91% increase in Halfords Autocentres revenues drives group sales and profits

Full-year 2022 results show shift towards truck tyre sales

Halfords Group has reported strong full-year 2022 revenue growth of +19.9 per cent compared with 2020. That means total group revenues amounted to £1.369 billion in 2022, of which £368 million came from the autocentres business – an increase of 91.9 per cent compared with 2020. Group gross margin totalled £721.7 million, of which £211.0 million came from Autocentres. Much of the Autocentres-driven growth comes via the acquisitions of Iversons and the Axle Group/National Tyres last year, however life-for-like growth of 23.4 per cent shows that business continues on an organic upward trajectory as well. As a result, Halfords Autocentres gross margin is now growing six-times faster than the group’s wider retail business.

Within the Autocentres business, three points lead the company’s expansion: acquisition of retail businesses, deployment of the firm’s Avayler system and the generation of business-to-business (B2B) streams of income – all of which is designed to support the ongoing strategy of creating Halfords retail towns.

Graham Stapleton, chief executive officer, commented: “The strength and resilience of this performance is a great illustration of Halfords’ transformation over the past two years. Our strategic shift towards motoring services has delivered higher, more predictable and more sustainable returns, and our acquisitions of both National and Iverson Tyres during the year mean that we are now the UK’s largest motoring service provider. Motoring now represents over 70 per cent of Halfords’ total revenue, and the fact that our products and services in this category tend to be needs-based rather than discretionary will help us to navigate our way through the well-documented macroeconomic uncertainty that we are currently seeing.”

Commercial vehicle tyre sales up 180% since 2020

Halfords executives described the company’s increasing focus on B2B business as “an equally exciting opportunity”, adding that they are “pleased with the progress we have made through FY22”.

B2B revenue grew by 60 per cent during 2022 (compared with 2020) and now amounts to nearly £300 million. B2B developments focus on the company’s commercial tyre operations, the integration of Axle Group’s Viking tyre wholesale business as well as sales of the Avayler software platform.

“Our commercial tyre business also provides an exciting opportunity for the future. This side of our business provides service and repairs to fleets, agricultural vehicles or lorries and has grown by +180 per cent since FY20”, executives wrote in Halfords’s full-year 2022 results document, which was published on 16 June 2022.

The strong growth of Halfords’ commercial tyre operation has been achieved via the strategic acquisitions of McConechy’s Tyre Services and Universal Tyres, the latter acquired in March 2021. Both form part of Halfords plans for national fleet coverage:

“The combination of these two businesses took us a step closer towards achieving national coverage, which allows us to win larger contracts to support businesses seeking a single partner across the UK.”

Meanwhile, the process of expanding the commercial tyre business continues: “Despite this growth, we still see further areas of opportunity where we have ‘white spots’ across the UK and we continue to look to close these gaps in the future. By doing so, we will take the next step to achieving full and unrivalled UK coverage in the commercial tyre market.”

Halfords Autocentres’ commercial tyre business growth is very likely to be driven by acquisitions for two reasons: firstly, because that has been central to the company’s expansion programme up to now; and secondly, because investment in growth by acquisition remains an explicit spending priority.

Indeed, after paying shareholder dividends and general investment in growth “mergers and acquisitions focused on autocentres” is Halfords’ third priority.

“Our forecast capital expenditure for the year is £45 million to £50 million, with additional expenditure of up to £15 million to complete the integration of National and deliver the projected synergy benefits”, company representatives wrote, adding:

“Our capital expenditure and acquisition strategy will be focussed on scaling our motoring services business in line with our strategy, cementing our market leading position in aftermarket service, maintenance, and repair and growing our market share in motoring products.” That last comment reflects Halfords intentions to not only spend money on completing its national fleet coverage aspirations, but also further develop its passenger-car autocentre business. And this is all paired with the group’s existing retail operations points to the ongoing creation of “fusion towns”, something Halfords shared further details of elsewhere in the annual report.

Continuing work towards “fusion towns”

Halfords’ “Fusion town experience” project is designed to “transform the customer experience, investing in both the physical and digital estate.” Specifically, “Fusion brings together all of our shopping and services locations across a town, leveraging all our customer touchpoints, and creating an end-to-end experience that provides a full solution to every customer.”

To that end a Fusion town incorporates “a new format destination retail store, an updated Autocentres garage and an extended Halfords Mobile Expert offer” – all operating in conjunction with an online and home delivery proposition across a single location:

“Our two trial towns in Halifax and Colchester have delivered some very encouraging results. The ability for colleagues to book customers into any Halfords service has driven a step-change in the number of customers shopping across more than one of our propositions.”

For example, Halfords’ “on-demand WeCheck services” delivered from the Halifax store car park, now refer circa 20 per cent of the Halifax garage’s sales per week. These referrals have driven significant revenue to garages.

Further efficiencies are made via Halfords’ Avayler service. In July 2021 Halfords entered the Software as a Service (SaaS) market. Avayler is designed to bring together the complementary motoring services Halfords gained over recent years and packages them up in such a way that external clients can plug in to individual components, a collection of modules, or the entire platform. American Tire Distribution Inc. and Tirebuyer in the USA remain the product’s key customers.

National Tyres on-track for £18 million pre-tax profit contribution

Halford’s December 2021, acquisition of Axle Group/National tyres added 234 garages, 68 vans and 1,200 colleagues to the group. It also added “very significant levels of synergies across the Halfords Group” estimated to be worth £18 million in pre-tax profits (EBITDA) by the third year of ownership.

“I am very pleased with the progress to-date, and we remain confident of delivering year one synergies in line with the business case through the work done in aligning to group purchasing contracts as well as moving National’s freight procurement on to our group contract”, CEO Graham Stapleton commented.

The Viking wholesale business in particular brings synergies with it “the wholesale tyre distribution network…in itself, will create very important strategic and operational advantages for Halfords.” Specifically, this means “the ability to supply tyres to [Halfords’] own group businesses on a national scale, having less reliance on third-party networks whilst simultaneously reducing costs.”

Universal integrated faster McConnechy’s

Halfords reports that the Universal Tyres business was integrated far faster than earlier acquisitions such as McConnechy’s:

“Our acquisitions are crucial to growing our scale and convenience to customers, but it is only when they are fully integrated and using our Avayler platform that their true potential begins to crystallise.

“It was particularly pleasing therefore, that we were able to integrate Universal Tyres in less than half the time it took to integrate McConechy’s – a truly fantastic achievement and testament to the hard work and professionalism of our teams.”

Moving forward, Halfords’ group growth strategy continues to focus on the autocentres business:

“Our Autocentres business, operating in markets less exposed to demand and supply volatility, continues to be a key area of strategic focus. Total revenues have almost doubled to £368 million since FY20, driven by both our acquisitions, but also our targeted initiatives…In our interim results, we noted that the profitability of the Autocentres business had been impacted by a shift in the MOT season to the second half of the year, driven by the Government’s extension of MOT due-dates during COVID-19. As we anticipated, the second half was far stronger, and therefore the full year performance saw very strong EBIT performance of £14.4 million, partly driven by revenue growth and partly by the optimisation of our business through our “Avayler” platform”.

All those points, together with continued growth in the commercial vehicle side of the business suggest further car- and truck tyre-related acquisitions are on the horizon and could well manifest in the second half of the 2022 calendar year.

Source: Halfords