Half year report, discussion of impact of Brexit, exchange rate, consumer confidence, tariffs

Halfords Group plc – Half year report – 28 September 2018

Industry: retail

Chief Financial Officer’s Report (extract)


As we have previously explained, the decision of the UK to leave the European Union (“Brexit”) presents significant uncertainties to the Group as a result of the impact on the wider UK economy. We have previously set out the main areas in which we considered Brexit was likely to impact the Group. We reaffirm and update our assessment of these below:

1)    Impact on exchange rates. The Group buys a significant proportion of its goods in US dollars; between $250m and $300m a year. The weaker pound since the Brexit vote has increased our cost of sales by a cumulative circa £40m by the end of FY18 compared to FY16. By the end of FY18 over half of the gross headwind had been mitigated through supplier negotiations, operational efficiencies and pricing. At current exchange rates we do not anticipate any further FX headwind. At our preliminary results in May 2018 we explained that we anticipated the remainder of FX mitigation to arise from an improved pound/US dollar exchange rate. We maintain this guidance, albeit we note that there is no certainty over the timing of that recovery. We also note that a further weakening in the value of the pound, for example in a “no deal Brexit” scenario could further increase our cost of sales.

2)    Consumer confidence and spending. Prolonged uncertainty over exit terms and continued weakness in Sterling could lead to a slowdown in the UK economy, and consequent loss of consumer confidence, impacting trading conditions for the Group. Halfords has strong positions in fragmented Motoring and Cycling markets, and a service-led offer that differentiates us from our competitors, physical and online. However, the Cycling category, particularly,  is discretionary and is not immune to a slowdown in consumer spending. Set against this, much of our Motoring sales are in needs-based categories that are more resilient to macro-economic cycles. 

3)    Changes to import tariffs. In the technical papers published by the UK Government in preparation for a “no deal” Brexit scenario, import tariffs with non-EU countries are expected to remain unchanged. Only a very small proportion of the Group’s purchases are from EU countries; the vast majority of imports are from non-EU countries.