Halfords stays in line in first half, acquires McConechy's Tyre Service

Motoring and cycling products retailer Halfords Group said its first half profit was in line with its expectations on Thursday, adding that growth from strategic investment, gross margin improvements and tight cost control had partially mitigated a “challenging” retail backdrop and tough weather comparators year-on-year.

At the same time, the London-listed firm also announced the acquisition of McConechy's Tyre Service - one of the largest independent garage chains in the UK.

The company said group like-for-like sales declined by 2.4% in a tough market, with revenue standing at £582.7m, although sales returned to growth in the last six weeks of the period.

In retail, cycling sales grew in the 26 week period ended 27 September, and in motoring it said its core categories gained market share, although sales of big-ticket discretionary products were softer.

Autocentres, group services, online and business-to-business all delivered strong sales growth in the period, the board added.

Autocentres EBIT pre-IFRS 16 increased 39.1% to £3.2m, with the business reportedly continuing to make “strong progress” on its transformation, and remained on track to deliver a third year of profit growth.

The group said it remained cash generative, with free cash flow standing at £44.2m, up 29% on the first half of last year.

Net debt-to-underlying EBITDA pre-IFRS 16 on a comparable basis was 0.7 times, in line with the full-year result for the 2019 financial year.

For the group as a whole, underlying EBITDA pre-IFRS 16 was down 9.8% at £44.9m, and underlying profit before tax pre-IFRS 16 was 15.1% lower at £25.9m.

Underlying basic earnings per share pre-IFRS 16 dropped 16.1% to 10.4p.

On the strategic front, Halfords noted that it had agreed a buying alliance with Mobivia, which it described as a “leading player” in the European motoring products and services market.

The board reconfirmed its full-year underlying profit before tax guidance, pre-IFRS 16, at between £50m and £55m.

It kept its interim dividend flat at 6.18p, and reduced its final dividend reduced to 8.0p, with the full-year dividend rebased to 12p for the 2021 financial year onwards.

“In a period where retail sales were impacted by weakened consumer confidence, we are pleased to have successfully increased gross margin, kept a tight control over costs, and seen growth from our strategic investment,” said chief executive officer Graham Stapleton.

“12 months on from the launch of our strategy to inspire and support a lifetime of motoring and cycling, we have made encouraging early progress.

“Our autocentres business delivered strong growth in the half, while new initiatives helped to drive top line momentum in group services, online and B2B.”

Stapleton said the company was “clear” that its service-led strategy was “the right one” for Halfords.

“Our unique position, growing services business and positive macro-customer trends, gives us confidence that this is the right time to accelerate investment, leveraging our trusted household brand to become a clear market leader in Motoring services.

“Over the medium-term, we expect service-related sales to double as a percentage of group sales and autocentres to represent a materially larger proportion of Halfords' profits.

“As a result, motoring will inevitably grow in focus for the group, [and] we are confident that this strategy will drive long-term sustainable growth.”

On the acquisition of McConechy's Tyre Service, Halfords said the acquired business comprises 60 sites and 100 vans across Scotland and the north of England, providing tyre fitting and vehicle servicing, maintenance and repair for both retail and commercial vehicles.

It said McConechy's employed more than 330 skilled staff, providing in-garage services alongside a 24-hour breakdown service for commercial customers.

The McConechy's portfolio meant that around 10 million customers could reach a branch within a 25-minute drive time.

Halfords said the acquisition was for a cash consideration of £8.5m.

It described it as a “highly complementary” acquisition for the company, supporting the growth of its services proposition, providing customers with motoring services across garages, retail stores and mobile vans.

The acquisition of McConechy's would increase the Halfords services footprint, now providing customers with access to more than 900 service locations across the UK.

“We are very excited about today's acquisition and I am delighted to welcome McConechy's to the Halfords family,” said Graham Stapleton.

“This acquisition is highly complementary to Halfords' service-led strategy, and the addition of McConechy's further strengthens our growing and unique motoring services offer, which includes Autocentres, Halfords Mobile Expert and our weFit services in our stores.

“The additional garages and vans increase our national presence and takes Halfords to within a 15-minute drivetime to over half of UK households.”

Stapleton said the vehicle servicing market was a £10bn market, but one which remained “highly fragmented”, offering significant scope for the company’s consumer brand to grow its market share considerably.

“I am extremely proud of how our autocentres team has developed in the last few years, continually demonstrating their ability to evolve by implementing new processes, systems, and capability.

“This has transformed the financial performance of autocentres and, by welcoming McConechy's and its highly skilled team to the Halfords Group, I am confident of continued success in the years ahead.”

At 1138 GMT, shares in Halfords were up 1.67% at 155.05p.