Halfords Group H2 2025 Earnings Call Transcript

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Provided by Quartr
June 25, 2025

Key Takeaways

  • Strong FY25 financial performance: like-for-like sales +2.5%, underlying PBT up 6.4% to £38.4m, net cash £10.1m and a 10% dividend increase to 8.8p.
  • Delivered £35m of cost savings to more than offset £33m in inflationary headwinds, driven by Better Buying, outsourcing, and efficiency measures.
  • Recognized a £49.1m non-cash goodwill impairment charge due to higher discount rates and anticipated cost increases, resulting in a statutory loss before tax.
  • The Fusion garage rollout reached 50 sites with garage-level contribution set to double at maturity and an average two-year payback, targeting 150 Fusion sites by FY27.
  • Consumer tyre market remains ~14% below pre-COVID levels as customers continue to defer tyre replacements, partly offset by strong growth in SMR services.
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Earnings Conference Call
Halfords Group H2 2025
00:00 / 00:00

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Henry Birch
Henry Birch
CEO at Halfords Group

Okay. Good morning, everyone, and welcome to the Halfords Group results for the fifty two weeks ending the 03/28/2025. I'm Henry Birch, the Chief Executive of Halfords. And joining me today is Joe Hartley, our Chief Financial Officer. In terms of the agenda for today's presentation, I wanted to start with some initial reflections on my first ten weeks.

Henry Birch
Henry Birch
CEO at Halfords Group

Joe is then going to cover our financial results. I'll talk to some of our strategic highlights of FY 2025 and then give you an overview of current trading and outlook. And we'll close today's session with the opportunity for Q and A. So as the new Chief Executive, I wanted to start just very briefly with a bit about my background. My last role was as Chief Executive of The Very Group, the privately held multi category retailer.

Henry Birch
Henry Birch
CEO at Halfords Group

And prior to Very, I ran Rank plc, the FTSE two fifty Gaming and Leisure Group. And before Rank, I was the Chief Executive of William Hill Online. So I'd like to think I have a strong retail and digital experience, but also have run a multisite business of similar scale to Halford's. And in all of those businesses, I've led a transformation agenda driven by tech and data and clearly focused on better serving customers. I've been enrolled now for about ten weeks, and I'm hugely enthused by what I've seen, both in terms of what we do today and more importantly, where I think we can take our business in the future.

Henry Birch
Henry Birch
CEO at Halfords Group

Much of my initial time has been spent out and about in our operations, visiting our stores and garages, our commercial fleet services and mobile vans and in our distribution centers. And it's clear to me that we have a unique and compelling offer for customers alongside unmatched scale and breadth and capability across the group from retail to mobile, B2B to our SaaS business, Availa. It's fair to say that the last three or so years have been pretty tough for the majority of consumer facing companies in The UK, and Halfords has been no exception. The forces and events are well documented, and I'm not going to go into them now. I come from a retail environment where many companies are continuing to struggle to differentiate themselves, selling very similar product to one another with very limited provision of services and grappling for the same discretionary spend.

Henry Birch
Henry Birch
CEO at Halfords Group

But Halford's is different. Over half of all customer transactions are service based, with the majority of service events taking place in our retail store car parks, in fact, 80% of them. We're unique in this space, providing on demand fitting of bulbs, wiper blades, batteries and various other products. Customers can drive into our car park, access expert advice to help pick the right product for their vehicle, have it fitted, then drive away. That's the ultimate convenience and a brilliant solution for customers.

Henry Birch
Henry Birch
CEO at Halfords Group

This is combined with a strong digital capability, supporting those operations and as a transactional channel, with more than three quarters of digital transactions being click and collect, which brings those customers into our stores. And delivering all of this, we have over 12,000 passionate and knowledgeable colleagues. Having spent time in our stores and garages, it's very clear to me that they're not just knowledgeable colleagues, they're specialists. The majority of the people who walk through our doors are looking for advice or a service, and that puts us in a really strong position to build trust and a relationship with those customers. And from those interactions, relationship I'm delighted with the progress of Halfords Motoring Club, but to my mind, we're just scratching the surface as to how we use that data to better serve customers, to grow the business and to operate more efficiently. Joe and I will talk a lot today about the success of Fusion and the growth in our Garages business, which I think is really exciting. But our Retail business also grew last year, and I believe there is opportunity for us to grow it further. We remain clear category leaders in Retail. And for the majority of our customers, the store experience is their introduction to Halfords.

Henry Birch
Henry Birch
CEO at Halfords Group

So all in all, I believe we have really strong foundations to grow our business, and I'm genuinely excited about where we can take it. And those foundations are strengthened by our FY 2025 results. And I wanted to thank my predecessor, Graham, for handing over a business in good shape and acknowledge that these positive results are ones achieved under his watch. Against the challenging backdrop of inflation, we managed to grow like for like sales 2.5%, beat expectations on PBT and announced a 10% increase in the dividend to 8.8p. So a really strong set of results.

Henry Birch
Henry Birch
CEO at Halfords Group

And I'm now going to ask Jo to go into some of more of the detail.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Thank you, Henry, and good morning, everyone. I'd like to start today by saying how pleased I am with the performance we've delivered in FY 2025, navigating a challenging consumer and inflationary backdrop to deliver ahead of target across the P and L and balance sheet. We achieved this with clear focus, prioritizing optimizing pricing, delivering our better buying program and continuing our relentless efforts to drive out cost and improve efficiency in all areas of the business. At the same time, we managed inventory and cash carefully while investing selectively in high returning strategic initiatives, including our very successful fusion program, as Henry will detail later. And the result of this focused approach was a strong set of numbers.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Before I go into more detail, the usual reminder that all results are post IFRS 16 and also that comparisons to the prior year are on a total operations basis. You'll recall that we closed and discontinued our loss making consumer tyre warehousing and distribution businesses last year, outsourcing these operations to Bond. Overall, this drove significant P and L benefit, but moved some costs into the continuing garage business. As such, a comparison to total operations last year better reflects comparative performance. So to start with the highlights.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Like for like sales grew 2.5% led by auto centers but pleasingly with sales growth across both segments despite the continued consumer challenges. Group gross margin grew two fifty basis points exceeding our initial expectations and with half two accelerating beyond the 190 bps increase we described in half one. The combination of gross margin expansion and sales growth led to a very strong underlying performance for the group triggering the reinstatement of a performance related bonus for colleagues that had not been paid in the previous two years. This caused cost to increase as a percentage of sales year on year. Underlying PBT was up 6.4% at GBP 38,400,000.0 slightly above consensus and the top of our guided range.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Free cash flow at GBP 43,000,000 was particularly strong, up nearly GBP 14,000,000 year on year, reflective of an excellent underlying performance and continued good working capital management. It's worth noting that the incentives charged to the P and L in FY 2025 will be cash paid in FY 2026. And as a result, we closed the year with £10,100,000 of net cash on our balance sheet notwithstanding higher CapEx than in previous years to fund the successful fusion program. Overall, it was a very pleasing performance. This next slide shows the drivers of that profit growth, bridging between the underlying PBT reported in FY24 on a total operations basis and the underlying PBT we are reporting today.

Jo Hartley
Jo Hartley
CFO at Halfords Group

As you can see, once again we faced very material inflation that alone would have eliminated most of the profit made in the previous year. However, this was more than offset by successful price and promotion optimization alongside £35,000,000 of cost savings. I'll share more detail on the makeup of inflation and cost savings shortly. As I indicated this time last year, we also made selected investments during the year, reinstating performance related bonuses at a cost of around £11,000,000 and also investing in leadership capability, apprenticeships and our Fusion programme. So let's look now at the makeup of inflation and offsetting savings in a bit more detail.

Jo Hartley
Jo Hartley
CFO at Halfords Group

As you saw on the previous slide, we faced GBP 33,000,000 of inflationary headwinds in FY 2025. The biggest of those was GBP 21,000,000 of wage inflation driven by the 10% increase in the minimum wage effective April 24 and the knock on impacts on the wider workforce as we sought to maintain a skills differential. We also saw £3,000,000 of inflation in freight costs driven by Red Sea disruption, slightly below the £4,000,000 to £7,000,000 range we expected at the start of the year. Business rates increased by £3,000,000 and across all other cost lines, saw a further 6,000,000 of inflationary pressure. Offsetting this, we found cost savings of £35,000,000 around £5,000,000 more than our initial target.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Pounds 21,000,000 came from our better buying programme. More than £4,000,000 was realized from the tile warehousing and distribution outsourcing to bond. Pounds 2,000,000 was saved in interest costs due to excellent cash management and falling interest rates and £8,000,000 came from a host of other initiatives across the group, including our Goods Not For Resell program, operational efficiency and productivity improvements. As we just saw, the bulk of cost savings came from better buying this year and are reflected in an excellent gross margin performance. Overall, we delivered two fifty basis points of gross margin accretion, reaching 50.7%, which is the highest margin delivered in the last three years.

Jo Hartley
Jo Hartley
CFO at Halfords Group

This chart shows the drivers of the margin improvement, bridging the margin year on year. You can see here how Better Buying contributed 140 bps of the growth as we successfully tendered own label product categories in the retail business and continued to robustly negotiate with our commercial partners across all areas of the group. The second significant contributor to our performance was price optimization, delivering 90 basis points of the improvement. We've made several strategic changes to pricing over the last year, particularly in services where customers can tangibly see how the labor cost that's involved and dynamic pricing enables customers to make their own choices between price and convenience. The margin rate also benefited from further mix into strategically important servicing, maintenance and repair, supported by Fusion and our investment into garage leadership, which has resulted in more additional work being identified when vehicles are in our garages.

Jo Hartley
Jo Hartley
CFO at Halfords Group

FX was a tailwind this year given we purchased around $200,000,000 of dollar denominated product and the average FX rate in cost of goods sold improved from 1.22 in FY 2024 to 1.24. We expect FX to deliver further benefit as a result of our hedging strategy. FY 2025 requirements were bought at nearly one twenty six and ninety 2% of our FY 2026 purchasing requirement has already been bought at one twenty nine. Overall, we saw strong margin momentum in half two with gains accelerating, all of which should give confidence in our ability to mitigate the further headwinds we're facing in the year ahead. The dynamics we've just discussed come together in this summary slide.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Good revenue growth, gross margin expansion and cost control were partly offset by an increase in operating expenses. Overall, this delivered growth in underlying PBT that we're reporting today despite market and inflationary pressures. That said, headwinds continue in FY 2026, not least from a further increase in the minimum wage and changes to employers' national insurance contributions, which impact us from the start of the new financial year. While we've identified the actions required to mitigate yet another year of significant inflation, these factors, together with a change in the risk free rate which has impacted our discount rate, have contributed to the noncash exceptional charges resulting in a statutory loss before tax for the year. Slide 12 breaks down the non underlying charges with the two biggest components being closure costs and impairment of non current assets.

Jo Hartley
Jo Hartley
CFO at Halfords Group

The most material item is a GBP 49,100,000.0 non cash impairment charge mostly impacting our retail segment and largely relating to goodwill. A major driver of this is an upward move in UK gilt yields over the last twelve months, which has impacted the discount rate used in our impairment testing calculations. This higher rate has, of course, then been applied to a revised set of forecasts, which incorporate the additional costs introduced by the government's autumn budget. We've also assumed further minimum wage growth throughout the forecast period and taken a prudent view on FX rates. I would stress this impairment is a non cash charge and reflects the mechanics of an NPV calculation according to the method prescribed by accounting standards.

Jo Hartley
Jo Hartley
CFO at Halfords Group

In addition, 14,900,000.0 of closure costs are predominantly non cash charges relating to garage closures. In reviewing our portfolio, in light of the autumn budget and our plans to roll out Fusion, a number of sites were identified for closure with the majority of affected colleagues to be redeployed to nearby garages with the potential to offer a better customer and colleague experience. These closures are expected to be immediately earnings accretive with an upfront cash cost of just over £1,000,000 In total, cash non underlying costs for FY 2025 amounted to £5,700,000 with the remainder being non cash accounting charges. Moving now to briefly touch on segmental performance. In retail, like for like sales growth was 2.1% with growth in both motoring and cycling supported by a stronger second half performance.

Jo Hartley
Jo Hartley
CFO at Halfords Group

This is the first time we've reported positive like for like sales growth in cycling since FY 2021, a good sign in a market that remains significantly depressed versus pre COVID levels. A strong underlying performance at the profit level was driven primarily by margin expansion, up 200 basis points largely as a result of our Better Buying program. This performance triggered bonus reinstatement for colleagues without which Retail segment EBIT would have grown year on year. Including this impact, EBIT declined slightly to £39,000,000 But the standout performance in FY 2025 was in the auto centers part of our business. Excluding Avela, underlying EBIT grew 21.2% year on year.

Jo Hartley
Jo Hartley
CFO at Halfords Group

The like for like sales growth of 3.7% was very pleasing, especially versus strong prior year comparatives. FY 2024 like for like was 10.7%. So on a two year basis, this part of the business has grown sales by 14.4%. We saw very different dynamics in TARs and SMR during the year with double digit sales growth in SMR, but a much more muted TAR performance. And I'll describe these dynamics in a bit more detail later.

Jo Hartley
Jo Hartley
CFO at Halfords Group

The really significant three twenty basis points of margin expansion reflected the themes already discussed at a group level: Smarter pricing, better buying and mix into higher margin SMR work were the key drivers. Costs were well managed, productivity improved and we saw the benefit of switching our tile warehousing and distribution operations to bond. And all of this was delivered partly due to the investments we made in the Fusion program and in developing the capability of our Garage leadership. Overall, we were delighted by the performance of the segment in FY 2025 and continued to see significant potential for this the growth and profitability of this part of our business. Before moving on, I'll touch on Avela, our software business.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Here, we continued to make progress, winning new clients such as MyCar in Australia and also moving to the next stage of our flagship contract with Bridgestone. Losses expanded slightly to £2,700,000 as we continued to invest in development for future growth. Unfortunately, ATD, a key U. S. Client, went into Chapter 11 proceedings during the year.

Jo Hartley
Jo Hartley
CFO at Halfords Group

The impact of the loss of this account will be more significant in FY 2026. As a result of this and our continued investment, we expect Avela's losses to widen in the year ahead. The Avela team continued to prioritize the successful delivery of our major contracts, including that with Bridgestone. Before moving on, I thought it might be useful to look a little more closely at our two consumer garage end markets, which saw divergent performance in the year. As I've already described, growth was very strong in strategically important servicing, maintenance and repair, while the consumer tyres market continued to struggle with customers still choosing to defer tyre purchases wherever possible.

Jo Hartley
Jo Hartley
CFO at Halfords Group

And this slide brings those dynamics to life. On the left hand side, you can see how the volume of SMR jobs that we have performed in our Garage business has steadily increased since the acquisition of National at the end of twenty twenty one. As a reminder, SMR is a highly fragmented market with significant opportunities for disruption, particularly with our Fusion model. Year on year, the mix of SMR work within our consumer garages grew by three percentage points. Our strong performance in this growing market has helped to offset the ongoing challenges in the tyre market, which based on GFK data remains around fourteen percent below pre COVID levels in FY twenty five.

Jo Hartley
Jo Hartley
CFO at Halfords Group

On the right hand side is the chart we shared at the interims depicting the percentage of tyre jobs that come into our garages where tread depth is below two millimeters, very close to the legal limit. Six months ago, we spoke about tentative signs of recovery with this percentage starting to fall from its peak in FY twenty twenty four. However, we've seen this reverse in the second half indicating that customers are continuing to delay and defer tire replacement. We're seeing almost one in five of the vehicles coming into our garages with at least one tire that's illegal or close to being illegal, showing the scale of this issue and the genuine safety risk that it poses. This market has continued to be challenging in the early part of our new financial year.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Moving now to our balance sheet, which has further strengthened this year. We closed the year in a net cash position of GBP 10,100,000.0, up GBP 18,200,000.0 year on year as a result of strong cash and working capital management and despite spending around GBP 9,000,000 more cash CapEx than we did in FY 2024 as we invested in the Fusion program. Inventory across both retail and order centers fell year on year and we closed with £225,000,000 of stock, 12,300,000.0 less than this time last year. Total stock levels are now at the lowest levels since FY 2022 despite the acquisition of Lodge that has happened since then. Free cash flow of £43,000,000 was up £14,000,000 year on year, reflecting working capital discipline and a very strong underlying performance, which triggered colleague incentives that will be paid out in FY 2026.

Jo Hartley
Jo Hartley
CFO at Halfords Group

This impact, together with the higher CapEx spend of GBP 60,000,000 to 70,000,000 as the fusion program accelerates means that lower free cash flow is anticipated in the year ahead. As a final point, we've maintained significant flexibility in our property portfolio with the average remaining lease length below three years in retail and around five years in auto centers. Our balance sheet therefore remains strong with leverage including lease debt at 1.4 times, slightly below our target range. And maintaining a strong balance sheet is at the heart of our capital allocation priorities, which remain unchanged. Reflective of our balance sheet strength and within our dividend policy, we are pleased to be proposing an increase in the final dividend to 5.8p, bringing the full year dividend to 8.8p, growth of 10% on FY24.

Jo Hartley
Jo Hartley
CFO at Halfords Group

So to summarize, FY twenty twenty five has been a good year in the context of a challenging external backdrop. We have delivered against the three priorities we set out at this time last year. We've continued to optimize our unique platform, growing group profits. We've mitigated over £30,000,000 of inflation through our ongoing cost and efficiency program. And we've selectively prioritized investments, which we know from experience can deliver substantial returns, most notably Fusion.

Jo Hartley
Jo Hartley
CFO at Halfords Group

And returning to where I started, this focus has delivered financial outcomes which have surpassed our expectations. We've grown underlying PBT largely by delivering a significant increase in our gross margin to levels not seen in the last three years. We've continued to deliver on cost, exceeding the initial target. And we've maintained a very strong balance sheet, which is net cash despite increasing investment in high returning strategic programs such as Fusion. FY 2026 will bring its own opportunities and challenges, but the actions we've taken and continue to take set us up well for another year of progress.

Jo Hartley
Jo Hartley
CFO at Halfords Group

I'll now hand over to Henry, who'll cover current trading and our plans for the year ahead.

Henry Birch
Henry Birch
CEO at Halfords Group

Thank you, Jo. So I now wanted to talk about two key areas of strategic progress, specifically our Fusion Garages and Halfords Motoring Club before turning to current trading and outlook. Starting with Fusion. With 50 garages now live, I thought it might be helpful to set out a reminder of how Fusion works and how it's delivering significant growth for our Garages business. Very simply, Fusion sits at the center of our Garages proposition, feeding demand directly into our garages and offering customers a truly differentiated experience.

Henry Birch
Henry Birch
CEO at Halfords Group

The easiest way to describe this is to look at Halfords as an ecosystem. As well as generating the majority of sales, our retail stores are an important acquisition channel. When we perform a WeCheck or WeFit service in our retail car parks, any work identified and referred to our garages is effectively captured demand, essentially taking a customer out of the market before they search on Google or go to a competitor. Whilst out visiting our retail stores, I've actually seen this in action, and it's a really compelling customer proposition. Our market leading Halfords motoring club builds on that.

Henry Birch
Henry Birch
CEO at Halfords Group

It enables us to harness the data we collect to retain and convert customers effectively. Couple that with the unrivaled scale of our garage and mobile van network, and together, the ecosystem means that unlike a traditional garage business, we're able to generate demand from our group assets, capturing demand on a total town basis. So if that's how Fusion works within the Halfords ecosystem, what do we actually mean when we say a Fusion Garage? What's different? Well, as I've seen for myself, it isn't just a rebranding exercise.

Henry Birch
Henry Birch
CEO at Halfords Group

It's an increase in capacity, more ramps and improved equipment, increasing the return from our fixed costs by optimizing the space. Alongside that, we implement a full operating model change with specialist customer service and quality control roles within the garage, as you can see on this slide. Fundamentally, this is a people led change underpinned by increased capacity and all presented to the customer with a new look and feel and updated Halfords branding. A year into rollout, the great news is that the results continue to be compelling. We're seeing excellent returns from the 50 sites delivered to date with no change in performance in the latest cohort of garages converted compared to the first wave.

Henry Birch
Henry Birch
CEO at Halfords Group

As a reminder, this means garage level contribution is on track to double on average at maturity, delivering an average payback of just two years. We continue to see scope for around 150 Fusion garages in total by FY twenty twenty seven. Fusion is a fantastic program, delivering on every level for customers, colleagues and shareholders, and I'm looking forward to seeing this generate substantial growth for our Garage business over the course of this year. Moving on now to the progress we've made with our Halfords motoring club, which continues to generate significant value for the business. This year saw the club exceed 5,000,000 members who, on average, shop twice as often and are more likely to access products and services across both our retail and garage offer.

Henry Birch
Henry Birch
CEO at Halfords Group

In fact, members now account for more than half of all MOTs booked in our garages. As a reminder, the club consists of two tiers of membership, free and premium, both delivering benefits to the group. Free membership provides an important route towards higher value premium membership with half going on to convert, helping to reduce the cost of customer acquisition for our garages. And our 370,000 premium members bring in £18,000,000 in annualized subscription revenue, and they spend more, in fact, three times the amount of a non member annually. But the club is not just generating value for the business, customers are enjoying the benefits, and we're seeing a market leading retention rate in our paid membership of around 70%.

Henry Birch
Henry Birch
CEO at Halfords Group

So a strong year for the club. And as I said earlier, in my view, there is still significant opportunity for growth. It gives us unparalleled access to customer and automotive data, and there is much more we can do here to use that data to better serve customers, to grow the business and to operate more efficiently. On the people side, I'm really pleased that we've recently announced the appointment of two new Managing Directors for our Retail and Garages divisions. First, Adam Pei will lead our Garages division, taking over from Karen Belhaize from the July 1.

Henry Birch
Henry Birch
CEO at Halfords Group

Adam brings extensive industry experience, most recently as Managing Director of My Car in Australia. Adam inherits a fantastic platform in our Garages business, and I'd like to thank Karen, our Chief Customer Officer, for the role she's played here. And later in July, Jess Frame will join us as Managing Director of Retail. Jess is currently a partner at the Boston Consulting Group, BCG, where she served as the Managing Partner of the London office as well as previously having operating roles in various retail businesses. I expect both Adam and Jess to have a significant positive impact on their businesses and both inherit experienced and capable teams beneath them.

Henry Birch
Henry Birch
CEO at Halfords Group

Moving on now to FY 'twenty six and our current trading and outlook. So overall, I'm pleased to report that trading has been in line with our expectation in the first three periods of FY 'twenty six. In retail, cycling and touring have been particularly strong. And in our garages business, both consumer and fleet components continue to grow with particular strength in service maintenance and repair, helping to offset a tire market that remains sluggish. Earlier this year, we deployed a new warehouse management system in our Coventry distribution center, which led to issues with stability and output.

Henry Birch
Henry Birch
CEO at Halfords Group

We're on track to return to full productivity before the end of H1, but in the short term, we're deploying additional resources to maintain stock availability in our stores. This has led to additional nonrecurring costs of low to mid single digit million being incurred in the first half of the year. Similar to FY 2025, we're facing a number of cost increases, many related to the autumn budget, which come into effect from the very start of the new financial year. But just like last year, we have a clear plan to mitigate them through pricing and cost savings. The combination of these factors, together with our investment plans, mean that our profit in FY 'twenty six will be weighted to the second half of the year.

Henry Birch
Henry Birch
CEO at Halfords Group

And in terms of that investment, we have clear plans for the year ahead. Many of our investments will build on the good work of FY 2025 and progress the optimization of the valuable and differentiated assets we have at our disposal. So we'll continue to expand our successful Fusion program with over 100 Fusion garages planned to be operational by the end of the year. We'll drive growth in our Retail business through better category management, range develop range development and price optimization. We'll deliver more customer benefits through our motoring club, and we'll continue to invest in talent and leadership.

Henry Birch
Henry Birch
CEO at Halfords Group

We'll lay the foundations to transform our technology and data capability. And alongside all of that, we'll continue to build a more efficient and effective business. I'm really pleased with the results we're announcing today. They give us a strong base from which to build, and we're starting to generate good momentum. Looking forward, there is a lot of work to do, but there is huge amount of opportunity for this business firmly within our grasp.

Henry Birch
Henry Birch
CEO at Halfords Group

I look forward to providing a detailed update on our strategy and plans later in the year. But for now, this concludes today's presentation, and Joe and I will now be happy to take any questions you may have.

Jonathan Pritchard
Retail analyst at Peel Hunt

Good morning. It's Jonathan Brigetta at Peel Hunt here. Firstly, what's the difference between is it Washford Coventry and Washford? Because you had a sort of systems overhaul at the former and it's not been a smooth latter. So what are the differences between those two and why has that happened?

Jonathan Pritchard
Retail analyst at Peel Hunt

And then secondly, you've talked an awful lot about data. Is there a sort of quality overhaul needed here? Is it usable? Is it in the right sort of shape and packaging you would like that data to be coming in? Or is there a job of work to sort of work on data management before you can actually move forward with it?

Henry Birch
Henry Birch
CEO at Halfords Group

Sure. Okay. So on the distribution center side of things, we've got three distribution centers, Washford or Redditch, which is where we also have our corporate HQ. We've got Coventry and we've got Crick. Last year, we migrated the warehouse management system in Washford.

Henry Birch
Henry Birch
CEO at Halfords Group

And Washford deals almost exclusively with bikes, so kind of big, fairly simple packages. Coventry is where we have the most complexity in terms of product. And that is where we've had the challenges with the warehouse management system. So in Washford, we had no issues. We migrated successfully.

Henry Birch
Henry Birch
CEO at Halfords Group

In Coventry, we've had issues. But as I say, we feel that those are kind of well under control, albeit we've incurred those additional costs. And Crick, we'll be looking to do in the course of FY 2027. And I would sincerely hope that we won't have issues there because we would have resolved any outstanding issues from Coventry. In terms of the data, yes, think there is more work that we can do and some of that is getting data into the right format.

Henry Birch
Henry Birch
CEO at Halfords Group

We actually do use data extremely effectively today, which I think is kind of evidenced by Halfords Motoring Club. We're actually using that effectively. And as a company kind of new in, one of the things I'm kind of acutely aware of is we've got a lot more data at our fingertips than your average retailer or consumer facing company because we've got that customer information, that transactional information, but we've also got vehicle data as well. So actually it's that combination where I think there is a lot more that we can do. But yes, there is some there is more work that we can do in terms of systems and in terms of data availability and quality.

Henry Birch
Henry Birch
CEO at Halfords Group

But it's not significantly different from other companies that I've been in.

Ben Hunt
Equity Research Analyst - Retail at Panmure Liberum

Ben Hunt from Premier Liarum. Obviously, the cost headwinds this year continue to exist. It seems a bit of an unfair question, but can you keep going with the momentum you've had from the previous year in terms of the price optimization and maybe just flesh out where you see those cost savings coming from and how you're going to get them?

Henry Birch
Henry Birch
CEO at Halfords Group

Well, I mean, I think the good news from my perspective coming into Halfords is that we've got that track record of actually being able to push cost savings. And last year, we had CHF 33,000,000 of inflationary costs to deal with. We delivered CHF 35,000,000 of cost savings. This year, As we said last year, 23,000,000 from the autumn budget that we've got to mitigate. And it is a continuation of what we did before.

Henry Birch
Henry Birch
CEO at Halfords Group

I'm confident we've got the plans in place both in terms of the kind of better buying, the suppliers and supply chain management, pricing optimization and then what I kind of classify as kind of good old fashioned cost control to the extent that we're not we don't have any kind of program of redundancies or job losses. So I've got a pretty good degree of confidence that we'll deliver on those. And we've got plans in place that are underway. I think it does go slightly to that H1, H2 weighting though because the costs hit us from day one and clearly, a mitigation program will go throughout the year. But Joe, don't know if you wanted to add anything to that.

Jo Hartley
Jo Hartley
CFO at Halfords Group

No, think that covers it. Thanks.

Ben Hunt
Equity Research Analyst - Retail at Panmure Liberum

Just on the Vailer, are you able to tell us how much ATD contributed to Just aware that momentum seems to have slowed a little bit there in terms of winning new clients in the second half. And you obviously have mentioned losses expected to widen. So any sort of color on that?

Jo Hartley
Jo Hartley
CFO at Halfords Group

Yes. So we haven't given a revenue split historically. So I can't really go into specifics around the impacts of the loss of ATD. Apart from that, it was a fairly significant client for us. There's no slowing though of pace with Avela.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Our absolute focus is on delivering the Bridgestone contract, which we've previously described as probably the biggest contract that we could gain in The U. S. For the Avela business and we're progressing really well with that. Losses will widen a bit in the year ahead as we continue to invest and as a result of the loss in of the ATD contract. But the absolute focus is on delivering the expansion that will come from Bridgestone.

Kate Calvert
Kate Calvert
Equity Analyst - Head of Retail/Consumer Research at Investec Group

Kate Calvert from Investec. I'm just following up on Ben's question on Veolia. Should we expect a rollout to start with Bridgestone this year or next year, do you think?

Henry Birch
Henry Birch
CEO at Halfords Group

So we have a contractual agreement with Bridgestone that looks at a rollout, which the majority of that rollout will be next year. We're currently live in one site, and we're currently in discussion with them as to whether we rollout more in the course of this year or whether it will be weighted into next year. But definitely, the intention is that we together roll out from one to 10 to 50 and then do the whole lot in the course of time.

Kate Calvert
Kate Calvert
Equity Analyst - Head of Retail/Consumer Research at Investec Group

And two other questions. The first one on the motoring hub. Sorry, not the motoring hub, the motoring club. What should we expect in terms of developments in the current year from a consumer perspective? And the second question is just on the retail estate.

Kate Calvert
Kate Calvert
Equity Analyst - Head of Retail/Consumer Research at Investec Group

You've got a very short average lease length now. Is there any sort of lumpiness in the lease renewals over the next year or two? Are there any opportunities to get lease costs down?

Henry Birch
Henry Birch
CEO at Halfords Group

Why don't you take the leases and

Jo Hartley
Jo Hartley
CFO at Halfords Group

then I'll take the leases, So look, as you know, Kate, we have got a really flexible lease portfolio. And I think we've got sort of 40 or 50 lease events coming up in the year ahead. We look at everyone on its merits as it comes up for renewal. And as you know, over the last three years, we've taken the opportunity to take around 100 sites out of the retail lease portfolio. I don't think we'll see another major reduction, but we will continue to see, I think, a few closures as we have done in the year that's just gone in each year as we go forward. Yes.

Henry Birch
Henry Birch
CEO at Halfords Group

And on the Motor and Club, I think the majority of our focus is going to be on converting free members to premium members this year. I think longer term, there is the ability to really expand the offer of Halfords Motoring Club in terms of driving different types of subscriptions potentially and working with third party partners as well. But as I say, I think the majority of our focus this year is going to be on driving premium membership.

Kate Calvert
Kate Calvert
Equity Analyst - Head of Retail/Consumer Research at Investec Group

Thank you.

Andy Edmond
CEO & Co-Owner at Equity Development

Andy Edmond, Equity Development. A couple of questions for Joe. I'll come back to you, Henry. Don't worry. Inventory and supply chain and sort of linking the two together on the world remains a very volatile place.

Andy Edmond
CEO & Co-Owner at Equity Development

So is it unreasonable to expect further cuts in inventory because you might be holding back a little more stock than usual or the new usual? And linked to that, looking at the cost on freight costs that you referred to in the prior year, have you learned, have you got new partners, have you taken remedial action that might mitigate, let's say, an extension of what's going on in The Middle East again at the moment?

Jo Hartley
Jo Hartley
CFO at Halfords Group

Thank you. So just firstly on stock, look, I think we've done a really good job in getting our stock levels down over the last three years. And I'm pretty happy with where stock is actually across the group. We're back at stock levels that we haven't seen since FY twenty twenty two across the group. And I don't think we need or will be going any further in terms of reducing stock.

Jo Hartley
Jo Hartley
CFO at Halfords Group

As we look forward, we're in a really good shape actually. In terms of freight costs, the freight headwind that we described was really driven by the disruption that the entire market saw in the Red Sea as a result of the issues in the Red Sea last year. And we've always worked really hard with our freight forwarders to negotiate rates that have consistently been below spot rates in the market. It's been actually one of our real successes, and we managed to mitigate the potential cost headwind that we saw at the start of the year, which was GBP 4,000,000 to 7,000,000 back to around GBP 3,000,000. So I think we're in pretty good shape from a freight perspective.

Jo Hartley
Jo Hartley
CFO at Halfords Group

It's hard to know what will happen to freight costs in the year ahead with everything that's going on around the world at the moment. But we remain in a good and really competitive place from a buying perspective, and we haven't seen the need to change our forwarding partners.

Andy Edmond
CEO & Co-Owner at Equity Development

And Henry, very unfair question after ten weeks, but you've obviously will have done a lot of due diligence prior to joining the group. And your introduction and your video this morning were very positive. What is the single thing that you found that's come as a surprise that has a side that depressed you or hopefully excited you the most?

Henry Birch
Henry Birch
CEO at Halfords Group

It's the surprises have definitely been positive. I think it probably comes back to actually well, I think two elements. One is the fact that most of our customers come to us for advice or a service, which I think really differentiates us. And then secondly, I think is the level of data that we have and are collecting and potentially are not using to its full potential.

Andy Edmond
CEO & Co-Owner at Equity Development

Great. Thank you.

Charlie Perkins
Charlie Perkins
Equity Research Associate at RBC Capital Markets

Morning, guys. Charlie Perkins from RBC. Just two questions, if I may. So firstly, I'm just wondering sort of roughly how many of the ex national garages have been transferred to Fusion? Do you guys see sort of significant upside for the ones yet to come?

Charlie Perkins
Charlie Perkins
Equity Research Associate at RBC Capital Markets

And then can you just give a little bit more color on the additional investments that you plan on making to the customer experience that I think you guys mentioned in the statement this morning? Thank you.

Henry Birch
Henry Birch
CEO at Halfords Group

Yes. So the National, Jo will know the figure because

Jo Hartley
Jo Hartley
CFO at Halfords Group

Yes. So we've done about 50 Fusion garages so far and around half to two thirds of those have been ex National garages that have converted. So that leaves a significant proportion of the ex national portfolio that haven't yet been transformed, and we see more of those becoming fusion garages as we go forward.

Henry Birch
Henry Birch
CEO at Halfords Group

And I think on the national garages have tended to be larger than the Helfas Auto Centre, we can get more ramps in there. Therefore, they're better candidates for conversion to fusions. And on the digital customer experience, we're looking at developing our search capability, accessibility in terms of people with disabilities. And then thirdly, in terms of we're putting in place a headless front end, which means that we can integrate with a much larger number of third parties, tools, content feeds, that type of stuff gives us additional flexibility, which overall will improve the customer experience.

Kate Calvert
Kate Calvert
Equity Analyst - Head of Retail/Consumer Research at Investec Group

Sorry, can I just ask a question on the cycling market as to where are volumes now you think versus pre COVID levels? And you're getting more positive on it, so are you calling the recovery in the cycling market? And can you talk about how much stock you still think there is out there in the wider market that might need clearing?

Henry Birch
Henry Birch
CEO at Halfords Group

Yes.

Jo Hartley
Jo Hartley
CFO at Halfords Group

I think I probably said it's a bit early to call a widespread recovery in the cycling market, Kate, much as we'd love that to be the case. The early part of the year has been really strong though. March and April were strong from market perspective and we traded well within the market there. While we don't like to talk too much about the weather, the warm weather will certainly have helped with that. And it is tentatively looking more positive, as you say.

Jo Hartley
Jo Hartley
CFO at Halfords Group

In terms of excess stock that's out there in the market, I think most of that is probably worked through now. It's hard to be absolutely sure, but it feels that way.

Henry Birch
Henry Birch
CEO at Halfords Group

Great. And it's worth pointing out, we grew cycling grew by 1.7% last year, which is not huge, and we're still below pre COVID levels. But I think, as Jo says, there are definitely some positive signs coming through.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Yes, the market still is around thirty three percent below pre COVID levels. By the end of the year, it may be getting a little bit better.

Henry Birch
Henry Birch
CEO at Halfords Group

So if there are no more questions in the room, we just want to check and see if there are questions from callers outside of the room. Sure.

Jo Hartley
Jo Hartley
CFO at Halfords Group

Thank

Henry Birch
Henry Birch
CEO at Halfords Group

you.

Jo Hartley
Jo Hartley
CFO at Halfords Group

We have no questions coming through the audio. Handing it back to the room for further questions.

Henry Birch
Henry Birch
CEO at Halfords Group

Okay. Assuming there are no further questions, that concludes today's presentation. Thank you very much for attending, and we look forward to seeing you later on in the year for our interim results. Thank you.

Executives
    • Henry Birch
      Henry Birch
      CEO
    • Jo Hartley
      Jo Hartley
      CFO
Analysts
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