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halfords group plc annual report accounts for period ending 1st april 2011 life on the move halfords.annualreport2011.com stock code lon:hfd

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halfordscompany.com introduction investing in life on the move group at a glance retail categories at a glance business model financial highlights chairman s statement 01 02 04 06 07 08 introduction business review about halfords market review retail strategy retail kpis autocentre strategy autocentre kpis people and culture 12 14 16 18 20 22 performance chief executive s review finance director s report risks and uncertainties 26 32 38 corporate social responsibility csr report 42 resources operational resources group resources and capabilities 52 resources and capabilities 57 governance governance board of directors directors report corporate governance directors remuneration report 72 74 78 84 financials statement of directors responsibilities 96 consolidated statement of changes in shareholders equity 101 consolidated statement of cash flows notes to consolidated statement of cash flows accounting policies company balance sheet 102 103 104 138 reconciliation of movements in total shareholders funds accounting policies five year record key performance indicators analysis of shareholders company information 139 140 145 145 146 146 financials independent auditors report to the members of halfords group plc 97 consolidated income statement consolidated statement of comprehensive income consolidated statement of financial position 98 99 100 notes to the financial statements 141 notes to the financial statements 111

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 01 investing in life on the move we are · · · the uk s leading operator in garage servicing and auto repair cash generative focused on the assets we own and how we are managing these to create growth introduction financials governance resources business review · the uk s leading retailer of automotive and leisure products we have · · many brands and product categories which hold number one sales positions in the uk strong competences and capabilities unrivalled scale and national coverage skills in brand management and maximising marketing opportunities a unique service proposition multichannel integration agile international sourcing we plan to · · · · · · grow earnings sustainably maintain our leading core retail positions expand the brand in automotive aftercare leverage our core capabilities in the retail sector increase multichannel penetration maintain an efficient balance sheet across the financing cycle we deliver products and services that facilitate for our customers life on the move

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02 introduction group at a glance the halfords group operates through two reportable segments or strategic business units retail and car servicing in the united kingdom uk and the republic of ireland roi halfords retail manages its business through the three categories of car maintenance car enhancement and leisure travel solutions cycling the retail product ranges are marketed through a national network of stores and through an innovative multichannel offer which combines website promotion with a number of different delivery or collection options backed by in-store services halfords autocentres provides car service repair and mots to both retail and fleet clients throughout the uk the autocentres proposition provides customers with an unrivalled value and service offer from a trusted brand halfords marketing expertise is used to promote both businesses through a multitude of broadcast narrowcast and traditional media presenting our valuable services which facilitate life on the move for our customers retail halfords retail employs approximately 9,300 staff and sells over 14,400 different product lines with significant ranges in car parts in-car technology child seats cycling roof boxes outdoor leisure and camping equipment halfords retail trades from 466 stores located throughout the uk and the roi and online through halfords.com and halfords.ie websites turnover £771.6m operating profit before non-recurring items £123.3m operating profit was £115.8m 2010 £111.9m autocentres halfords autocentres employs 1,700 staff and is a leading uk independent car servicing and repair operator offering maintenance service mot and repair services at competitive prices and excellent standards of customer service halfords autocentres trades from 240 car servicing centres located in the united kingdom turnover £98.1m operating profit £7.0m

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 03 group revenue retail 88.7 £771.6m autocentres 11.3 £98.1m group revenue £869.7m car enhancement 29 £219.6m leisure 40 £309.4m car maintenence 31 £242.6m read more on page 52 halfords retail stores are located within 20 minutes drive for 90 of the uk s population greater london uk and roi coverage halfords stores read more on page 58 having a small market share of the £9bn aftercare market provides significant scope for growth new autocentres in fy11 new centres existing centres greater manchester west midlands london uk and roi coverage halfords autocentres read more on page 68 financials governance resources business review introduction

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04 introduction retail categories at a glance car maintenance category strengths car maintenance encompasses our 3bs bulbs blades and batteries oils spark plugs paint sprays rust repair haynes manuals winter car care tools lifting and storage car polish shampoo pressure washers needs driven demand established brand is natural destination for customers huge range and national availability leveraged through in-store services car enhancement car enhancement encompasses sat nav and accessories dvd audio systems speakers portable media devices fm transmitters bluetooth connectivity car accessories seat covers air fresheners wheel trims performance styling graphics alloy wheels gear knobs category strengths contemporary and innovative ranges drive a product led market competitive international buying maintains good margins effective promotion of own brands through multichannel offer market leader in sat nav audio and dab radio roll-out leisure category strengths cycling childrens bikes mountain bikes bmx hybrid commuting bikes specialist bikes folding bikes electric bikes and cycle accessories travel solutions child safety seats camping roof boxes trailers mobility products and safety equipment value driven and environmentally friendly solutions for leisure and holidaying new cycle ranges launched across carrera voodoo and boardman in 2011 and launch of new child seat range pampero tight integration with multichannel drives sales of price led ranges consistent growth in camping as halfords becomes known for life on the move

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 05 read more on page 58 read more on page 59 read more on page 60 financials governance resources business review introduction

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06 introduction business model halfords has core competences in marketing branding store retailing distribution and international sourcing which allow value to be generated while meeting market needs it is now leveraging these competences into car servicing range strategy follows our strategic thread of life on the move and encompasses car maintenance car enhancement and leisure categories halfords has grown market share consolidating fragmented markets with a national store network and strong brand management evolving buyer trends have been met by developing a dynamic web offer which has enabled the company to leverage average transaction values and drive many web customers into stores with the evolution of more compact and complex vehicles the reduced interest for self service and an escalating main dealer service price list halfords has augmented the retail offer with in-store fitting services this increases average transaction value and allow store colleagues to up-sell and attach accessories to the sales whilst improving customer service and loyalty the successful expansion of our retail offer through in-store services has driven the decision to invest in car servicing given similar market drivers to our successful car maintenance category halfords now also runs the largest chain of uk car service centres providing service repair and mots as a retailer halfords makes a profit from the combination of low cost sourcing and supply chain coupled with excellent marketing skills and a national store network leveraging these skills in the car service sector by running an efficient service offer that profits from scale and efficiency halfords autocentres provides services cheaper than most franchised garages and more comprehensively than many independent garages range strategy follows our strategic thread of `life on the move and runs from cycles to car maintenance life on the move our customers lead busy lives there aren t enough hours in the day the school run the commute the pick-ups and dropoffs the visits to families and friends the holidays and free time each year families make thousands of journeys as essential parts of their daily lives they need to keep moving for work and family and they want to travel for their holidays and enjoy active leisure time wherever possible our customers are living their lives on the move at halfords we understand how journeys are at the heart of work and family life and through our great products expert advice and service we are focused on helping our customers stay on the move we stock the products they need to maintain and enhance their vehicles and we have cycles for every age and discipline through our expert colleagues we offer advice and added value services to ensure our customers make the best choices around their life on the move

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 07 financial highlights revenue at £869.7m 2010 £831.6m £797.4m £809.5m £831.6m +8.0 +3.0 £101m £104m £119.7m at £128.1m 2010 £119.7m 2008 2009 2010 2011 2008 2009 2010 2011 operating profit was £120.6m 2010 £112.3m profit before tax +7.7 2010 £109.7m +41.5 +11.5 £90.2m £109.7m +7.7 £118.1m underlying profit before tax at £118.1m -14.1 £77.5m +7.2 2010 £117.1m +24.0 +8.0 +4.7 £90.2m £94.4m £117.1m +7.2 £125.6m at £125.6m 2008 2009 2010 2011 2008 2009 2010 2011 underlying basic earnings per share +22.2 +13.6 29.3p +8.8 43.2p dividend per ordinary share +10.0 +25.8 +9.0 15.1p 22.0p 20.0p +8.8 at 43.2p 2010 39.7p +10.9 32.5p 39.7p +10.0 at 22.0p 2010 20.0p +5.3 15.9p basic earnings per share was 40.7p 2010 36.8p before non-recurring items financials 2008 2009 2010 2011 2008 2009 2010 2011 governance resources business review introduction +4.6 +2.7 +7.2 +1.5 +4.6 £869.7m underlying operating profit +7.0 +15.1 +7.0 £128.1m

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08 introduction chairman s statement dennis millard chairman to complement the product offer store colleagues are charged with providing expert customer advice and delivering a suite of value-for-money wefit services financial year 2011 has seen an extended period of economic uncertainty and a fragile consumer market a new government in may 2010 an austerity budget in june and an increase in vat to 20 in january 2011 recognising this backdrop management has focused on strengthening the core halfords retail division and on delivering its development plan for the recently acquired autocentres business in retail revenue was down 5.2 reflecting the tough trading environment but operating profit rose by 1.5 excluding central europe due to both margin expansion and costs being tightly managed a number of significant change initiatives including the reconfiguration of the group s warehouse and distribution network and the remodelling of staffing structures began to bear fruit albeit after some disruption during the year and the closure of our central european operations was completed as scheduled our autocentres business contributed £7million operating profit in its first full year and although below our initial target we are pleased with this investment as a result growth in both underlying profit before tax of 7.2 and in earnings per share of 8.8 was achieved importantly cash generation was robust as is the group s financial position this has enabled the board to recommend a final dividend of 14 pence per share resulting in a total of 22 pence for the year an increase of 10 over the dividend of 20 pence paid last year the strength of the group s cash flows and financial position will enable the board to ensure that shareholders continue to enjoy an attractive dividend distribution in the years ahead in november 2010 we secured a four year £300m revolving credit facility this provides the group with sufficient headroom and undrawn financing facilities to service its operating activities working capital and on-going capital investment in addition in april 2011 we commenced a £75m share buyback programme this reflects the board s policy of maintaining an efficient capital structure halfords retail maintains market-leading positions across a unique blend of product categories that are made available to customers via a truly national 466 store network and a highly responsive multichannel offer to complement the product offer store colleagues are charged with providing expert customer advice and delivering a suite of value-for-money wefit services dedication to this high service mantra for our customers is sacrosanct and non-negotiable having acquired nationwide autocentres in february 2010 we have embarked upon a re-branding of the entire network this was concluded in march 2011 and was heralded by the launch of a new radio advertising campaign and revamped website since then the boost in revenues has been most encouraging the plan remains to open some 30 stores in fy12 as the group entrenches its reputation as the uk s natural destination for life on the move products and services we launched a consolidated national advertising campaign that s helpful that s halfords the objective is to reinforce the service proposition that halfords offers to its customers through a simple message at a time when the environment has been difficult for customers david wild our chief executive officer and his experienced executive team have managed the business with vigour they have adopted a trading strategy that offers great value expert services and many new products including the re-launch of our entire premium cycle range and the re-branding of the halfords autocentres whilst maintaining a clear focus on cost control across the group.

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 09 this year we welcomed to the board claudia arney who provides the board with broad multichannel experience david adams with deep experience in retail and finance and who now chairs the audit committee and andrew findlay as finance director with strong retail and finance credentials latterly with marks spencer nigel wilson has stepped down from the board after seven years having been audit committee chairman and latterly our sid nick wharton our previous finance director also left the board after four years as a director with halfords we wish them both well and thank them for their dedicated service the board has endeavoured to provide strong entrepreneurial leadership and governance we have met on a number of occasions outside the scheduled nine meeting calendar as the need arose to consider new opportunities and challenges each member is actively engaged in interacting frequently with the management and my key role as chairman is to provide an open and challenging environment on the board given the recent changes to the board we decided to postpone our annual board review until late in the year to give the new members the opportunity to settle in to halfords we then undertook a more personalised board evaluation process than in the past the learning s of which will be adopted in the year ahead on behalf of the board i would like to thank the 9,300 loyal and dedicated halfords colleagues in the store network head office and distribution centres who have responded so positively to the needs of our customers and to the many initiatives implemented this year and also to the 1,700 autocentre staff who have performed so well in their first year as halfords colleagues since the beginning of the 2012 financial year the underlying uk consumer environment has remained difficult though the unusually warm weather and proximity of numerous bank holidays in april resulted in a surge in retail spending this was particularly evident in our cycling and travel solutions categories on the back of an improving trend in the last quarter of fy11 within autocentres the customer response to the re-branding has been heartening and the long-term growth opportunity of this business remains compelling we have however drawn up our plans for the year ahead on the assumption of a challenging environment for the remainder of the year and will continue to pursue a strategy that further strengthens halfords unique marketleading product multichannel and service propositions dennis millard chairman 8 june 2011 financials governance resources business review introduction

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10 business review 466 business review market review retail strategy and kpis autocentre strategy and kpis people and culture 12 14 18 22 use your phone s bar code app and go directly to the relevant page on our website halfords.annualreport2011.com/br go

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 11 financials governance resources business review introduction

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12 business review market review united kingdom uk republic of ireland roi the halfords business operates through retail stores autocentres and websites in the uk roi we continue to grow market share in our core markets sectors where we have leading positions in attractive markets our unique proposition creates value for customers through a combination of range price quality and service delivered through our multichannel offer by our colleagues who extend expert advice and service thus differentiating halfords from its competition the uk has been the core market since the company was founded in 1892 and we have operated in the roi since 2006 our customers the economic climate during the last year has created uncertainty for customers and reduced household incomes all retailers have been affected through a reduction in discretionary expenditure on nonessential purchases and we have also seen customers delaying items like car repairs and servicing a secondary effect is that fuel prices have led to motorists reducing mileage and hence their need for car products associated with normal wear and tear as a result sales across the year have been more difficult and we have not grown sales at the levels we would like to even in a tougher climate halfords looks to drive sales our response has been to focus on the needs of our customers for better value and to work hard to deliver this through a combination of great prices innovative quality products and expert advice and service looking to the year ahead we expect it to be just as demanding for our customers halfords has market-leading positions in long-term resilient categories and we have worked hard to rebalance our prices and reinvigorate our ranges with innovative new products our autocentres have been rebranded and we are now leveraging the strength of the halfords brand in that market we have launched initiatives to deliver sales growth and supported these with a new marketing campaign that s helpful that s halfords which emphasises halfords credentials these initiatives give us the potential to trade more strongly in the year ahead halfords retail we retail from 466 stores in the uk and roi of which 402 are superstores 29 are mid-sized compact stores and 35 are the smaller metro stores in most catchments the preferred location is a 7,500 sq ft unit on an edge of town retail park with parking for around 20 cars this is allows us to locate a superstore format which can carry some 10,000 lines around the country 90 of the uk population are within a 20 minute drive of one our stores the halfords retail business is split across three main product categories car maintenance car enhancement and leisure our uk and roi websites carry our most comprehensive product selection and currently display 14,400 product lines they received 40.5 million visitors in the year to march 2011 our web traffic is growing at an annual rate of 35 and 81 of online sales are through our industry leading reserve and collect channel here customers buy online and collect from their nearest store which allows us to provide further advice for customers and additional sales of accessories in the product categories car maintenance is market-led with customers making needs based purchases these are either to replace worn or failed parts like car bulbs wiper blades and batteries or to meet legislative manufacturer guidelines or safety concerns this market is relatively robust and driven by the large and ageing uk car parc car enhancement is technology led and depends largely on innovation to drive the market it also responds to changes in discretionary income leisure covers a wide range of which cycling is the largest proportion but also includes travel solutions child safety and camping products where we drive business through both awareness and promotional activities.

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halfords group plc annual report accounts for period ended 1 april 2011 online version halfords.annualreport2011.com 13 multichannel revenue growth +36.4 £70.1m +36.4 +93.3 £37.5m +37.1 £51.4m our response has been to focus on the needs of our customers for better value £19.4m 2008 2009 2010 2011 halfords autocentres halfords autocentres is the largest independent chain of car service garages in the country comprising 240 centres the chain was acquired in february 2010 and over the last year it has been fully rebranded as halfords autocentres the car maintenance market is worth approximately £9bn annually of which halfords has approximately a 1 market share the market is fragmented at one end are the more expensive franchise dealers and at the other small independent garages since rebranding the centres have been relaunched with a national advertising campaign to raise awareness and more proactive customer relationship management the majority of the business is from direct retail clients where most of the cars are over three years old advanced client relationship systems manage the retention of this type of business and the halfords brand is expected to add further value to an already successful service offer fleet customers tend to operate cars under three years old and recognise the cost saving benefits of a non-franchised high quality national organisation £9bn car aftercare market autocentres financials governance 466 stores and 240 resources business review introduction

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