Halfords Regulatory News (HFD)

22 Nov 2007 07:02

Halfords Group PLC22 November 2007 22 November 2007 HALFORDS GROUP PLC ("HALFORDS") CONTINUED GROWTH IN ALL KEY CATEGORIES AND TRADING IN LINE WITH EXPECTATIONS Halfords, the UK's leading auto, leisure and cycling products retailer,announces its interim results for the 26 weeks to 28 September 2007. Financial Highlights• Revenue £400.7m up 8.5% (2006: £369.2m)• Like-for-like sales up 5.5%• Operating profit £52.6m up 8.5% (2006: £48.5m)• Profit before tax £47.6m up 16.4% (2006: £40.9m)• Profit before tax and exceptional items £47.6m up 9.4% (2006: £43.5m)• Basic earnings per share 15.3p up 20.5% (2006: 12.7p)• Basic earnings per share before exceptional items 15.3p up 13.3% (2006: 13.5p).• Interim dividend 4.75p up 9.2% (2006: 4.35p) Business Highlights• Continued growth in all key categories• Gross Profit at 50.9%, broadly flat year-on-year• 10 new store openings during the period• Bikehut and Czech Republic stores trading in line with management expectations and further store openings remain on track Commenting on the results, Ian McLeod, Chief Executive, said: "Halfords continues to grow sales in all of its key categories, maintaining thelong-term momentum in the business. Our market-leading positions in leisure,in-car technology and car maintenance, together with our high levels of serviceand store opening programme continue to differentiate Halfords within the retailsector. Trading in the seven weeks since the half-year end is in line with ourexpectations and, whilst acknowledging a challenging retail environment, weremain confident in our second half performance." Enquiries:Halfords Group plc (www.halfordscompany.co.uk)Tony Newbould, Investor Relations +44 (0)7753 809522 (on the day) +44 (0)1527 513113 (thereafter) Hogarth PartnershipJulian Walker, James Longfield +44 (0) 207 357 9477 Notes to Editors Halfords www.halfords.co.uk Established in 1892 as F.W. Rushbrooke and subsequently renamed Halfords in1907, the Company was floated on the London Stock Exchange in June 2004. TheGroup employs in excess of 10,500 staff and sells 11,000 different productlines, ranging from car parts and cycles through to the latest in-cartechnology, alloy wheels, child seats, roof boxes and outdoor leisure andcamping equipment. Halfords' own brands include Ripspeed, for car enhancement,Bikehut, for cycles and cycling accessories, including the Apollo and Carrerabrands and Urban Escape for its premium range of camping equipment. Operatingfrom 433 stores, including two stores in the Czech Republic, 17 smaller format,neighbourhood stores and two standalone Bikehuts (located in Brighton andPutney), Halfords offers a "we fit" service for car parts, child seats,satellite navigation and in-car entertainment systems, and a "we repair" servicefor 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 asat the date of this announcement. Nothing in this announcement should beconstrued as a profit forecast. Except as required by law, Halfords Group plchas no obligation to update the forward-looking statements or to correct anyinaccuracies therein. Overview This first six months of the year saw a solid trading performance with aconsistent level of underlying growth that has seen growth in all of the keycategories. Gross margin is broadly flat year-on-year and with cost growthmanaged in line with sales, profit before tax and exceptional charges as apercent of sales at 11.9% compares to 11.8% last year. Summary of Group Results Unaudited 26 weeks to 28 September 2007 29 September 2006 Change %Revenue (£m) 400.7 369.2 8.5%Gross profit (£m) 204.0 188.4 8.3%Operating profit (£m) 52.6 48.5 8.5%Operating profit % 13.1% 13.1%Profit before tax and exceptional items (£m) 47.6 43.5 9.4%Exceptional finance costs1(£m) - (2.6)Profit before tax (£m) 47.6 40.9 16.4%Basic earnings per share before exceptional items 15.3 pence 13.5 pence 13.3%Basic earnings per share 15.3 pence 12.7 pence 20.5% Note: 1. The exceptional finance costs in the prior year are detailed in Note 5to the Interim Report. Financial Review Income Statement Revenue for 26 weeks to 28 September 2007 was £400.7m (2006: 369.2m) an increaseof 8.5% on the comparable period last year and representing like-for-like salesincrease of 5.5%. Gross profit at £204.0m (2006: £188.4m) was up 8.3% and gross margin at 50.9% isbroadly flat when compared to the prior year (2006: 51.0%). This performancereflects the group's continued margin management, the flow-through of Far Eastsourcing benefits and sales improvements in higher margin categories. Operating expenses as a per cent of sales at 37.8% (2006: 37.9%) was broadly inline with last year and reflects an improvement in the selling and distributioncosts ratio, in part driven by the slowing down of rental inflation. Halfordsseeks to maintain a firm control of support costs in order to manage cost growthin line with sales, while funding investment in both enhancing our store basedservice proposition and growth initiatives. Operating costs within the firsthalf include the costs associated with opening our first store in Prague, CzechRepublic and the full cost of our Central European management team establishedduring the second quarter of last year. Halfords continues to manage its store portfolio to maximise value, Landlordcontributions during the period totalled £1.6m, compared to £1.2m last year andthe group remains in line with the guidance previously given of a full yearcontribution at a similar level to the previous financial year (52 weeks to 30March 2007: £4.5m). Net finance costs for the half-year were £5.0m. It should be noted that in lastyear's comparative figure of £7.6m there were £2.6m of exceptional finance costsin respect of expenses arising out of the debt re-financing exercise. Taxation The taxation charge is based upon an estimated effective tax rate of 29.4%(2006: 30.1%) on profit for the 52-weeks to 28 March 2008. From April 2008, thestatutory corporation tax rate decreases to 28%. Balance Sheet and Cash Flow Total net debt at 28 September 2007 was £173.0m (30 March 2007: £180.0m) andincludes £12.4m (30 March 2007: £12.5m) in respect of the Head Office financelease. The group continues to generate strong net cash flows from operations, whichwere £59.4m for the 26 weeks to 28 September 2007 (2006: £60.7m). Stock levels continue to be well managed. The year-on-year increase of 12.1%reflects the underlying sales improvement of 8.5%, investment in 10 new storesand targeted inventory increases to further increase availability in Halfordscore product areas. Stock turn remains in line with management expectation at2.5 times (2006: 2.6 times). Capital expenditure during the first half totalled £13.8m (2006: £10.8m) and thegroup is forecast to spend approximately £30.0m for the full year (52 weeks to30 March 2007: £23.9m). The major areas of expenditure during this period havebeen £4.6m on new store openings, (2006: £5.2m), and £4.1m (2006: £1.9m) inrespect of the ongoing rollout of our new store systems. Dividend and Share Buy back The Board has increased the interim dividend by 9.2% to 4.75 pence per share(2006: 4.35 pence per share). The dividend will be paid on 9 January 2008 toshareholders on the register on 30 November 2007. The share buy-back programme continues to progress. In the period from June2006 to 28 September 2007 Halfords purchased 12.6m of its own shares at aconsideration of £43.7m, an average of 345.6 pence per share, with 3.5m sharesbought back at a consideration of £13.7m, during the 26 week period to 28September 2007. On 28 September 2007 the group announced that it had given an irrevocableinstruction to it's brokers to continue the buy back process during the closeperiod up to a maximum of £2.0m and this was duly completed on 9 November 2007.Cumulatively, therefore, 13.1m shares have been bought back at a cost of £45.7m. Halfords remains strongly cash generative. The Company is committed to both aprogressive dividend policy and continued investment in the growth of thebusiness, both through organic development and other business developmentopportunities as they might arise. Upon the completion of the current buy back programme, the Board intends tomaintain an efficient capital structure and retain financial flexibility. Wetherefore intend, subject to market conditions, to continue to use share buybacks as a flexible tool in balance sheet management by maintaining keyperformance debt ratio indicators, consistent with optimising Halfords' balancesheet and enhancing shareholder returns. These indicators, the basis for whichare detailed in Note 11 to the Interim Report, being lease adjusted net debt toEBITDA and fixed charge cover. Operating Review Our year-on-year sales increase of 8.5%, particularly when set against equallystrong growth in the prior year, reflects our continuing focus on providing adifferentiated, well promoted, in-store offer supported by the unique serviceand fitting proposition of our store based colleagues. Our trading teams have continued to source and develop improved product rangesto maintain sales momentum in each category, complemented by the promotion of aseries of compelling consumer offers communicated throughout the year vianational and specialist press as well as dedicated TV advertising. Once againsales growth has been achieved in all of our three key categories. Performance in Car Maintenance further demonstrates the resilient foundationthat this needs-driven product area provides our business. Our market leadershipand competitive advantage is clearly demonstrated through continued growth, thecontinuation of our wide product range, strong availability and also our abilityto target new consumers through our growing Tradecard operation. The Car Enhancement market remains vibrant, with Halfords now firmly establishedas the UK's number one retailer of in-car technology products. The continuedmigration of technology including digital music, DVD, mobile phone connectivityand satellite navigation to the car provide a firm base for further growth. Wecontinually reinforce our leading position through range development, includingprivate label electronics, strong offers and our unique "Set Up and Demo"service. In our Leisure category, the cycle market is enjoying a period of encouraginggrowth, through a combination of leisure, environmental, fitness and commutingneeds. During the first six months, we introduced over 100 new models under theApollo or Carrera branding. Apollo is now the UK's leading cycle brand and theproduct re-launch was timed to coincide with the Easter trading period when wewere able to benefit from the warmer weather compared to April last year. Our exclusive premium range of Boardman cycles and cycle accessories, developedin partnership with Chris Boardman OBE, is exceeding our expectations. Initialsales are very encouraging and the range has benefited from positive reviews bythe specialist press. Travel Solutions was re-merchandised, re-ranged and re-branded for the start ofthe financial year. A Travel and Touring sub-shop was created to provide astronger identity to this part of our business, with encouraging results. Afull training programme was also undertaken, in order that colleagues couldrespond to customer enquiries with confidence. In Active Leisure, following the success of Halfords branded standard tentpacks, we introduced a range of premium own brand camping products under theUrban Escape brand. Broader ranges, innovative packaging and effectivemarketing all combined to produce a strong performance from the category. Store Portfolio Over the past two years we have developed a number of new store formats tocomplement our core supermezzanine format aimed at targeting customers inspecific catchment areas. We remain focused on opening new stores across thesevarious formats. During the 26 weeks to 28 September 2007 the group opened 10 new stores,resulting in 433 stores trading at the half-year end. Of these new stores ninewere superstores, of which seven were in supermezzanine format and one was inour smaller store "neighbourhood" format, taking the total of these stores to16. Encouragingly, space from new stores continues to contribute positively tooverall sales growth, representing 3.0% (2006: 2.8%) of the first half salesgrowth. We remain committed to enhancing our market-leading position by the introductionof new stores. We remain on target to open 20 new stores during the currentfinancial year and believe that there is the opportunity for approximately 120additional Halfords stores across the UK and the Republic of Ireland. Halfords.com Performance from our internet offer continues to improve, with strong growth inweb-site visitors, conversion and sales. The website represents our largest "store" and is consistently the most visited web-site in our retail segment. With ongoing investment in our multi-channel proposition we continue to improvethe customer experience on our site. This includes the introduction of morethan 2,500 new product lines over the past year, further improvements toweb-site navigation and the introduction of a "reserve on-line, collect in-store" service before Christmas. Stand-Alone Bikehut Our Bikehut stand-alone concept was first introduced in November 2006. Buildingupon our position as the UK's largest cycle retailer, the concept is clearlydifferentiated, in terms of both range and environment from our superstoreoffering and is proving appealing to the specialist consumer that it targets. The results from our initial two pilot stores in Brighton and Putney provide uswith the confidence to increase the number of stores to at least six by the endof the financial year, of which four will be opened by Christmas. We believethere is the potential for at least 50 stand-alone Bikehut stores across thecountry. International Expansion The extent of our progress within the international arena was best evidenced on29 June 2007, when Halfords opened three stores on the same day in threecountries, trading in three currencies. Within the Republic of Ireland consumer acceptance for our offer continues to beextremely positive with new stores generating above average returns oninvestment. We opened two further stores during the first half, taking thetotal number of stores in Ireland to 14. We believe our smaller "neighbourhood"format is ideally suited to the smaller catchments in Ireland and envisageopening our first neighbourhood store during the second half of the financialyear. Our first store in the Czech Republic opened, in Prague, in June 2007, and asecond opened on 14 November 2007 also in Prague. A further store will open,outside Prague, prior to Christmas. Another three stores across the country willopen in 2008 to achieve our extended pilot scale of six stores. Initial tradingis positive, with strong acceptance of our proposition that introduces Halfordsmarket leading product range and service complemented by a full garage-servicingoffer to the Czech consumer. Service Proposition Earlier this year we re-branded our service proposition to more clearlycommunicate the wide range of services that we provide. "we fit" has beenestablished as an integral element within our advertising, which has helped tounderpin it's growing resonance with the customer and has driven a 10%year-on-year growth in the number of jobs fitted, which now stands at 1.3m. Second Half Outlook and Current Trading With like-for-like sales increasing by 5.5% we are encouraged by Halfordstrading performance during the first 26 weeks of this financial year. Continuedgrowth across each of our core product categories provides the Group withfurther confidence in its trading prospects for the second half. The innovation and development within our car electronics and accessories rangeshas provided us with an opportunity to capitalise further on the Christmasmarket, complimenting the already strong performance of our children's bikeoffer during that period. However, our sales growth is not critically dependenton this quarter, as, typically, sales in each half of the year are broadly thesame. In the seven weeks since 28 September 2007 Halfords has continued to trade inline with expectations and we remain on track to be trading from three stores inthe Czech Republic and four Bikehuts by the end of the calendar year. Principal risks and uncertainties The Board considers risk assessment, identification of mitigating actions andinternal control to be fundamental to achieving Halfords' strategic corporateobjectives and in the Annual Report 2007 it set out what it considers to be theprincipal commercial and financial risks to achieving the group's objectives.The main areas of potential risk and uncertainty in the balance of the financialyear are those identified below: Economic and market conditions The economy is a major influence on consumer spending. Trends in employment,inflation, taxation, consumer debt levels and interest rates impact consumerexpenditure in discretionary areas. Whilst many of the products that Halfordssell are non-discretionary in their nature some of these products, such aschildren's cycles, face competition from alternative products (such as gamesconsoles). Halfords reflects the latest independently sourced estimates in itsinternal plans. Competition The retail industry is highly competitive. The group competes with a widevariety of retailers of varying sizes and faces competition from UK retailers,as well as international operators. Failure to compete with competitors on areasincluding price, product range, quality and service could have an adverse effecton the group's financial results. We aim to have a broad appeal in price, range and store format in a way thatallows us to compete in different markets and to use service as a point ofdifferentiation in each market segment. HALFORDS GROUP PLC Consolidated Income Statement 26 weeks to 28 September 2007 26 weeks to 26 weeks to 52 weeks to 28 September 2007 29 September 2006 30 March 2007 Unaudited Unaudited Audited Notes £m £m £m Revenue 3 400.7 369.2 744.0 Cost of sales (196.7) (180.8) (367.9) Gross profit 204.0 188.4 376.1 Operating expenses (151.4) (139.9) (282.6) Operating profit 4 52.6 48.5 93.5 Finance costs 5 (6.4) (8.3) (14.0)Finance income 5 1.4 0.7 1.4 Profit before tax 47.6 40.9 80.9 Taxation 6 (14.0) (12.3) (23.5) Profit attributable to equity shareholders 33.6 28.6 57.4 Earnings per shareBasic 8 15.3p 12.7p 25.8pDiluted 8 15.3p 12.7p 25.6p A final dividend of 9.50 pence per share for the 52 weeks to 30 March 2007 (8.75pence per share for the 52 weeks to 31 March 2006) was paid on 1 August 2007.The directors have approved an interim dividend of 4.75 pence per share inrespect of the 26 weeks to 28 September 2007 (4.35 pence per share for the 26weeks to 29 September 2006). HALFORDS GROUP PLC Consolidated Balance Sheet As at 28 September 2007 28 September 2007 29 September 2006 30 March 2007 Unaudited Unaudited Audited Notes £m £m £mAssetsNon-current assetsGoodwill 9 253.1 253.1 253.1Other intangible assets 9 5.1 5.0 4.7Property, plant and equipment 9 110.5 105.2 107.5Derivative financial instruments 1.2 - 1.3 369.9 363.3 366.6Current assetsInventories 154.4 137.7 141.6Trade and other receivables 38.0 32.8 32.6Cash and cash equivalents 69.3 45.2 24.8 261.7 215.7 199.0Total assets 631.6 579.0 565.6 Liabilities Current liabilities Borrowings (50.8) (34.7) (13.3)Derivative financial instruments (2.8) (2.0) (2.3)Trade and other payables (129.7) (113.6) (113.5)Current tax liabilities (14.4) (13.3) (13.4)Provisions (1.7) (1.5) (1.6) (199.4) (165.1) (144.1) Net current assets 62.3 50.6 54.9 Non-current liabilitiesBorrowings (191.5) (191.7) (191.5)Derivative financial instruments (0.2) - (0.1)Deferred tax liabilities (0.3) (2.8) (0.9)Accruals and deferred income (26.9) (24.5) (25.9) (218.9) (219.0) (218.4) Total liabilities (418.3) (384.1) (362.5) Net assets 213.3 194.9 203.1 Shareholders' equityShare capital 12 2.2 2.2 2.2Share premium account 12 145.5 133.2 133.2Share buy back reserve (2.0) - -Capital redemption reserve 0.1 0.1 0.1Retained earnings 67.5 59.4 67.6 Total equity 213.3 194.9 203.1 HALFORDS GROUP PLC Consolidated Statement of Changes in Shareholders' Equity 26 weeks to 28 September 2007 Retained Share Share Capital earnings Share Premium buy back redemption (hedging Retained Total capital account reserve reserve reserve) earnings equity £m £m £m £m £m £m £m Balance at 31 March 2006 2.3 133.2 - - (0.8) 67.8 202.5Profit for the period - - - - - 28.6 28.6Purchase of own shares (0.1) - - 0.1 - (16.0) (16.0)Cash flow hedges (net oftax):Fair value losses in the period - - - - (2.9) - (2.9)Transfers to inventory - - - - 1.2 - 1.2Transfers to net profit - - - - 0.5 - 0.5Employee share options - - - - - 0.7 0.7Deferred tax on employee share options - - - - - 0.1 0.1Dividends - - - - - (19.8) (19.8) Balance at 29 September 2006 2.2 133.2 - 0.1 (2.0) 61.4 194.9 Retained Share Share Capital earnings Share Premium buy back redemption (hedging Retained Total capital account reserve reserve reserve) earnings equity £m £m £m £m £m £m £m Balance at 31 March 2006 2.3 133.2 - - (0.8) 67.8 202.5Profit for the period - - - - - 57.4 57.4Purchase of own shares (0.1) - - 0.1 - (30.0) (30.0)Cash flow hedges (net oftax):Fair value losses in the period - - - - (5.6) - (5.6)Transfers to inventory - - - - 3.5 - 3.5Transfers to net profit - - - - 2.3 - 2.3Employee share options - - - - - 2.1 2.1Deferred tax on employee share options - - - - - 0.4 0.4Dividends - - - - - (29.5) (29.5) Balance at 30 March 2007 2.2 133.2 - 0.1 (0.6) 68.2 203.1Profit for the period - - - - - 33.6 33.6Purchase of own shares - - (2.0) - - (13.7) (15.7)Shares issued - 12.3 - - - - 12.3Cash flow hedges (net oftax):Fair value losses in the period - - - - (2.1) - (2.1)Transfers to inventory - - - - 2.0 - 2.0Transfers to net profit - - - - 0.3 - 0.3Employee share options - - - - - 0.6 0.6Tax on employee share options - - - - - 0.2 0.2Dividends - - - - - (21.0) (21.0) Balance at 28 September 2007 2.2 145.5 (2.0) 0.1 (0.4) 67.9 213.3 HALFORDS GROUP PLC Consolidated Cash Flow Statement 26 weeks to 28 September 2007 26 weeks to 26 weeks to 52 weeks to 28 September 2007 29 September 2006 30 March 2007 Unaudited Unaudited Audited Notes £m £m £m Cash flows from operating activitiesCash generated from operations 10 59.4 60.7 112.6Finance income received 1.4 0.6 1.0Finance costs paid (6.0) (6.6) (9.3)Gain on forward foreign exchange contracts - 0.1 -Taxation paid (13.4) (12.7) (25.4)Net cash from operating activities 41.4 42.1 78.9 Cash flows from investing activitiesPurchase of intangible assets (0.3) (0.3) (0.7)Purchase of property, plant and equipment (11.6) (11.7) (23.2)Net cash used in investing activities (11.9) (12.0) (23.9) Cash flows from financing activitiesNet proceeds from issue of ordinary shares 12.3 - -Purchase of own shares (13.7) (16.0) (30.0)Repayment of bank borrowings - (144.0) (144.0)Proceeds from new bank borrowings - 180.0 180.0Issue costs of new bank borrowings - (1.0) (1.0)Finance lease principal payments (0.1) (0.1) (0.3)Dividends paid to shareholders (21.0) (19.8) (29.5)Net cash used in financing activities (22.5) (0.9) (24.8) Net increase in cash and bank overdrafts 11 7.0 29.2 30.2Cash and bank overdrafts at the beginning of the 11 11.8 (18.4) (18.4)periodCash and bank overdrafts at the end of the period 11 18.8 10.8 11.8 HALFORDS GROUP PLC Notes to Interim Report 26 weeks to 28 September 2007 1. General Information Halfords Group plc (the "Company") together with it's subsidiary undertakings(the "Group") are retailers of auto, leisure and cycling products. The Company is a limited liability company incorporated, domiciled andregistered in England and Wales. Its registered office is Icknield Street Drive,Washford West, Redditch, Worcestershire, B98 ODE. The Company is listed on the London Stock Exchange. The condensed interim financial information was approved on 22 November 2007. 2. Basis of Preparation The condensed interim financial information for the 26 weeks to 28 September2007 has been prepared in accordance with the Disclosure and Transparency Rules("DTR") of the Financial Services Authority and with IAS 34 'Interim financialreporting' as adopted by the European Union. The condensed interim financialinformation should be read in conjunction with the 2007 Annual Reports andAccounts which have been prepared in accordance with IFRSs as adopted by theEuropean Union. This condensed interim financial information does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. Thecomparative figures for the 52 weeks to 30 March 2007 are derived from thestatutory accounts filed with the Registrar of Companies. The audit report onthe 2007 Annual Reports and Accounts was unqualified, did not contain anemphasis of matter paragraph and did not contain a statement under section 237of the Companies Act 1985. The accounting policies set out in the 2007 Annual Reports and Accounts, whichare published on the Halfords Group website (www.halfordscompany.com), have beenconsistently applied to the periods presented. The following changes toaccounting standards and interpretations are expected to impact on the Group'saccounting policies as set out below: IFRS 7 "Financial instruments disclosures" is effective for the 52 weeks to 28March 2008. As this interim report contains only condensed financialstatements, full IFRS 7 disclosures are not required at this stage. The fullIFRS 7 disclosures including the sensitivity analysis will be given in the 2008Annual Reports and Accounts. IFRS 8 "Operating segments" effective for accounting periods beginning on orafter 1 January 2010, will be applicable for the 52 weeks to 1 April 2011.These amendments to disclosure requirements will have no effect on the Group'sreported results. 3. Segmental Reporting The Group has one main business segment, which is retail, and one maingeographical segment, which is the United Kingdom. The business segmentreporting format reflects the Group's management and internal reportingstructure. 4. Operating Profit The following item has been credited to the operating profit during the 26 weeksto 28 September 2007: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited Audited £m £m £m Landlord contributions (1.6) (1.2) (4.5) 5. Net Finance Costs 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited Audited £m £m £mFinance costs:Bank borrowings (5.4) (4.9) (10.0)Amortisation of issue costs on loans (0.1) (0.3) (0.3)Commitment and guarantee fees (0.1) (0.1) (0.2)Cost of forward foreign exchange contracts (0.4) - -Interest payable on finance leases (0.4) (0.4) (0.9) Finance costs before exceptional finance costs (6.4) (5.7) (11.4) Exceptional finance costs:Accelerated amortisation of issue costs on loansi - (1.5) (1.5)Swap close out costsii - (1.1) (1.1) - (2.6) (2.6) Finance costs (6.4) (8.3) (14.0) Finance income:Bank and similar income 1.4 0.6 1.4Gain on forward exchange contracts - 0.1 - Finance income 1.4 0.7 1.4 Net finance costs (5.0) (7.6) (12.6) Exceptional finance costs: i. On 14 July 2006, the Group replaced its existing borrowings with afive-year term loan of £180.0m and a revolving credit facility of £120.0m. As aconsequence, a charge of £1.5m was made in respect of the acceleratedamortisation of the issue costs associated with the original borrowings. The term loan attracts interest rate of LIBOR plus a fixed margin of 0.45%, andthe rate is set bi-annually. An interest rate swap is in place for £70.0m andmirrors the bi-annual rate setting of the term loan facility. The revolvingcredit facility permits further borrowings to a maximum of £120.0m. Thisfacility matures on 13 July 2011 and drawings under the facility attractinterest at LIBOR plus 0.45%-0.50% dependant upon covenant fulfilment. ii. On 29 September 2006, the Group closed out its existing interest rateswap at a cost of £1.1m. On the same date, the interest on the £180.0m termloan was fixed for a three-month period. The Group entered into a new interestrate swap for £70.0m commencing on 29 December 2006 for the length of the newfacility. 6. Taxation The taxation charge in the 26 weeks to 28 September 2007 is based on anestimated effective tax rate of 29.4% (2006: 30.1%) on profit before tax for thefull year. The underlying tax charge on trading is 31.4% (2006: 31.4%), principally due tothe non-deductibility of depreciation charged on capital expenditure in respectof mezzanine floors and other store infrastructure. The lower tax rate of 29.4%in this financial period is due to the financing structure put in place, as partof the debt re-finance on 14 July 2006. 7. Dividends During the period the group paid a final dividend of 9.5 pence per share inrespect of the 52 weeks to 30 March 2007 (8.75 pence per share for the 52 weeksto 31 March 2006), which absorbed £21.0m of shareholder funds (2006: £19.8m). The directors have approved an interim dividend of 4.75 pence per share for the26 weeks to 28 September 2007 (4.35 pence per share for the 26 weeks to 29September 2006), which equates to £10.5m (2006: £9.7m) and will be paid on 9January 2008 to those shareholders on the share register at the close ofbusiness on 30 November 2007. 8. Earnings Per Share Basic earnings per share is 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 bythe 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 shares inissue 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 26 weeks to 28 September 2007. 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited Audited Number Number Number m m m Weighted average number of shares in issue 220.2 226.2 223.8Less: shares held by the Employee Benefit Trust (0.9) (0.9) (0.9) Weighted average number of shares for calculating 219.3 225.3 222.9basic earnings per shareWeighted average number of dilutive shares options 0.1 0.1 0.9 Total number of shares for calculating diluted 219.4 225.4 223.8earnings per share The alternative measure of earnings per share is provided because it reflectsthe Group's underlying performance by excluding the effect of exceptional items. 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited Audited £m £m £m Basic earnings attributable to equity shareholders 33.6 28.6 57.4Exceptional items:Finance costs (see note 5) - 2.6 2.6Tax on exceptional finance costs - (0.8) (0.8) Underlying earnings before exceptional items 33.6 30.4 59.2 8. Earnings Per Share (Continued) 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited AuditedBasic earnings per ordinary share 15.3p 12.7p 25.8pDiluted earnings per ordinary share 15.3p 12.7p 25.6p Basic earnings per ordinary share before 15.3p 13.5p 26.6pexceptional itemsDiluted earnings per ordinary share before 15.3p 13.5p 26.5pexceptional items 9. Capital expenditure - Tangible and Intangible Assets Unaudited £mNet book value at 31 March 2006 362.9Additions 10.8Disposals (0.1)Depreciation, amortisation and impairments and other movements (10.3) Net book value at 29 September 2006 363.3 Unaudited £mNet book value at 30 March 2007 365.3Additions 13.8Disposals (0.3)Depreciation, amortisation and impairments and other movements (10.1)Net book value at 28 September 2007 368.7 The Group is expected to spend approximately £30.0m for the 52 weeks to 28 March2008. At the 28 September 2007 the Group had capital expenditure, contractedbut not provided of £2.0m (2006: £1.0m). 10. Cash Generated from Operations 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 Unaudited Unaudited Audited £m £m £mOperating profit 52.6 48.5 93.5Depreciation - property, plant and equipment 9.2 9.4 19.2Amortisation - intangible assets 0.9 0.9 1.7Loss on sale of property, plant and equipment 0.3 0.1 0.2Share option scheme charges 0.6 0.7 2.1Fair value loss on derivative financial instruments 0.5 - 0.4Increase in inventories (12.8) (10.5) (14.4)Increase in trade and other receivables (5.4) (3.4) (2.8)Increase in trade other payables 13.4 14.7 12.3Increase in provisions 0.1 0.3 0.4 Cash generated from operations 59.4 60.7 112.6 11. Analysis of Movements in the Group's Net Debt in the Period At At 31 March Other non 29 September 2006 Cash flow cash changes 2006 Audited Unaudited Unaudited Unaudited £m £m £m £mCash in hand and at bank 1.5 43.7 - 45.2Bank overdraft (19.9) (14.5) - (34.4) (18.4) 29.2 - 10.8 Debt due within one year (43.3) 44.0 (0.7) -Debt due after one year (99.0) (79.0) (1.1) (179.1)Total net debt excluding finance leases (160.7) (5.8) (1.8) (168.3) Finance leases due within one year (0.3) 0.1 (0.1) (0.3)Finance leases due after one year (12.7) - 0.1 (12.6)Total finance leases (13.0) 0.1 - (12.9) Total net debt (173.7) (5.7) (1.8) (181.2) At At 30 March Other non 28 September 2007 Cash flow cash changes 2007 Audited Unaudited Unaudited Unaudited £m £m £m £mCash in hand and at bank 24.8 44.5 - 69.3Bank overdraft (13.0) (37.5) - (50.5) 11.8 7.0 - 18.8 Debt due after one year (179.1) - (0.1) (179.2)Total net debt excluding finance leases (167.3) 7.0 (0.1) (160.4) Finance leases due within one year (0.3) 0.1 (0.1) (0.3)Finance leases due after one year (12.4) - 0.1 (12.3)Total finance leases (12.7) 0.1 - (12.6) Total net debt (180.0) 7.1 (0.1) (173.0) Non-cash changes relate to the finance costs of £0.1m (2006: £1.8m) in relationto the amortisation of capitalised debt issue costs. The company monitors net debt by using the following debt metrics: i. Lease adjusted net debt: being net debt and leasescapitalised at eight times, as a multiple of EBITDA plus operating leasecharges. ii. Fixed charge cover: being EBITDA plus operating leasecharges as a multiple of interest and operating lease charges. 12. Share Capital Number of Share Share shares capital premium account m £m £m As at 31 March 2006 228.0 2.3 133.2Purchase of own shares (5.2) (0.1) - As at 29 September 2006 222.8 2.2 133.2 Number of Share Share shares capital premium m £m account £m As at 30 March 2007 219.0 2.2 133.2Shares issued - employee options 4.7 - 12.3Purchase of own shares (3.5) - - As at 28 September 2007 220.2 2.2 145.5 During the 26 weeks to 28 September 2007, options exercised by employeesresulted in 4.7m ordinary shares being issued for a total consideration of£12.3m. At 28 September 2007, the Company was committed to an agreement to buy backshares in the closed period. The agreement was capped at £2m. A reserve hasbeen recognised to account for this obligation. 14. Seasonality In general, the group's results are not seasonal with revenue in the first halfbroadly similar to that of the second, however sales of certain products tend tofluctuate by season. For example, sales of children's cycles peak in theChristmas season and sales of adult cycles tend to peak in the summer. Itshould be noted that in the 52 weeks to 28 March 2008 there are two Easterperiods. 15. Related Party Transactions There were no material related party transactions during the 26 weeks to 28September 2007. HALFORDS GROUP PLC Statement of Directors' Responsibilities 26 weeks to 28 September 2007 The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union and that theinterim management information herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of Halfords Group plc are listed in the 2007 Annual Reports andAccounts. By order of the Board Nick Wharton, Finance Director Ian McLeod, Chief Executive HALFORDS GROUP PLC Auditors' Review Report 26 weeks to 28 September 2007 Introduction We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the 26 weeks to 28 September2007, which comprises the consolidated income statement, consolidated balancesheet, consolidated statement of changes in shareholders' equity, consolidatedcash flow statement and related notes. We have read the other informationcontained in the half-yearly financial report and considered whether it containsany apparent misstatements or material inconsistencies with the information inthe condensed set of financial statements. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. As disclosed in note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting", as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the 26 weeks to 28 September 2007 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. PricewaterhouseCoopers LLPChartered AccountantsBirmingham 22 November 2007 Notes: a) The maintenance and integrity of the Halfords Group plc website is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the website. b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange