REG-Halfords Group PLC Halfords Group PLC: Annual Financial Report
02/08/2023 07:15
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Halfords Group PLC (HFD)
Halfords Group PLC: Annual Financial Report
02-Aug-2023 / 07:05 GMT/BST
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Halfords Group plc
Annual Report and Accounts for period ended 31 March 2023
including the Notice of Annual General Meeting ("AGM") - convened for 6
September 2023
The Company announces that the Annual Report and Accounts for the period
ended 31 March 2023 and Notice of Annual General meeting of the Company,
have been posted or otherwise made available to shareholders and published
on its website 1 www.halfordscompany.com.
The Company's 2023 AGM will be held at Halfords Group plc, Support Centre,
Icknield Street Drive, Washford West, Redditch, B98 0DE on Wednesday 6
September 2023 commencing at 3:00pm.
As detailed in the Notice of AGM, we strongly encourage shareholders to
vote on all resolutions by casting their votes through the use of a proxy
(details of how to do this can be found in the Notice of AGM).
The Board is committed to ensuring that shareholders can exercise their
right to ask questions, and as in previous years, shareholders will be
able to submit questions to the Directors in advance of the AGM via email
to the Company Secretary ( 2 tim.ogorman@halfords.co.uk) Written answers
to all questions received will be sent directly to shareholders by email
and answers to frequently asked questions will, to the fullest extent
practicable, be published on the Company’s website ahead of the meeting
or, to the extent that has not been possible, will be addressed at the
meeting itself.
In accordance with Listing Rule 9.6.1, a copy of the Annual Report and
Accounts and the Notice of Annual General Meeting of the Company have been
uploaded to the National Storage Mechanism and will be available for
viewing shortly at
3 https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Tim O’Gorman
Company Secretary
Halfords Group plc
The Appendix to this announcement is a supplement to our preliminary
statement of Financial Results made on 21 June 2023 (the "Final Results
Announcement"). It contains the information required pursuant to
Disclosure Guidance and Transparency Rule 6.3.5 that is in addition to the
information communicated in the Final Results Announcement and should be
read together with the Final Results Announcement. This information is not
a substitute for reading the full Annual Report and Accounts for the year
ended 31 March 2023.
Appendix
The Chief Financial Officer’s Report in the preliminary statement of the
Final Results Announcement issued on 21 June 2023 includes a commentary on
the principal commercial and financial risks and uncertainties to
achieving the Group’s objectives.
Further details of other principal risks and uncertainties relating to the
Halfords Group are set out on pages 76 to 81 of the 2023 Annual Report and
Accounts. Specific financial risks (e.g. credit risk, foreign currency)
are detailed in note 21 to the Financial Statements on pages 198 to 202 of
the 2023 Annual Report and Accounts.
The following is extracted in full and unedited form from the 2023 Annual
Report and Accounts.
Our Principal Risks and Uncertainties
Capability and Capacity to Effect Change
Failure to build sufficient capacity and capability (in terms of our
people, processes, and systems) to successfully implement the
transformation required across the business, may result in the expected
benefits of our strategy not being delivered, thereby risking the future
sustainability of the business.
Current Mitigation Focus in 2024
• A dedicated Transformation and Change team lead
by the Group Strategy Director and supported by • Continue to align our
experienced Programme and Project Managers has change plan with the key
supported the successful delivery of change objectives of the
projects. corporate strategy.
• The continued advancement of our change • Further enhance
programme is managed through a Transformation tracking and monitoring
Board, providing the necessary governance for of project progress and
delivery of the strategy. The Transformation delivery through use of
Board ensures there is a robust approval process software.
for each project, allocates resource and monitors
progress. Programme and Project Managers are in
place within the business to whom projects can be
assigned and this has been supplemented by • Enhance change
specialist resource to boost capability. In capability more broadly
affecting change, Halfords is requiring all across the wider
contributing colleagues to observe the principles business.
of Responsible, Accountable, Consulted, and
Informed (“RACI”).
Stakeholder Support and Confidence in Strategy
Failure to secure and maintain our stakeholders’ (investors, suppliers,
colleagues) support for our strategy, will mean they may lose confidence
in the business and withdraw their resources.
Current Mitigation Focus in 2024
• Maintain progress on the delivery of
our strategic objectives.
• Throughout the year we have • Continue to proactively engage with
sought to engage internal and investors through scheduled events and
external stakeholders to ensure transparent and regular communication,
their understanding of our demonstrating progress against the
performance and strategy. targets laid out at our Capital Markets
Day.
• The CMD in April 2023 provided
further support and understanding • Enhance understanding of colleague
engagement through more regular surveys
throughout the year and continuing our
regular listening groups.
Value Proposition
If investment in our motoring product value proposition and group value
perception is insufficient to retain existing customers and/or attract new
ones, and/or we lose market share to online retailers and discounters, the
impact could be a loss of sales volume. Pricing decisions will be
important in the current environment. There is a risk that investing in
price without a corresponding increase in volume leads to a diminution of
financial returns and equally that increasing prices outside of market
movements, could damage our value perception.
Current Mitigation Focus in 2024
• Our strategy emphasises the importance of
creating value for customers by delivering • Maintaining an agile
advice and services alongside the sale of a trading plan, flexing
product and during the year we rolled out promotions to respond to a
solution selling across the business to ensure changing customer
that we were meeting customers needs. landscape.
• We also invested to support customers in a • Enhancing our financial
cost of living crisis, reducing thousands of services proposition to
prices across our motoring category and offer more flexible payment
launching our “Never Beaten On Price” campaign options to customers.
on a number of fitted product categories,
including tyres. In addition, we continued to
improve our financial services offering, cycle
to work proposition and pre-loved bike offer, • Growing and enhancing the
making our products accessible to more Motoring Loyalty Club to
customers. help even more customers
enjoy savings and benefits.
Our value proposition was further enhanced by
the Motoring Loyalty Club, which grew to 1.7m Introducing dynamic pricing
members during the year. This provided members in garages to enable
with access to a wide range of benefits and customers to make their own
discounts. choices around price and
convenience.
Brand Appeal and Market Share
Investment in awareness of our brand and our services is insufficient to
increase our brand relevance, in which case we will be unable to maintain
and grow our customer base or improve our customer shopping frequency and
spend and correspondingly build market share.
Current Mitigation Focus in 2024
• Continuing to drive
personalisation and relevance
• During the year we grew market share through effective use of data
across our core categories of Motoring and CRM, as we begin to know
Product, Cycling and Tyres, supported by a more about customers vehicles
strong customer proposition, investment in than they do.
price, our Motoring for Less campaign, and a
range of enhancements to our on line
customer journey.
• Enhancing the cycle to work
platform to make the
proposition accessible to
• The integration of National Tyres and the more companies, particularly
acquisition of Lodge Tyres during the year SMEs.
gave customers access to even more touch
points at which to enjoy our products and
services.
• Extending ranges in
categories such as car parts
where market share is
• The Motoring Loyalty Club bought hundreds currently low.
of thousands of new customers to Halfords,
increasing brand appeal through our free and
premium propositions.
• Continuing to grow the
Motoring Loyalty Club and
starting work to develop a
Cycling Loyalty Club.
Climate Change and Electrification
The climate crisis is already having a profound effect through extreme
weather events - floods, drought and raising sea levels - all of which
have the ability to disrupt our supply chains and impact our ability to
operate our business effectively. These risks have been assessed in detail
and whilst flooding is likely to impact select Halfords stores and garages
across the UK, our most material climate related risks and opportunities
are in response to the evolving regulatory landscape; in particular, the
ban on new internal combustion engine (ICE) vehicles being sold in the UK
from 2030 as part of the UK Government’s net zero ambitions. More
sustainable mobility options, including Electric Vehicles, E-Bikes and
E-Scooters are therefore going to be crucial over the next decade as the
country prepares for the shift away from conventional fuel sources and
transition to a lower carbon economy. This transition will impact our
motoring and cycling business in the short, medium and long-term.
Failure to respond adequately to the demand for sustainable mobility
options through our products and servicing offers could lead to a loss in
confidence, market position and revenue.
Our service proposition does not match customer demand for electrification
solutions in motoring and cycling, leading to profound disruption in our
core markets. Failure to deliver against our climate strategy and net zero
targets, leading to a loss in confidence from our stakeholders and
potential reputational damage.
Failure to respond adequately to the demand for sustainable mobility
options through our products and servicing offers could lead to a loss in
confidence, market position and revenue.
Current Mitigation
• Halfords has an ESG Committee that meets Focus in 2024
regularly to monitor legislative changes,
climate related due diligence and reporting • Our e mobility proposition
requirements as well as monitoring of the continues to evolve to
regulatory environment for changes to support sustainable choices,
policies around e.g., sale of ICE vehicles, with new options like EV
tax breaks for e-mobility or infrastructure servicing on the drive
developments. Reporting and risk management through Halfords Mobile
follow a roadmap to support the requirements Experts.
of the Taskforce on Climate Related
Financial Disclosure (TCFD). Strong progress
has been made and will continue in the
collection of supply chain emissions, to • Our investment in training
measure, monitor and reduce our scope 3 and equipment continues to
emissions - which make up a significant ensure we lead as the No. 1
proportion of our overall carbon footprint. choice for electric mobility.
• A Robust Electrification strategy is in • Our climate strategy is on
place, challenges, performance and successes track with over delivery of
are analysed, and strategy regularly our ambitious scope 1 and 2
adjusted as appropriate. There is regular targets and excellent
landscape monitoring for electric vehicles progress against scope 3,
(EVs) both from a manufacturing side and exceeding our data capture
consumer uptake side so that we can target in FY23.
appropriately respond to the rise of
e-mobility.
Sustainable Business Model
Alongside pre-existing changes in customer habits and expectations, the
recent spike in UK supply chain and consumer inflation is creating
challenging economic conditions. Unless we can continue to mitigate the
significant levels of cost inflation (through cost mitigation and savings,
growth in new business areas, and increasing selling prices), we will be
unable to maintain a sustainable business model.
Current Mitigation Focus in 2024
• Cost Transformation
programme to focus on
short, medium and long-term
• Service related sales now account for 48% of cost reduction
the Group’s Revenue, resulting in more stable opportunities.
revenue streams and reduced exposure to
discretionary expenditure.
• Externally supported
better buying program in
• Freight costs were well managed throughout place, supporting
the year to remain below spot prices, through significant reduction in
successful negotiation. the cost of goods for
resale.
• During the year, our cost and efficiency
program delivered over £20m of savings, • Fixed cost contracts
exceeding the FY23 target of £15m. entered into for
inflationary cost
categories – e.g. Freight
and Utilities.
• Detailed price/elasticity analysis helped to
optimise consumer pricing decisions.
• Rental costs reduced
through property
• Longstanding supplier relationships were renegotiations;
optimised to extract value from supplier underperforming
contributions/support. stores/garages closed at
lease renewal.
• Productivity analysis
• US Dollar hedging programme helped to ongoing through digital
mitigate significant weakening of sterling, technology.
resulting in no adverse cost headwinds from FX
in FY23.
• Group Data Platform
identifying sales, cost and
• Energy cost increases in FY23 were fully productivity opportunities.
mitigated through buying ahead at October 2021
pricing
• FX hedging programme in
place
• Debt facilities extended.
Regulatory and Compliance
A failure to adhere to our legal and/or regulatory obligations for some,
or all, of the Group’s activities leads to an inability to meet our
responsibilities to stakeholders and/or the imposition of financial
penalties, placing a strain on the business.
Current Mitigation
• There is continual monitoring of legal and Focus in 2024
regulatory developments for all regions where
the Group operates. A suite of policies sets • Continued monitoring of
out the Group’s commitment to conduct its legal and regulatory
business with honesty and integrity. The developments for all
senior leadership team communicates tone from regions where the Group
the top to provide guidance to colleagues on operates.
all policy commitments.
• Improved Policy and
• Compliance training is provided to new procedures.
colleagues as required with refresher courses
thereafter. Regular horizon scanning is
undertaken to capture new regulations and
requirements. During the year, a Finance Risk • Compliance Monitoring and
Committee was established to focus on all Review.
aspects of financial risk and compliance.
• Focussed development of
• We have a code of conduct with our suppliers the H&S culture through
whom we monitor for compliance across ethics: improved KPI reporting,
environmental management; labour practices; Investigations and
and human rights. training.
• Health and safety, Data Protection and • Development of wellbeing
Financial Conduct Authority compliance are standards.
managed by experts reporting to dedicated
committees with representatives across the
business to assess our regulatory rigour.
• Regular training and
information provided
through user-friendly
• An established Whistleblowing process channels.
enables colleagues to report suspected or
actual wrongdoing in confidence.
Service Quality
The services we provide fall below the quality standards to which we are
committed, placing customers at risk of harm.
Current Mitigation Focus in 2024
• All colleagues are provided with dedicated
training and adhere to established quality
control and safety procedures, with • External Mystery Shop in
compliance audits by management. We also place to monitor performance.
have a dedicated compliance team monitoring
our regulated activities.
• An enhanced complaints
programme with root cause
• In Autocentres our digital operating analysis and learnings by
platform, PACE, enables increased workflow, garage.
productivity, and quality assurance. PACE
drives service quality by requiring quality
controls to be completed on all workshop
colleagues as determined by the Technician • Additional training and
Quality Rating. All our Quality Controllers support in place for National
follow an approved training pathway and garages.
receive refresher training annually.
• Target quality and training
• We have a Retail Contact Centre that in underperforming garages.
provides a level of call answer rates that
ensures we can provide a quality service to
our customers whatever channel they choose.
Cyber Security
If we fail to sufficiently prevent, detect, and respond to cyber incidents
and attacks, they may result in disruption of service, compromise of
sensitive data, financial penalties from regulatory authorities, financial
loss, and reputational damage.
Current Mitigation Focus in 2024
A programme of activities has matured
our Governance, Risk and Compliance
function and improved our visibility,
alerting and reporting to provide a
pro-active approach to cyber security.
A fully functional Security Operations
Centre operated by our third party
provider, TCS, provides real time
analysis of threats and a heavy focus
on incident management has ensured
detection and response times are
reduced.
• Moving to a tactical and
operational security model by
transitioning to alignment with
Our security partner, TCS, provides ISO27001 and away from the NIST
first line assurance security Framework to ensure focus remains
operations capabilities including on the security fundamentals
vulnerability management, email required.
filtering, and website security.
• Identity & Access Management
• Within our Risk Management Framework enhancement.
our Information Security team provides
the second line assurance role
identifying and managing cyber-related
risk, and developing and implementing • Incident Management and response
our internal control framework. simulation and training.
• Third line assurance is provided by • Further enhancing website
Internal Audit. security.
• A perpetual education and awareness
campaign is provided to all colleagues.
Regular briefings promote an
understanding of the risks to our data
and the benefits of good security
practices.
• The Audit Committee is regularly
briefed by senior Technology management
on the business’ cyber security
framework.
Colleague Engagement/Culture
Our employment model may not be sufficiently attractive to recruit and
retain the talent that we need. We do not maintain a sufficiently positive
culture, failing to support a diverse and inclusive community.
Current Mitigation Focus in 2024
• In FY23 we have launched our colleague
strategy across the key stages of the
colleague Lifecyle of ‘Find Me, Train Me, • Launch of our Diversity and
Grow Me, Keep Me’ with plans across each to Inclusion strategy, which will
drive attractiveness of our employee broaden our attraction to
proposition. external talent and support
internal talent development.
• Further developing our
• We are maintaining our position as an colleague engagement strategy
above National Minimum Wage employer in our to broaden our listening and
retail business and maintained a skills better inform our actions.
related pay progression for our skilled
colleagues across the group to ensure
market competitiveness.
Skills Shortage
We may be unable to recruit, retain and develop enough people to have the
different mix of skills that we need at all levels across the business, in
the near and longer term.
Current Mitigation Focus in 2024
In FY23 we have started a review of
our systems and processes to support
recruitment and retention that has
seen us reduce labour turn over by
7%, this has included:
In FY24, our focus will be across
• Investment in pay for key roles in the Employee Value Proposition to
our garages - MOT Testers and drive greater retention and
Management. attraction and colleague
development:
• Implementation of an enhanced
referral scheme to our internal • Launching a technical career
colleagues for referring external pathway through our Academy that
hires. will set out the development journey
for every technical colleague -
demonstrating a career and reward
journey.
• Attraction and development of 100
garages apprentices, up from 26 in
FY22.
• Investing in a leadership
development programme in our garage
services business to develop our
• Development of 200 future retail regional and centre managers to
managers through our Aspire programme develop leadership capability.
and delivery of leadership
development for our retail area
managers.
• Launching ‘The Academy’ our
digital learning system to step
change our digital learning and
• Evolving our recruitment operating development capability.
model to a centralised support model
that gives retail managers greater
visibility and ownership of their
recruitment at a local level. • Reviewing our careers website to
refresh our applicant journey and
employee brand.
• Implementation of our Hybrid
working approach for Support Centre
colleagues to create a balance of
remote and face to face working.
IT Infrastructure Failure
Failure in our IT system(s) may cause significant disruption to, or
prevention of, normal business-as-usual activities
Current Mitigation Focus in 2024
• Controls have been built out this year to • Modernisation of some of
maintain integrity of our infrastructure our older technologies
through a governance of vendors and technology. inherited through
acquisition.
• All changes related to infrastructure are
presented under change control with specific • Network Transformation
approval. Halfords monitoring capability has to enhance resilience.
been enhanced.
• Replacement of Warehouse
• A number of our critical applications have Management System.
been migrated into cloud for enhanced
availability. Halfords key trading systems not
migrated to cloud are hosted securely within
data centres operated by a specialist company. • Further roll out of
These systems are supported by disaster Pace.
recovery arrangements, including comprehensive
backup, patching and fall back strategies. We
have modernised our portable compute service to
Windows 11 with enhanced availability services • Enhancement of Service
and modern security tooling. Assurance model to
strengthen governance over
our vendors.
Disruption to end to end supply chain
The Halfords End to end (E2E) supply chain is an integration of the
process from sourcing of products (including the raw material procurement
and product design by our supply partners) through to scheduling and
delivery of goods to our customers (through our DC network and via stores
or direct to consumer).
Disruption to the E2E process creates a major impact to customer
fulfilment and/or customer facing price increases due to supply shortages,
increased demand for raw materials impacting availability and input price,
production delays that lead to an extension in supply lead times,
logistics delays in the form of shipping of goods, or the potential
closure of one of our DC’s, all of which challenges our ability to meet
sales and profit projections.
Current Mitigation Focus in 2024
• Our sourcing capability and supplier
relationships are delivered through
dedicated UK, Asian and Near sourcing
teams. These teams maintain both strategic
and upstream supplier relationships,
operate multiple sources, dual sourcing,
product engineering and are engaged in the
ESG agenda.
• Our AEO accreditation review
with HMRC is scheduled for
• Our in-house expertise delivers the high Sept 23 and the International
global trading standards from Authorised Trade team will lead this
Economic Operator accreditation, review.
Import/export expertise and dedicated
security at each of our Distribution Centre
(DC) sites.
• We will maintain multiple,
close and direct relationships
with shipping lines.
• Our 3PL relationships give expertise and
options. We contract with multiple shipping
lines for flexibility and leverage, we have
access to large organisational support from • Our Warehouse Management
Yusen Logistics, Wincanton and Clipper System replacement is due to
logistics and PWC provide external trading start going live through FY24
and compliance expertise. as well as our new Customs
management system.
• Our Transformation plans reduce risk
through scheduled work on the replacement
of our Warehouse Management System, a UK
distribution centre physical network
review, the replacement of our forecasting
and replenishment tools and our Customs and
Duty platform.
Directors’ responsibilities
The directors are responsible for preparing the annual report and the
financial statements in accordance with UK adopted international
accounting standards and applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors are required to prepare
the group financial statements in accordance with UK adopted international
accounting standards and have elected to prepare the company financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable laws). Under
company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the group and company and of the profit or loss for the group
for that period.
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with UK adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group and the company will continue in
business;
• prepare a directors’ report, a strategic report and directors’
remuneration report which comply with the requirements of the Companies
Act 2006.
The directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the company’s transactions and disclose
with reasonable accuracy at any time the financial position of the company
and enable them to ensure that the financial statements comply with the
Companies Act 2006.
They are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are responsible for ensuring
that the annual report and accounts, taken as a whole, are fair, balanced,
and understandable and provides the information necessary for shareholders
to assess the group’s performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and the
financial statements are made available on a website. Financial statements
are published on the Company’s website in accordance with legislation in
the United Kingdom governing the preparation and dissemination of
financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the company’s website is
the responsibility of the directors. The directors’ responsibility also
extends to the ongoing integrity of the financial statements contained
therein.
Directors’ Responsibilities Pursuant to DTR4
The directors confirm to the best of their knowledge:
• The financial statements have been prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the group.
• The annual report includes a fair review of the development and
performance of the business and the financial position of the group and
company, together with a description of the principal risks and
uncertainties that they face.
• The Report and Financial statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
Shareholders to assess the Group’s position and performance, business
model and strategy. Approved by order of the Board.
Approved by order of the Board.
Keith Williams
Chair
21 June 2023
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Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════
ISIN: GB00B012TP20
Category Code: ACS
TIDM: HFD
LEI Code: 54930086FKBWWJIOBI79
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 261684
EQS News ID: 1693699
End of Announcement EQS News Service
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