Chairman's Statement

In a year dominated by political uncertainty, low levels of consumer confidence and another very mild winter, Halfords Group turned in a resilient and highly credible performance.

Keith Williams

Chairman

Against a challenging market backdrop, Halfords performed strongly in FY20 and made significant progress on the delivery of its strategic plan.

2019/2020 highlights

£55.9m

Underlying Profit Before Tax

£54.6m

Free Cash Flow

£73.2m

Closing Net Debt

I would like to start my second Chairman’s statement by recognising the efforts of all Halfords’ colleagues in support of the Group’s response to the devastating impacts of COVID-19. Our Senior Management team acted swiftly and decisively in adapting the Group’s operating model to provide the UK public with essential products and services, whilst implementing important measures to keep both colleagues and customers safe.

Our colleagues are the lifeblood of Halfords and I would like to thank them all sincerely for their dedication throughout the year and particularly during the last few months. There are numerous examples of our colleagues going above and beyond to serve our customers, most notably in supporting key workers to keep the UK moving during this unprecedented health crisis. I am proud that we have offered our expertise to the nation’s healthcare and emergency service workers, having served over 50,000 frontline workers since the crisis began. In recognition of our colleagues’ efforts, we have created a Frontline Colleague Support Fund of £2.3m, to reward them for their extraordinary commitment to Halfords and its customers during this difficult period.

Section 172 Statement

I would like to draw your attention to our section 172 statement on page 59. I further expand on this in the Corporate Governance section of this report, in which I explain the frameworks and practices we have implemented to ensure high standards of governance, values and behaviours, consistently applied across the Group. The statement includes details of key strategic decisions made by the Board during FY20 and an explanation of how different stakeholder groups have been considered. The COVID-19 pandemic has accelerated the need for fast and effective decision-making that is balanced across all our stakeholders, including colleagues, customers, shareholders and suppliers.

FY20 Performance and Dividend

For the financial year ended on 3 April 2020, COVID-19 only impacted the final few weeks of the reporting period. In a year dominated by political uncertainty, low levels of consumer confidence and another very mild winter, Halfords Group turned in a resilient and highly credible performance. Sales growth of +0.3%, with the mid-year acquisitions of McConechy's and Tyres on the Drive contributing strongly, was complemented by gross margin improvements, tight cost control and a further reduction in working capital.

Underlying Profit Before Tax, on a pre-IFRS 16 and 52-week basis, was £55.9m, only marginally lower than last year despite the challenging retail environment and the impact of COVID-19. Excluding the impact of COVID-19 and mid-year acquisitions, underlying profit was in line with the prior year. In part due to another strong performance on working capital, Net Debt reduced by £8.6m in the year, ending at £73.2m. Further details are available in the Chief Financial Officer's Report.

Considering the uncertainty driven by the potential future impact of COVID-19, the Board has taken a series of measures to preserve cash, including the suspension of the dividend. The final dividend payment is therefore nil, meaning the full-year ordinary dividend is 6.18 pence.

An Acceleration of Our Strategy

In November 2019, we announced our intention to accelerate a key part of the Strategy. As we explained then, we believe this is the right time to accelerate the growth of our motoring services business, enhancing our differentiated position in a fragmented market and providing the Group with a less capital-intensive source of profitable growth. As a result, Halfords will evolve into a consumer and B2B services-focused business, with a greater emphasis on motoring, generating higher and more sustainable financial returns.

This accelerated strategy remains fundamentally unchanged post-COVID-19 but we will adjust some aspects of the plan and the way we execute it. Capital expenditure will be lower in the short term, so we will defer the capital-intensive aspects of the plan until we have the confidence to increase investment. We will, however, accelerate other aspects, such as our investment in Digital and reducing the property cost of our Retail estate. Our long-term strategy remains the right direction for Halfords and the way we have traded through COVID-19 only underlines our confidence that we are on the right path.

The Year Ahead

Last year I spoke about the uncertainty of Brexit and the challenging economic backdrop. These remain but have now been overtaken by the unprecedented event of COVID-19. It is very difficult to know with any degree of certainty how the near-term future will look, but whatever the environment, Halfords Group remains in a strong position to weather the storm. We have the right strategy in place for the long-term and an experienced leadership team to deliver it, supported by thousands of dedicated colleagues. I have no doubt that the future of Halfords is in safe hands.

Keith Williams