TIDMHFD
RNS Number : 0775C
Halfords Group PLC
27 September 2018
27 September 2018
Halfords Group plc
Capital Markets Day
"to inspire and support a lifetime of motoring and cycling"
Halfords Group plc today hosts a capital markets day, during
which Graham Stapleton (CEO) and several of his leadership team
will set out the Group's plans for the next few years. A copy of
the presentation will be made available on www.halfordscompany.com
later today.
This announcement sets out key points from the presentation,
along with a summarised explanation of the Group's strategy.
Key Points
-- Halfords is already a good business with many existing
strengths, which have supported the Group's robust trading
performance over the last two years and also provide a solid
foundation on which to build
-- Today, the Group sets out a long-term strategy to build upon
those strengths to become a truly differentiated, service-led super
specialist, well placed to thrive within a rapidly changing retail
environment
-- We have set out a new customer strategy for the business
focused on supporting and inspiring a lifetime of motoring and
cycling. This will focus on the following strategic priorities:
o Inspiring our customers through a differentiated, super
specialist shopping experience
o Supporting our customers through an integrated, unique and
more convenient services offer
o Enabling a lifetime of motoring and cycling
-- We will support this with an accelerated programme of
investment. Capital expenditure will increase from the prevailing
guidance of c. GBP40m per year to up to GBP60m per year over the
medium term, with significant investment in our stores, garages,
and digital platforms
-- Alongside this we have commenced a wide-reaching cost and
capital efficiencies programme, which will enable us to fund the
increase in capital expenditure from cash released from within the
business over the life of the plan. Despite incremental investment
in operating expenditure as we implement our long-term strategy, we
anticipate FY20 Profit Before Tax to be broadly flat on FY19, with
mid-single-digit percentage annual growth anticipated thereafter as
the plans take effect
-- Our existing debt target and capital allocation priorities
remain unchanged, other than a new commitment to preserve the
ordinary dividend along with continuing to target to grow it every
year. We also add a new financial target to increase Free Cash
Flow
Graham Stapleton, Chief Executive Officer, commented:
"We are a strong and growing business, that benefits from a
solid financial platform and highly experienced and capable
colleagues. However, customer behaviours and the competitive
environment are changing and we face an increasing number of
headwinds. Our new long term strategy means we will become far more
focussed on the categories we are best known for, motoring and
cycling. We will have a more convenient, easy to shop and scaled
services business, offering a thousand service locations. Customers
will also benefit from unique product, services and shopping
experiences all underpinned by integrating the separate businesses
within the group. We have an exciting future ahead and I am
confident that we will become even more relevant to motoring and
cycling customers in the future"
Enquiries
Investors & Analysts (Halfords) +44 (0) 7703 890142
Adam Phillips, Group Strategy & IR Director
+44 (0) 207 353
Media (Tulchan) 4200
Jonathan Sibun
Will Smith
Forthcoming Newsflow
On 8th November 2018 we will report on the interim results for
the 26 weeks ending 28th September 2018.
Notes to Editors
www.halfords.com www.halfordscompany.com www.halfordsautocentres.com
www.cyclerepublic.com www.boardmanbikes.com www.tredz.co.uk
Halfords is the UK's leading provider of motoring and cycling
products and services. Customers shop at 452 Halfords stores, 24
Cycle Republic stores, 3 Tredz stores and 315 garages in the UK and
Republic of Ireland. Customers can also shop at halfords.com,
cyclerepublic.com and tredz.co.uk for pick-up at their local store
or direct home delivery, as well as booking garage services online
at halfordsautocentres.com.
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.
Overview of the Group's strategy
Introduction
Halfords is already a good business with many existing
strengths, including its highly-engaged colleagues, a sizeable and
growing services business, leading positions in attractive markets,
and a prudent capital structure and strong balance sheet.
These strengths also provide a solid foundation on which to
build, but are not sufficient in isolation to provide a long-term,
sustainable and profitable business nor counter some of the
significant headwinds we face going forwards. The retail
environment is ever-changing, with increasing competitive threats
and more demanding customer expectations. After a detailed
strategic review process we are clear that standing still is not a
long term option.
We have chosen to accelerate investment in the business to
become a much more differentiated, super specialist with an
integrated, unique and more convenient services offer, and to focus
on retaining customers for a lifetime. By doing so we will develop
a business with long-term, sustainable growth prospects.
Customer, market and competitor insight
We conducted an in-depth strategic review over the last 6
months, including comprehensive customer, colleague, market and
competitor research, supported by external input. For the first
time we were able to use powerful insights from our single customer
view. A detailed overview of this is contained within our capital
markets day presentation, of which a few summarised points are
noted below.
Halfords operates in the motoring and cycling markets, both of
which have good long-term growth prospects, but which are also
characterised by generalists becoming more sophisticated and
encroaching on the space previously occupied by specialists.
Halfords has leading market shares in some areas; whilst also
having significant headroom to grow further.
We know that there is increasing demand from customers who want
someone to "do it for me", but customers do not find us convenient
enough. There are also significant opportunities to improve cross
shop (currently only 2% of our Retail customers also shop at
Autocentres) and customer retention (for example, 1 in 3 of our
known customers haven't shopped with us for two years). Finally,
cars and bikes are becoming more complex, particularly as electric
vehicle popularity increases. There are opportunities for scaled,
specialist service providers to lead in this market.
Our new customer strategy
Halfords' role is to inspire and support a lifetime of motoring
and cycling.
We will do this through the following strategic priorities:
1. Inspiring our customers through a differentiated, super specialist shopping experience
2. Supporting our customers through an integrated, unique and more convenient services offer
3. Enabling a lifetime of motoring and cycling
1. Inspiring our customers through a differentiated, super specialist shopping experience
Halfords will become a business more focused on what it is
really known for - its core motoring and cycling offer. Customers
will be able to buy products and services with features and
benefits that they not only want or need, but are only available at
Halfords. These products and service will be available from a more
innovative and personalised online site together with a
complementary and inspiring store environment. Customers and
colleagues will also be supported by a unique in-store tablet,
digital screen and mobile experience.
On average it is 11 years since our stores had investment and as
such most stores were designed before a scaled online and services
business existed. We will be accelerating investment in both our
stores and garages in order to address that.
2. Supporting our customers through an integrated, unique and more convenient services offer
Customers will be able to access a broader range of services
more easily from one single integrated web site, combining the
separate Retail and Autocentres websites that exist today. Through
making more services available across both stores and garages, and
a roll out of more garages, we will significantly reduce the
average drive time for our customers to reach one of our service
locations. In addition, we will roll out mobile services vans to
give customers in major conurbations the option of us coming to
them. Collectively this will create a more convenient network of
circa 1,000 service delivery locations across the UK and Ireland.
Halfords will also be the nationwide go-to provider for Electric
bike and car servicing.
3. Enabling a lifetime of motoring and cycling
Finally we will place equal focus on retaining customers as well
as acquiring new ones. Customers will enjoy building relationships
with Halfords for the long term as they are encouraged to explore
and benefit from all that we do in both motoring and cycling over
their lifetime. We will achieve this through more sophisticated use
of our customer data and CRM capabilities, launching loyalty
mechanics, and improving the cross shop between our businesses.
Infrastructure
This customer strategy is underpinned by continued development
of our infrastructure, particularly IT and property.
IT
The IT investments in recent years have already given us a good
platform on which to improve our customer experience. We will
continue to invest in customer-facing improvements, including our
new in-store software and tablets, a new car parts database, and
the customer journey enhancements as set out above, along with a
re-platform of all our group websites. We will also be implementing
systems to improve efficiencies, such as a new forecasting and
replenishment tool.
Property
We currently have a physical estate of 452 Halfords store, 24
Performance Cycling stores (mainly branded as Cycle Republic), 315
garages and 3 mobile vans. The property portfolio is relatively
flexble, with an average 6 years remaining lease length, enabling
us to continually monitor and adjust to our requirements.
Over the medium term we anticipate the following changes to our
physical estate:
-- open 100+ garages, increasing the estate by at least a third;
-- a target to double the Performance Cycling store numbers from 24 to 50+;
-- closing some Retail stores (at a similar run rate; we have closed 6 in the last 12 months);
-- continue to relocate and/or "right size" Halfords stores each year; and,
-- rolling out mobile vans, targeting the the major conurbations.
We will also be accelerating investment in refurbishments. We
anticipate refreshing up to 90 stores and up to 50 garages a year
over the medium term.
Operational efficiencies
As well as focusing on our customer strategy to create a more
unique and differentiated, super specialist business, we will be
equally focused on ensuring we have an efficient, cost effective
and cash generative business. We will be targeting cost savings and
cash efficiencies from property, product, supply chain and
in-garage processes, along with synergies from greater integration
of our businesses across the Group.
These operational efficiencies will be re-invested into:
-- accelerated capital expenditure;
-- strategic investments in operating costs; and
-- investing in price as and when required to respond to
competitive threats over the medium term.
Summary financial guidance
Our new customer strategy requires investment in both capital
and operating expenditure. We will fund the increased capital
expenditure requirements over the life of the plan through the cost
and cash efficiencies explained above. In addition we will continue
to apply our "test and learn" approach to investments, with clear
"gating", such that we will change or stop investments that do not
pay back in line with our expectations.
The summary financial guidance elements are set out below:
-- FY20 Profit Before Tax to be broadly flat on FY19, with
mid-single-digit percentage growth annually thereafter for the
medium term.
-- Capital expenditure will increase from the prevailing
guidance of c. GBP40m per year to up to GBP60m per year over the
medium term. As explained above, this increase will be self funded
over the life of the plan through cash efficiencies.
All of our financial guidance, and our financial targets set out
in the next section, assume an orderly Brexit scenario.
Going forward we will change how we report our trading and
results. From FY20 onwards we will no longer separately disclose
results for the Retail and Autocentres businesses, as we bring them
together to create one services businesses in both the eyes of the
customer and in how we operate them. Additionally we will
streamline our "like-for-like" categories; from FY20 these will
comprise: Motoring, Cycling and Group.
Financial targets and capital allocation priorities
Over the medium term we aim to achieve four key financial
targets, which are similar to the framework that was previously in
place:
1. Grow sales faster than the markets in which we operate. We
anticipate that the motoring market will grow at an average rate of
2+% per annum and the cycling market at an average rate of 3+% per
annum over the medium term. We will aim to beat whatever those
growth rates are
2. Increase Free Cash Flow. Specifically, over the three year
period from FY19 to FY21 we target Free Cash Flow to be greater
than in the preceding three year period of FY16 to FY18.
3. Grow the dividend per share every year. We continue to target
a long term coverage of around 2 times underlying earnings on
average, although this will be lower in the medium term.
4. Net debt to EBITDA of 1 times, with a range up to 1.5 times
for appropriate M&A; we are currently at circa 0.7x.
Our capital allocation priorities remain unchanged other than an
enhanced commitment on the ordinary dividend. Our priorities are as
follows:
1. Maintaining a strong balance sheet and preserving the ordinary dividend.
2. Investing to grow the business.
3. Growing the dividend.
4. Investing in appropriate M&A.
5. Distributing any surplus cash to shareholders.
Halfords Group plc's LEI code is 54930086FKBWWJIOB17
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END
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