Halfords Group plc

Good morning everyone and welcome to our strategy update for the Halfords Group. You'll be aware that today we have also announced a strong set of interim results for the 26 weeks to the 26th of September and these together with a webcast are available on our corporate website. I'm very pleased to be setting out my vision for Halfords over the next five years and believe that we are at an exciting and compelling moment in time from an investor point of view. I joined Halfords because I believed in its potential. Seven months on, I'm even more convinced in its potential and believe we have a pathway to growing our business and creating value and benefit for all our shareholders. Our customers, colleagues, and most relevant to this forum, our shareholders. At the heart of my conviction is the unique set of assets and capabilities that Halfords possesses and the dynamics of the markets in which we operate. We have leading positions in fragmented and evolving markets. We have an unmatched and scaled combination of stores, garages, mobile vans and digital capability across motoring products and services and cycling. We have a trusted, universally recognised brand and over 12,000 expert, trained colleagues. We have structural resilience with a focus on needs-based products and services and a third of our revenue comes from B2B. We have a debt-free balance sheet together with strong cash flow generation. And in combining assets and capabilities under one roof, the Halfords Group as a whole is much more valuable and has more potential than the sum of its parts. Today, I want to drill down into some of those capabilities and assets. I wanted to deliver some home truths about our past and where we are today. And most importantly, I want to elaborate on why I am so confident in our future and detail our plans to deliver for all our stakeholders. Joe will talk to how we're going to measure progress and ensure financial discipline. And I will introduce our team and wrap up proceedings. I mentioned scale and breadth of our assets. As a retailer, we have 370 stores across the United Kingdom and the Republic of Ireland combined with a strong digital platform, together generating about a billion in annual retail sales. We have 500 consumer garages delivering service, maintenance and repair together with tyres. We have our Halfords mobile expert service with 250 vans and we have our commercial fleet services business with 550 vans serving business customers up and down the country. And we have Avela, our software as a service business, providing garage management software to third parties. Our more than 12,000 colleagues are solutions experts, trained and knowledgeable, and we continue to invest in young people, bringing 150 new apprentices through our doors last year. Amongst many other impressive statistics, that scale means that we serve over 20 million customers a year. It means we sell over half of all bikes in the UK and handle a significant share of the UK's car keys. Scale in our business drives competitive advantage and is extremely difficult to replicate. But the power of Halfords is in its combination of assets and capabilities and the additional value that it drives. At the most obvious level, we have a single Halfords brand across all our businesses and services. That drives brand authority, relevance and resonance across all things motoring and cycling and gives us the potential for service and product extensions. The Halfords brand is served by a single consumer website where customers can buy products or book garage services. We have a combined loyalty program, allowing customers to move seamlessly between our different services, driving higher engagement and subscription revenue. We deploy central specialist functions across our businesses, driving cost and capability advantages. We have buying power with many of the same suppliers across our divisions. And our B2B efforts, a key and growing part of our business, deliver benefits for corporate clients across the group, whether that is commercial fleet services, trade card, or cycle to work. The power in Halfords is the power of the group and the assets we bring together under one roof. From a customer point of view, We aim to deliver three guiding benefits. Convenience, value and expertise. The convenience of digital and nationwide coverage with 85% of the population, not further than 15 minutes from a Halfords. Value enabled through our scale, supplier relationships and our own brand products. And expertise through our dedicated 12,000 colleagues. Our customers are diverse in their makeup, but broadly fall into two categories. Those we classify as do-it-for-mes, and those we classify as do-it-yourselves. Do it for me's are much greater in number and as their name suggests, are looking for advice or a service. And candidly, Halfords is often the only place they can get that advice or service, whether it's having a wiper blade or roof box fitted or getting advice on which oil to buy. The do it for me population is large and we have a significant opportunity in greater penetration of this market. DIY customers are typically high value, high frequency customers who recognize the depth and breadth of our range and our product and service expertise. Our B2B customers share many of the same priorities, convenience, value and expertise, but place an even greater emphasis on reliability and turnaround speed. Through our national footprint and fleet service capability, we offer a comprehensive single provider solution that keeps businesses moving throughout our nation. Over the last five years, we have built a much bigger B2B business across different sectors. This includes our commercial fleet services business, combining what were Lodge, McConaughey's and Universal, where we are typically serving HGVs and light commercial vehicles. B2B is also an important demand driver for our consumer garages where we serve fleet cars and light commercial vehicles with a growing proportion of them being electric vehicles. And on the retail side, our cycle to work scheme helps drive bicycle sales with Tradecard also contributing B2B revenue. B2B gives us a reliable source of demand, can drive a higher utilization of our asset base, and is more insulated from the volatility of consumer confidence and spending. If we look at the markets in which we operate, Halfords is in a strong position. Our largest market is garages or motoring services, a market which is around £17 billion in size. In this space, small local independents still represent the biggest share, leaving room for Halfords as a scaled professional operator with the capability and credibility to meet the growing complexity of modern motoring. Many of these independent garages are owner-operated and may face issues not just for generational succession, but with the scale of investment in equipment and skills needed to meet the changing dynamics of motoring. So whilst it is early days, we expect competitor garage supply to diminish over time. We've spoken previously about a weak tyre market that has struggled for the past two years. But the important thing here is that irrespective of growth or decline in the market, with the brand and scale that we have, we should be able to grow and take share in tyres. The motoring products market is worth around £4 billion. We see significant potential in developing our digital offer, but believe our unique strength is in the combination of digital and physical stores. This is illustrated by the fact that 80% of our digital orders are click and collect. A combination of products with an attached service is not something that Amazon or any other online retailer can easily provide. The cycling market remains a core part of our proposition and strategically important, both as a significant business in its own right, but also as a gateway to Halfords, from the first bikes that introduced families to our brand, to the enthusiasts who invest in the latest innovations through our specialist brand, Treads. This year, we have seen good growth in cycling and the market overall seems to be in improving health. Across the group, we represent more than half of the cycling market in volume terms, including all parts and accessories, as well as bikes themselves. Taken all together, the markets we operate in are large, robust and dynamic, providing a strong foundation for Halfords long term growth and future strategy. I mentioned that our markets are dynamic and there are some clear trends that Halfords must navigate. Firstly, and most obviously, is the move to electric and that's both cars and bikes. Electric vehicles currently constitute about 5% of the UK car park of 35 million cars. Despite successive government inconsistency, we know two things with absolute certainty. First, that that EV number will grow. And second, internal combustion engine cars will be on our roads for many, many years to come. Whatever the growth or scenario, we are well prepared. We have almost 700 EV trained technicians and the majority of our garages work on EV cars. We're ahead of the curve, investing early and building capability to serve EV customers at scale as the demand arrives. And although there are differences between EVs and internal combustion engine cars, they all need tyres and they all need to be serviced, maintained and repaired. It's worth saying that the same goes for any other car powered by a different technology or fuel. At the end of the day, we are fuel and technology agnostic and are confident that we can navigate any shifts or trends. At the other end of the spectrum, another structural trend to touch on is the ageing car park in the UK. Despite the rise of EVs and new technology, the average vehicle in the UK is now close to 10 years old, shifting demand away from dealer-based early life servicing towards independent aftermarket providers, a space where Halfords is exceptionally strong. Over the last decade, the UK has seen the rise of the convenience economy, and this has been reflected in the motoring products and services market. More than ever, consumers want convenience. They want someone to do it for them, removing hassle and fitting around their busy lives. Today's customers are also more demanding and digitally engaged. With our nationwide reach, integrated service model, and advanced digital capability, Halfords is uniquely placed to deliver on this shift towards convenience and service, both in our garages and our stores. Halfords has a long and illustrious history. But similar to most consumer businesses, it has had a fairly volatile decade post-Brexit and lastly COVID. In that time, it has had to navigate some choppy waters, but it has made three important strategic shifts, which I've mentioned but want to reiterate. First is a shift to a greater proportion of services, with service-related revenue now representing over half the total. Service revenue is typically higher margin and more resilient, being more needs-based. Secondly, we've grown our B2B business with around a third of revenue now generated by B2B sources. B2B revenue is generally less impacted by economic swings and consumer confidence and is therefore more consistent and reliable. And thirdly, we executed a material cost reduction programme to mitigate the inflationary pressures over the last three years. These shifts are the right ones to have made and set us up well for future success. Halfords is a fantastic company, brimming with potential, but arguably over our performance over the last three years has not matched that potential. And I think an element of candour and self-reflection is needed to ensure that as we map out the years ahead, we take the necessary learnings forward with us. First, as I have said, we have rightly evolved into a services-led business. But with that change, we have failed to deliver the uplift in margin we should expect from services being a higher proportion of revenue. That must and will change. And in particular, we will be targeting margin expansion in our garages business. Over the last few years, we have made a number of acquisitions. These acquisitions have given us additional scale and capability, but our integration has not been good enough and we have not driven expected returns. There is more to do here, but I am clear that in the immediate term, any further acquisitions would be a distraction from the task in hand. Halfords is a diversified business with breadth and inherent complexity, but we've often found ourselves spread too thinly, chasing too many priorities. That will change with a simplification of action and a focus on the things that matter and the things that will drive value in our business. Halfords has an enviably rich and powerful data set, which we use effectively for CRM and segmentation. But we are yet to use this data for real-time decisioning, personalization, or predictive analytics, and we need to develop our data platform further. Doing so effectively will increase customer lifetime value and drive profit growth. And I talked about the power of the Halfords group, how the combination of our assets yields considerable benefit. But we have not sufficiently joined these assets from a customer point of view. The customer journey between our group assets is not smooth enough and it is not evident enough to customers what exactly we offer. We need to better join our assets together and better promote what we offer. If we do this well, there is much to gain. And overall, I believe we need to drive better and more visible returns on the capital we deploy. This is very much front of mind and something we will ensure gets the required focus. So there are both lessons to be learned and challenges to meet. But fundamentally, we have a unique and fantastic business. And while I've been candid about where we need to improve, it's equally important to recognise the many strengths already in place. So hopefully I've given a clear articulation of where I see our strengths and also some of the home truths that we need to face into. I've also covered some of the dynamics and trends of the markets we play in, but I now want to talk about where we believe we can take our business and the future ahead. When I decided to join Halfords, it was because I could see a business with deep foundations, a strong sense of purpose, and a differentiated platform most companies would envy. Now, having spent time across the organization, I'm even more convinced. The fundamentals are intact. The potential is significant. And the challenges we face are executional, not structural. And it's not just me who believes this. Let's hear from two of our newest team members of our executive team.

I joined Howfitz because I believe it has the potential to redefine the specialty retail business model for the future. I've had the privilege of advising many retailers in the UK and Europe, and all of them were navigating the shift online, fiercely competitive marketplaces, how to create value-add experiences in stores, how to make cross-channel convenience come to life, and also how to personalize their proposition for customers. I fundamentally believe that the retailers who thrive over the next decade will be those who successfully use products and services to create solutions for customers. And what excites me about Halfords is that we have the required assets and capabilities to drive that new model now. We have the assets to create an ecosystem around customers for all of their car and bike needs. We have the skills and operating model to deliver services in retail and our mobile vans and garages network for more complex jobs. We've got the colleague expertise and culture to offer trusted, helpful in-person advice. We've got the supply chain that can support click and collect within an hour on many of our lines. And the relevance of our store estate is underpinned by the fact that over 80% of our online sales are picked up in store. And finally, our data gives us a deep understanding of our customers, their vehicles and bikes, their service history, and a predictive view on where they'll need us next. there is still so much more we can do with our data to unlock value for customers and realise that potential. So I'm energised by the significant opportunity I see in Halfords and I'm looking forward to realising many of those over the coming few years.

I joined Halfords because I believe in the power of its brand and its unrivalled scale and coverage in the UK. Halfords really is unique. In fact, there's no one else in the UK that can offer customers the same level of convenience and expertise at such scale, all wrapped up in such a trusted brand across stores, garages, and mobile. It's a fabulous combination. And what I'm doing now at Halfords feels really familiar. I've done this before, transforming the MyCar offer in Australia, and I see so much of the same potential in Halfords, and I can really see where the opportunities lie. Fusion is really exciting. I'm keen to unlock its full potential by creating an exceptional customer experience and driving profitability. I also see huge opportunity by simplifying operations and creating a culture of operational excellence, which will in turn drive profit from improved utilization across the existing garage estate and I'm absolutely clear that our colleagues are indeed our greatest asset and with focus on developing their skills and expertise and retaining that talent, we can create fantastic career opportunities and really deliver exceptional customer service. I'm incredibly proud to be part of the Newhouse team and excited for the future.