FY17 Preliminary Results 25 May 2017
Market & performance update CEO - Jill McDonald Financial performance and financial guidance CFO - Jonny Mason Summary Chairman - Dennis Millard Questions
FY17 highlights Strong progress across Market share growth in Service-related sales Moving Up A Gear motoring and cycling growth of 11.1% strategic pillars Enhanced customer Expanded Group’s Group online sales data driving incremental up 30.5%* reach and capabilities sales *Including the impact of the acquired Tredz & Wheelies. Excluding the acquired businesses, LFL Group online sales grew 11.5%. 3
Financial Target Review 1 Grow sales faster than the market* 2 Group EBITDA margin broadly flat prior to impact of FX 3 Grow the ordinary dividend every year** 4 Net Debt target of 1x EBITDA with a range up to 1.5x*** * Halfords principally operates in two markets: motoring and cycling. Management currently anticipates these markets to grow by 2-3% and 3-5% per annum respectively on average over the next few years ** With a coverage of 2 times on average over time, prior to impact of FX *** This target was published in June 2016 with guidance that it will be arrived at over time. In FY17 net debt moved from 0.4x to 0.8x 4
Market update – Motoring Market share gains during the year Strong positions in fragmented markets Increasing complexity of cars and parts Continued trend from ‘Do it Yourself” to “Do it For Me” Our target market is the “second life of the car” Anticipate market growth of 2-3% per annum on average over time Source: Department for Transport National Statistics 5
Market update – Cycling Market share gains during the year Strong positions in fragmented markets Fundamentals driving market growth E-bikes growth opportunity Market prices moving up due to Sterling depreciation against US dollar Anticipate market growth of 3-5% per annum on average over time 6
Moving Up A Gear strategy Service in our Better Shopping Building on our DNA Experience Uniqueness Putting Customers in Fit for the Future the Driving Seat Infrastructure 7
Service in our DNA Over 30 motoring and cycling services Service-related sales up 11.1% Lowest ever colleague turnover (33%) Target “Gears” programme levels met Apprenticeship scheme growing New services in FY17 - more in FY18 8
Better Shopping Experience Headsets to support Agile web colleagues and improve development customer service 15 Cycle Republic Launch of new store stores and website refresh concept 9
Better Shopping Experience 10
Better Shopping Experience Evolution of successful previous concept • Strong sales uplifts and feedback so far • 5 updated store refreshes in FY17 • Around 30 to follow in FY18 • “Lite” version being developed 11
Building on our Uniqueness New motorcycling range Market leading retailer Boardman wins awards launched and fitter of dash-cams Successful Wiggins Grew child seat sales Improved our Tradecard range and e-bikes twice as fast as the offer launched market 12
Building on our Uniqueness Complementary bolt-on M&A in both cycling and motoring Tredz acquisition means we can now service all customer segments Tredz & Wheelies performing well since acquisition with sales up 22% in FY17 Tyres on the Drive investment to enhance service and convenience credentials 13
Putting Customers in the Driving Seat Single customer view phase 1 complete 5.3 million email addresses gathered 46% Retail customer sales match rate 1.2m incremental visits to the website Sales attributable to personalised email campaigns up 19% 14
Fit for the Future Infrastructure Delivered “Dayforce” resourcing tool New third party warehouse in Daventry Piloting i-serve technology in-store Single view of stock completed Continued focus on “We Operate for Less” programme 15
Autocentres Long-term investment in colleagues: • New technician pay grading scheme • Apprenticeship programme growing Improved offer to customers: • Sunday & Bank holiday opening • Electric and hybrid vehicle servicing A year of transition: • Actions underway to improve profitability including review of operating model 16
Summary Service-led sales growth Continued market share gains Strong strategic progress Acquisitions performing well Strengthening of services proposition 17
FY17 Financial Performance & Financial Guidance 18
Group Financial Highlights +7.2% YoY +£73.5m YoY Revenue: £1,095.0m +2.7% LFL Underlying EBITDA: £108.7m -5.1% YoY -£5.9m YoY Underlying PBT: £75.4m -7.5% YoY -£6.1m YoY -8.7% YoY Basic Underlying EPS: 30.3p -2.9p YoY Ord Dividend Ord. Dividend: 17.51p +3.0% YoY Cover 1.73 c.£14m Special Net Debt gross £37.7m dividend of £85.9m impact of Free Cash 10 pence per representing Sterling Flow share paid 0.8x EBITDA devaluation Feb 2017 Notes: 1) All numbers represent performance for the 52 weeks to 31 March 2017 and are before non-recurring items. 2) Relevant comparatives are for the 52 weeks to 1 April 2016. 19
Retail Financial Highlights +8.0% YoY Revenue: £938.4m +3.1% LFL -260 bps Gross Margin: 48.6% YoY +4.6% YoY Operating costs: £379.8m +2.4% LFL Underlying EBIT: £76.8m -£5.0m YoY Underlying EBITDA: £101.1m -£4.9m YoY Total Motoring sales up [x.x%] Notes: 1) All numbers represent performance for the 52 weeks to 31 March 2017 and are before non-recurring items. 2) Relevant comparatives are for the 52 weeks to 1 April 2016. 3) Like-for-like sales represent revenue from Retail stores open for at least a year and online sales , but excluding prior year revenue from Retail stores closed during the year, at constant foreign exchange rates 20
Retail Sales 11 weeks 15 weeks FY17 to to 31/03/17 28/04/17 Total LFL LFL LFL Sales Sales Sales Sales 12% Retail +8.0% +3.1% -1.2% +3.9% 38% Motoring +1.8% +2.0% -2.5% +0.9% 19% Car Maintenance +2.9% +3.1% -1.7% +0.2% Car Enhancement -2.9% -2.8% -6.1% -1.8% 31% Travel Solutions +7.8% +7.9% +2.1% +9.5% Cycling +18.2% +5.1% +2.2% +11.1% Cycling Car Maintenance Car Enhancement Retail online sales +30.5% +6.3% Travel Solutions Service-related sales +11.1% Notes 1) Like-for-like sales represent revenue from Retail stores open for at least a year and online sales , but excluding prior year revenue from Retail stores closed during the year, at constant foreign exchange rates. 2) The 15 week period to 28 April 2017 is a more representative final trading period, including the Easter benefit in the current and comparative periods. 21
Retail Gross Margin – decline of 260 bps as expected FX Mitigations: 1) Working with suppliers 2) Improving processes and costs 3) Prices *The net of the adverse mix impact of faster cycling sales and the cycling promotion in the first half, partially offset by the accretive mix impact of service-related sales and the early benefits of FX mitigation. 22
Retail Operating Costs – grew as expected Shop colleagues*: £110.2m +7.0% YoY Store Occupancy: £138.6m +0.2% YoY Warehousing & Distribution: £45.4m -0.7% YoY Support costs: £77.4m +1.8% YoY Sub total: £371.6m +2.4% YoY Tredz & Wheelies: £8.2m Sub total: £379.8m +4.6% YoY * Shop colleague costs increased primarily due to the impact of the National Living Wage, additional hours and Gears pay increases in the year. 23
Autocentres Financial Highlights +2.4 YoY Revenue: £156.6m EBITDA by Quarter +0.6% LFL Gross Margin: 65.1% +80 bps YoY FY17 Operating costs: £99.8m +5.6% YoY FY16 Underlying EBIT: £2.2m -£1.6m YoY Q1 Q2 Q3 Q4 Underlying EBITDA: £7.6m -£1.0m YoY * All numbers represent performance before non-recurring items. ** The quarters in the graph above represent four thirteen week quarters rather than matching our external trading reporting periods. 24
Another strong year of cash flow £105.3m -£16.3m Working capital FY17 -£34.4m capex -£16.9m tax and £37.7m -£33.5m other ordinary dividend £4.2m -£20m special Free EBITDA after non- dividend -£22.1m Cash recurring items M&A -£38.0m Flow Net cash £112.9m -£12.6m outflow Working FY16 capital -£38.5m capex -£16.4m tax and £45.4m -£31.5m other ordinary dividend £13.9m and other Free Net cash EBITDA after non- Cash inflow recurring items Flow 25
Stock increased because of FX and to support trading £5.9m £13.2m £191.1m Tredz & Wheelies £14.1m Stock build due to £157.9m FX impact Easter timing, new ranges and growth categories Opening Stock Closing Stock 26
Outlook Financial targets unchanged: • Grow sales faster than markets • EBITDA margin broadly flat* • Grow Ordinary dividend every year** • Net debt target of 1x EBITDA No change to capital allocation priorities FX impact brings a significant cost headwind, but mitigation plans gaining traction Continued strategic progress and operational improvements We anticipate FY18 profit to be in line with current market expectations * Excluding the impact of FX 27 ** With a coverage of 2 times on average, pre the impact of FX.
Summary 28
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