Halfords : FY24 Preliminary Results

27 June 2024

Halfords Group plc

Unaudited Preliminary Results: Financial Year 2024

Strong revenue growth of +7.9%, with underlying profit before tax of £36.1m1

Good strategic progress; market share gains helping to offset significant external headwinds

Strategically important Services business now represents more than half of Group revenue

Halfords Group plc ("Halfords" or the "Group"), the UK's leading provider of Motoring and Cycling services and products, today announces its unaudited preliminary results for the 52 weeks ended 29 March 2024 (the "Period").

FY24 Overview

Our focus in FY24 has been to deliver on the areas that are within our control. We have made good progress both strategically and in further optimising the business to create a solid foundation for future growth. Business performance has, however, been impacted by continuing declines in the Consumer Tyres and Cycling markets, and in consumer demand for big ticket purchases.

Successfully delivered on the areas within our control:

• Share gains in all four of our core markets, outperforming our expectations.
• Strong Group revenue growth of +7.9% and +5.0% on a Like-for-Like ("LFL") basis.
• A very strong performance in Autocentres and the success of our Better Buying programme helped to offset FX headwinds and increased promotional activity driven by Cycling market consolidation, resulting in gross margin of 48.5%, down 40bps.
• Delivered cost savings of over £35m, ahead of original target of £30m, bringing cumulative cost savings to c. £70m in the last three years.
• Balance sheet strong and liquidity well managed. Retail inventory down £24m versus last year. Net debt, excluding leases, of £8.2m. RCF extended to April 2028.
• Underlying profit before tax ("PBT") from continuing operations was down 7.9% to £43.1m. Including discontinued operations, underlying PBT was down 18.3% to £36.1m, which was in line with revised market guidance.
• Final dividend of 5 pence per share proposed, which would result in a full year dividend of 8 pence per share.

Good strategic progress:

• Grew strongly in the strategically important areas of Services and B2B, which are more resilient and improve overall quality of earnings. Autocentres Group revenue was up +17.6% and +10.7% LFL, whilst underlying EBIT from total operations (Continuing and Discontinued) was £13.8m, £10.7m higher than FY23.
• The Motoring Loyalty Club grew to 3.4m members by the year-end, doubling in one year. The club also beat its targets for customer retention and premium membership.
• Avayler, our SaaS business, signed a 15-year commercial agreement with Bridgestone alongside a 5% equity investment.
• Major restructuring of our tyre supply chain, which will result in cost savings of c.£5m per annum, an improved customer proposition and the opportunity to significantly improve working capital efficiency.
• Integrated the acquired Lodge business, creating UK's largest commercial fleet tyre provider and winning significant nationwide contracts.

Headwinds outside of our control worse than anticipated:

• Market volumes in Cycling and Consumer Tyres, as measured by the Bicycle Association and GfK respectively, declined year-on-year, worse than industry expectations. These markets remain depressed versus pre-Covid, with bike volumes down c. 30% and tyres c. 14%.
• The Cycling Market consolidated at a faster rate than expected, leading to much higher levels of promotional activity, which put significant short-term pressure on gross margin.
• Customers cut their spend on big-ticket, discretionary products (e.g. Bikes and Touring) even further and we now expect volumes to decline in the cycling and consumer tyres markets in FY25.
• Elevated cost inflation continued to be a significant headwind, increasing the cost base by approximately £37m in FY24 and bringing cumulative cost inflation to c. £120m in the last three years.

Whilst these headwinds have inevitably impacted the Group's financial performance in the short-term, our strong and growing market positions provide us with significant opportunities for profitable growth. For example, the consolidation of the Cycling Market had a severe impact on Halfords in FY24, but as the clear market leader we expect to emerge in an even stronger position once market conditions normalise. In addition, a recovery in the Consumer Tyres market closer to Pre-Covid levels would provide significant opportunity for revenue growth. The Group's ability to capitalise on these opportunities is underpinned by its strong balance sheet.

1. PBT from 'Total Operations', which is comparable to previous market guidance. Further explanation is provided in the Group Financial Summary.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

"This has been a year of strong strategic and operational progress for Halfords, and we are pleased to have delivered a resilient financial performance against challenging core markets. We have continued to invest in our strategically important Services business, which for the first time now represents over half of our total revenues.

Our Autocentres business was the star performer yet again. This was delivered despite a challenging tyre market, where drivers continue to delay the replacement of unsafe tyres. In a recent survey of 6,000 tyres at Gatwick, Manchester and Edinburgh airports, we found that one in four vehicles had tyres that were dangerously worn or damaged.

We are determined to improve tyre safety in the UK, and we are equally committed to supporting our customers through the cost-of-living crisis, by delivering great value when they need it most. None of this would be possible without the hard work and commitment of our highly skilled colleagues and I am very grateful for their ongoing support.

While the short-term outlook remains challenging, we continue to build a unique, digitally-enabled, omni- channel business, which is well positioned for profitable growth".

Current Trading and FY25 Outlook

Trading since the start of FY25 has continued to be soft, impacted by low consumer confidence around big ticket, discretionary purchases, and poor spring weather, which has reduced store footfall and affected sales of both cycling and staycation products. Whilst we continue to expect market share gains in the year ahead, based on what we are currently seeing we now expect market volumes to decline in FY25 in cycling and consumer tyres, and to remain broadly flat in motoring servicing and retail motoring products.

Inflation remains a material headwind, particularly driven by the 10% increase in the national minimum wage. More recently we have seen very significant increases in sea freight rates, with spot rates more than doubling since the start of our financial year. Whilst we continue to successfully secure rates well below market spot rates, we now forecast freight costs to be £4-7m higher than we anticipated at the start of the year.

Against this backdrop, we continue to focus on optimising the platform we have built, and controlling what we can. As such, we plan for proportionately fewer resources to be allocated to strategic transformation, as set out in more detail at the end of the Strategic and Operational review.

2

We do not expect these headwinds to persist in the long term. Consumer price inflation is easing and our core markets are expected to improve in the mid-term. We remain confident that the financial targets announced at the April 2023 CMD are achievable assuming markets ultimately recover as forecast, albeit this will take longer than we envisaged last year.

We remain very confident in the Group's strategy, as we build a stronger and more resilient platform for the future and continue to take market share.

Group Financial Summary
Results from Continuing Operations:
£m	FY24	FY23	Change
			%
Revenue	1,696.5	1,572.7	+7.9%
Autocentres	699.4	594.8	+17.6%
Retail	997.1	977.9	+2.0%
Gross Margin %	48.5%	48.9%	-40 bps
Autocentres	50.2%	48.4%	+180 bps
Retail	47.3%	49.2%	-190 bps
Underlying Profit Before Tax	43.1	46.8	-7.9%
Profit Before Tax	38.8	39.0	-0.5%
Underlying Basic Earnings per Share	15.1p	17.6p	-14.2%

During FY24, we committed to close our tyre supply chain operation, outsourcing the activity to a third-party, Bond International. As such and in accordance with financial reporting standards, these operations (Viking and BDL) have been classified as 'Discontinued' in our accounts for both the FY24 reported period and the FY23 comparator. The Income Statement further below has been presented to show Continuing Operations as the primary view, in accordance with IFRS 5.

However, the total result of the Group is a more accurate comparison to previous market guidance. It is also more reflective of ongoing profit because it includes the ongoing cost of running the tyre supply chain, which in future will be outsourced. We have, therefore, presented in the table below the total results of the business, including the Discontinued Operations. Further details of the restructuring are provided in the Chief Executive's statement.

Results from Total Operations (Continuing and Discontinued):

£m	FY24	FY23	Change
			%
Revenue	1,712.8	1,591.8	+7.6%
Autocentres	715.7	613.9	+16.6%
Retail	997.1	977.9	+2.0%
Gross Margin %	48.2%	48.7%	-50bps
Autocentres	49.4%	48.0%	+140bps
Retail	47.3%	49.2%	-190bps
Underlying Profit Before Tax ("PBT")	36.1	44.2	-18.3%
Profit Before Tax	19.9	36.2	-45.0%
Underlying Basic Earnings per Share	12.7p	16.1p	-21.1%

3

Group Revenue Summary
	Year-on-Year
	Growth
Continuing operations:	Total	LFL
Halfords Group	+7.9%	+5.0%
Autocentres	+17.6%	+10.7%
Retail	+2.0%	+2.2%
Motoring	+4.6%	+4.9%
Cycling	-3.0%	-2.8%
Market Volume and Share
Market Volume and Share - FY24	Autocentres	Retail
		Consumer	Motoring	Retail	Cycling
		Tyres	Servicing	Motoring
Market Volume
Growth forecast YoY		+2.6%	Broadly flat	+0.5%	-1.0%
Actual growth YoY		-1.3%	+0.9%	+0.9%	-4.0%
Market Share (volume-based)
Share movement forecast in FY24	+0.2ppts	+0.2ppts	+0.6ppts	+0.7ppts
Actual Share movement in FY24	+0.4ppts	+0.2ppts	+1.3ppts	+1.3ppts

Next company update

Given the material shift in the business model towards Services, B2B and Motoring, an update on trading after the summer and festive periods is less relevant for the Group than it once was. We will therefore cease our 20- week and Q3 trading updates held in September and January, and replace these with business updates in mid- October and mid-April shortly after our half year and full year period ends.

Enquiries
Investors & Analysts (Halfords)
Jo Hartley, Chief Financial Officer
Holly Cassell, Director of Investor Relations and ESG	[e-mail]
Media (Powerscourt)	[phone]
Rob Greening	[e-mail]
Nick Hayns
Elizabeth Kittle

Results presentation

A live webcast followed by a Q&A call for analysts and investors will be held today, starting at 11:30am UK time. Attendance is by invitation only. A recording of the presentation will be available at www.halfordscompany.comin due course. For further details please contact Powerscourt on the details above.

4

Notes to Editors

www.halfords.com

www.avayler.com

www.tredz.co.uk www.halfordscompany.com

Halfords is the UK's leading provider of motoring and cycling services and products. Customers shop at 385 Halfords stores, 2 Performance Cycling stores (trading as Tredz), 639 garages (trading as Halfords Autocentres, McConechy's, Universal, National Tyres and Lodge Tyre) and have access to 273 mobile service vans (trading as Halfords Mobile Expert, Tyres on the Drive and National) and 495 commercial vans. Customers can also shop at halfords.com and tredz.co.uk for pick up at their local store or direct home delivery, as well as booking garage services online at halfords.com. Through its subsidiary Avayler, Halfords also sells the Group's bespoke, internally developed software as a SaaS solution to major clients in the US and Europe.

Cautionary statement

This report contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Halfords Group plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Halfords Group plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

Chief Executive's Statement

Revenue and Markets performance

Faced with very tough markets, we remained focused on the areas within our control, taking significant market share (volume-based) to record overall revenue growth of +7.9%, of which LFL growth was +5.0%. Volumes in FY24 in two of our core markets - Cycling and Consumer Tyres (c. 32% of Group revenue in FY24) - were worse than independent forecasts anticipated one year ago. Customer confidence has remained weak, driven in part by rising interest rates that are high relative to recent history. These factors have impacted demand for both discretionary big-ticket items such as Bikes and Touring, and less discretionary big-ticket products, such as car tyres. Unfavourable weather conditions impacted key periods during the year, with high rainfall in the summer and winter seasons reducing demand for Cycling, Car Cleaning and Touring products. The poor weather also impacted overall footfall into stores, whilst the lack of cold snaps in the winter months impacted sales of blades, batteries and winter products.

Since our Capital Markets Day in April 2023, we have shared detailed market volume and share performance for our four core markets: Retail Motoring, Cycling, Consumer Tyres, and Motoring Servicing. FY24 performance is provided in a table in the front section above, with further information provided below:

All figures are	Autocentres	Retail
approximate	Consumer Tyres	Motoring	Retail Motoring2a	Cycling2b
		Servicing
Market size (£ value)	£2.2bn	£9.0bn	£4.0bn	£1.1bn
Market volumes vs pre-	-14%	+4%	n/a	-30%
Covid
3rd party source	GfK	DVSA (MOT	GfK	Bicycle
		data)		Association

2a. Retail Motoring market growth is based on GfK data, which audits seven categories in which we participate. Market size is based on Kantar's wider survey of the motoring market, which we have more recently begun participating in.

2b. Bike volumes down -30% vs pre-Covid

5

Autocentres

The Autocentres Group is comprised of three businesses:

1. Consumer Garages and Vans, focused on the provision of tyre fitting and Service, Maintenance and Repair ("SMR") services to consumers and fleets of cars or small commercial vehicles. Operates from 549 garages and 273 vans. Accounts for c. 74% of Autocentres revenue.
2. Commercial Fleet Services ("CFS"), where the acquisitions of Lodge Tyre, Universal and McConechy's has made Halfords the UK's largest truck tyre service provider. Operates from 90 garages and 495 vans. Accounts for c. 25% of Autocentres revenue.
3. Avayler, the Group's bespoke, internally developed software that is sold as a SaaS solution to major clients in the US and Europe. Accounts for c. 1% of Autocentres revenue.

Overall revenue growth in FY24 was once again very strong, up +17.6% year-on-year and +10.7% on a LFL basis. The revenue performance of each of the businesses was as follows:

• Consumer Garages and Vans

• • Consumer Tyres
  • • Market volumes fell year-on-year by -1.3%, well behind our expectation of +2.6% growth, as drivers continued to delay essential maintenance for longer than we, and the industry, anticipated.
    • Facing a worse than expected market, we took significant share, up +0.4 points. This was in part driven by an improved customer offer for tyre fitting, introducing a more affordable range and improving convenience through same-day fitting.
  • Motoring Servicing
  • • Against a forecast of broadly flat for FY24, the Motoring Servicing market grew by +0.9%, with good growth in H1 offset by a decline in H2, reflecting the ongoing impact of changing MOT seasonality caused by Covid disruption.
    • We increased our market share in the year by +0.2 points, driven by several factors, including: (1) The success of our Motoring Loyalty Club, with membership doubling to 3.4m and approximately 40% of our MOT work now coming from club members; (2) the launches of our innovative 'Buy Now Pay Later' finance offer and dynamic pricing for MOT bookings, providing customers with greater choice and more affordable options; and (3) Improved utilisation rates in our garages, which was up +9.4 percentage points year-on-year, leading to better capacity planning across the garage network.
• Commercial Fleet Services
• • Revenue grew by 47%, in part benefiting from the annualisation of the Lodge Tyre acquisition in October 2022.
  • LFL growth in the year was +5.3%. With near national coverage, we are attracting new customers with nationwide requirements who can access an unparalleled network of 495 commercial vans and 90 commercial garages. Further detail on our progress is provided in the Strategic and Operational review below.
• Avayler
• • Revenue more than tripled3 from the prior year, up to £6.6m in FY24.
  • Signed agreements with four new clients, including a 15-year commercial agreement with Bridgestone.

6

Retail

Retail comprises Retail Motoring (62% of Retail revenue) and Cycling (38% of Retail revenue):

• Retail Motoring:

• • A resilient revenue performance, with LFL revenue growth of +4.9%, significantly better than market volume growth of +0.9%. Performance across the year was mixed, with strong growth of +8.2% in the first half followed by lower growth of +1.7% in H2, in large part due to very unfavourable weather in the winter months, as described above.
  • Market share increased by +1.3 points, ahead of our target of +0.6 points. The ongoing expansion of our Car Parts proposition, strategic price investment in key categories, and continued product innovation in areas such as Car Seats and Dashcams, all contributed to offsetting weak demand for big-ticket discretionary categories such as technology and touring.
• Cycling:
• • LFL revenue declined by -2.8% versus FY23. The Cycling market performed significantly worse than the industry expected, with volumes declining by -4.0% in the year, far behind our own forecast of - 1.0%. Low customer confidence in the ongoing cost-of-living crisis has further impacted demand for big-ticket, discretionary items such as bikes. Another year of decline leaves bike market volumes c. 30% below pre-Covid levels.
  • The market has become more challenging and competitive as it continues to consolidate quickly. Promotional participation increased by 33% year-on-year in H2, and more customers are purchasing on credit, leading to significant pressure on gross margins. The high-profile failure of Wiggle demonstrates a much broader challenge for Cycling businesses in the UK.
  • In very challenging market conditions, we were pleased to increase our share by +1.3 points, well ahead of our target of +0.7 points and further cementing our leadership of the UK Cycling market. This strong performance was driven by good progress in three key areas:
  • • Cycle2Work ("C2W"): revenue up +8.3% year-on-year, supported by the development of our new B2B platform for small and medium sized businesses.
    • Tredz: our online, high-performance cycling business delivered LFL sales growth of +11.1%, growing share and improving brand awareness in a fast-consolidating industry. We launched a new website in the year, improving the customer journey and our online conversion rate, whilst our Trustpilot score of 4.7 (as at the period-end) remains ahead of our main competitors.
    • Product innovation: we continued to innovate across our Cycling range. For example, the new Boardman SLR 8.9 road bike combined best-in-class specification with a market- leading price point.
  • Looking ahead, as the clear market leader, we expect to emerge in an even stronger position once market conditions normalise.

Gross margin

• Gross margin % was 48.5%, -40 bps lower than last year. A very strong performance in Autocentres was offset by a decline in Retail.
• Autocentres gross margin of 50.2% was 180 basis points higher than FY23. The success of our Better Buying programme and several pricing initiatives more than offset the dilutive impact of the Lodge acquisition.
• Retail gross margin was -190 bps lower than FY23, driven by foreign exchange headwinds in relation to the weakening of Sterling hedges versus the US dollar, and the dilutive impact of increased Cycling promotional activity in response to market consolidation. This was partly offset by very strong results from our Better Buying programme.

Strategic and Operational review

Our focus in FY24 has been to deliver on the areas that are within our control, recognising that our core markets remain very challenging. We have made good progress both strategically and in further optimising the business, creating a solid foundation for future growth. We have built a unique, digital-enabled,omni-channel platform that will enable us to drive strong profitable growth once markets recover.

7

Growing Services and B2B

We continued to invest in our Services and B2B businesses, which now represent 51% and 29% of Group revenues respectively. These businesses provide the Group with greater resilience against weak consumer confidence and are capable of generating higher and more sustainable financial returns. The Autocentres Group, which is comprised of the three businesses described further above, accounts for approximately 83% of Services revenue and c. 55% of B2B.

Autocentres Group revenue growth was +17.6%, including +10.7% on a LFL basis, whilst underlying EBIT, including losses from Discontinued Operations, was £13.8m, representing significant growth on the prior year profit of £3.1m. All three Autocentres businesses contributed to this strong performance:

Consumer Garages and Vans - improved utilisation and pricing initiatives driving significant profit growth:

This material growth in Autocentres profitability reflected the delivery of several initiatives in our Consumer Garages and Vans business, including improved utilisation of colleagues and garage capacity, the launch of dynamic pricing for MOT and Tyre bookings, and an improved customer proposition for same-day tyre fitting.

Commercial Fleet Services ("CFS") - leveraging our market-leading offer and national presence

The October 2022 acquisition of Lodge Tyre complemented our existing commercial fleet services businesses, Universal and McConechy's, establishing Halfords as the UK's largest provider of commercial tyre services. The scale and national presence of this business is a key differentiating factor that attracts the UK's largest commercial fleet operators.

Revenue growth in FY24 was +47% in total and +5.3% on a LFL basis, driven in part by the award of new fleet contracts. The business was awarded a five-year contract with Yodel, who operate one of the largest commercial vehicle fleets in the UK, with over 1,700 vehicles, adding to existing contracts with DHL, DPD, Evri and Kuehne and Nagel. We also provide services for several local councils and other public entities, including contract wins in FY24 with Dudley, Coventry, Liverpool and Cheshire West councils.

We are continuing to leverage the integration of our combined CFS business, with revenue and cost synergies tracking ahead of expectations.

Avayler - significant contract wins and an investment stake

Our SaaS business 'Avayler' secured a landmark commercial agreement with Bridgestone, to roll out Avayler software products across their US operations - potentially over 2,000 garages. The 15-year commercial agreement adds significant scale to our existing SaaS business in the US, growing the recurring revenue stream and underpinning our growth projections set out at our CMD in April 2023.

In addition to the contract win, Bridgestone has taken a 5% equity stake in return for a $3m investment. This is a significant endorsement for the Avayler software platform and demonstrates its considerable growth opportunity.

In the fourth quarter, we signed agreements with three new customers, all based in the USA. Our partnerships with Triple A ("AAA"), ZipTire, and Point S further enhance our market position with key players in North America. We are building momentum and have a strong pipeline in place for further customer acquisition targets.

From an operational perspective, during the year we separated Avayler to operate as a standalone business, distinct from the Halfords Group. This will enable Avayler to attract talent and develop a culture appropriate for a young but fast-growing, global software business, whilst also ensuring that we can accurately measure the progress it is making and the returns it generates.

Avayler Revenue more than tripled3, to £6.6m in FY24, with an operating loss, as forecast, of £1.3m, as we continue to invest in technology and operations to support existing customers and future growth. In line with our CMD targets, we expect significant revenue and profit growth in the mid-term.

3. Includes recognition of intercompany revenues earned from sales to Halfords Group companies

8

Profitably growing market share

Motoring Loyalty Club grew to 3.4m members

Our Motoring Loyalty club was launched in March 2022, providing members with financial and non-financial benefits in return for closer engagement with Halfords and, in the case of Premium membership, a paid subscription.

The benefits of the Club continue to resonate strongly with customers, with membership doubling to 3.4 million by the year-end. In addition to providing customers with attractive benefits, the Club also creates significant value for Halfords:

• Members visit twice as frequently as non-members and spend more per visit.
• Lower customer acquisition cost: Cross-shop4 for Loyalty members was 16% in FY24, an increase of one percentage point on the prior year and four times higher than for non-members. Furthermore, c. 40% of MOTs in our Autocentres came through the Club, whilst 45% of members joining the Club in FY24 are new to the Halfords Group. With the Club successfully driving customers into the Autocentres business, we expect our marketing spend on MOTs to reduce by 35% in FY25.
• The data we obtain provides an opportunity to monetise its value.
• The Club provides a roadmap to future subscription offers across the Group. At the end of FY24, 8.0% of members were signed up to the paid, premium membership offer, an increase of 0.6% from the prior year and within the range of our mid-term target of 8-10%.

4. Cross shop is defined as the proportion of customers who have transacted with both Retail and Autocentres in the period.

Growing our market-leading extended Car Parts proposition

We extended our motoring offer with a major launch of a new specialist Car Parts proposition, providing customers with access to thousands of car parts in our stores and online. Our entry into the £1bn specialist car parts market has driven a more than doubling of revenue in the Parts category, with customers responding positively to our competitive pricing; a step change in convenience with a new click and collect in 60 minutes offer; and adding the 4th 'B', Brakes, to our 3Bs (Bulbs, Batteries, Blades) proposition.

Continuing to optimise the platform

Restructuring our tyre supply chain

We entered into an agreement with specialist tyre distributor Bond International ("Bond"), who will take responsibility for the tyre supply chain operation in the Autocentres business. This involves a significant restructuring of our tyre supply chain, closing the existing operation, and will result in significant benefits for customers and shareholders.

Costs will reduce by approximately £5m per annum from FY25 onwards, reflecting the operational efficiencies that Bond can provide as a specialist, market-leading tyre distributor. Furthermore, customers will benefit from better stock availability in garages, with contracted service levels with Bond in place. The agreement will also drive better operational processes in our garages and van hubs, helping to save cost, reduce inventory holding, and improve controls. Over time, the partnership will unlock greater buying synergies and provide an opportunity to significantly improve working capital efficiency.

This restructuring resulted in the closure of tyre wholesale and distribution operations (Viking and BDL) that formed part of the Axle Group acquisition in December 2021. The transition of these operations to Bond has enabled Halfords to retain the margin benefits of direct sourcing that came with having a wholly owned supply chain, but at considerably lower cost. The Bond arrangement also enables a new same day tyre proposition, bookable online, across all Halfords and National branded garages, which the Viking and BDL operations would not have been able to fulfil without considerable scaling and capital investment. As such the transition of the tyre supply chain to Bond is expected to enhance returns.

9

Cost and balance sheet efficiency

We continued to successfully manage our costs, delivering over £35m of savings in FY24, ahead of our £30m target. Over half of these savings were due to the success of our Better Buying programme, which has materially reduced our cost of goods on an ongoing basis through strategic supplier partnerships, value engineering, own- brand growth, and group buying synergies. The cumulative cost savings delivered in the last three years is c. £70m, demonstrating the Group's ongoing focus on efficiency and its ability to continue reducing the cost base.

Despite weaker sales than we had forecast at the start of the year, inventory in the Retail business reduced by £24m, a year-on-year reduction of 11%. The balance sheet remains very strong, with net debt excluding leases of £8.2m and a leverage ratio (including leases) just below our target range.

Sustainability

We continue to make good progress on our ESG programme. Notable highlights include our ever-growing momentum within packaging. We removed 5.5 million items of plastic packaging and swapped 2 million items of non-recyclable plastic to recyclable, whilst we also launched new recycling initiatives in our Retail stores. We continued to strengthen the governance of our supply base, updating our Global sourcing policy and launching a new sustainability tool in partnership with EcoVadis, the global leader of business sustainability ratings.

Our Scope 1 and 2 emissions are now 24% below our FY20 baseline in absolute terms but, relative to Group revenue, are 49% below FY20. We also made significant progress in calculating accurate data for our Scope 3 emissions, working alongside industry experts, The Carbon Trust. This provides Halfords with a strong foundation on which to start building our Net Zero roadmap in FY25.

Further details of our ESG Strategy, the progress we have made, and our focus areas for the mid-term can be read in our Annual Report and Accounts located on the corporate website, www.halfordscompany.com.

FY25 Areas of Focus

As detailed above, we have been faced with significant headwinds outside of our control, many of which have been more difficult than we anticipated just one year ago. We are planning for these headwinds to continue through FY25 but critically, we do not expect them to last in the long-term. Our priorities in FY25 reflect this situation and as such, we will focus on further optimising the platform, with proportionately fewer resources allocated to the strategic transformation of the business and proportionately more resources allocated towards opportunities that promise good returns in the short and mid-term. Notwithstanding this, it is critical that we continue to make some investments for the long-term health of the Group, including continued investments in both Fusion and Avayler.

This shift in focus is likely to mean lower market share gains and overall revenue growth in FY25, with proportionately more focus on operating margin % and overall returns on capital.

Optimise the platform

• Leverage unique platform to improve the consumer garage operating model: building on significant progress in FY24, we believe there is considerable scope to further expand profit margins in our consumer garages. In FY25 we will focus on embedding the transition of the tyre supply chain operation to Bond International and leveraging this to improve our processes and ways of working in garages and van hubs. We will also be step-changing leadership capability to further drive a high performing culture.
• Cost and efficiency: targeting over £30m of incremental year-on-year savings in cost of goods and operating costs.
• Invest in colleagues: we will increase our investment in people by expanding our apprentices programme and investing in leadership capability. This to ensure we develop talented and engaged colleagues and leaders, whilst creating rewarding careers for all.

10