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we go the extra mile we go the extra mile Annual Report & Accounts plc Group Halfords Geared Fold out page for easy reference contents Introduction we go the extra mile for Growth for period ending Halfords Group plc Annual Report & Accounts for period ending 2 April 2010 2 April 2010 About Halfords Business Review Responsibilities Corporate and IR website www.halfordscompany.com 224 Commercial website www.halfords.com Online Annual Report 2010 Financials halfords.annualreport2010.com Online Annual Report 2009 halfords.annualreport2010.com Stock Code LON:HFD halfords.annualreport2009.com Halfords Group plc Online version Annual Report & Accounts for period ended 2 April 2010 halfords.annualreport2010.com/financialreport Easy Reference we go the extra mile halfords.com halfords.com Introduction Introduction See inside back cover for easy reference contents Our Investment Proposition 01 Our Investment Proposition 01 Our Strategy 01 Our Strategy 01 Group Long-Term Vision 01 Group Long-Term Vision 01 Financial and Operational Financial and Operational Highlights 02 Highlights 02 How We Report 04 How We Report 04 Introduction Introduction Chairman’s Statement 05 Chairman’s Statement 05 About Halfords About Halfords Halfords Value Diagram 06 1 Markets and Brands 08 Halfords Value Diagram 06 1 Markets and Brands 08 2 Products and Services 16 2 Products and Services 16 3 Channels 26 3 Channels 26 4 Supply Chain 34 4 Supply Chain 34 About Halfords About Halfords Business Review Business Review Business Review 42 Business Review 42 Finance Director’s Report 52 Finance Director’s Report 52 Business Review Business Review Responsibility Responsibility Board of Directors 60 Board of Directors 60 Directors’ Report 62 Directors’ Report 62 Corporate Governance 66 Corporate Governance 66 Directors’ Remuneration Report 71 Directors’ Remuneration Report 71 Corporate Social Responsibility 81 Corporate Social Responsibility 81 Responsibilities Responsibilities Financials Financials Statement of Directors’ Consolidated Statement of Changes Reconciliation of Movements Statement of Directors’ Consolidated Statement of Changes Reconciliation of Movements Responsibilities 88 in Shareholders’ Equity 93 in Total Shareholders’ Funds 130 Responsibilities 88 in Shareholders’ Equity 93 in Total Shareholders’ Funds 130 Independent Auditors’ Report to the Consolidated Statement of Accounting Policies 131 Independent Auditors’ Report to the Consolidated Statement of Accounting Policies 131 Members of Halfords Group plc 89 Cash Flows 94 Notes to the Financial Statements 132 Members of Halfords Group plc 89 Cash Flows 94 Notes to the Financial Statements 132 Consolidated Income Statement 90 Notes to Consolidated Five Year Record 135 Consolidated Income Statement 90 Notes to Consolidated Five Year Record 135 Statement of Cash Flows 95 Statement of Cash Flows 95 Consolidated Statement of Key Performance Indicators 135 Consolidated Statement of Key Performance Indicators 135 Financials Financials Comprehensive Income 91 Accounting Policies 96 Comprehensive Income 91 Accounting Policies 96 Analysis of Shareholders 136 Analysis of Shareholders 136 Consolidated Statement of Notes to the Financial Statements 103 Consolidated Statement of Notes to the Financial Statements 103 Company Information 136 Company Information 136 Financial Position 92 Company Balance Sheet 129 Financial Position 92 Company Balance Sheet 129 Halfords Group plc Online version Annual Report & Accounts for period ended 2 April 2010 halfords.annualreport2010.com 01 Our Investment Proposition Our Strategy UK’s leading retailer of automotive Organic growth plan: and leisure products Extending range and service UK’s leading independent operator in advantage garage servicing and auto repair Investing in the Store Portfolio Consolidation opportunity in Introduction Ongoing focus on cost control attractive, fragmented markets characterised by small independents Leveraging the Halfords brand in multi-channel Brands and categories hold number one sales positions Augmented by disciplined merger and acquisition opportunities Strong competencies – Unrivalled scale and national coverage About Halfords – Leveraging brand equity and maximising marketing opportunities – Unique service proposition – Multi-channel integration – Agile international sourcing Business Review Group Long-Term Vision Grow earnings at a sustainable 15% CAGR Maintain Halfords’ leading core retail position achieving earnings growth 8% CAGR Expand the Halfords brand into automotive aftercare Responsibilities Leverage core capabilities in the retail sector Increase multi-channel penetration and operating revenues Identify and develop international opportunities Maintain an efficient Balance Sheet across the financing cycle Financials Watch the overview video www.investinginhalfords.com 17399 14/06/2010 Proof 7 02 Financial and Operational Highlights Revenue Operating Profit +2.7% +15.1% +7.2% +1.5% before non- +9.1% £809.5m £831.6m recurring items +3.0% £119.7m £797.4m +8.0% +2.7% +4.9% £744m £104m at £831.6m £101m (2009: £809.5m) +15.1% £93.5m at £119.7m (2009: £104m) 2007 2008 2009 2010 2007 2008 2009 2010 Operating profit was £112.3m (2009: £91.7m). Profit Profit before before tax +41.5% tax and non- +24.0% £109.7m recurring items £117.1m +11.5% +4.7% +8.0% +41.5% +5.1% -14.1% +8.4% £90.2m £94.4m +24.0% £90.2m at £109.7m £80.9m £77.5m £83.5m (2009: £77.5m) at £117.1m (2009: £94.4m) 2007 2008 2009 2010 2007 2008 2009 2010 For comparative purposes, 2009 underlying earnings before tax (profit before tax and non-recurring items adjusted for the 53rd week) were £92.4m. 17399 14/06/2010 Proof 7 Halfords Group plc Online version Annual Report & Accounts for period ended 2 April 2010 halfords.annualreport2010.com 03 Basic earnings Dividend per per share before +22.2% ordinary share +25.8% non-recurring 39.7p 20.0p items +10.9% +5.3% +13.6% +25.8% +9.0% 32.5p +8.6% 15.9p +12.7% 15.1p 29.3p at 20.0p +22.2% (2009: 15.9p) 13.85p 26.6p at 39.7p Introduction (2009: 32.5p) 2007 2008 2009 2010 2007 2008 2009 2010 Basic earnings per share was 36.8p (2009: 26.6p). For comparative purposes 2009, Basic earnings per share before non-recurring items adjusted for the 53rd week were 31.8p. Retail stores wefit/werepair jobs +38.3% 224 462 ’000s 2,350 +27.3% About Halfords Autocentres +38.3% 1,699 +3.6% -0.9% +13.2% +4.4% +5.6% 466 462 +13.5% 224 450 1,335 426 1,179 n Autocentres n Retail stores 2007 2008 2009 2010 2007 2008 2009 2010 Business Review 462 Halfords stores now trading Strategic supply chain optimisation from Core Car Maintenance & Cycling categories 3 to 2 UK distribution centres sales and market growth Acquisition of 224 Nationwide Autocentres Strong performance in Services (wefit uptake Closure of loss making European operations +30% on 2009 figures) announced Cost control measures implemented halfords.com — Significant ‘Reserve & Collect’ Responsibilities growth. ‘Order & Collect’ launched Financials 17399 14/06/2010 Proof 7 04 How We Report Stay up to date with what’s happening. Throughout the year we publish a range of corporate reporting material to ensure we remain open and transparent. Our statements of material information are circulated Company and our strategic plans, this additional by regulatory announcement through a regulatory information is clearly marked as unaudited. information service approved by the FSA and are As a contemporary source of information we update shown on our corporate website. Our primary our corporate website (www.halfordscompany.com) audited annual statement is the Annual Report which with a range of information to inform and educate is reviewed by our Auditors. In conjuction with the a broad range of stakeholders in our activities, Annual Report we reproduce an online version which management and social responsibility. The corporate contains the same core information as the printed website has a dedicated area for investors which version but in addition has links to non-audited contains our latest updates with links to online Annual supplementary information to help better explain the Reports and non-audited supplementary information. Our reporting media Corporate / IR Website Online Annual Report Printed Annual Report Introduction Summary of financial Full Highlights Full Highlights performance About Halfords Contemporary source of Point in time Point in time strategic Types of information available Types strategic information strategic information information Business Review Link to online Full review of the year Full text of annual report with video links business review Responsibilities Contemporary source of Summary of corporate Summary of corporate risk management policy governance governance Financials Link to online Full accounts with Full accounts annual report spreadsheet downloads View www.halfordscompany.com View halfords.annualreport2010.com 17399 14/06/2010 Proof 7 Halfords Group plc Online version Annual Report & Accounts for period ended 2 April 2010 halfords.annualreport2010.com 05 Chairman’s Statement I’m pleased to report a successful and exciting year for Halfords delivering a strong financial performance and our first acquisition as a listed company. This has been a year of significant achievement for Another key element to the success of Halfords this Halfords. Revenue and profit growth was strong, year has been the tight management of the supply our strategic priorities were pursued vigorously chain. Inventories have been reduced and sourcing and our first major acquisition was