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 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 (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 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 experienced Programme and Project Managers has supported the successful delivery of change projects. • The continued advancement of our change programme is managed through a Transformation Board, providing the necessary governance for delivery of the strategy. The Transformation Board ensures there is a robust approval process 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 specialist resource to boost capability. In affecting change, Halfords is requiring all contributing colleagues to observe the principles of Responsible, Accountable, Consulted, and Informed (“RACI”). | • Continue to align our change plan with the key objectives of the corporate strategy. • Further enhance tracking and monitoring of project progress and delivery through use of software. • Enhance change capability more broadly across the wider business. |
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 |
| • Throughout the year we have sought to engage internal and external stakeholders to ensure their understanding of our performance and strategy. • The CMD in April 2023 provided further support and understanding | • Maintain progress on the delivery of our strategic objectives. • Continue to proactively engage with investors through scheduled events and transparent and regular communication, demonstrating progress against the targets laid out at our Capital Markets Day. • 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 advice and services alongside the sale of a product and during the year we rolled out solution selling across the business to ensure that we were meeting customers needs. • We also invested to support customers in a cost of living crisis, reducing thousands of prices across our motoring category and launching our “Never Beaten On Price” campaign 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, making our products accessible to more customers. Our value proposition was further enhanced by the Motoring Loyalty Club, which grew to 1.7m members during the year. This provided members with access to a wide range of benefits and discounts. | • Maintaining an agile trading plan, flexing promotions to respond to a changing customer landscape. • Enhancing our financial services proposition to offer more flexible payment options to customers. • Growing and enhancing the Motoring Loyalty Club to help even more customers enjoy savings and benefits. Introducing dynamic pricing in garages to enable customers to make their own 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 |
| • During the year we grew market share across our core categories of Motoring Product, Cycling and Tyres, supported by a strong customer proposition, investment in price, our Motoring for Less campaign, and a range of enhancements to our on line customer journey. • The integration of National Tyres and the acquisition of Lodge Tyres during the year gave customers access to even more touch points at which to enjoy our products and services. • The Motoring Loyalty Club bought hundreds of thousands of new customers to Halfords, increasing brand appeal through our free and premium propositions. | • Continuing to drive personalisation and relevance through effective use of data and CRM, as we begin to know more about customers vehicles than they do. • Enhancing the cycle to work platform to make the proposition accessible to more companies, particularly SMEs. • Extending ranges in categories such as car parts where market share is currently low. • 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 regularly to monitor legislative changes, climate related due diligence and reporting requirements as well as monitoring of the regulatory environment for changes to policies around e.g., sale of ICE vehicles, tax breaks for e-mobility or infrastructure developments. Reporting and risk management follow a roadmap to support the requirements 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 measure, monitor and reduce our scope 3 emissions - which make up a significant proportion of our overall carbon footprint. • A Robust Electrification strategy is in place, challenges, performance and successes are analysed, and strategy regularly adjusted as appropriate. There is regular landscape monitoring for electric vehicles (EVs) both from a manufacturing side and consumer uptake side so that we can appropriately respond to the rise of e-mobility. | Focus in 2024 • Our e mobility proposition continues to evolve to support sustainable choices, with new options like EV servicing on the drive through Halfords Mobile Experts. • Our investment in training and equipment continues to ensure we lead as the No. 1 choice for electric mobility. • Our climate strategy is on track with over delivery of our ambitious scope 1 and 2 targets and excellent progress against scope 3, exceeding our data capture target in FY23. |
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 |
| • Service related sales now account for 48% of the Group’s Revenue, resulting in more stable revenue streams and reduced exposure to discretionary expenditure. • Freight costs were well managed throughout the year to remain below spot prices, through successful negotiation. • During the year, our cost and efficiency program delivered over £20m of savings, exceeding the FY23 target of £15m. • Detailed price/elasticity analysis helped to optimise consumer pricing decisions. • Longstanding supplier relationships were optimised to extract value from supplier contributions/support. • US Dollar hedging programme helped to mitigate significant weakening of sterling, resulting in no adverse cost headwinds from FX in FY23. • Energy cost increases in FY23 were fully mitigated through buying ahead at October 2021 pricing • Debt facilities extended. | • Cost Transformation programme to focus on short, medium and long-term cost reduction opportunities. • Externally supported better buying program in place, supporting significant reduction in the cost of goods for resale. • Fixed cost contracts entered into for inflationary cost categories – e.g. Freight and Utilities. • Rental costs reduced through property renegotiations; underperforming stores/garages closed at lease renewal. • Productivity analysis ongoing through digital technology. • Group Data Platform identifying sales, cost and productivity opportunities. • FX hedging programme in place |
| 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 regulatory developments for all regions where the Group operates. A suite of policies sets out the Group’s commitment to conduct its business with honesty and integrity. The senior leadership team communicates tone from the top to provide guidance to colleagues on all policy commitments. • Compliance training is provided to new colleagues as required with refresher courses thereafter. Regular horizon scanning is undertaken to capture new regulations and requirements. During the year, a Finance Risk Committee was established to focus on all aspects of financial risk and compliance. • We have a code of conduct with our suppliers whom we monitor for compliance across ethics: environmental management; labour practices; and human rights. • Health and safety, Data Protection and Financial Conduct Authority compliance are managed by experts reporting to dedicated committees with representatives across the business to assess our regulatory rigour. • An established Whistleblowing process enables colleagues to report suspected or actual wrongdoing in confidence. | Focus in 2024 • Continued monitoring of legal and regulatory developments for all regions where the Group operates. • Improved Policy and procedures. • Compliance Monitoring and Review. • Focussed development of the H&S culture through improved KPI reporting, Investigations and training. • Development of wellbeing standards. • Regular training and information provided through user-friendly channels. |
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 compliance audits by management. We also have a dedicated compliance team monitoring our regulated activities. • In Autocentres our digital operating platform, PACE, enables increased workflow, productivity, and quality assurance. PACE drives service quality by requiring quality controls to be completed on all workshop colleagues as determined by the Technician Quality Rating. All our Quality Controllers follow an approved training pathway and receive refresher training annually. • We have a Retail Contact Centre that provides a level of call answer rates that ensures we can provide a quality service to our customers whatever channel they choose. | • External Mystery Shop in place to monitor performance. • An enhanced complaints programme with root cause analysis and learnings by garage. • Additional training and support in place for National garages. • Target quality and training in underperforming garages. |
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. Our security partner, TCS, provides first line assurance security operations capabilities including vulnerability management, email filtering, and website security. • Within our Risk Management Framework our Information Security team provides the second line assurance role identifying and managing cyber-related risk, and developing and implementing our internal control framework. • Third line assurance is provided by Internal Audit. • 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. | • Moving to a tactical and operational security model by transitioning to alignment with ISO27001 and away from the NIST Framework to ensure focus remains on the security fundamentals required. • Identity & Access Management enhancement. • Incident Management and response simulation and training. • Further enhancing website security. |
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, Grow Me, Keep Me’ with plans across each to drive attractiveness of our employee proposition. • We are maintaining our position as an above National Minimum Wage employer in our retail business and maintained a skills related pay progression for our skilled colleagues across the group to ensure market competitiveness. | • Launch of our Diversity and Inclusion strategy, which will broaden our attraction to external talent and support internal talent development. • Further developing our colleague engagement strategy to broaden our listening and better inform our actions. |
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: • Investment in pay for key roles in our garages - MOT Testers and Management. • Implementation of an enhanced referral scheme to our internal colleagues for referring external hires. • Attraction and development of 100 garages apprentices, up from 26 in FY22. • Development of 200 future retail managers through our Aspire programme and delivery of leadership development for our retail area managers. • Evolving our recruitment operating model to a centralised support model that gives retail managers greater visibility and ownership of their recruitment at a local level. • Implementation of our Hybrid working approach for Support Centre colleagues to create a balance of remote and face to face working. | In FY24, our focus will be across the Employee Value Proposition to drive greater retention and attraction and colleague development: • Launching a technical career pathway through our Academy that will set out the development journey for every technical colleague - demonstrating a career and reward journey. • Investing in a leadership development programme in our garage services business to develop our regional and centre managers to develop leadership capability. • Launching ‘The Academy’ our digital learning system to step change our digital learning and development capability. • Reviewing our careers website to refresh our applicant journey and employee brand. |
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 maintain integrity of our infrastructure through a governance of vendors and technology. • All changes related to infrastructure are presented under change control with specific approval. Halfords monitoring capability has been enhanced. • A number of our critical applications have 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. These systems are supported by disaster recovery arrangements, including comprehensive backup, patching and fall back strategies. We have modernised our portable compute service to Windows 11 with enhanced availability services and modern security tooling. | • Modernisation of some of our older technologies inherited through acquisition. • Network Transformation to enhance resilience. • Replacement of Warehouse Management System. • Further roll out of Pace. • Enhancement of Service Assurance model to strengthen governance over our vendors. |
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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 in-house expertise delivers the high global trading standards from Authorised Economic Operator accreditation, Import/export expertise and dedicated security at each of our Distribution Centre (DC) sites. • 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 Yusen Logistics, Wincanton and Clipper logistics and PWC provide external trading and compliance expertise. • 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. | • Our AEO accreditation review with HMRC is scheduled for Sept 23 and the International Trade team will lead this review. • We will maintain multiple, close and direct relationships with shipping lines. • Our Warehouse Management System replacement is due to start going live through FY24 as well as our new Customs management system. |
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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