Halfords Group PLC HFD Half Yearly Report (Part 1)

  Halfords Group PLC (HFD) - Half Yearly Report (Part 1)

RNS Number : 6321R
Halfords Group PLC
21 November 2012




21 November 2012

                              Halfords Group plc

                     Interim Results Financial Year 2013

                                      

Halfords Group  plc,  the UK's  leading  retailer of  automotive  and  leisure 
products and leading independent operator in garage servicing and auto repair,
today announces its preliminary results for the 26-week period to 28 September
2012  ("the  period").  All  numbers  shown  in  this  statement  are  before 
non-recurring items, unless otherwise stated.



Group Financial Summary



                                                     HY13  HY12
                                                                   Change
                                                      £m    £m
                Total Group Revenue                  455.6 454.0   +0.4%
                       Retail                        393.0 400.6   -1.9%
                    Autocentres                      62.6  53.4    +17.2%
    Operating Profit before non-recurring items
                       Retail                        42.0  55.0    -23.6%
                    Autocentres                       3.3   3.0    +10.0%
     Profit Before Tax and non-recurring items       41.9  54.7    -23.4%
Basic Earnings Per Share, before non-recurring items 16.2p 19.8p   -18.2%
    Profit Before Tax, after non-recurring items     42.4  54.7    -22.5%
Basic Earnings Per Share, after non-recurring items  16.4p 19.7p   -16.8%
                      Net Debt                       107.9 140.7 23.3% dec
             Interim Dividend Per Share              8.0p  8.0p  Maintained



Key Points For The Half:

· Retail  delivered  a  robust  revenue performance  in  Q2  following  a 
difficult Q1

· Autocentres produced a double-digit increase in operating profit led by
further strong top-line growth

· Free cash  flow up  47% to £59.5m  with continued  focus on  investment 
priorities and cash management

· Net debt reduced by 23% to £107.9m

· Interim dividend of 8p per share maintained

· Good progress made in the delivery of strategic initiatives

· Matt Davies joined as Chief Executive in October



Dennis Millard, Chairman, commented:



"Our Retail  performance  improved markedly  in  the second  quarter  after  a 
difficult first quarter  and, with a  proactive trading stance,  we took  full 
advantage of the opportunities provided by the 'summer of sport'. We  continue 
to be encouraged by the performance and long-term potential of Autocentres. We
also made good progress on channel  and category initiatives; central to  this 
is the priority of building a  company-wide customer service ethic as well  as 
investing in training and support for colleagues.



Our second-half  Retail planning  assumptions  remain unchanged  and  cautious 
given the prevailing pressures  on the consumer as  we approach the  important 
winter and Christmas  trading periods.  We continue  to plan  for a  full-year 
Group Profit before tax and non-recurring  items of between £66m and £70m.  We 
have a strong platform for sustainable growth; the management team retains its
focus on  active trading,  cash generation,  prudent cost  management and  the 
delivery of strategic objectives."



Notes



1. Where appropriate, revenues denominated  in foreign currencies have  been 
translated at constant rates of exchange.

2. All  numbers shown  in  this statement  are before  non-recurring  items, 
unless stated otherwise. These  items, namely £0.5m  of income, represent  the 
partial release  of  the Focus  lease  guarantee provision,  recognised  as  a 
non-recurring cost  in  FY11,  resulting  from  the  better  than  anticipated 
settlements in the period.



Enquiries



Analysts and Investors:

Craig Marks,  Head  of  Investor  Relations  +44 
(0)1527 513 113

Andrew  Findlay,  Group   Finance  Director   +44 
(0)1527 513 113 (on the day)



Media (Maitland):

Neil
Bennett
+44 (0) 207 379 5151

Tom   Buchanan 
+44 (0) 207 379 5151



Results Presentation



A presentation  for analysts  and investors  will be  held today  starting  at 
9.30am at Investec plc, 2 Gresham  Street, London EC2V 7QP. Attendance is  by 
invitation. A  recorded webcast  of  the presentation  will be  available  on 
www.halfordscompany.com during  the  day,  as  will  a  video  interview  with 
management.



Forthcoming Newsflow

Halfords Group plc will publish its third-quarter interim management statement
on 15 January 2013.





Notes to Editors



www.halfords.com

www.halfordscompany.com

www.halfordsautocentres.com



Halfords Group plc



The Group is  the UK's  leading retailer  of automotive,  leisure and  cycling 
products and  through  Halfords  Autocentres  also one  of  the  UK's  leading 
independent car servicing  and repair  operators. Halfords  customers shop  at 
more than 465 stores in the UK and Republic of Ireland and at halfords.com for
pick-up at their  local store  or direct home  delivery. Halfords  Autocentres 
operates  from  more   than  265   sites  nationally   and  offers   motorists 
dealership-quality MOTs, diagnostic services, tyres, repairs and car servicing
at affordable prices.



Halfords employs  approximately  12,000  colleagues and  sells  around  10,000 
product lines in stores, increasing to around 16,000 lines online. The product
offering  encompasses  significant  ranges   in  car  parts,  cycles,   in-car 
technology, child seats,  roof boxes, outdoor  leisure and camping  equipment. 
Halfords own brands include  the in-store Bikehut  department, for cycles  and 
cycling accessories, Apollo and Carrera  cycles and exclusive UK  distribution 
rights of  the  premium-ranged Boardman  cycles  and accessories.  In  outdoor 
leisure, we sell a premium range  of camping equipment, branded URBAN  Escape. 
Halfords offers customers expert advice  and a fitting service called  'wefit' 
for  car  parts,  child  seats,  satellite  navigation,  touring  and   in-car 
entertainment systems, as well as a 'werepair' service for cycles.



Cautionary Statement



This report contains  certain forward-looking statements  with respect to  the 
financial condition, results of operations,  and businesses of Halfords  Group 
plc. These statements and forecasts involve risk, uncertainty and assumptions
because they relate to events and depend upon circumstances that will occur in
the future. There are a number of factors that could cause actual results  or 
developments to differ  materially from  those expressed or  implied by  these 
forward-looking statements. These forward-looking statements are made only  as 
at the date  of this  announcement. Nothing  in this  announcement should  be 
construed as a profit forecast. Except as required by law, Halfords Group  plc 
has no obligation to update the  forward-looking statements or to correct  any 
inaccuracies therein.

Chairman's Review - November 2012



A. Introduction

In the first half of the financial year, Halfords delivered a Retail
performance of two contrasting quarters. In the first quarter, sales were
adversely affected by poor weather; in the second, we capitalised on the
better weather and the "summer of sport" with an active trading stance and
recovered much of the lost ground. Autocentres produced an encouraging sales
performance throughout the half.



We made good progress with our strategic projects. A particular focus has
been, and will continue to be, on building a company-wide service ethic and
investing in training and support for our Retail store colleagues. The aim is
to improve the quality of service for our customers and, in doing so, drive
sustainable medium-term growth. Amongst a number of initiatives, we recruited
over 450 new fitting colleagues and retrained over 6,000 existing colleagues
to help grow sales of Retail wefit solutions.



We were particularly pleased to announce the appointment of Matt Davies as
Chief Executive. Matt had an exceptional record of customer-service delivery,
colleague engagement and trading performance whilst Chief Executive for Pets
at Home. He is ideally qualified to lead Halfords through the next stage of
its evolution from a traditional out-of-town retailer to a significant
multichannel and service provider, making our business more relevant in
today's connected customer environment. Matt currently intends to provide an
insight into his initial thoughts after publication of the third-quarter
interim management statement. David Wild, the previous Chief Executive,
departed the Halfords Group in July 2012.



Looking forward, we remain cautious about trading conditions for the second
half given the prevailing pressures on the consumer as we approach the
important winter and Christmas trading period. However, Halfords is
well-placed to deliver exceptional value to customers through the quality and
pricing of our products and services and the expertise of our colleagues.



B. Summary of Group Results

Group sales were £455.6m, up 0.4% with like-for-like ("LfL") sales down 0.1%.
Group gross margin was 23 basis points ("bps") lower than the first half of
last year and, in an environment of continuing inflationary pressures and with
strategic investments being made to support the delivery of our longer-term
strategy, operating costs rose by 6.4%. Underlying Group operating profit was
£44.5m which compares with £56.9m in the first half of the previous year.
Profit before tax and non-recurring items was £41.9m and earnings per share
were 16.2p, down 23.4% and 18.2% respectively.



A focus on inventory management and a surge in Cycling demand in the second
quarter resulted in a 13.3% reduction in Group stocks compared to the prior
period. This decrease is not expected to be sustained over the full year as we
plan to rebuild inventories to more normalised levels. The cashflow
performance was robust with free cashflow of £59.5m being generated, some £19m
better than the first half of last year. As a result, net debt decreased to
£107.9m with net debt:EBITDA at 1.0 times. As indicated in July, an unchanged
interim dividend of 8p per share will be paid in January 2013.



C. Review of Trading

Retail

Retail sales for the first half of the year were £393.0m, down 1.9% on the
previous year and down 1.6% on a LfL basis. In the second quarter, LfL sales
recovered strongly, up by 4.6% following a weak first quarter (-7.5%).
The sales mix and continued focus on cash margin resulted in a small 19bps
decline in the first-half gross margin.



After a disappointing start, it was a particularly strong summer for Cycling
sales. The enthusiasm surrounding British successes in the Tour de France and
at the Olympics & Paralympics helped fuel a stronger demand for cycles, cycle
products and cycle accessories and we capitalised on this with our agile
trading stance. Cycling LfL sales were up 1.9% for the half with a strong
second quarter, up 14.7%. Sales of premium cycles, particularly our exclusive
Boardman and Pendleton ranges, were a feature.



LfL sales of Car Maintenance products and services grew by 1.8% as the demand
for wefit products continues to build and more customers look to us for expert
help with basic Car Maintenance solutions. In the half, we fitted 27.5% of the
bulbs, blades and batteries ("3Bs") we sold, up a full 530 basis points on the
comparative period. We are investing in training, payroll, colleague numbers
and national marketing to address this parts and labour market worth around
£1bn where we only have a c.11% share. In the half, we also leveraged our
market-leading position with timely promotions such as our four-litre £17.50
offer on Castrol Magnatec oil.

Car Enhancement LfL sales decreased by 6.0% in the first half, reflecting both
the ongoing cyclical and structural pressures across much of this category.
However, this reflects a slower rate of decline than in previous periods.
Market share gains in Sat Nav reflected an enhanced execution and range, such
as our focus on the value of Lifetime Map products. In Car Audio, we also made
encouraging market-share gains, with a value-share rise of 9% over the last 12
months and an increase in volume and value share to over 60%. We are closer to
the medium-term opportunity around DAB Digital Radio, and further share gains
mean we have now captured around three quarters of this growing market.



We witnessed reduced demand for camping and touring products due to the
generally poor weather for outdoor products. This was largely responsible for
a 6.6% decline in LfL sales in our Travel Solutions category. One highlight
was the sale of breathalysers as new French legislation made them compulsory
for continental travel. Child Car Seats remains a product range facing both
intense pricing and competitive pressure and thus we have continued to manage
this category for cash.



Online revenues grew by 21.3% in the first half and represented 10.5% of
Retail sales which compares with 8.6% in the prior period. This strong growth
reflected the success of our investments in website capability, the
introduction of our new 24-hour Reserve & Collect service and the rebalancing
of promotions to focus more on product price rather than percentage
discounting.



Autocentres

Sales for the first half were £62.6m, up 17.2% overall with LfL sales growth
of 10.8%. Second-quarter LfL sales growth of 12.4% was the strongest since we
acquired the business in February 2010. The performance was driven by our
investment in marketing activity, the development of our tyre offer, our
exclusive Brakes4Life proposition, trials of Sunday openings and the
contribution from new centres. The significant increase in lower-margin tyre
sales resulted in a 260bps decline in the gross margin.



We continue to acquire new retail customers whilst retaining a high level of
existing customers. The fleet market remains challenging but we invested in
capability in the first half as we seek to capitalise on this important sector
of the market. In the first half, five new centres were opened, with a further
four opened to date in the third quarter. Up to a further 21 new centres are
targeted for opening in the second half. We will continue to selectively and
appropriately invest in new centres to significantly grow our network over the
years ahead. Investment in support infrastructure befitting that of a larger
business was made in the first half together with a new brand-awareness
advertising campaign.



D. Strategic Progress

During the half we made good progress in the delivery of our vision to Help
and Inspire Customers with their Life on the Move via the three strategic
pillars: The Friend of the Motorist, The Best Cycle Shop in TownandThe
Starting Point for Great Getaways.



  Some of the areas of progress are:



  Car Maintenance/Fitting

· Our ranges of bulbs, wiper blades and batteries were extended to give
97% car-parc coverage and introduce the latest innovations in bulb and wiper
technology.

· We recruited over 450 new in-store fitting colleagues and retrained
over 6,000 existing colleagues, focusing on technical fitting skills and
customer engagement.

· An inaugural, national TV advertising campaign for wefit was launched,
complemented by up-weighted radio advertising and supported by new in-store
point-of-sale advertising.

· In September, we achieved 30.9% 3Bs fitting penetration against 22.9%
last year.

· LfL sales of Car Maintenance parts were up by 6.3% in the first half as
a result of our unique offer.



 Autocentres

· The portfolio was extended by five centres to 265 in the half, with a
further four opened to date in the second half. The plan is to add up to a
further 21 new centres in the remainder of the year and build a strong
pipeline for FY14.

· Sunday-opening was trialled at 30 centres, with all new centres opening
on Sundays.

· Further tyre-fitting equipment upgrading and investment was made
resulting in 69% growth in the half, with tyres now making up 14% of total
sales.

· A Business Development function was created to better leverage our
fleet opportunities.

· An e-diary booking system was trialled and will go live nationally in
the second half; this will greatly enhance customers' experience and will aid
capacity planning.



 Cycles and Cycle Parts, Accessories and Clothing

· A new Parts, Accessories and Clothing (PACs) commercial team has been
recruited to aggressively drive this category.

· Trading arrangements were secured with c.170 leading brands and
c.13,000 new SKUs were identified to be ready for our PACs re-launch next
year; this envisages increases in the parts range from 750 current lines to
6,000, with increases in the clothing range from 200 current lines to 4,000. 

· In addition to securing significant increases of our existing premium
brands, ranging from key brands such as Gore, Altura, Shimano, Mavic, Knog and
Sram, we have also secured a wide range of important accessory and clothing
brands such as Compagnolo, Lezyne, Northwave, Hi5 and Adidas.

· Investment in training and resources resulted in first-half
cycle-repair revenues up 36.5%.

· High-end performance cycle brands such as Cinelli and Tifosi were added
online, extending the Halfords bike price range up to £3,400.

· A new range of 23 Apollo kids bikes and accessories, as well as an
extended range of scooters, has been launched for the Christmas period.

· In December we will launch three new Boardman bikes at the key
Cycle-To-Work sub-£500 price points and there will be other new additions to
the Boardman and Voodoo ranges. We will also introduce three new feature-rich
Carrera bikes, one of which is a market-beating road bike.

· An innovative "Summer of Cycling" TV advertising campaign was launched
which featured a series of idents around the Tour de France and highlighting
our sub-£1,000 Carrera Virago, the best value carbon-framed bike on the
market.



 Motoring / Getting Away

· An increase in roof-bar fitting sales of 4.5% in the period was
achieved, driven by our comprehensive wefit offer.

· Continued investment in our private-label range of Exodus and Urban
Escape along with the introduction of a new camping brand, Aventura, which
will allow us to continue to offer great value to our customers as well as
afford us market differentiation.

· Our camping and tent market reach will be extended by adding leading
brands like Vango, Vacanza by Outwell, Coleman and Gelert.

· An increase in up-skilling of our IMI-accredited DAB radio fitting
trainers and our range of the DAB radio and antenna offer is underway.



 Web/IT Infrastructure

· The new 24-hour Reserve & Collect service was launched in March
allowing customers to select from an extended range and take delivery at their
local store the next day.

· A new dynamic e-mail programme was launched; our presence on Facebook
and Twitter grew strongly as we further developed our digital marketing and
customer-relationship management capability.

· Online search engine capability will be strengthened with the future
launch the new Fred Hopper search technology to make product search easier and
more intuitive.

· The IT infrastructure and website is being upgraded in preparation for
trading the extended PACs range and will offer a robust returns process.



 Laboratory Stores

· There are now five laboratory stores with several planned for opening
in the near future.

· We will continue to test concepts though these formats remain
experimental at this stage.

· The current formats differ between each of the laboratory stores as we
test category locations, customer interactions, SKUs and space and different
formats will continue to be tested.







Service

· The Redditch Head Office was re-named the Support Centre to reflect its
primary role of helping our store and centre colleagues better serve
customers.

· A new customer-engagement training programme was rolled out to nearly
9,000 colleagues.

· The introduction of a Customer Services Manager in our top 25 Retail
stores was trialled.

· A new till-receipt system was introduced to more-readily capture
customer feedback on our service in both stores and centres.

· A fundamental review of Retail store rotas, hours and training needs,
based on customer-service requirements, is underway.



 Our Colleagues

· The first Colleague Engagement Survey for several years was run and 92%
of the c.12,000 Halfords colleagues responded, providing 8,000 individual
comments and telling insights.

· Three regional Retail training centres will be opened in January 2013
with a view to open 12 more in FY14.

· We are introducing NVQs to give Retail store colleagues nationally
recognised qualifications in fitting and service delivery.

· Further investment was made in our Autocentres apprentice scheme, the
largest scheme of its kind in the UK; some180 colleagues aged 16-20 years are
currently enrolled on a three-year programme to become qualified motor
mechanics.



E. Summary and Outlook

 During the first half good progress was made on our strategic
initiatives. Morale in the business is good  and this will help to build
even more momentum into the second half of the year to capitalise on our
long- term opportunities.



Our second-half  Retail planning  assumptions  remain unchanged  and  cautious 
given the prevailing pressures  on the consumer as  we approach the  important 
winter and Christmas trading periods. In response, management will retain  its 
focus on pro-active  trading strategies to  capitalise on opportunities;  cash 
generation and prudent cost  management; as well  as delivering our  strategic 
objectives. We continue to  plan for a full-year  Group Profit before tax  and 
non-recurring items of between £66m and £70m.



On behalf of the Board, I would like to thank all of our colleagues for their
hard work and their immense contribution to the progress of our business and,
in particular, the support they have given me during the last few months.



I am now pleased to hand over the baton to our new CEO Matt Davies. Matt has
spent his first few weeks in the business engaging with colleagues and
customers in both stores and centres. I know he will continue the excellent
work that has started and further develop and enhance what is already a great
business.



Dennis Millard
Chairman
November 2012.



FINANCE DIRECTOR'S REPORT



Halfords Group plc ("the Group" or "Group")



Reportable Segments



Halfords Group operates through two reportable business segments:



· Halfords  Retail, operating  in both  the UK  and Republic  of 
Ireland; and

· Halfords Autocentres, operating solely in the UK.



All references to Group represent the consolidation of the Halfords ("Halfords
Retail"/"Retail")       and       Halfords       Autocentres        ("Halfords 
Autocentres"/"Autocentres") trading entities.




                              Financial Results

                                      

                                     26 weeks ended    26 weeks ended

                                    28 September 2012 30 September 2011 Change

                                           £m                £m
Group Revenue                             455.6             454.0       +0.4%
Group Gross Profit                        246.3             246.5       -0.1%
Group Operating Profit                    44.5              56.9        -21.8%
Net Finance Costs                         (2.6)             (2.2)       +18.2%
Profit Before Tax and non-recurring       41.9              54.7        -23.4%
items
Profit Before Tax, after                  42.4              54.7        -22.5%
non-recurring items



All items above are shown before non-recurring items unless otherwise stated.





    The "HY13" accounting period represents trading for the 26 weeks to 28
   September 2012 ("the period"). The comparative period "HY12" represents
     trading for the 26 weeks to 30 September 2011 ("the prior period").

                                      

Group revenue in HY13, at £455.6m, was up 0.4% and comprised Retail revenue of
£393.0m and Autocentres revenue of £62.6m. This compared to HY12 Group revenue
of £454.0m, which comprised Retail revenue of £400.6m and Autocentres  revenue 
of £53.4m. Group gross profit at £246.3m (HY12: £246.5m) represented 54.1%  of 
Group revenue (HY12:  54.3%), reflecting a  decline in Retail  business of  19 
basis points  ("bps")  and  a gross  margin  of  63.9% (HY12:  66.5%)  in  the 
Autocentres business.



Total Operating costs before non-recurring  items increased to £201.8m  (HY12: 
£189.6m) of  which Retail  represented  £164.3m (HY12:  £156.0m),  Autocentres 
£36.6m (HY12: £32.5m) and unallocated  costs £0.8m (HY12: £1.1m).  Unallocated 
costs represent amortisation charges in respect of intangible assets  acquired 
through business combinations (the  acquisition of Nationwide Autocentres  Ltd 
in February 2010), which arise  on consolidation of the Group.  Non-recurring 
income of £0.5m during the period represented the partial release of the Focus
lease guarantee  provision,  recognised  as  a  non-recurring  cost  in  HY12, 
resulting from the better than anticipated settlements.



Net finance costs for the period were £2.6m (HY12: £2.2m).



Group Profit Before Tax and non-recurring items for the period was down  23.4% 
at £41.9m (HY12: £54.7m).



Group Profit Before  Tax in the  period after non-recurring  items was  £42.4m 
(HY12: £54.7m).



Based on the  detailed assumptions set  out later in  this report,  management 
reiterates its  guidance  for  the  full-year  Group  Profit  before  tax  and 
non-recurring items of between £66m and £70m.

                                      

                                      







                               Halfords Retail



                                            26 weeks ended    26 weeks ended

                                           28 September 2012 30 September 2011

                                                  £m                £m
Sales                                            393.0             400.6
Gross Profit                                     206.3             211.0
Gross Margin                                     52.5%             52.7%
Operating Costs before non-recurring items      (164.3)           (156.0)
Operating Profit before non-recurring            42.0              55.0
items
Non-recurring income                              0.5                -
Operating Profit after non-recurring items       42.5              55.0



Revenue for the Retail business of  £393.0m reflected, on a constant  currency 
basis, a  like-for-like  sales  decline  of  1.6%.  Non  like-for-like  stores 
contributed £0.8m revenue in the  period, with total revenue declining  1.9%. 
By category, Cycling  and Car  Maintenance revenues  were up  +1.9% and  +1.8% 
respectively, while Travel  Solutions and Car  Enhancement revenues were  down 
-6.6% and -6.0%  respectively. Revenue  for the  Retail business  is split  by 
category below.



                  26 weeks ended    26 weeks ended   52 weeks ended

                 28 September 2012 30 September 2011 30 March 2012

                        (%)               (%)             (%)
Cycling                32.9              31.6             29.5
Car Maintenance        27.1              26.3             30.8
Car Enhancement        25.1              26.4             25.8
Travel Solutions       14.9              15.7             13.9
Total                  100.0             100.0           100.0



Gross profit for the  Retail business at  £206.3m (HY12: £211.0m)  represented 
52.5% of sales, 19bps  down on the prior  period (HY12: 52.7%). This  dilution 
reflected the  continued  focus  on maximising  cash  generation;  the  higher 
proportion of Cycling sales, particularly  in lower-margin premium bikes  and; 
continued  cash-accretive  promotional  activity,   such  as  the   successful 
four-litre £17.50 Castrol deal. These were partly offset by a reduced level of
lower-margin Car Enhancement sales, albeit better than anticipated;  increased 
Car Maintenance parts &  fitting revenues and;  a continued supply-chain  cost 
focus.



Operating costs before  non-recurring items were  £164.3m (HY12: £156.0m),  up 
5.3% on the prior period. The breakdown is set out below.



                                                    26 weeks  26 weeks
                                                      ended     ended

                                                       28        30     Change
                                                    September September
                                                      2012      2011

                                                       £m        £m
Store Staffing                                        42.5      39.8    +6.8%
Store Occupancy                                       69.9      70.6    -1.0%
Warehouse & Distribution                              14.4      13.8    +4.4%
Support Costs                                         37.5      31.8    +17.9%
Total Operating Costs
before            164.3     156.0   +5.3%
non-recurring items



Note: The above figures reflect a  re-allocation of carriage costs from  Store 
Occupancy to Warehouse & Distribution upon the launch of the 24-hour Reserve &
Collect fulfilment proposition. Comparatives have been adjusted accordingly.



In line with the  objective to capture the  Car Maintenance parts and  fitting 
market opportunity, payroll  hours were  invested in '3B'  (bulbs, blades  and 
batteries)  fitting  activity  during  the  period  with  additional   fitters 
recruited in  store  during  September.  This,  together  with  investment  in 
training time in  both technical  and employee  engagement skills,  additional 
colleagues during the  peak demand  experienced in August  and the  underlying 
uplift in  National  minimum-wage rates,  led  to  a 6.8%  increase  in  Store 
Staffing costs.



Store Occupancy costs fell by 1.0% reflecting a focus on mitigating rental and
rates increases, as well as procured  savings in contracted store spend,  such 
as refuse management.



Warehouse & Distribution costs increased by 4.4% driven by the carriage  costs 
associated with  the enhanced  multichannel  fulfilment offering  launched  in 
March.



Support Costs increased  by 17.9%  as a result  of the  delivery of  increased 
recruitment  and  training  in  stores,  enhanced  Support  Centre  capability 
(Procurement, Human Resources and Multichannel,  plus expertise to deliver  on 
the  Cycling  Parts,   Accessories  and   Clothing  initiative),   accelerated 
investment in marketing and  the one-off costs associated  with the change  of 
Chief Executive.



Full-year guidance  is  also unchanged  for  Retail gross  margins  which  are 
anticipated to be  broadly flat  year on  year. Guidance  on full-year  Retail 
operating costs remains unchanged, reflecting an underlying 4% cost  inflation 
with a  further  £6m  of  strategic  investment  compared  to  financial  year 
2012.



                                      

Halfords Autocentres



                  26 weeks ended    26 weeks ended

                 28 September 2012 30 September 2011

                        £m                £m
     Sales             62.6              53.4
  Gross Profit         40.0              35.5
  Gross Margin         63.9%             66.5%
Operating Costs       (36.7)            (32.5)
Operating Profit        3.3               3.0



Autocentres generated total revenues of £62.6m (HY12: £53.4m), an increase  of 
17.2% on  the  prior period.  Non-like-for-like  centres generated  £3.8m  of 
incremental revenue in the period. Five new Autocentres opened in the  period 
and took the total number  of Autocentre locations to  265 as at 28  September 
2012. The increase in  revenues from the  like-for-like centres reflected  the 
impact of enhanced media support and investment, growth in tyre sales, as well
as the  success  of  online  bookings which  represented  15%  of  total  HY13 
Autocentre revenues.



Gross profit at  £40.0m (HY12:  £35.5m) represented  a gross  margin of  63.9% 
against a prior period margin of  66.5% driven primarily by increased  volumes 
of lower-margin, tyre  sales, which  represented 14.4% of  total sales  (HY12: 
9.5%). Underlying  service,  MOT  and  repair  margins  were  underpinned  by 
improvements in parts buying.



Autocentres operating profit was up 10.0% at £3.3m (HY12 £3.0m) after
operating expenses of £36.7m (HY12 £32.5m). To secure long-term growth and
profitability, investment in the business has continued. A successful
national media campaign, investment in training and support centre capability
and in particular the impact of the new-centre opening programme contributed
to the £4.2m increase in operating costs.



Given the difficult fleet market and the continued investment in the business,
the full-year Autocentres operating profit is anticipated to be in line with
the prior year.





    Portfolio Management 



The store and centre portfolio at the  end of the period comprised 467  stores 
(end of HY12: 466) and 265 Autocentres (end of HY12: 246).



The following table outlines  the changes in the  Retail store portfolio  over 
the period:



                    Number                  Stores
    Relocation        2                Chingford, Durham
      Re-gear         4      Stafford, Coventry, Norwich, Dartford
     Downsize         2               Ipswich, Cheltenham
'Laboratory' stores   4    Nuneaton, Cheltenham, Uxbridge, Chingford
      Opened          -                        -
      Closed          -                        -



Within Retail,  three  existing  stores were  reconfigured  into  'laboratory' 
formats. Two  stores  were  relocated  (one opening  in  the  laboratory  test 
format), two  stores  were  downsized  (one opening  in  the  laboratory  test 
format), and four leases were re-signed with re-geared lease terms.



With the exception of nine long leasehold and two freehold properties within
Autocentres, the Group's operating

sites are occupied under operating leases, the majority of which are on
standard lease terms, typically with a 5 to

15-year term at inception and with an average lease length of seven years.



Since the period end, one store has been closed (Preston, Ribbleton Lane) in
line with its lease expiry.

In Autocentres, the portfolio was extended by five centres to 265 in the half
with four opened to date in the second half. The plan is to add up to a
further 21 new centres in the remainder of the year.

    

    Focus Leases



At the end of FY11, an exceptional charge of £7.5m was recognised in respect
of a provision for property leases to which Halfords was a guarantor,
triggered by the demise of the Focus DIY retail chain. At 30 March 2012 the
provision was £3.1m, reflecting the settlement of a number of leases and
utilisation for on-going rent, insurance and service charges, and had reduced
further at 28 September 2012 to £2.1m as a result of £0.5m release relating to
a lease settlement and £0.5m utilisation.



    Finance Expense



The net finance  expense was £2.6m  (HY12: £2.2m). The  higher expense in  the 
period reflected higher weighted-average borrowings and lower interest  income 
than the prior period.  It is anticipated that  the full-year finance  expense 
will be marginally up on the prior year.



Taxation



The taxation charge on profit for the financial period was £10.5m (HY12:
£14.9m), including a £0.1m charge (HY12: £0.2m charge) in respect of the tax
on non-recurring items. The effective tax rate of 25.4% (HY12: 26.9%)
differed from the UK corporation tax rate (24.0%) principally due to the
non-deductibility of depreciation charged on capital expenditure, the
reassessment of anticipated future tax deductions from employee share schemes
and other permanent differences arising in the period.



A 25-26% effective tax rate is anticipated over the full year.



Earnings Per Share ("EPS")



Basic EPS before non-recurring items was 16.2 pence (HY12: 19.8 pence), an
18.2% decrease on the comparable period. Basic EPS after non-recurring items
was 16.4 pence (HY12: 19.7 pence). Basic weighted-average shares in issue
during the period were 194.2m (HY12: 201.7m). Diluted weighted average shares
in issue during the period were 194.4m (HY12: 202.7m).



The share buyback programme ended in May 2012. During the period 0.3m shares
were acquired for a consideration of £0.9m. Since April 2011 a total of 18.4m
shares have been acquired by the company; of these 12,954,493 were cancelled,
with 5,449,620 being converted to treasury shares and transferred to the
Employee Share Benefit Trust to fulfil future employee benefit requirements.
Shares held in the Employee Share Benefit Trust are excluded from the
calculation of weighted-average number of shares (on both an underlying and
dilutive basis) and do not attract dividends.



    Dividend



The Board has approved an interim dividend  of 8.0 pence per share (HY12:  8.0 
pence). This will be paid on 25  January 2013 to shareholders on the  register 
at the close of business on 21 December 2012.



    Capital Expenditure



Capital investment in the period totalled £6.1m (HY12: £8.3m) comprising £4.6m
in Retail and £1.5m in Autocentres. Consistent with prior periods, management
has continued to adopt a prudent approach with regard to capital investment
and has focused on investments generating material returns.



Within Retail, £2.3m was invested in stores, including the laboratory store
concepts, relocations and right-size activity, and general capital spend
relating to store roofing/flooring and security. Additional investments in
Retail infrastructure included a £1.2m investment in IT systems, with further
development in the on-line proposition, £1.0m in logistics and £0.1m in
central facilities.



A further £1.5m (HY12: £1.6m) was invested in Autocentres to drive the centre
roll-out plan and upgrade centre equipment, especially in relation to the
delivery of the tyre fitting proposition. 



Capital expenditure guidance for the full year remains at up to £25m for the
Group.



Inventories



Group inventory held at the period end was £132.9m (HY12: £153.3m), down 13.3%
on the prior period. Autocentres inventory was £1.3m, flat on the prior
period. The management of inventory remains a key area of focus for the
Retail business while the Autocentres business model is such that only small
levels of inventory are held within the centres, with most parts being
acquired on an as-needed basis.

    

Cashflow and Borrowings



Net cash generated from operating activities  in the period was £68.0m  (HY12: 
£49.0m). After  taxation, capital  expenditure and  net finance  costs,  free 
cashflow of £59.5m (HY12: £40.4m) was generated.



Group net  debt  of  £107.9m  (HY12:  £140.7m,  FY12  £139.2m)  represented  a 
year-on-year decrease  of  £32.8m and  a  £31.3m  decrease since  the  end  of 
financial year 2012.  At this  level, Net  Debt to  12-month EBITDA  (earnings 
before non-recurring items, finance costs, depreciation and amortisation)  was 
1.0x (HY12: 1.0x, FY12: 1.1x).





Principal Risks and Uncertainties



The Board considers risk assessment, identification of mitigating actions and
internal control to be fundamental to achieving Halfords' strategic corporate
 objectives. In the 2012 Annual Report & Accounts the Board sets out what it
considers to be the principal commercial and financial risks to achieving the
 Group's objectives. The main areas of potential risk and uncertainty in the
  balance of the financial year are described in note three to the condensed
          consolidated interim financial statements. These include:

                                      

                            · Economic risks

                        · Business strategy risks

                           · Competitive risks

                              · Compliance

                     · Changing customer preferences

                              · Reputation

                   · Reliance on foreign manufacturers

                      · Product and service quality

           · Information technology systems and infrastructure

                · Dependence on key management personnel



Specific risks associated with the performance in the second half of the year
include the impact of Christmas trading as well as winter weather-sensitive
sales, particularly within the Car Maintenance category in the Retail
business.





Andrew Findlay
Finance Director
November 2012.



                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


IR DBLFLLFFZFBE -0- Nov/21/2012 07:00 GMT