Halfords Group PLC: Preliminary Results: Financial Year 2023

21 June 2023

Halfords Group plc

Preliminary Results: Financial Year 2023

Group revenue up +15.3% year-on-year, with 48% of revenue now service-related and FY23 PBT within previously guided range.

Strong start to FY24 with market share increases across all categories.

Halfords Group plc (“Halfords” or the “Group”), the UK’s leading provider of Motoring and Cycling services and products, today announces its preliminary results for the 52 weeks to 31 March 2023 (the “Period”).

To provide a better understanding of underlying performance, financial comparisons will also be made relative to FY20, that is, on a three-year basis. The disruption from COVID-19 to both FY21 and FY22 means that comparators against these years are more difficult to interpret. From FY24 we will revert to one-year comparators. All numbers shown are on a post-IFRS 16 basis and before non-underlying items, unless otherwise stated.

FY23 overview:

• Significant Group revenue growth of +39.5% vs FY20, and +15.3% vs FY22. LFL growth of 13.4% vs FY20 (+2.4% LFL vs FY22) with all segments positive despite a backdrop of significant declines in Cycling and Consumer Tyres markets – which were down 24% and 14% respectively vs pre-covid on a volume-basis.
• Market share increases vs FY22 across Motoring, Tyres, Servicing and Cycling.
• Despite an estimated £95m* of year-on-year cost and market headwinds, investment in price to support customers, and continued investment in our transformation, Underlying Profit Before Tax (PBT) of £51.5m, down -£38.3m vs FY22 and -£5.4m vs. FY20.
• Launch of the UK’s first, dedicated Motoring Loyalty Club with over 1.7m members at year end, exceeding targets and driving record levels of cross-shop and customer satisfaction.
• Lodge Tyre delivering business case following acquisition in October 2022, demonstrating the resilience of the commercial tyre market.
• Avayler, our third-party software as a service (“SaaS”) business won its first major European client - Mobivia, one of Europe’s leading mobility organisations.
• Group Gross margin -290bps vs FY22 as we remain competitively priced across Motoring and Motoring Services, supporting customers through the cost-of-living crisis. Autocentres -500bps primarily due to the expected margin dilution from acquiring tyre businesses.
• Over £20m of cost and efficiency savings realised during the year, beating initial target of £15m.
• Strong free cash flow generation, with Retail stock lower on a volume basis vs FY22.
• Resilient Balance Sheet, with Net Debt of -£1.8m pre lease debt and Net Debt : EBITDA pre-lease debt of 0.01x, (1.87x post-lease debt), within our target range.
• Final dividend of 7p per share proposed, to be paid in September 2023, resulting in a full year dividend of 10p, an increase of +11% vs FY22.

*£68m cost inflation, £16m impact from core market declines, £11m of business rates reinstatement.

FY24 current trading and outlook:

Trading in FY24 year-to-date has been good, with positive Group LFLs despite less favourable weather conditions in early spring. We have delivered profitable sales growth and increased market share across all major categories, whilst continuing to support customers through the ongoing cost-of-living crisis.

We expect year-on-year profit growth in FY24 and are comfortable with current analyst consensus of £53.3m underlying PBT. Our expectations in FY24 are underpinned by the following assumptions:

• We forecast Consumer Tyre market volumes to grow +2.6ppts, Retail Motoring market volumes to grow +0.5ppts, Motoring Services market volumes to be broadly flat, and Cycling market volumes to decline -1ppt.
• We aim to grow volume share in each market which will be underpinned by;
  • Growing share in the £1bn specialist car parts market with a particular focus on the Brakes market, complementing our existing 3B’s of Blades, Bulbs and Batteries.
  • Leveraging our financial services with the launch of our industry leading, “Buy Now Pay Later” offer.
  • Driving utilisation across our garages by targeting the lowest performing garages and dynamic pricing.
• We expect net cost inflation of c.£30m primarily through FX, energy and pay inflation, partially offset by freight. 
• However, we aim to offset this cost inflation through our cost and efficiency programme;
  • The primary component will be our product cost reduction, which is already well underway.
  • Approximately a third of the required cost and efficiency target will be achieved through initiatives already delivered in FY23.
• We anticipate H1 PBT to be down YoY, and H2 to be up YoY, with the H1 variance impacted by the one-off FX credit taken in H1 FY23.​
• We expect to invest some gross margin rate year-on-year, as we look to support customers through the cost-of-living crisis, whilst driving profitable sales growth.
• Capex for FY24 is expected to be at the lower end of our £50-60m p.a. mid-term average presented at the CMD, as we look to maximise ROCE.​
• A cash outflow is envisaged in H1 FY24, with a corresponding and offsetting cash inflow in H2, ending the year with a small net cash (pre-lease debt) position.

Looking beyond FY24, we expect strong profit growth in FY25 as we take a significant step towards our mid-term expectation of £90-110m underlying PBT, as outlined at our Capital Markets Day in April 2023.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

“In a very challenging year, our focus has been on supporting both customers and colleagues through the cost-of-living crisis. Investment in competitive pricing and the value for money offered by our Motoring Loyalty Club, has enabled us to help more people with their motoring needs.  This has led to an outstanding sales performance and significant market share gains. 

Over the year we have also made great progress against our strategy, building a bigger needs-based services business, with over three quarters of our revenue now coming from motoring, and almost half from service-related sales. These results have been achieved despite significant inflation and other macroeconomic headwinds and are therefore a clear illustration of the ever-increasing resilience of our business.

Trading since the start of the new financial year has been strong.  We have seen growth in our loyalty club, now reaching over 2m members, and we have entered the £1bn car parts market, drawing on our unrivalled value and convenience. 

Despite the uncertain consumer backdrop, I am confident that we will see the current momentum continue across the year, as we develop out an even more differentiated proposition.  Last week we launched an industry leading Buy Now Pay Later offer to help customers cover the cost of essential vehicle maintenance and repairs.  All of this is of course delivered by our highly skilled colleagues, across our unique and convenient combination of garages, mobile vans and stores.”

Group financial summary

                          Group revenue summary

Group Revenue

• Group LFL growth of +2.4% vs FY22 with Autocentres +15.4% and Retail Motoring +4.0% and Cycling -10.9%.
• Group LFL growth of +13.4% vs FY20, with Autocentres +31.6%, Retail Motoring +14.5% and Cycling +1.3%.
• Service-related sales of c.£759m (48% of Group sales) in FY23, driven by organic LFL growth, the annualisation of National Tyres following the acquisition in December 2021, and the acquisition of Lodge Tyre in October 2022.
• B2B revenues of £384m in FY23, accounting for 24% of Group Revenue. Strong organic LFL growth in Commercial Fleet services, as well as the acquisition of Lodge Tyre, and strong growth of +16.7% in Cycle2Work (“C2W”).

Autocentres

• Strong LFL growth against both FY20 and FY22 despite the consumer tyre market being -14% below FY20.
• Market volume share growth of +0.4pts in tyres on an LFL basis benefitting from the launch of same day tyre fitting which has driven incremental bookings into garages.
• Motoring Loyalty Club helping to drive performance with customer acquisition from Retail and online customer base. Roughly a third of MOTs booked in FY23 were as a result of Club Memberships and Retail cross shop.
• Acquisition of Lodge Tyre has strengthened our existing Commercial business of Universal and McConechy’s, both of which have performed well, growing revenues and profit during the period. 
• National Tyres is most exposed to the depressed consumer tyre market, impacting underlying business performance, however acquisition synergies achieved in line with plan.
• While the recruitment market remains challenging, a combination of new recruits, an extensive internal upskilling programme, retention initiatives, and a continued focus on utilisation means that the Group’s capacity continues to improve. 

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