Halfords Regulatory News (HFD)

9 Jun 2005 07:00

Halfords Group PLC09 June 2005 9 June 2005 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 1 April 2005. Financial Highlights • Turnover £628.4m up 8.6% • Like-for-like sales, including contribution from new mezzanines, up 8.9% • Gross profit percentage up from 53.5% to 53.7% • Operating profit before goodwill amortisation and exceptional operating items £92.2m up 16.4% • Operating profit £78.3m up 19.5% • Pre-tax profit before goodwill amortisation and exceptional items £77.5m up 76.9% • Pre-tax profit £64.1m up 130.6% • Basic earnings per share before goodwill amortisation and exceptional items 24.4p up 37.9% • Basic earnings per share 18.5p up 122.9% • Strong operating cash flow of £116.2m and year end net debt down 51.4% to £169.7m • Final dividend of 8.3p, making a total dividend for the year of 12p per ordinary share Business Highlights • 398 stores including 18 new store openings and relocations • 57 supermezzanine stores now trading • New categories delivering good results • "We'll Fit It" programme approaching one million products fitted in the year Commenting on the results, Ian McLeod, Chief Executive, said:"Following our Stock Exchange listing in June 2004, Halfords has reported asuccessful year of sales and profit growth. Against strong comparative trading,we are encouraged that Halfords continues to deliver positive like-for-likesales after adjusting for Easter. The current trading performance gives usconfidence that the diligent application of our strategy will enable us todeliver positive results going forward, despite a challenging retailenvironment." Enquiries Halfords Group plc (www.halfordscompany.co.uk) on Thursday 9 June only 0207 190 1705 Ian McLeod, Chief Executive thereafter 01527 517601Nick Carter, Finance Director Gainsborough Communications 0207 190 1703Andy CorneliusJulian Walker Halfords Group plc (www.halfordscompany.co.uk) Halfords is the UK's leading auto, leisure and cycling products retailer with398 stores and nearly 10,000 employees. The Group sells 11,000 different product lines ranging from car parts and cyclesthrough to the latest in-car technology, alloy wheels, child seats, roof boxesand the latest outdoor leisure and camping equipment. Halfords' own brandsinclude Ripspeed, for car enhancement, and Bikehut, for cycles and cyclingaccessories, including the Apollo and Carrera brands. Stores offer a "We'll FitIt" service for car parts, child seats, satellite navigation and in-carentertainment systems, together with newer concepts such as Kidszone and ActiveLeisure. Halfords is a FTSE 250 company. It was established in 1892 and was successfullyfloated on the London Stock Exchange in June 2004. Chairman's Statement This first set of full year results as a publicly listed company demonstratesthe strength and growth potential of our business, which has a unique positionas the UK's leading auto, leisure and cycling products retailer. Halfords continued to improve performance and grow market share by building onits unique advantages of greater scale than its competitors, a differentiatedcustomer service proposition through the "We'll Fit It" initiative and from thecontinued development programme of new and exciting products. In the 52 weeks to 1 April 2005, and against a backdrop of a challenging retailmarket, we achieved sales growth across all four of our key product categoriesof car maintenance, car enhancement, cycling, and travel solutions, whilstcontinuing to keep firm control of costs. By the end of the financial year, the Group was operating from 398 stores acrossthe UK and the Republic of Ireland as we continued to roll out our storedevelopment programme of introducing mezzanine floors, improving store layoutsand opening in new locations. Our success would not have been possible without the huge contribution from our9,940 employees, whose passion, knowledge and enthusiasm are crucial in givingHalfords competitive advantage in the retail marketplace. The Board would also like to place on record its appreciation for the valuablecontribution made by David Hamid, our former Chief Executive, who announced hisretirement from the Group in March this year because of ill health. We were fortunate in being able to appoint Ian McLeod as Chief Executive. Ianhas outstanding credentials for the job. He has been with the Group sinceSeptember 2003 and as Chief Operating Officer played an important role inrunning the business alongside David and the senior management team. The Board is committed to the highest standards of corporate governance andcorporate social responsibility, as explained in more detail in the AnnualReport and Accounts.The Board is recommending a final dividend of 8.3p per share in addition to the3.7p per share interim dividend already paid, bringing the total dividend forthe year to 12.0p per share. Although the UK retail climate has become more subdued, we have a strong anddifferentiated business with a proven strategy for growth, which provides asolid platform from which to build and gives us confidence about the Halfords'growth prospects for the future. Rob TemplemanChairman8 June 2005 Chief Executive's Report Halfords has a very strong brand name, synonymous with quality, reliability andtrust and has delivered 17 consecutive years of sales growth. The financial year ended 1 April 2005 has been notable for continuing the paceof change in the business and the substantial improvement in store performanceand company profitability. Sales increased by 8.6% to £628.4m compared with the previous year, whilepre-tax profits have risen by 130.6% to £64.1m over the same period. We aggressively pursued the store opening, refurbishment and product developmentprogrammes outlined to investors at the time of the Company's successful listingon the London Stock Exchange in June 2004. Halfords has a unique retailing proposition. We are about 12 times the size ofour nearest competitor and are market leaders in all of our key productcategories. We are a store of first choice for cycling and automotiverequirements and have successfully widened our product offer into new areasincluding camping equipment and a broader range of leisure products. A key competitive advantage is the Halfords "We'll Fit It" programme; we havefitted in the course of the year close to one million products, ranging from carparts, to child seats, CD players, DVD's and the latest satellite navigationequipment. The Company's staff are passionate about our products and are trustedby our customers. "We'll Check It" and "We'll Repair It" underpin our Bikehut sub-brand, whichsells more than one in every four cycles in the UK. Our key objectives following last year's listing are to maintain and developHalfords' core strengths by: • Expanding the store portfolio• Broadening the product offer• Improving the supply chain and active trading• Marketing the Halfords' service proposition The financial results for the year clearly demonstrate that these actions arebeing translated into improved profitability and shareholder value. Expanding the store portfolio Supermezzanine Format The roll out of "supermezzanine" stores continued with the number ofsupermezzanines increasing from 11 at the beginning of the financial year to 57stores by the end of March 2005. Typically a supermezzanine store will add afurther 40% of selling space to a standard superstore. These stores allow us to design an in-store environment, which includes muchbetter sight lines and clearer product segmentation creating an automotiveground floor and a leisure mezzanine. It also creates space for product rangeenhancement and for new product categories such as Active Leisure and Kidszone. Supermezzanine conversions have generated significant uplifts in like-for-likesales and 35 further conversions are planned for the current financial year. This will add over 100,000 square feet of retailing space without increasing ourrent levels and will enable Halfords to broaden its product offer to theconsumer. New Stores Halfords trades from 398 stores in the UK and the Republic of Ireland. Duringthe year Halfords opened 18 new stores and closed seven. In addition,supermezzanine conversions were added to a total of 38 stores. We have also developed a smaller store footprint and been encouraged by theresults generated by this type of store format. The decision to expand beyond the UK into the Republic of Ireland is alsoproving to be successful. Halfords now trades from three stores in the Republicof Ireland and eight in Northern Ireland and is continuing to seek furthersites, following the encouraging results from these developments. Over the next 12 months we plan to open 16 new stores including four siterelocations. Our property team is actively continuing to progress our expansion plans throughseeking suitable new locations for both our supermezzanine and small storeformats. Broadening the product offer During the year Halfords has succeeded in growing like-for-like sales in allfour key categories of Car Maintenance, Car Enhancement, Cycling and TravelSolutions. Car Maintenance Halfords is the largest supplier of car parts in the UK, in a market worthalmost £1 billion annually despite longer service intervals and increasedcomplexity of vehicle engines. We have increased sales and grown market share through a combination of goodavailability on specialist car parts (either held at branch or through specialorder) and by driving up average transaction value on consumable servicingproducts. We offer special deals on added value products, as well as offering acomprehensive "We'll Fit It" service on items such as wiper blades and bulbs. We have made good progress through our business-to-business initiatives. We havereached agreement to supply a range of Halfords branded merchandise to over 300BP forecourt sites. Products are purchased, merchandised and managed by BP, withrange recommendations provided by the Halfords category team. We have also introduced a Halfords trade card into virtually all stores toencourage more committed home car mechanics and smaller garage proprietors topurchase an increasing amount of their parts requirements from our stores. Earlyresults from both initiatives are encouraging. Car Enhancement The £850m car enhancement market is growing at more than 7% a year and as marketleader Halfords has seen significant growth in its sales and market share. The largest growth area has been in in-car entertainment and technology.Eighteen months ago, satellite navigation units were a difficult aftermarketinstallation with few units available below £1,000. In recent months, astechnology has advanced, we have reduced the entry price point to as little as£300 and demand has grown substantially. We have a wide range of products andhave invested heavily in training our store teams to advise the customer of theproducts' capability and fit products into customers' cars. We are now satellitenavigation specialists and are successfully marketing this together with ourexpertise in fitting in-car DVD and safety camera detectors. The Halfords' "We'll Fit It" programme provides sustainable competitiveadvantage across our product categories and combined with our strong salesperformance, gives us real confidence for the future. We continue to enjoy a healthy business selling and fitting CD players to carsalready on the road. About 50% of the cars on the UK roads are over six yearsold, which presents us with a continued growth opportunity. Younger drivers, inparticular, create a strong market for trading up to an audio unit, which is MP3compatible. Ripspeed Ripspeed is an exclusive brand to Halfords and is firmly established as one ofthe country's leading brands in the growing market of car enhancement andmodification. Whilst all of our stores have Ripspeed branded merchandise, wehave seen strong sales growth from the introduction of a dedicated Ripspeedsub-shop into our supermezzanine stores. As we introduce more supermezzanine formats into our stores we are able toallocate extra space to create more dedicated Ripspeed sub-shops and to widenthe product offer through the introduction of new and exciting ranges such asthe latest alloy wheels and LED lights. We continue to develop and raise awareness of the Ripspeed brand by sponsoringevents targeting car enthusiasts and marketing the brand through specialistpublications that appeal to the target consumer for this large and growingmarket. Bikehut Halfords, with its successful Bikehut brand, continues to consolidate and growits position as the market leader within the UK cycling market. Our exclusive Apollo brand is firmly established as the number two cycle brandwithin the UK and with the recent launch of our new Apollo range we areconfident that we can further improve its sales performance and market share. We are also successfully growing our sales in the premium and specialist sectorsof the cycle market. As well as offering recognised premium brand products suchas Kona, GT and Saracen, we have also been able to establish our Carrera brandas a credible alternative within this market, particularly within the emergingTown and Trail category. Our specialist buying team have secured a cycle rangewith the right quality and design at highly competitive prices through sourcingproduct directly from Far East suppliers. Bikehut is one of the main areas of the store where we experience strong salesuplifts following store conversion to supermezzanine format. We have improved the in-store marketing of Bikehut as our cycling sub-brand inmezzanine stores in order to broaden general appeal and add credibility withenthusiasts. Employees who work in Bikehut are frequently enthusiasts themselveswhich further helps in building customer confidence. Our Bikehut colleagues' expertise enables us to also provide additional fitting,maintenance and repair services to our customers, which differentiate us fromother mainstream multiples. Bikehut also sponsors teams of employee and professional cyclists to heightenbrand awareness and encourage independent product reviews or recommendations.Specialist press is also used to advertise Bikehut and Carrera brandedmerchandise to leverage credibility amongst enthusiasts. The Bikehut brand has been extended to include own label cycle accessories tocomplement the highly successful Carrera and Apollo cycle brands. Travel Solutions This market is worth around £700m a year nationally and Halfords is marketleader in this highly fragmented sector which includes travel equipment andtravel accessory products such as roof boxes, roof bars and cycle carriers. Wehave updated certain key product areas and this, together with a strongpromotion programme brought about good year-on-year growth with Halfordscontinuing to grow market share. New Category Development Active Leisure has been rolled out across all stores nationally, providingcamping solutions to satisfy all needs, including developing a multi-purchaseoffer for families embarking on their first camping trip. Our new combined tentand sleeping equipment packs at very competitive prices have proved extremelypopular. A range of Halfords branded tents and sleeping bags has also been introduced forthe 2005 season. Kidszone has been developed for supermezzanine stores and includes a broaderrange of child safety seats, an extended range of wheeled products (both pedaldriven and electric) and a range of larger outdoor activity products. Sales ofchild seats, underpinned by an aggressive marketing and pricing campaign(including fitting advice in store), have increased significantly. The wideningof the product offer, particularly wheeled toys over the Christmas period, wasalso very successful and will provide a good base to build on next year. Improving the supply chain and active trading A number of stores benefited from a low cost store renewal programme ahead oflast year's listing, providing better linear merchandising and improved salesintensity. As well as delivering range extension benefits, these store layout changes havealso freed space at the front of the store, which allows us to accommodate bulkdisplays of product, creating greater impact. The benefits are an increase inincremental sales from impulse purchases, the development of a "test bed" forthe trial of new product ideas and giving consumers more reasons to shop at ourstores. The organisation has responded extremely well to the active trading philosophyand we are reaping the benefits from it. The roll-out of the Active Leisure range and the speed of development of thespecial purchase programme are good examples of the successful change inapproach, with a focused trial period and scale roll-out following rapidly. The development of Halfords Asia has proved invaluable in supporting the specialpurchase programme, facilitating bulk purchase of product at source,specifically for promotion activity within the recently created bulk displayspace created in-store. There has also been a sustained effort to increase thenumber of product ranges we source directly from the Far East. This strategy hasproved highly successful through the creation of a dedicated Far East sourcingteam based in Hong Kong. The growth of directly sourced products enables us toreduce cost and utilise the benefit to either grow margin or reduce prices togrow market share. The penetration of product sourced directly from the Far Easthas grown significantly in the last year and is targeted to rise further. Marketing the Halfords service proposition Halfords has traditionally had a reputation for providing good service throughknowledgeable employees. This, together with our enhanced product fittingcapability, gives us a strong and unique competitive advantage. The Halfords' "We'll Fit It" programme is now an integral element of all ourmarketing communications and central to the service message inherent within ourlatest TV advertising campaign. We have underpinned the marketing communication message with a series ofin-store training programmes to ensure that the service communicated can becomprehensively provided. At a local level, colleagues are trained to deliver fitting services onservicing consumables such as wiper blades and car bulbs. They are also trainedto build bikes and perform safety checks prior to customers receiving their bikeand also service them with a free six week post purchase check. Halfords always endeavours to employ colleagues in areas where they have anatural affinity or preference. Cycling and car enthusiasts will be available inmost stores to advise customers. Halfords has been awarded official status as anApproved Assessment Centre for the Institute of the Motor Industry and over 500colleagues have been trained and accredited to deliver hardwire electronicequipment installation, extending our fitting capabilities from in-car audio, toinclude satellite navigation, safety camera detectors and in-car DVD. Frequently the individual who sells an electronic device will be the sameindividual who fits it in the customer's car. This provides additional customerreassurance and is a strong competitive advantage. None of our competitorsprovide such a comprehensive service nationally. During the year, we also relaunched our Child Seat Fitting service.Approximately 1,000 employees have been trained and certified in child seatfitting during the year, which combined with strong deals has supported asubstantial growth in sales volume. 80% of child seats in cars are fitted incorrectly so the advice that Halfordsprovides in child seat fitting is significant in providing reassurance toparents and guardians. Outlook Following what we regard as a very successful first year since our StockExchange Listing, Halfords has reported its seventeenth year of consistent salesgrowth. This strong track record demonstrates Halfords' ability to defend itselfagainst cyclical economic change. During the last 12 months we have worked hard to further consolidate our leadingmarket position within our core categories, extend sales potential throughleveraging our brand equity into new markets and accelerate Halfords' new storeand portfolio improvement programmes. We are encouraged by these results and are confident that the continued diligentapplication of our strategy provides the opportunity to deliver further positiveresults in the future. Ian McLeodChief Executive8 June 2005 Finance Director's Report The 52 week period ended 1 April 2005 saw a successful maiden year as a publiccompany. A good sales and profit performance with continued strong cashgeneration enabled the company to deliver the plan outlined at the time of theInitial Public Offering ("IPO"). Operating resultGroup sales increased 8.6% to £628.4m, 10.5% adjusting for the 53rd week in theprevious year. Like-for-like sales growth including the contribution from newmezzanines was 8.9%. The Group experienced growth in each of the four categoriesin which it operates. At the gross profit level there has been an improvement from 53.5% to 53.7% andreflects good margin management. The growth in the number of "special purchase"offers and ranged products sourced directly from the Far East provides the Groupwith a degree of price flexibility as it can either improve margin or pass onthe benefit to customers through price reductions. As noted in the Interim Report the continued growth of the Car Enhancementcategory has had a small dilutive impact upon the margin percentage, whicharises from the relatively lower margin experienced in this heavily brandedcategory. The Group's operating profit before goodwill amortisation and exceptionaloperating items increased by £13.0m to £92.2m, with the corresponding operatingmargin improving to 14.7% from 13.7%. Total operating expenses, excludinggoodwill amortisation and exceptional items, as a percentage of sales fell to39.1% from 39.8%. Operating exceptional items in the 52 weeks to 1 April 2005, relate to anon-cash charge of £4.2m in respect of employee share options that wereexercised at the time of the Group's IPO and income of £4.0m in respect of apremium received in relation to the sub-lease of garage premises by the Group tothe Automobile Association Limited. Further details are included in note 2 tothe preliminary results. Net interest payableNet interest payable before exceptional items was £14.7m compared with £35.4mlast year. A net exceptional interest credit of £0.5m was taken to the profitand loss account and the details of these transactions are noted below. Halfords Group floated on 8 June 2004 and the Company used the net proceeds ofthe Global Offer together with borrowings under new banking facilities to repayits indebtedness under its existing senior credit agreement, deep discountbonds, shareholder loan notes and to pay fees and expenses associated with thenew bank facilities. As a consequence, an exceptional charge of £1.7m (53 weeksto 2 April 2004: £6.3m) was made in respect of accelerated amortisation of theissue costs associated with these borrowings. On repayment of the Group's borrowings at the time of the IPO, the Group hedgedits new borrowing facilities using new interest rate swaps and received £2.2m ofexceptional income on the termination of its former interest rate swaps. Profit on ordinary activities before taxation Profit on ordinary activities before taxation was £64.1m compared with £27.8m inthe prior year, an increase of 130.6%. TaxationThe taxation charge on profit before exceptional items for the financial yearwas £24.8m (2004: £15.0m) resulting in a full year effective tax rate of 32.0%(2004: 34.2%) applied to profit before taxation excluding exceptional items andgoodwill amortisation. The tax charge exceeds the charge based on the statutory rate of UK corporationtax rate of 30% principally due to the non-deductibility of depreciation chargedon capital expenditure in respect of mezzanine floors and other storeinfrastructure. Cash flow and net debtThe Group continues to be a strong generator of cash and during the yeargenerated an operating cash inflow of £116.2m. Included within the workingcapital movement of £1.6m there is an £8.2m benefit arising from the timing ofthe Group's VAT payment. Underlying net debt at 1 April 2005 was £169.7m, a reduction of £179.8m on theprior year comparative of £349.5m, which also reflects the debt repayment andrestructuring following the IPO. Capital expenditureAs outlined at the time of the IPO, the Group is planning an investmentprogramme that will amount to approximately £80m over a three year period. Themajority will be spent on improving the store environment via the supermezzanineprogramme and new stores. Capital investment in the period totalled £27.7m, anincrease of £7.5m on last year. This included spend of £7.1m on new store andrelocation investment, and £11.1m on the store conversion programme. Othercapital expenditure included the investment in head office IT systems, which isnow close to completion. Operating leasesAll the Group's stores are held under operating leases, the majority of whichare on standard lease terms, typically with a 15 year term at inception. TheGroup has an annual commitment under non-cancellable operating leases of £66.6m. Earnings per shareEarnings per share before exceptional items and goodwill amortisation at 24.4p(2004: 17.7p) is an encouraging maiden performance and reflects the increase inoperating profit combined with a lower interest charge. Basic earnings per sharewas 18.5p (2004: 8.3p). DividendThe Board is recommending a final dividend of 8.3p per share in addition to the3.7p per share interim dividend already paid, bringing the total dividend forthe year to 12.0p per share. Subject to shareholder approval at the Annual General Meeting on 13 July 2005,the final dividend will be paid on 1 August 2005 to shareholders on the registerat the close of business on 17 June 2005. Shares will be quoted ex-dividend from15 June 2005. International Financial Reporting Standards ('IFRS')As required by European Union legislation, the Group will first publish a reportunder IFRS for the 26 weeks ending 30 September 2005 and financial statementsfor the 52 weeks ending 31 March 2006. It is estimated that the adoption of IFRSwill have a small adverse impact on the reported operating profit beforeexceptional operating items and goodwill amortisation, estimated to be £2m forthe 52 weeks ended 1 April 2005. The IFRS adjustments will have no impact on theCompany's trading or its cash flow. Cautionary statement This announcement contains forward looking statements that are subject to riskfactors associated with, amongst other things, the economic and businesscircumstances occurring from time to time in the countries and sectors in whichthe Group operates. It is believed that the expectations reflected in thesestatements are reasonable but they maybe affected by a wide range of variables,which could cause actual results to differ materially from those currentlyanticipated. Nick CarterFinance Director8 June 2005 Group Profit and Loss Account For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 Notes £m £m------------------------------- ------ ---------- ---------Turnover 628.4 578.6Cost of sales (290.7) (269.0)------------------------------- ------ ---------- ---------Gross profit 337.7 309.6Net operating expenses (259.4) (244.1)------------------------------- ------ ---------- ---------Operating profit before goodwillamortisation 92.2 79.2and exceptional operating itemsGoodwill amortisation (13.7) (13.7)Exceptional operating items 2 (0.2) -------------------------------- ------ ---------- ---------Operating profit 78.3 65.5Profit on disposal of fixed assets - 6.4------------------------------- ------ ---------- ---------Net interest payable, before netexceptional (14.7) (35.4)interest income/(charges)Net exceptional interest income/(charges) 0.5 (8.7)------------------------------- ------ ---------- ---------Net interest payable 3 (14.2) (44.1)------------------------------- ------ ---------- ---------Profit on ordinary activities before 64.1 27.8taxationTaxation on profit on ordinary activities 4 (24.2) (14.3)------------------------------- ------ ---------- ---------Profit on ordinary activities after 39.9 13.5taxationEquity dividends 5 (27.4) -------------------------------- ------ ---------- ---------Retained profit for the financial period 12.5 13.5------------------------------- ------ ---------- ---------Earnings per 1p shareBasic 6 18.5p 8.3pDiluted 6 18.5p 8.0pEarnings per 1p share before goodwillamortisation and exceptional itemsBasic 6 24.4p 17.7pDiluted 6 24.4p 16.9p------------------------------- ------ ---------- --------- i) All results relate to continuing operations of the Group.ii) There is no material difference between the results as stated above and their historical cost equivalents.iii) The Group has no recognised gains and losses other than the profits above and therefore no separate Statement of Total Recognised Gains and Losses has been presented Reconciliation of Movements in Group Shareholders' Funds For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m----------------------------------- --------- ---------Profit on ordinary activities after taxation 39.9 13.5Dividends (27.4) ------------------------------------ --------- --------- 12.5 13.5Movements arising from the exercise of shareoptions (see note 2) 4.2 -Proceeds from the issue of ordinary shares 140.0 -Finance costs of share issue written off toshare premium (4.9) ------------------------------------ --------- ---------Net increase in equity shareholders' funds 151.8 13.5Opening shareholders' funds 4.5 (9.0)----------------------------------- --------- ---------Closing shareholders' funds 156.3 4.5----------------------------------- --------- --------- Group Balance Sheet As at 1 April 2005 2 April 2004 £m £m---------------------------- -------- ---------Fixed assets Intangible assets 239.4 253.1Tangible assets 91.8 82.5---------------------------- -------- --------- 331.2 335.6Current assets Stocks 112.2 107.1Debtors 23.6 23.5Cash at bank and in hand 1.1 25.6---------------------------- -------- --------- 136.9 156.2Creditors: amounts falling due withinone year (183.1) (293.8)---------------------------- -------- ---------Net current liabilities (46.2) (137.6)---------------------------- -------- ---------Total assets less current liabilities 285.0 198.0Creditors: amounts falling due aftermore than one year (123.9) (190.2)Provisions for liabilities and charges (4.8) (3.3)---------------------------- -------- ---------Net assets 156.3 4.5---------------------------- -------- ---------Capital and reserves Called up share capital 2.3 -Share premium account 132.9 0.1Profit and loss account 21.1 4.4---------------------------- -------- ---------Equity shareholders' funds 156.3 4.5---------------------------- -------- --------- Group Cash Flow Statement 52 weeks 53 weeks to to 1 April 2005 2 April 2004 Notes £m £m---------------------------------- ------ --------- --------Net cash inflow from operating activities 7 116.2 114.8Returns on investments and servicing offinanceInterest received 0.4 2.8Interest paid (13.9) (26.8)Exceptional interest received 2.2 -Issue costs incurred in connection withthe raising of new bank loans (3.1) (2.5)---------------------------------- ------ --------- --------Net cash outflow from returns oninvestments (14.4) (26.5)and servicing of financeTaxation (20.1) (8.1)Capital expenditure and financialinvestmentPurchase of tangible fixed assets (27.6) (19.3)Sale of tangible fixed assets - 6.9---------------------------------- ------ --------- --------Net cash outflow for capital expenditureand financial investment (27.6) (12.4)Equity dividends paid (8.5) ----------------------------------- ------ --------- --------Net cash inflow before use of liquidresources and financing 45.6 67.8Management of liquid resourcesReduction in short term deposits with banks - 20.0FinancingIssue of ordinary share capital 140.0 -Costs in respect of share issue (4.9) -Capital element of finance lease (0.2) 0.8obligationsRepayment of borrowings (370.5) (146.9)New borrowings 156.0 65.0---------------------------------- ------ --------- --------Net cash outflow from financing (79.6) (81.1)---------------------------------- ------ --------- --------(Decrease)/increase in net cash (34.0) 6.7---------------------------------- ------ --------- --------Reconciliation of net cash flow tomovement in net debtNet debt at the beginning of the period (349.5) (395.9)(Decrease)/increase in net cash (34.0) 6.7Movement in deposits - (20.0)Movement in borrowings 217.8 83.6Other non cash changes (4.0) (23.9)---------------------------------- ------ --------- --------Net debt at end of the period 8 (169.7) (349.5)---------------------------------- ------ --------- -------- Notes to the preliminary results 1. Accounting policies These results have been prepared using the accounting policies as set out inHalfords Group Limited's Annual Report for the 53 weeks ended 2 April 2004 withthe exception of the adoption of UITF 17 (revised 2003) "Employee ShareSchemes". The impact on the results arising from this adoption is shown in note2. In addition, UITF 38 "Accounting for ESOP Trusts" has also been adoptedduring the period with no material impact on the results of the Group. 2. Exceptional items Exceptional operating items in the 52 weeks to 1 April 2005, relate to anon-cash charge of £4.2m in respect of employee share options that wereexercised at the time of the Group's IPO and income of £4.0m in respect of apremium received in relation to the sub-let of garage premises by the Group tothe Automobile Association Limited ("AA"). Certain senior employees held options to subscribe for shares in the Companyunder a share option scheme, approved by shareholders on 19 November 2003. Theshare options were exercisable only in the event of a Takeover, Sale orAdmission of the Company to a Relevant EEA market. Under the scheme, shareoptions were granted to senior employees on 12 December 2003 and 20 May 2004.The shares required to meet the Company's obligations under the scheme were heldin trust. On 8 June 2004, senior employees exercised their rights over 2,527,307shares. In accordance with UITF 17 (revised 2003) 'Employee share schemes', the Grouphas charged £4.2m to the profit and loss account, being the difference betweenthe fair value of the shares at the date of their grant and the amounts paid bythe employees to exercise the share options. A corresponding credit has beentaken to the Group's profit and loss reserves. In August 2001, Halfords Limited sold its garaging servicing business to the AA.Under the terms of the sale 124 garage premises were sublet to GB Gas HoldingsLimited by way of an underlease agreement from Halfords Limited. On 16 November 2004, the Group entered into an agreement with GB Gas HoldingsLimited and the AA. Under the agreement the Group received a £4.0m premium inconsideration for providing consent to the assignment of the above underleasefrom GB Gas Holdings Limited to the AA and the subsequent subletting by the AAof 49 premises to Nationwide Autocentres Limited. The Group's tax charge for the period to 1 April 2005 includes a £0.8m credit inrespect of the above exceptional items. 3.Net interest payable For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Interest receivable and similar income:Bank and similar interest (0.4) (2.7)------------------------------------ ---------- ---------Interest payable and similar charges:Bank overdraft interest 0.1 0.4Bank and other loans 12.3 23.5Premium on deep discount bond 1.5 12.1Interest on fixed rate subordinated unsecuredloan notes - 0.1Amortisation of issue costs on loans and deepdiscount bonds 0.8 1.3Commitment and guarantee fees 0.4 0.7------------------------------------ ---------- --------- 15.1 38.1Exceptional amortisation of issue costs on loansand deep discount bonds 1.7 8.7Exceptional gain on close out of interest rateswap (2.2) ------------------------------------- ---------- --------- 14.6 46.8------------------------------------ ---------- ---------Net interest payable 14.2 44.1------------------------------------ ---------- --------- On flotation (8 June 2004), the Group redeemed and replaced all of its existingborrowings. As a consequence, a charge of £1.7m (53 weeks to 2 April 2004:£6.3m) was made in respect of accelerated amortisation of the issue costsassociated with these borrowings. On repayment of the Group's existing borrowings, the Group hedged its newborrowing facilities using new interest rate swaps and received £2.2m ofexceptional income on the termination of its existing interest rate swaps. During the 53 week period to 2 April 2004 the Group repaid all of the borrowingsunder its mezzanine facility and repaid £68.2m of its deep discount bonds. As aresult £2.4m of unamortised issue costs associated with these borrowings waswritten off. 4. Taxation on profit on ordinary activities For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Current taxationUK corporation tax charge for the period 23.6 15.2Adjustment in respect of prior periods (0.3) 0.1------------------------------------ ---------- ---------Total current tax 23.3 15.3Deferred taxationOrigination and reversal of timing differences 0.9 (1.0)------------------------------------ ---------- ---------Taxation on profit on ordinary activities 24.2 14.3------------------------------------ ---------- --------- The current tax charge is reconciled with the standard rate of UK corporationtax as follows: For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Profit on ordinary activities before taxation 64.1 27.8------------------------------------ ---------- ---------UK corporation tax at standard rate of 30.0% 19.2 8.3Factors affecting the charge for the period:Disallowable goodwill amortisation 4.1 4.1Capital allowances for the period less thandepreciation 1.0 0.7Timing difference on premium received onproperty transaction - 1.1Deduction for employee share options (0.7) -Other timing differences (0.5) 0.3Other disallowable expenses 0.5 0.7Adjustment in respect of prior periods (0.3) 0.1------------------------------------ ---------- ---------Total current tax charge for the period 23.3 15.3------------------------------------ ---------- --------- The Group's tax charge for the period includes a credit of £0.6m (53 weeks to 2April 2004: £0.7m) in respect of operating exceptional items and exceptionalinterest income/(charges). 5.Dividends For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Equity - Ordinary 1p sharesInterim - paid 3.7p 8.5 -Final - proposed 8.3p 18.9 ------------------------------------- ---------- --------- 27.4 ------------------------------------- ---------- --------- 6. Earnings per share Basic earnings per share are calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period. The weighted average number of shares excludes shares held byan Employee Benefit Trust and has been adjusted for the issue of shares duringthe year. In accordance with FRS 14, the weighted average number of shares forthe 53 weeks to 2 April 2004 has been adjusted to reflect the bonus issues madeat the time of the IPO. 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 1 April 2005. In the period to 2 April 2004 the dilutivepotential ordinary shares were in respect of warrants issued on 30 August 2002that were exercised on 8 June 2004. For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Weighted average number of shares in issue 215.6 162.9Weighted average number of dilutive sharesoptions/warrants 0.1 6.6------------------------------------ ---------- ---------Total number of shares for calculating dilutedearnings per share 215.7 169.5------------------------------------ ---------- --------- The alternative measure of earnings per share is provided because it reflectsthe Halfords Group's underlying trading performance by excluding the effect ofexceptional items and amortisation of goodwill. For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m------------------------------------ ---------- ---------Basic earnings 39.9 13.5Exceptional items net of tax:Operating profit (0.6) -Profit on disposal of fixed assets - (4.5)Interest (0.3) 6.1Amortisation of goodwill 13.7 13.7------------------------------------ ---------- ---------Underlying earnings before exceptional items andamortisation of goodwill 52.7 28.8------------------------------------ ---------- ---------Diluted earnings 39.9 13.5------------------------------------ ---------- ---------Underlying diluted earnings before exceptionalitems and amortisation of goodwill 52.7 28.8------------------------------------ ---------- --------- Earnings per share is calculated as follows: For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 pence pence------------------------------------ ---------- ---------Basic earnings per ordinary share 18.5p 8.3pDiluted basic earnings per ordinary share 18.5p 8.0pBasic earnings per ordinary share beforegoodwill amortisation and exceptional items 24.4p 17.7pDiluted basic earnings per ordinary share beforegoodwill amortisation and exceptional items 24.4p 16.9p------------------------------------ ---------- --------- 7. Reconciliation of operating profit to net cash inflow from operating activities For the period 52 weeks 53 weeks to to 1 April 2005 2 April 2004 £m £m ------------------------------------ ---------- ---------Operating profit 78.3 65.5Depreciation charge (including loss on disposalof assets) 18.4 16.0Goodwill amortisation 13.7 13.7Non-cash movement arising from the exercise ofemployee share options (see note 2) 4.2 -Increase in stocks (5.1) (16.8)Increase in debtors (0.1) (0.3)Increase in creditors 6.2 36.5Increase in provisions 0.6 0.2------------------------------------ ---------- ---------Net cash inflow from operating activities 116.2 114.8------------------------------------ ---------- --------- 8. Analysis of movements in the Group's net debt in the period At Cash flow Other non cash At changes 2 April 2004 1 April 2005 £m £m £m £m-------------------- --------- --------- ---------- -----------Cash in hand and at 25.6 (24.5) - 1.1bankBank overdraft (7.1) (9.5) - (16.6)-------------------- --------- --------- ---------- ----------- 18.5 (34.0) - (15.5)Debt due within one year (182.2) 185.5 (38.6) (35.3)Debt due after one year (185.0) 32.1 34.6 (118.3)Finance leases duewithin one year (0.2) 0.2 (0.2) (0.2)Finance lease due afterone year (0.6) - 0.2 (0.4)-------------------- --------- --------- ---------- -----------Total net debt (349.5) 183.8 (4.0) (169.7)-------------------- --------- --------- ---------- ----------- The total debt cash outflow consists of £214.5m net repayment of borrowings,£3.1m issue costs of new loans and £0.2m repayment of finance lease obligations. Non-cash changes relate to interest charges of £2.5m for the amortisation ofcapitalised issue costs and £1.5m in respect of interest rolled into theprincipal of the deep discount bonds. 9. Other information These results for the 52 weeks ended 1 April 2005 together with thecorresponding amounts for the 53 weeks ended 2 April 2004 are extracts from theGroup Annual Report and Accounts and do not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985 (as amended).The Group Annual Report and Accounts, on which the auditors have issued a reportthat does not contain a statement under section 237(2) or (3) of the CompaniesAct 1985, will be posted to shareholders by 13 June 2005 and will be deliveredto the Registrar of Companies in due course. Copies will be available from TheCompany Secretary, Halfords Group plc, Icknield Street Drive, Washford West,Redditch, Worcs, B98 0DE. The annual general meeting will be held at The Stratford Moat House, Bridgefoot,Stratford-upon-Avon, Warwickshire, CV37 6YR at 11:30 am on Wednesday, 13 July2005. This information is provided by RNS The company news service from the London Stock Exchange