in a full year effective tax rate of 29.0% (2006: 30.4%). This taxrate has been driven by the treatment of intercompany Loan Notes raised at thetime of the Group's refinancing. It should be noted that although there isexpected to be a similar effective tax rate in 2007/08, the underlying tax rateis 31.6%, which reflects the non-deductibility of depreciation charged oncapital expenditure in respect of mezzanine floors and other storeinfrastructure. Earnings per share Basic earnings per share (EPS) were 25.8 pence (2006: 23.6 pence). Analternative EPS measure, excluding exceptional items, reflects the Group'sunderlying performance. Consequently, basic EPS, excluding exceptional financecosts, were 26.6 pence (2006: 23.6 pence), a year on year increase of 12.7%.This level of EPS growth reflects the increase in earnings driven by a strongtrading performance, a lower tax rate and the share buy back programme. Capital expenditure Capital investment in the period totalled £23.9m (2006: £27.5m), with a majorfocus on adding new selling space though expanding the store portfolio. TheGroup opened 25 new stores, of which 7 were relocations, growing the portfoliofrom 408 to 426 stores. This financial commitment underpins our strategy ofexpanding the Superstore portfolio and rolling out new formats, including theintroduction of two stand-alone Bikehut stores in Brighton and Putney. As notedin last year's report the Group continues to invest in the development of itsinfrastructure and particularly new store systems. After a trial period thesesystems are being rolled out nationally, successfully concluding the Group'sfive year programme to replace all of the core retail, operational and financialsystems. Cash flow, net debt, and capital structure Having undertaken a comprehensive review of the Group's capital structure, theBoard took the decision to undertake a debt re-financing exercise, which wascompleted on 14 July 2006. The debt facility now comprises a £180m five-yearterm non-amortising loan, with a £120m revolving credit facility. Total net debt at 30 March 2007 was £180.0m (2006: £173.7m) and includes £12.4m(2006: £12.5m) in respect of the head office finance lease. The Group continues to generate strong net cash flows from operations, whichwere £112.6m to 30 March 2007 (2006: £100.9m) and included a working capitaloutflow of £4.5m (2006: £11.5m). Stock levels remain well managed at £141.6m(2006: £127.2m), an increase of 11.3%. This increase reflects stock investmentin new stores, together with the seasonal stock build ahead of Easter, whichfell in the second week of the new financial year. Dividend and share buy back The Board is recommending a final dividend of 9.50 pence per share (2006: 8.75pence per share), which, in addition to the interim dividend of 4.35 pence pershare, generates a total dividend of 13.85 pence (2006: 12.75 pence). Subject to shareholder approval at the Annual General Meeting the final dividendwill be paid on 1 August 2007 to shareholders on the register at the close ofbusiness on 29 June 2007. At the preliminary results presentation on 8 June 2006, Halfords announced ashare buy back programme to purchase, for cancellation, up to £50m of sharecapital over a two year period. The strongly cash generative nature of thebusiness allows the Group to maintain its investment in new stores and otherstrategic opportunities, while improving capital efficiency and totalshareholder returns via this share buy back. In the period from 8 June 2006 to30 March 2007, Halfords purchased 9.0m of its own shares for an aggregateconsideration of £30.0m, at an average of 333.2 pence per share. Consolidated Income StatementFor the period 52 weeks to 52 weeks to 30 March 2007 31 March 2006 Notes £m £m---------------------------- ------ ---------- ----------Revenue 744.0 681.7 Cost of sales (367.9) (335.0)---------------------------- ------ ---------- ----------Gross profit 376.1 346.7 Operating expenses 2 (282.6) (257.6)---------------------------- ------ ---------- ----------Operating profit 3 93.5 89.1 Finance costs 4 (14.0) (12.5)Finance income 4 1.4 0.4---------------------------- ------ ---------- ----------Profit before tax 80.9 77.0 Taxation 5 (23.5) (23.4)---------------------------- ------ ---------- ----------Profit attributable to equityshareholders 57.4 53.6---------------------------- ------ ---------- ---------- ---------------------------- ------ ---------- ----------Earnings per shareBasic 7 25.8p 23.6pDiluted 7 25.6p 23.6p---------------------------- ------ ---------- ---------- All results relate to continuing operations of the Group. Consolidated Balance Sheet 30 March 2007 31 March 2006 £m £m--------------------------------- ------------ ----------AssetsNon-current assetsGoodwill 253.1 253.1Other intangible assets 4.7 5.7Property, plant and equipment 107.5 104.1Derivative financial instruments 1.3 ---------------------------------- ------------ ---------- 366.6 362.9Current assetsInventories 141.6 127.2Trade and other receivables 32.6 29.4Derivative financial instruments - 1.2Cash and cash equivalents 24.8 1.5--------------------------------- ------------ ---------- 199.0 159.3--------------------------------- ------------ ----------Total assets 565.6 522.2 LiabilitiesCurrent liabilities Borrowings (13.3) (63.5)Derivative financial instruments (2.3) -Trade and other payables (113.5) (101.9)Current tax liabilities (13.4) (13.1)Provisions (1.6) (1.2)--------------------------------- ------------ ---------- (144.1) (179.7)--------------------------------- ------------ ----------Net current assets/(liabilities) 54.9 (20.4) Non-current liabilitiesBorrowings (191.5) (111.7)Derivative financial instruments (0.1) (2.1)Deferred tax liabilities (0.9) (3.5)Accruals and deferred income (25.9) (22.7)--------------------------------- ------------ ---------- (218.4) (140.0)--------------------------------- ------------ ----------Total liabilities (362.5) (319.7)--------------------------------- ------------ ---------- --------------------------------- ------------ ----------Net assets 203.1 202.5--------------------------------- ------------ ---------- Shareholders' equity Share capital 2.2 2.3Share premium account 133.2 133.2Capital redemption reserve 0.1 -Retained earnings 67.6 67.0--------------------------------- ------------ ----------Total equity 203.1 202.5--------------------------------- ------------ ---------- Consolidated Statement of Changes in Shareholders' Equity Hedging Share Capital reserve Share premium redemption (retained Retained Total capital account reserve earnings) earnings equity £m £m £m £m £m £m------------------- ------ -------- --------- -------- -------- -------Balance at 1April 2005 2.3 132.9 - (2.9) 40.5 172.8 Profit for theperiod - - - - 53.6 53.6Shares issued - 0.3 - - - 0.3Cash flow hedges: -Fair value gainsin the period - - - 3.2 - 3.2Transfers toinventory - - - (0.8) - (0.8)Transfers to netprofit - - - (0.3) - (0.3)Employee shareoptions - - - - 1.3 1.3Deferred tax onemployee shareoptions - - - - 0.4 0.4Dividends - - - - (28.0) (28.0)------------------- ------ -------- --------- -------- -------- -------Balance at 31March 2006 2.3 133.2 - (0.8) 67.8 202.5 Profit for theperiod - - - - 57.4 57.4Purchase of ownshares (0.1) - 0.1 - (30.0) (30.0)Cash flow hedges:Fair valuelosses in theperiod - - - (5.6) - (5.6)Transfers toinventory - - - 3.5 - 3.5Transfers to netprofit - - - 2.3 - 2.3Employee shareoptions - - - - 2.1 2.1Deferred tax onemployee shareoptions - - - - 0.4 0.4Dividends - - - - (29.5) (29.5)------------------- ------ -------- --------- -------- -------- -------Balance at 30March 2007 2.2 133.2 0.1 (0.6) 68.2 203.1------------------- ------ -------- --------- -------- -------- ------- Consolidated Cash flow Statement 52 weeks to 52 weeks to 30 March 31 March 2007 2006 Notes £m £m----------------------------- ----- ----------- ----------- Cash flows from operating activitiesCash generated from operations 8 112.6 100.9Finance income received 1.0 0.4Finance costs paid (9.3) (11.0)Cost of forward foreign exchange contracts - (0.9)Taxation paid (25.4) (24.8)----------------------------- ------ ----------- -----------Net cash from operating activities 78.9 64.6----------------------------- ------ ----------- ----------- Cash flows from investing activitiesPurchase of intangible assets (0.7) (1.4)Purchase of property, plant and equipment (23.2) (26.1)----------------------------- ------ ----------- -----------Net cash used in investing activities (23.9) (27.5)----------------------------- ------ ----------- ----------- Cash flows from financing activitiesNet proceeds from issue of ordinary sharecapital - 0.3Purchase of own shares (30.0) -Repayment of bank borrowings (144.0) (12.0)Proceeds from new bank borrowings 180.0 -Issue costs of new bank borrowings (1.0) -Finance lease principal payments (0.3) (0.3)Dividends paid to shareholders (29.5) (28.0)----------------------------- ------ ----------- -----------Net cash used in financing activities (24.8) (40.0)----------------------------- ------ ----------- ----------- Net increase/(decrease) in cash and bankoverdrafts 9 30.2 (2.9)Cash and bank overdrafts at the beginningof the period (18.4) (15.5)----------------------------- ------ ----------- -----------Cash and bank overdrafts at the end of theperiod 9 11.8 (18.4)----------------------------- ------ ----------- ----------- Notes to the Preliminary Results 1. Basis of preparation The consolidated financial statements of Halfords Group plc (the "Company") andits subsidiary undertakings (the "Group") are prepared under the historical costconvention, except where IFRS requires an alternative treatment. The principalvariations relate to financial instruments (IAS39 "Financial instruments:recognition and measurement") and share based payments (IFRS 2 "Share-basedpayment"). The financial instruments are prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") and International Finance ReportingInterpretation Committee ("IFRIC") interpretations as adopted by the EuropeanUnion and with those parts of the Companies Act 1985 applicable to thosecompanies reporting under IFRS. The preparation of consolidated financial statements in conformity withgenerally accepted accounting principles requires the use of accountingestimates and management to exercise its judgement in the process of applyingthe Group's accounting policies. These judgements and estimates are based onhistorical experience and management's best knowledge of the amounts, events oractions under review and the actual results may ultimately differ from theseestimates. Areas involving a higher degree of judgement or complexity, or areaswhere assumptions and estimates are significant to the consolidated financialstatements, are, where necessary, disclosed separately. 2. Operating expenses For the period 52 weeks to 52 weeks to 30 March 2007 31 March 2006 £m £m ------------------------------ ------------ ---------- Selling and distribution costs 240.1 221.5 Administrative expenses 42.5 36.1 ------------------------------ ------------ ---------- 282.6 257.6 ------------------------------ ------------ ---------- 3. Operating profit For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m -------------------------------- ---------- --------- Operating profit is arrived at after charging/ (crediting): Operating lease rentals: - plant and machinery 1.0 0.8 - property rents 70.9 66.3 - rentals receivable under operating leases (9.8) (10.7) Landlord contributions (4.5) (6.9) Loss on disposal of property, plant and equipment 0.2 0.5 Amortisation of intangible assets 1.7 1.9 Depreciation of - owned property, plant and equipment 18.6 18.9 - assets held under finance leases 0.6 0.7 Net foreign exchange gains - (2.0) Trade receivables impairment 0.2 - -------------------------------- ---------- --------- 4. Net finance costs For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m ------------------------------- ---------- ---------- Finance costs: Bank borrowings (10.0) (9.7) Amortisation of issue costs on loans (0.3) (0.7) Commitment and guarantee fees (0.2) (0.3) Cost of forward foreign exchange contracts - (0.9) Interest payable on finance leases (0.9) (0.9) ------------------------------- ---------- ---------- Finance costs before exceptional finance costs (11.4) (12.5) Exceptional finance costs: Accelerated amortisation of issue costs on loans1 (1.5) - Swap close out costs2 (1.1) - ------------------------------- ---------- ---------- (2.6) - ------------------------------- ---------- ---------- Finance costs (14.0) (12.5) Finance income: Bank and similar interest 1.4 0.4 ------------------------------- ---------- ---------- Net finance costs (12.6) (12.1) ------------------------------- ---------- ---------- 1. On 14 July 2006 the Group replaced its existing borrowings with a five-yeartem loan of £180m and a revolving credit facility of £120m. As a consequence, acharge of £1.5m was made in respect of the accelerated amortisation of the issuecosts associated with the original borrowings. 2. On 29 September 2006 the Group closed out its existing interest rate swap ata cost of £1.1m. On the same date, the interest on the £180m term loan was fixedfor a three-month period. On 29 December 2006 the Group entered into a newinterest rate swap for £70m for the length of the new facility. 5. Taxation For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m ----------------------------- ---------- ---------- Current taxation UK corporation tax charge for the period 26.1 25.8 Adjustment in respect of prior periods (0.4) (1.2) ----------------------------- ---------- ---------- 25.7 24.6 Deferred taxation Origination and reversal of timing differences (1.9) (1.5) Adjustment in respect of prior periods (0.3) 0.3 ----------------------------- ---------- ---------- (2.2) (1.2) ----------------------------- ---------- ---------- Total tax charge for the period 23.5 23.4 ----------------------------- ---------- ---------- 5. Taxation (cont) The tax charge is reconciled with the standard rate of UK corporation tax asfollows: For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m ------------------------------- ---------- ---------- Profit before tax 80.9 77.0 ------------------------------- ---------- ---------- UK corporation tax at standard rate of 30.0% (2006:30%) 24.3 23.1 Factors affecting the charge for the period: Depreciation on expenditure not eligible for tax relief 0.7 1.1 Deduction for employee share options - (0.3) Impact of intra-group financing (1.4) - Other disallowable expenses 0.6 0.4 Adjustment in respect of prior periods (0.7) (0.9) ------------------------------- ---------- ---------- Total tax charge for the period 23.5 23.4 ------------------------------- ---------- ---------- 6. Dividends For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m ------------------------------- ---------- ---------- Equity - ordinary shares Final for the 52 weeks ended 31 March 2006 - paid 8.75p (2006: 8.30p) 19.8 18.9 Interim - paid 4.35p (2006: 4.00p) 9.7 9.1 ------------------------------- ---------- ---------- 29.5 28.0 ------------------------------- ---------- ---------- In addition, the Board are proposing a final dividend in respect of thefinancial year ended 30 March 2007 of 9.50 pence per share, which will absorb anestimated £20.8m of shareholders' funds. It will be paid on 1 August 2007 toshareholders who are on the register of members on 29 June 2007. 7. 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/repurchase ofshares during the period. 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 30 March 2007. 7. Earnings per share (cont) For the period 52 weeks to 52 weeks to 30 March 2007 31 March 2006 Number Number (million) (million) ----------------------------- ------------ ----------- Weighted average number of shares in issue 223.8 228.0 Less: shares held by the Employee Benefit Trust (0.9) (0.9) ----------------------------- ------------ ----------- Weighted average number of shares for calculating basic earnings per share 222.9 227.1 Weighted average number of dilutive shares 0.9 0.2 ----------------------------- ------------ ----------- Total number of shares for calculating diluted earnings per share 223.8 227.3 ----------------------------- ------------ ----------- The alternative measure of earnings per share is provided because it reflectsthe Group's underlying performance by excluding the effect of exceptional items. For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 £m £m ------------------------------ ---------- ---------- Basic earnings attributable to equity shareholders 57.4 53.6 Exceptional items: - Finance costs (see note 4) 2.6 - Tax on exceptional finance costs (0.8) - ------------------------------ ---------- ---------- Underlying earnings before exceptional items 59.2 53.6 ------------------------------ ---------- ---------- Earnings per share is calculated as follows: For the period 52 weeks to 52 weeks to 30 March 31 March 2007 2006 ------------------------------- ---------- ---------- Basic earnings per ordinary share 25.8p 23.6p Diluted earnings per ordinary share 25.6p 23.6p ------------------------------- ---------- ---------- Basic earnings per ordinary share before exceptional items 26.6p 23.6p Diluted earnings per ordinary share before exceptional items 26.5p 23.6p ------------------------------- ---------- ---------- 8. Cash generated from operations For the period 52 weeks to 52 weeks to 30 March 2007 31 March 2006 £m £m---------------------------- ------------ ----------Operating profit 93.5 89.1Depreciation - property, plant and 19.2 19.6equipmentAmortisation - intangible assets 1.7 1.9Loss on sale of property, plant and 0.2 0.5equipmentShare option scheme charges 2.1 1.3Fair value loss on derivative financialinstruments 0.4 -Increase in inventories (14.4) (18.9)Increase in trade and other receivables (2.8) (5.8)Increase in trade and other payables 12.3 13.6Increase/(decrease) in provisions 0.4 (0.4)---------------------------- ------------ ---------- 112.6 100.9---------------------------- ------------ ---------- 9. Analysis of movements in the Group's net debt in the period At 31 March Cash Other non At 30 2006 flow cash March changes 2007 £m £m £m £m----------------------------- ---------- -------- --------- ----------Cash in hand and at bank 1.5 23.3 - 24.8Bank overdraft (19.9) 6.9 - (13.0)----------------------------- ---------- -------- --------- ---------- (18.4) 30.2 - 11.8Debt 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 excludingfinance leases (160.7) (4.8) (1.8) (167.3) Finance leases due within oneyear (0.3) 0.3 (0.3) (0.3)Finance lease due after oneyear (12.7) - 0.3 (12.4)----------------------------- ---------- -------- --------- ----------Total finance leases (13.0) 0.3 - (12.7)----------------------------- ---------- -------- --------- ----------Total net debt (173.7) (4.5) (1.8) (180.0)----------------------------- ---------- -------- --------- ---------- Non-cash changes relate to finance costs of £1.8m in relation to theamortisation of capitalised debt issue costs. 10. Other information These results for the 52 weeks to 30 March 2007 together with the correspondingamounts for the 52 weeks to 31 March 2006 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 30 March 2007, 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 28 June 2007 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 Alveston Manor, Clopton Bridge,Stratford upon Avon, Warwickshire CV37 7HP at 12.30 pm on Wednesday, 25 July2007. 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